A Theory of Endogenous Commitment
Commitment is typically modelled by assigning to one of the players the ability to take an initial binding action. The weakness of this approach is that the fundamental question of who has the opportunity to commit cannot be addressed, as it is assumed. This paper presents a framework in which commitment power arises endogenously from the fundamentals of the model. We construct a finite dynamic game in which players are given the option to change their minds as often as they wish, but pay a switching cost if they do so. We show that for games with two players and two actions there is a unique subgame-perfect equilibrium with a simple structure. This equilibrium is independent of the order and timing of moves and is robust to other protocol specifications. Moreover, despite the perfect information nature of the model and the costly switches, strategic delays may arise in equilibrium. The flexibility of the model allows us to apply it to various environments. In particular, we study an entry deterrence situation. Its equilibrium is intuitive and illustrative of how commitment power is endogenously determined. Copyright 2008, Wiley-Blackwell.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 75 (2008)
Issue (Month): 1 ()
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:75:y:2008:i:1:p:99-116. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.