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Dynamic Addiction Games

Author

Listed:
  • Bardsley, P.

Abstract

A continuous time dynamic price and quantity game is analysed between the seller and the consumer of an addictive substance. Consumption dynamics are modelled using a Becker Murphy rational addiction model. Conditional on the buyer's consumption strategy, a monopoly seller manipulates the price to maximise current value profits. The seller sets a low price at first and then raises the price as the consumer becomes addicted. The consumer understands this, and consumes less than would a myopic agent.

Suggested Citation

  • Bardsley, P., 1998. "Dynamic Addiction Games," Department of Economics - Working Papers Series 632, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:632
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    Cited by:

    1. Becchetti, Leonardo & Solferino, Nazaria & Tessitore, Maria Elisabetta, 2014. "A dynamic model of Gambling addiction with social costs: theory and policy solutions," AICCON Working Papers 133-2014, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    2. Gavrila, C. & Feichtinger, G. & Tragler, G. & Hartl, R.F. & Kort, P.M., 2005. "History-dependence in a rational addiction model," Mathematical Social Sciences, Elsevier, vol. 49(3), pages 273-293, May.

    More about this item

    Keywords

    GAMES ; DRUG ADDICTION;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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