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The Incentives for Price-Taking Behavior in Large Exchange Economies
Donald John Roberts
Andrew Postlewaite
Abstract
This paper investigates the justification for the competitive assumption that consumers will act as price takers by considering the utility gain an individual can achieve by manipulating price formation through the use of non-competitive behavior. Although announcing one's competitive demand is generally not a best replay against the excess demand of the rest of the economy, we show that, as the number of consumers becomes large, the gain any one can achieve acting monopolistically goes to zero if the increase in numbers comes through replication or if the sequence of economies converges to an economy at which the equilibrium price correspondence is continuous.
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