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Markov perfect equilibria in industries with complementarities

Author

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  • Christopher Sleet

    (Department of Economics, University of Texas, Austin, TX 78712, USA)

Abstract

This paper considers the existence and computation of Markov perfect equilibria in games with a "monotone" structure. Specifically, it provides a constructive proof of the existence of Markov perfect equilibria for a class of games in which a) there is a continuum of players, b) each player has the same per period payoff function and c) these per period payoff functions are supermodular in the player's current and past action and have increasing differences in the player's current action and the entire distribution of actions chosen by other players. The Markov perfect equilibria that are analyzed are symmetric, not in the sense that each player adopts the same action in any period, but rather in the sense that each player uses the same policy function. Since agents are typically distributed across many states they will typically take different actions. The formal environment considered has particular application to models of industries (or economies) in which firms face costs of price adjustment. It is in this context that the results are developed.

Suggested Citation

  • Christopher Sleet, 2001. "Markov perfect equilibria in industries with complementarities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(2), pages 371-397.
  • Handle: RePEc:spr:joecth:v:17:y:2001:i:2:p:371-397
    Note: Received: November 9, 1999; revised version: February 10, 2000
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    More about this item

    Keywords

    Markov perfect equilibrium; Complementarities; Industry equilibrium.;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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