Yutaka Suzuki () (Faculty of Economics, Hosei University)
Abstract
We construct a dynamic model of Holdup by applying a framework in capital accumulation games, and derive the Markov perfect equilibrium of the game. Firmsf specific investments for the current period affect the relational skill (state variable) in the next period. Therefore, firms decide their individual investment levels taking into account their impact on strategic interactions from the next period onwards. By considering hypothetically the impact of firmsf current investment decisions in the next period only, and by ignoring subsequent periods, a useful understanding about the relationship between two-period and infinite horizon formulations can be gained. We also compare the equilibrium incentives in both two-period and infinite horizon formulations, and investigate the equilibrium comparative statics and its implications.
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.
Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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