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| Author: | Kyle, A. S. |
| Title: | Informed speculation with imperfect competition |
| Journal: | Review of Economic Studies
1989 : JUL, VOL. 56:187, p.317-356 |
| Index terms: | COMPETITION RATIONAL EXPECTATIONS DEMAND FUNCTIONS EQUILIBRIUM ANALYSIS PRICES |
| Language: | eng |
| Abstract: | Competitive rational expectations models dubbed Hellwig's "schizophrenia" problem that each trader takes the equilibrium price as given despite the fact that he influences the price. An examination of information aggregation in a noncompetitive rational expectations model using Nash equilibrium in demand functions shows that the problem is avoided if each trader takes into account the effect his demand has on the equilibrium price. Given a distribution of private information across traders, prices reveal less information than in the competition equilibrium, and prices are no longer fully informative in the limit as noise trading vanishes or as traders become risk neutral. With small traders the model may become that of monopolistic competition. |
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