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Nash equilibria for dividend distribution with competition

Author

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  • De Angelis, Tiziano
  • Gensbittel, Fabien
  • Villeneuve, Stéphane

Abstract

We construct a Nash equilibrium in feedback form for a class of two-person stochastic games with absorption arising from corporate finance. More precisely, the paper focusses on a strategic dynamic game in which two financially-constrained firms operate in the same market. The firms distribute dividends and are faced with default risk. The strategic interaction arises from the fact that if one firm defaults, the other one becomes a monopolist and increases its profitability. To determine a Nash equilibrium in feedback form, we develop two different concepts depending on the initial endowment of each firm. If one firm is richer than the other one, then we use a notion of control vs. strategy equilibrium. If the two firms have the same initial endowment (hence they are symmetric in our setup) then we need mixed strategies in order to construct a symmetric equilibrium.

Suggested Citation

  • De Angelis, Tiziano & Gensbittel, Fabien & Villeneuve, Stéphane, 2023. "Nash equilibria for dividend distribution with competition," TSE Working Papers 23-1495, Toulouse School of Economics (TSE), revised Jul 2025.
    • Handle: RePEc:tse:wpaper:128772
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    References listed on IDEAS

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    1. Elena Bandini & Tiziano De Angelis & Giorgio Ferrari & Fausto Gozzi, 2022. "Optimal dividend payout under stochastic discounting," Mathematical Finance, Wiley Blackwell, vol. 32(2), pages 627-677, April.
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    Cited by:

    1. Tiziano De Angelis & Caio C'esar Graciani Rodrigues & Peter Tankov, 2024. "A model of strategic sustainable investment," Papers 2412.00986, arXiv.org, revised Apr 2025.

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