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Bertand Competition and the Existence of Pure Strategy Nash Equilibrium in Markets with Adverse Selection

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  • Anastasios Dosis

    (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School, THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique)

Abstract

I analyse a market with adverse selection in which companies competè a la Bertrand by offering menus of contracts. Contrary to Rothschild and Stiglitz (1976), I allow for any finite number of types and states and more general utility functions. I define the generalised Rothschild-Stiglitz Profile of Actions (RSPA), and I show that, in every possible market, if the RSPA is efficient, it is also a pure strategy Nash equilibrium profile of actions. On the contrary, I show that in markets in which the RSPA is not efficient, preferences admit an expected utility representation with strictly increasing and strictly concave VNM utilities and a weak sorting condition holds, no pure strategy Nash equilibrium exists.

Suggested Citation

  • Anastasios Dosis, 2016. "Bertand Competition and the Existence of Pure Strategy Nash Equilibrium in Markets with Adverse Selection," Working Papers hal-01285185, HAL.
  • Handle: RePEc:hal:wpaper:hal-01285185
    Note: View the original document on HAL open archive server: https://hal-essec.archives-ouvertes.fr/hal-01285185
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    References listed on IDEAS

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    1. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    2. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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    Cited by:

    1. Dosis, Anastasios, 2016. "A More General Definition of Equilibrium in Markets with Adverse Selection," ESSEC Working Papers WP1607, ESSEC Research Center, ESSEC Business School.
    2. Anastasios Dosis, 2016. "A More General Definition of Equilibrium in Markets with Adverse Selection," Working Papers hal-01285188, HAL.

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    Keywords

    Nash Equilibrium; Adverse Selection; Bertrand Competition;

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