There are two sources of ineﬀiciency of strategic equilibria (SE) in market mechanisms. The ﬁrst is the oligopolistic eﬀect, which occurs when an agent can single-handedly influence prices. With a continuum of agents we get “perfect competition” and this eﬀect is, of course, wiped out. But the ineﬀiciency of SE’s may nevertheless persist because agents are not “perfectly liquid,” i.e., the constraints of the mechanism are such that they cannot carry out arbitrary trades at the market prices. Our main result is that, if enough repeated rounds of trade are permitted within a single utility period, then the liquidity problem is overcome: SE outcomes turn out to be not only eﬀicient but, in fact, Walrasian.
Dubey, Pradeep; Sahi, Siddhartha; and Shubik, Martin, "Repeated Trade and the Velocity of Money" (1989). Cowles Foundation Discussion Papers. 1139.