Market Exit and Minimax Regret

Gisèle Umbhauer ()
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Gisèle Umbhauer: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This paper shows how minimax regret sheds new light on an old economic topic, market-exit games. It focuses on wars of attrition, namely overcrowded duopoly markets where the strategic variable is the exit time. The only symmetric Nash equilibrium (NE) of the game studied is a mixed-strategy equilibrium that leads to a null expected payoff, i.e., the payoff a firm gets when it immediately exits the market. This result is not convincing, both from a behavioral and from a strategic viewpoint. The minimax regret approach that builds upon opposite regrets — exiting the market too late and exiting the market too early — is more convincing and ensures that both firms obtain a strictly positive expected payoff.

Keywords: War of attrition; Minimax regret; Mixed-strategy Nash equilibrium; Maximin payoff; Overcrowded market (search for similar items in EconPapers)
Date: 2022-12-11
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
Note: View the original document on HAL open archive server: https://hal.science/hal-04491262
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Published in International Game Theory Review, 2022, 24 (04), pp.2250013. ⟨10.1142/S021919892250013X⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04491262

DOI: 10.1142/S021919892250013X

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