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Bertrand Delegation Games With Implementability In Weakly Undominated SPNE

Listed author(s):
  • Junnosuke Shino

    ()

    (Bank of Japan)

In this paper we investigate a delegation game in which the underling situation is represented by a standard Bertrand price competition. In contrast to Fershtman, Judd, and Kalai ([1987], hereafter FJK), we employ a weakly undominated SPNE as the equilibrium concept based on Shino [2012] and keep the notion of the implementability unchanged. We first point out that optimal price setting behaviors derived by the assumption of "mutually rational players" in FJK are hard to justify from a standard game theory view in that they are assumed to play a weakly dominated strategy even when each of them has the weakly dominant strategy. Next, it is shown that there exists a compensation scheme fully implementing the "most collusive outcome" in which firms jointly set the monopoly price and equally share the profit.

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File URL: http://www.sas.rutgers.edu/virtual/snde/wp/2012-03.pdf
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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201203.

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Length: 20 pages
Date of creation: 03 Apr 2012
Handle: RePEc:rut:rutres:201203
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  1. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-559, August.
  2. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1998. "Towards micropolitical foundations of public finance," European Economic Review, Elsevier, vol. 42(3-5), pages 685-694, May.
  3. Junnosuke Shino, 2012. "2x2 Delegation Games With Implementability In Weakly Undominated SPNE," Departmental Working Papers 201202, Rutgers University, Department of Economics.
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