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Balance of Power

Author

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  • Boone, J.

    (Tilburg University, Center For Economic Research)

Abstract

This Paper argues that the efficiency distribution of players in a game determines how aggressively these players interact. We formalize the idea of balance of power: players fight very inefficient players but play softly versus equally (or more) efficient players. This theory of conduct predicts that entry by new firms leads to a less aggressive outcome if it creates a balance of power. A balance of power is created if more players get technologies that are close to the most efficient technology. Using a related argument, we show that an increase in entry costs can lead to more aggressive outcomes.
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Suggested Citation

  • Boone, J., 2004. "Balance of Power," Discussion Paper 2004-104, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:d3f8cd4b-eaf0-4c1c-aed4-5e4ccfb2d80d
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    File URL: https://repository.tilburguniversity.edu/bitstreams/fbaeb21e-b4ee-4d5f-9d78-b90011ed18d1/download
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    Cited by:

    1. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2009. "Price-quantity competition with varying toughness," Games and Economic Behavior, Elsevier, vol. 65(1), pages 62-82, January.
    2. Jan Boone & Delia Ionascu & Kresimir Zigic, 2006. "Trade Policy, Market Leaders and Endogenous Competition Intensity," CERGE-EI Working Papers wp311, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Zigic, Kresimir & Maçi, Ilir, 2011. "Competition policy and market leaders," Economic Modelling, Elsevier, vol. 28(3), pages 1042-1049, May.
    4. van Damme, E.E.C. & Pinkse, J., 2005. "Merger simulation analysis : An academic perspective," Other publications TiSEM 5101426e-e093-4dfe-b8f5-1, Tilburg University, School of Economics and Management.
    5. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, May.
    6. Boone, Jan & Žigić, Krešimir, 2015. "Trade policy in markets with collusion: The case of North–South R&D spillovers," Research in Economics, Elsevier, vol. 69(2), pages 224-237.

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    More about this item

    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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