Journal
JOURNAL OF ECONOMIC THEORY
Volume 144, Issue 1, Pages 212-247Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.jet.2008.05.002
Keywords
Gross substitutes; Tatonnement; Pseudo-equilibrium; Law of aggregate demand
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This paper identifies two notions of substitutes for auction and equilibrium analysis. Weak substitutes, the usual price-theory notion, guarantees monotonicity of tatonnement processes and convergence of clock auctions to a pseudo-equilibrium, but only strong substitutes, which treats each unit traded as a distinct good with its own price, guarantees that every pseudo-equilibrium is a Walrasian equilibrium, that the Vickrey outcome is in the core, and that the law of aggregate demand is satisfied. When goods are divisible, weak substitutes along with concavity guarantees all of the above properties, except for the law of aggregate demand. (C) 2008 Elsevier Inc. All rights reserved.
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