Information and Learning in Markets

Preface xi Introduction and Lecture Guide 1 References 12 Chapter 1: Aggregation of Information in Simple Market Mechanisms: Large Markets 15 1.1 Introduction and Overview 15 1.2 Large Cournot Markets 17 1.3 Welfare in Large Cournot Markets with Asymmetric Information 27 1.4 Information Aggregation in Smooth Large Markets 29 1.5 Auctions and Voting 38 1.6 Endogenous Information Acquisition 40 1.7 Summary 45 1.8 Appendix 46 1.9 Exercises 48 References 51 Chapter 2: Aggregation of Information in Simple Market Mechanisms: How Large Is Large? 53 2.1 A General Linear-Normal Cournot Model 54 2.2 Convergence to Price Taking in a Cournot Market 57 2.3 Endogenous Information Acquisition 58 2.4 Convergence to the First-Best: Market Power and Information Aggregation 62 2.5 Convergence in Auctions 67 2.6 Summary 70 2.7 Appendix 71 2.8 Exercises 74 References 76 Chapter 3: Rational Expectations and Supply Function Competition 78 3.1 Rational Expectations Equilibrium: Concepts, Problems, and Welfare 78 3.2 Supply Function Competition and REE in a Continuum Economy 84 3.3 Welfare Analysis of REE 95 3.4 Strategic Supply Function Equilibria and Convergence to a Price-Taking Equilibrium 98 3.5 Double Auctions 100 3.6 Summary 102 3.7 Appendix 102 3.8 Exercises 103 References 105 Chapter 4: Rational Expectations and Market Microstructure in Financial Markets 107 4.1 Market Microstructure 108 4.2 Competitive Rational Expectations Equilibria 112 4.3 Informed Traders Move First and Face Risk-Neutral Competitive Market Makers 130 4.4 Hedgers and Producers in a Futures Market 135 4.5 Summary 145 4.6 Appendix 147 4.7 Exercises 148 References 152 Chapter 5: Strategic Traders in Financial Markets 156 5.1 Competition in Demand Schedules 157 5.2 Informed Traders Move First 168 5.3 Market Makers Move First 177 5.4 An Application: Welfare Analysis of Insider Trading 183 5.5 Summary 189 5.6 Exercises 190 References 195 Chapter 6: Learning from Others and Herding 199 6.1 Herding,

Xavier Vives is professor of economics and finance at IESE Business School in Barcelona. He is the author of Oligopoly Pricing: Old Ideas and New Tools.

"When and how well do markets aggregate information spread among rational participants? Xavier Vives offers the first unified treatment of all major answers, some from his own recent research, to these important questions. Relying on elementary methods and linear-quadratic models, he succeeds in conveying even to the nonspecialist reader the essence of the most sophisticated results."--Bernard Lebrun, York University