We study the behavior of a large trader with private information about the mean of an asset with a risky return. We argue that if the variability of the return is not too great, typically the trader will find it desirable to ensure that the market price does not reveal his information, that is, that a "pooling" equilibrium arises. Such an equilibrium has the advantage of avoiding the incentive constraints that arise in "separating" equilibria, where information can be inferred from prices. Thus the efficient market hypothesis may well fail if there is imperfect competition. Despite the uniformativeness of prices, the other (competitive) traders are also better off in the pooling equilibrium than in any separating equilibrium, again if one assumes limited variability.

We study the behavior of a large trader with private information about the mean of an asset with a risky return. We argue that if the variability of the return is not too great, typically the trader will find it desirable to ensure that the market price does not reveal his information, that is, that a "pooling" equilibrium arises. Such an equilibrium has the advantage of avoiding the incentive constraints that arise in "separating" equilibria, where information can be inferred from prices. Thus the efficient market hypothesis may well fail if there is imperfect competition. Despite the uniformativeness of prices, the other (competitive) traders are also better off in the pooling equilibrium than in any separating equilibrium, again if one assumes limited variability.

The revenue-equivalence theorem 1 for auctions predicts that expected seller revenue is independent of the bidding rules, as long as equilibrium has the properties that the buyer with the highest reservation price wins and any buyer with the lowest possible reservation price has zero expected surplus. Thus, in particular, the two most common auction institutions- the open "English " auction and the sealed high-bid auction- are equivalent despite their rather different strategic properties. This strong prediction of equivalence seems at odds, however, with the empirical observation that rarely is any given kind of commodity sold through more than one sort of auction. Thus, for example, art is nearly always auctioned off according to the English rules, whereas job contracts are normally awarded through sealed bids. Admittedly, in the public sector, there have been a few attempts to use both methods (lumber contracts in the Pacific Northwest) or to switch from one to the other (Treasury Bills). But changes have typically met great resistance. This is also in conflict with theory, since a corollary of the revenue equivalence theorem is that the expected surplus for any buyer is the same in the two auctions.

Eric Maskin, John Riley; Equilibrium in Sealed High Bid Auctions, The Review of Economic Studies, Volume 67, Issue 3, 1 July 2000, Pages 439–454, https://d

In this paper we address the question of whether a price-setting monopolist can improve his welfare by imposing quantity constraints on buyers. We show first that if all buyers are identical, quantity rations are not useful for the monopolist. We then show by means of an example that if buyers are diverse, quantity rations may be desirable. It is shown that if there are only two commodities, the only constraint that may be useful to the monopolist is a zero constraint on one of the two commodities. An example shows that this property does not hold for more than two commodities.

When either there are only two players or a full dimensionality condition holds, any individually rational payoff vector of a one-shot game of complete information can arise in a equilibrium of the infinitely-repeated game if players are sufficiently patient. In contrast to earlier work, mixed strategies are allowed in determining the individually rational payoffs (even when only realized actions are observable). Any individually rational payoffs of a one-shot game can be approximated by sequential equilibrium payoffs of a long but finite game of incomplete information, where players' payoffs are almost certainly as in the one-shot game. THAT STRATEGIC RIVALRY in a long-term relationship may differ from that of a one-shot game is by now quite a familiar idea. Repeated play allows players to respond to each other's actions, and so each player must consider the reactions of his opponents in making his decision. The fear of retaliation may thus lead to outcomes that otherwise would not occur. The most dramatic expression of this phenomenon is the celebrated for repeated games. An outcome that Pareto dominates the minimax point is called individually rational. The Folk Theorem asserts that any individually rational outcome can arise as a equilibrium in infinitely repeated games with sufficiently little discounting. As Aumann and Shapley [3] and Rubinstein [20] have shown, the same result is true when we replace the word Nash by (subgame) perfect and assume no discounting at all. Because the Aumann-Shapley/Rubinstein result supposes literally no discounting, one may wonder whether the exact counterpart of the Folk Theorem holds for equilibrium, i.e., whether as the discount factor tends to one, the set of equilibrium outcomes converges to the individually rational set. After all, agents in most games of economic interest are not completely patient; the no discounting case is of interest as an approximation. It turns out that this counterpart is false. There can be a discontinuity (formally, a failure of lower hemicontinuity) where the discount factor, 8, equals one, as we show in Example 3. Nonetheless the games in which discontinuities occur are quite degenerate, and, in the end, we can give a qualified yes (Theorem 2) to the question of whether the Folk Theorem holds with discounting. In particular, it always holds in two-player games (Theorem 1). This last result contrasts with the recent work of Radner-Myerson-Maskin [18] showing that, even in two-player games, the equilibrium set may not be continuous at 8 = 1 in

[We characterize a seller's optimal scheme for the sale of an indivisible good to one of n risk averse buyers. We also compare certain commonly used schemes, such as the high bid and second bid auctions, under the hypothesis of risk aversion.]

A large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs, and may find itself worse off than if it were unable to impose tariffs at all. Futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency.