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Modeling Competitive Behavior


  • Daniel R. Vincent


A single seller of an indivisible object wishes to sell the good to one of many buyers. The seller has zero value for the good; the buyers have a commonly known identical value of one. This paper attempts to determine strategic environments, which ensure the seller's ability to exploit the competitive behavior of the buyers to extract all the surplus in the game. It is shown that in many simple dynamic games, there are subgame perfect equilibria, which involve the seller giving up the good for free. Even if the seller has an informational advantage which allows him to keep bidders from learning the bidding behavior of their opponents, there still exist (perfect Bayesian) equilibria which involve a sale at the price of zero. However, in this case, a simple refinement in the spirit of sequential equilbria can be used to rule out such collusive behavior in the spirit of sequential equilibria can be used to rule out such collusive behavior and to show that the unique equlibrium outcome satisfying this refinement involve a price of one.

Suggested Citation

  • Daniel R. Vincent, 1990. "Modeling Competitive Behavior," Discussion Papers 893, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:893

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    References listed on IDEAS

    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    3. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
    4. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
    5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    6. Lawrence Ausubel & Raymond Deneckere, 1985. "One is Almost Enough for Monopoly," Discussion Papers 669, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    Cited by:

    1. Wooders, John, 1998. "Walrasian equilibrium in matching models," Mathematical Social Sciences, Elsevier, vol. 35(3), pages 245-259, May.

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