Excess Liquidity against Predation
We consider precautionary liquidity holding as counter-strategy for the entrant to protect himself from predation. Threat of predation, even if avoided in equilibrium, affects the financial contract to raise precautionary liquidity and the equilibrium outcome in the product market competition. When the incumbent's strategy is unverifiable, the entrant with small start-up capital cannot raise large enough precautionary liquidity; consequently, he shrinks his business so as to avoid predation. Predation evolves in the model only as perturbation from equilibrium strategy. We provide the revelation principle for a sequential equilibrium to select a sensible outcome by imposing robustness to such perturbation.
|Date of creation:||Jun 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ritter Annex 877, Philadelphia, PA 19122|
Web page: http://www.cla.temple.edu/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
- Helmut Bester & Roland Strausz, . "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers.
- Gerardi, Dino & Myerson, Roger B., 2007.
"Sequential equilibria in Bayesian games with communication,"
Games and Economic Behavior,
Elsevier, vol. 60(1), pages 104-134, July.
- Dino Gerardi & Roger B. Myerson, 2005. "Sequential Equilibria in Bayesian Games with Communication," Cowles Foundation Discussion Papers 1542, Cowles Foundation for Research in Economics, Yale University.
- Mendez-Naya, L. & Garcia-Jurado, I. & Cesco, J. C., 1995.
"Perfection of Nash equilibria in continuous games,"
Mathematical Social Sciences,
Elsevier, vol. 29(3), pages 225-237, June.
- Argenton, C., 2010. "Predation Under Perfect Information," Discussion Paper 2010-26, Tilburg University, Center for Economic Research.
- Martin J. Osborne & Ariel Rubinstein, 1994.
"A Course in Game Theory,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262650401.
When requesting a correction, please mention this item's handle: RePEc:tem:wpaper:1201. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dimitrios Diamantaras)
If references are entirely missing, you can add them using this form.