A Theory of Money, Prices and the Rate of Interest. Part 1. The Missing Degree of Freedom: Commodity Money and Oligopoly in a General Equilibrium Model
RAND CORP SANTA MONICA CA
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It is suggested that an extra degree of freedom is needed to construct a symmetric noncooperative price game in a market with n monopolists trading in n goods. This calls for the introduction of an n 1 good which can be interpreted as a commodity money. When there are n monopolists using a commodity money in common a symmetric price or quantity noncooperative good can be constructed. The quantity game is examined. Necessary conditions are shown for the replicated game to have its noncooperative equilibria approach the competitive equilibria of the replicated market. It is demonstrated that unless there is enough commodity money convergence may not take place. There will be a money shortage.
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