Formation of Cartels in Large Markets

Sergiu Hart


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Abstract
The von Neumann - Morgenstern concept of solution is applied to nonatomic pure exchange markets consisting of a finite number of different types of trader, initially owning disjoint sets of goods. It is proved that if all traders of each type form a cartel and behave like a single (atomic) trader (their "representative"), then one gets solutions of the original market from those of the finite market of the representatives, and all solutions are obtained in this manner -- i.e., the market must organize itself in cartels, and this will indeed be stable.