This paper analyzes equilibrium and welfare for a tractable class of economies (games) that have externalities, strategic complementarity or substitutability, and heterogeneous information. First, we characterize the equilibrium use of information: complementarity heightens the sensitivity of equilibrium actions to public information, raising aggregate volatility, whereas substitutability heigh...

We analyze whether noncooperative collusive equilibria are harder to sustain when individual demand levels are not fixed but are able to fluctuate. To do this, we extend a Bertrand-type model of price competition to allow for fluctuating market shares when prices are equal. We find that, the larger the market share fluctuations may be, the higher the discount factor should be to sustain a collu...

In this paper we discuss how three different public policy measures affect water storage controlled by hydropower producing firms. In particular we discuss measures to promote competition, increase transmission capacity and rationing. The analysis is conducted within the framework of an oligopoly model where 2 hydro producing firms engage in dynamic Bertrand competition. We extend this model to...

This paper provides a simple model of endogenous horizontal product differentiation that has two important implications. First, the model can explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly. If product differentiation is possible at reasonable cost, then Bertrand firms would always invest in product differentiation. Using a quadratic util...

A monopolist produces a good with two qualities. All consumers have the same valuation of the first quality, but their valuations of the second vary, and are their private information. A public agency can verify qualities, and make credible reports to consumers. In Full Quality Report, the public agency reports both qualities. In Average Quality Report, it reports a weighted average of qualitie...

The monetary character of trade, use of a common medium of exchange, is shown to be an outcome of economic general equilibrium in the presence of transaction costs and market segmentation (in trading posts with a separate budget constraint at each transaction). Commodity money arises endogenously as the most liquid (lowest transaction cost) asset. Scale economies in transaction cost account for...

For games with discontinuous payoffs Simon and Zame (Econometrica 58:861–872, 1990) introduced payoff indeterminacy, in the form of endogenous sharing rules, which are measurable selections of a certain payoff correspondence. Their main result concerns the existence of a mixed Nash equilibrium and an associated sharing rule. Its proof is based on a discrete approximation scheme “from within” th...

In our model, two profit-maximizing sellers sell a homogeneous good to Bayesian, riskneutral buyers in an online comparison shopping service. Buyers use a reputation system to update their beliefs about sellers. Buyers purchase from the seller that maximizes the buyer’s expected utility from the purchase. We find that the seller’s profit depends on the distribution of buyer beliefs. A degenerat...

Schaffer [Schaffer, M.E., 1988. Evolutionarily stable strategies for a finite population and a variable contest size. Journal of Theoretical Biololgy 132, 469–478] proposed a concept of evolutionary stability for finite-population models that has interesting implications in economic models of evolutionary learning, since it is related to perfectly competitive equilibrium. The present paper expl...

This paper examines the implications of network externalities on equilibrium outcomes in a differentiated products duopoly under strategic managerial delegation through relative performance based incentive contracts. It shows that Miller and Pazgal (2001)'s equivalence result does not go through in the presence of network externalities. Instead, Singh and Vives (1984)'s rankings of equilibrium ...