The strategic Marshallian cross
We prove existence and uniqueness of non-autarkic equilibria in bilateral oligopoly assuming only that preferences are binormal and satisfy a weakened version of gross substitutes. We permit complete heterogeneity of preferences and our analysis exploits the fact that payoffs depend only on own strategy and two universal aggregates. This allows us to define strategic versions of supply and demand curves such that non-autarkic Nash equilibria are in 1-1 correspondence with intersections of these curves. The same approach can be used to establish comparative statics under the assumptions above. As examples, we focus on adding players and changing endowments. This competitive approach also allows us to conclude that much of conventional Marshallian analysis is robust to strategic manipulation.
|Date of creation:||Oct 2007|
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|Note:||This is the revised version of an earlier paper, first circulated as Keele Economics Research Paper 04/07 and University of Manchester Economics Discussion Paper 0523, under different titles.|
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