Abstract
In extreme examples of nonstochastic, competitive exchange economies, price making with optimization provides a motivation for the choice of prices, and prices may depend on both characteristics of agents in the economy and characteristics of the trading process. As to consumers, with an optimizing price mechanism, they clearly benefit in the Scarf economy, as otherwise, trades are never consummated, and even when noncompetitive prices are chosen, they do not necessarily suffer relative to the choice of competitive prices. The outcomes for consumers tend to be favorable as even though markets need not clear each period, all or most excess demands are eventually satisfied so that markets tend to clear, or nearly clear, on the average. This outcome is a consequence of the fact that nonzero market excess demands are undesirable to price makers in that such positions are associated with trading costs that induce efforts to manage the inventory and the backlog to reduce costs without unduly reducing revenue.
Published Version
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