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Market Exit and Minimax Regret

Author

Listed:
  • Gisèle Umbhauer

    (BETA (Bureau d’Economie Théorique et Appliquée), University of Strasbourg, 61 Avenue de la Forêt Noire, 67085 Strasbourg, France)

Abstract

This paper shows how minimax regret sheds new light on an old economic topic, market-exit games. It focuses on wars of attrition, namely overcrowded duopoly markets where the strategic variable is the exit time. The only symmetric Nash equilibrium (NE) of the game studied is a mixed-strategy equilibrium that leads to a null expected payoff, i.e., the payoff a firm gets when it immediately exits the market. This result is not convincing, both from a behavioral and from a strategic viewpoint. The minimax regret approach that builds upon opposite regrets — exiting the market too late and exiting the market too early — is more convincing and ensures that both firms obtain a strictly positive expected payoff.Highlights Minimax regret behavior sheds new light on the optimal exit-times in overcrowded markets. Minimax regret behavior provides a new behavioral content to mixed strategies. In overcrowded duopolies, if the firms’ aim consists in minimizing regrets, then they get better payoffs than in the mixed-strategy NE.

Suggested Citation

  • Gisèle Umbhauer, 2022. "Market Exit and Minimax Regret," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 24(04), pages 1-34, December.
    • Handle: RePEc:wsi:igtrxx:v:24:y:2022:i:04:n:s021919892250013x
    DOI: 10.1142/S021919892250013X
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