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Balance of Power

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  • Boone, Jan

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.

Suggested Citation

  • Boone, Jan, 2004. "Balance of Power," CEPR Discussion Papers 4733, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4733
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
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    Cited by:

    1. van Damme, E.E.C. & Pinkse, J., 2005. "Merger simulation analysis : An academic perspective," Other publications TiSEM 5101426e-e093-4dfe-b8f5-1, Tilburg University, School of Economics and Management.
    2. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, November.
    3. Boone, Jan & Žigić, Krešimir, 2015. "Trade policy in markets with collusion: The case of North–South R&D spillovers," Research in Economics, Elsevier, vol. 69(2), pages 224-237.
    4. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2009. "Price-quantity competition with varying toughness," Games and Economic Behavior, Elsevier, vol. 65(1), pages 62-82, January.
    5. Zigic, Kresimir & Maçi, Ilir, 2011. "Competition policy and market leaders," Economic Modelling, Elsevier, vol. 28(3), pages 1042-1049, May.
    6. Jan Boone & Delia Ionascu & Kresimir Zigic, 2006. "Trade Policy, Market Leaders and Endogenous Competition Intensity," CERGE-EI Working Papers wp311, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    contestable market; folk theorem; pricing games; refinement of predicted outcomes; supergames;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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