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Competition and equilibrium effort choice

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  • Xu, Jing

Abstract

We examine optimal effort choice in a competition model where the agents are averse to low relative status and to exerting excessive effort. The game has a unique pure strategy Nash equilibrium. When the agents are homogeneous, a stronger competition incentive induces higher effort levels and results in lower utilities. When agents are heterogeneous, the model predicts that (i) all else equal, initial losers exert more effort but cannot become final winners, (ii) changes in effort choices of a subgroup of agents have a spillover effect, and (iii) agents with competitive advantages may prefer not to compete if the advantages are not significant enough. Some extensions and variants of the baseline model are also examined. Overall, the model’s theoretical predictions are consistent with some competition-related findings documented in the empirical literature.

Suggested Citation

  • Xu, Jing, 2022. "Competition and equilibrium effort choice," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).
  • Handle: RePEc:eee:dyncon:v:137:y:2022:i:c:s0165188922000367
    DOI: 10.1016/j.jedc.2022.104331
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    More about this item

    Keywords

    Costly effort; Competition; Relative status concern; Nash equilibrium;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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