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Quantal response equilibria for posted offer-markets

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  • Gladys López-Acevedo

    (Banco Mundial)

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    Abstract

    There is a growing body of data from game theory and industrial organization experiments that reveals systematic deviations from Nash equilibrium behavior. In this paper, the perfectly rational decision making embodied in Bertrand Nash equilibrium is generalized to allow for endogenously determined decision errors. Closed form solutions for equilibrium price distributions with endogenous errors are derived for several different models. In some of these models, the price distribution in a quantal response equilibrium, QRE, is affected by changes in structural variables although the Nash equilibrium remains unaltered. The quantal response approach is appealing since it thereby accounts for systematic deviations from the Bertrand Nash equilibrium.

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    File URL: http://codex.colmex.mx:8991/exlibris/aleph/a18_1/apache_media/FD45R6HVY8SAQPVH967KXLBDYLK8AG.pdf
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    Bibliographic Info

    Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

    Volume (Year): 12 (1997)
    Issue (Month): 2 ()
    Pages: 95-131

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    Handle: RePEc:emx:esteco:v:12:y:1997:i:2:p:95-131

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    Web page: http://www.colmex.mx/centros/cee/
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    Cited by:
    1. Martin Dufwenberg & Uri Gneezy & Jacob Goeree & Rosemarie Nagel, 2007. "Price floors and competition," Economic Theory, Springer, vol. 33(1), pages 211-224, October.
    2. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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