[A dynamic finite-horizon market for a risky asset with a continuum of risk-averse heterogeneously informed investors and a risk-neutral competitive market-making sector is examined. The article analyzes the effect of investors' horizons on the information content of prices. It is shown that short horizons enhance or reduce accumulated price informativeness depending on the temporal pattern of private information arrival. With concentrated arrival of information, short horizons reduce final price informativeness; with diffuse arrival of information, short horizons enhance it. In the process closed-form solution to the dynamic equilibrium with long-term investors is derived.]

A finite number of sellers (n) compete in schedules to supply an elastic demand. The cost of each seller is random, with common and private value components, and the seller receives a private signal about it. A Bayesian supply function equilibrium is characterized: The equilibrium is privately revealing and the incentives to rely on private signals are preserved. Supply functions are steeper with higher correlation among the cost parameters. For high (positive) correlation, supply functions are downward sloping, price is above the Cournot level, and as we approach the common value case, price tends to the collusive level. As correlation becomes maximally negative, we approach the competitive outcome. With positive correlation, private information coupled with strategic behavior induces additional distortionary market power above full information levels. Efficiency can be restored with appropriate subsidy schemes or with a precise enough public signal about the common value component. As the market grows large with the number of sellers, the equilibrium becomes price-taking, bid shading is on the order of 1/n, and the order of magnitude of welfare losses is 1/n2. The results extend to inelastic demand, demand uncertainty, and demand schedule competition. A range of applications in product and financial markets is presented.

The theory of monotone comparative statics and supermodular games is presented as the appropriate tool to model complementarities. The approach, which has not yet been fully incorporated into the standard toolbox of researchers, makes the analysis intuitive and simple, helps in deriving new results and in casting new light on old ones. The paper takes stock of recent contributions and develops applications to industrial organization (oligopoly, R&D, and dynamics), finance (currency and banking crisis) and macroeconomics (adjustment and menu costs). Particular attention is devoted to Markov games and to games of incomplete information (including global games).

This article performs a welfare analysis of markets with private information in which agents condition on prices in the rational expectations tradition. Price-contingent strategies introduce two externalities in the use of private information: a pecuniary externality and a learning externality. The pecuniary externality induces agents to put too much weight on private information and in the standard case, when the allocation role of the price prevails over its informational role, overwhelms the learning externality which impinges in the opposite way. The price may be very informative but at the cost of an excessive dispersion of the actions of agents. The welfare loss at the market solution may be increasing in the precision of private information. The analysis provides insights into optimal business cycle policy and a rationale for a Tobin-like tax for financial transactions.

A simple dynamic model of rational learning through market interaction by asymmetrically informed risk-neutral agents, uncertain about a valuation parameter but whose pooled information reveals it, is presented. The model is a variation of the classical partial equilibrium model of learning in rational expectations in which the market price is informative about the unknown parameter only through the actions of agents. It is found that learning from market prices and convergence to the rational expectations equilibrium is slow, at the rate 1/√n1/3 (where n is the number periods of market interaction), whenever the average precision of private information in the market is finite. Convergence obtains at the standard rate 1/√n if there is a positive mass of perfectly informed agents. Comparative static results on more refined measures of the speed of convergence with respect to basic technological and informational parameters are also provided.

We formalize the Marshallian idea that when the proportion of income spent on any commodity is small then the income effects are small. If n is the number of goods, we show, under certain assumptions on preferences and prices, that the order of magnitude of the norm of the income derivative of demand is 1/√n. As a corollary we get that for the case of a single price change the percentage error in approximating the Hicksian Deadweight Loss by its Marshallian counterpart goes to zero at least at the rate 1/√n and that demand is downward sloping for n large enough.

Price discrimination emerges as the unique equilibrium outcome in games with either simultaneous choice of policy and price or sequential choice in which firms may commit first to uniform mill pricing before the actual market stage. Our results are used to analyze some common business practices that arise in geographical pricing, like the basing point system, and in the pricing of varieties or options from a base product in a product differentiation context.

Fragility is affected by how the balance sheet composition of financial intermediaries, the precision of information signals, and market stress parameters all influence the extent of strategic complementarity among investors' strategies. A solvency and a liquidity ratio are required to control the likelihood of insolvency and illiquidity. The solvency requirement must be strengthened in the face of increased competition, whereas the liquidity requirement must be strengthened under more conservative fund managers and higher penalties for fire sales. Greater disclosure may aggravate fragility and require an increase in the liquidity ratio, so regulators should establish prudential and disclosure policies in tandem.

A dynamic finite-horizon market for a risky asset with a continuum of risk-averse heterogeneously informed investors and a risk-neutral competitive market-making sector is examined. The article analyzes the effect of investors' horizons on the information content of prices. It is shown that short horizons enhance or reduce accumulated price informativeness depending on the temporal pattern of private information arrival. With concentrated arrival of information, short horizons, reduce final price informativeness; with diffuse arrival of information, short horizons enhance it. In the process a closed-form solution to the dynamic equilibrium with long-term investors is derived.