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Balance of Power

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  • Boone, J.

    (Tilburg University, Center for Economic Research)

Abstract

This 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 Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-104.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:2004104

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Web page: http://center.uvt.nl

Related research

Keywords: pricing games; Folk theorem; refinement of predicted outcomes; supergames; contestable market;

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References

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  1. Maskin, Eric & Tirole, Jean, 1988. "Corrigendum to 'A Theory of Dynamic Oligopoly, III, Cournot Competition' (vol. 31, no. 4)," European Economic Review, Elsevier, vol. 32(7), pages 1567-1568, September.
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  8. Farm, Ante & Weibull, Jorgen W, 1987. " Perfectly Flexible Pricing in a Homogeneous Market," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(4), pages 487-95.
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  11. J. Tirole & E. Maskin, 1982. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large-Fixed Costs," Working papers 320, Massachusetts Institute of Technology (MIT), Department of Economics.
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  13. Kirman, Alan & Schueller, Nathalie, 1990. "Price Leadership and Discrimination in the European Car Market," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 69-91, September.
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  15. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
  16. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
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  18. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
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Cited by:
  1. Ilir Maçi & Kresimir Zigic, 2008. "Competition Policy and Market Leaders," CERGE-EI Working Papers wp375, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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