Balance of Power
AbstractThis paper argues that the efficiency distribution of players in a game determines how aggressively these players interact.We formalize the idea of balance of power: players fight very inefficient players but play softly versus equally (or more) efficient players.This theory of conduct predicts that entry by new firms leads to a less aggressive outcome if it creates a balance of power. A balance of power is created if more players get technologies that are close to the most efficient technology.Using a related argument, we show that an increase in entry costs can lead to more aggressive outcomes.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-104.
Date of creation: 2004
Date of revision:
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pricing games; Folk theorem; refinement of predicted outcomes; supergames; contestable market;
Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-02 (All new papers)
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