Three essays on strategic trading in oligopolistic economies

The first Chapter analyzes informed trading strategies in the presence of market closures. We construct a dynamic auction model based on rational strategic behavior with asymmetric information across agents. The insiders have informational advantage since they receive the signals about fundamentals both when the market is open and when it is closed. In this way, the informed trader's learning process is more efficient than the market maker's. But the information possessed by informed traders is imperfect, which means that they also learn from prices (in the spirit of Rational Expectations models of trading). The key feature of our model is that informed traders act strategically, anticipating future market closures as well as dividend announcements. Because of this, even though market closures are periodic, optimal strategies are not periodic. We show that there is a typical U-shape pattern of trading activity (trading volume) during the trading week (when the market is open), superimposed on a typical U-shaped pattern during the whole period before the dividend announcement. In a continuous-time setting, we solve a dynamic programming problem and derive closed-form solutions for optimal intertemporal strategies of both the insiders and market maker.; The second Chapter applies the real options analysis to the catastrophic insurance market. We use the analogy between insurance and investment under uncertainty in order to study general equilibrium in an insurance industry with heterogeneous competing firms. In a rational setting, insurance companies act strategically when catastrophic (CAT) events are possible. We derive the equilibrium insurance policies (investment) using a generalization of the standard model of partially reversible investment under uncertainty. As one important consequence of the "optionality" feature, we show the possibility of insurance market failures caused by sufficiently large unexpected losses.; The third Chapter considers a strategic double-auction model of a private real estate market with agents receiving private signals and having heterogeneous priors. Each seller has one unit of the same asset and each buyer is trying to obtain the asset at possibly discounted price. Buyers and sellers maximize their expected payoffs when multiple buyers participate in sealed-bid first-price auction and different sellers may have different reserve prices. The seller's reserve price is defined as the lowest accepted bid. Each buyer can choose a seller with certain reserve price and each seller can change his reserve price in order to increase the expected payoffs. Therefore, the reserve prices play the role of the "choice variables" in the model. We show that there exists a mixed-strategies equilibrium and obtain the closed-form analytical characterization. The heterogeneous reserve prices originate from different prior expectations of trading outcomes. We derive bargaining shares for markets with heterogeneous buyers where bidders encounter a trade-off between the winner's curse and choosing to deal with the sellers with higher reserve prices, and sellers trying to optimize their payoffs.