Leoni, Dr. Patrick
Market Power, Survival and Accuracy of Predictions in Financial Markets*.
In a standard General Equilibrium framework, we consider an agent strategically using her large volum of trade to influence asset prices to increase her consumption. We show that , as in Sandroni (2000) for the competitive case, if markets are dynamically complete and some general conditions on market preferences are met then this agent' long-run consumption will vanish if she makes less accurate predictions than the market, and will maintain her market power otherwise. We thus agrue that the Market Selection Hypothesis extends to this situation of market power, in contract to Alchain (1950) and Friedman (1953) who claimed that this selection was solely driven by the competitivness of markets.
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