The Development of Economic Thought by Cammarosano Joseph R.;

Author:Cammarosano , Joseph R.;
Language: eng
Format: epub
Publisher: Lexington Books

Two-Sided Competition

In this instance we have competition on both sides of the trade, as shown in Table 8.2. With these bids to buy and offers to sell, A1 and A2 are sure to buy a horse, because anyone of the eight sellers is prepared to meet their price. The sellers B1 and B2 could sell their horses to any one of the ten buyers, because the price they ask is below their bids. But suppose that the sellers want a price of £22. At that price A5 drops out, because he wants to pay less than £22, leaving four buyers. We now have six would-be sellers and only four buyers. Seller B6 must either drop out or cut the price to find a buyer. That leaves us with buyer A5 who is prepared to pay a price below £22 and seller B5 who would settle for a price above £20. We now have five buyers and five sellers who would stop bidding at £21. In sum, A6 and B6 drop out because the price is above £21 on the demand side and below £21 and 10 ­shillings on the supply side. The last parties to do business would be A5 and B5, the marginal pairs, who set the price at £21 with five horses being bought and sold at that price.44

Table 8.2 Bid and Asked Prices

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