Neutralized Competition

Seungjin Han

Department of Economics Working Papers from McMaster University

Abstract: This paper proposes a tractable competing mechanism game where each seller simultaneously posts a trading contract that specifies a menu of dominant strategy incentive compatible (DIC) direct mechanisms conditional on an array of messages sent by buyers, and each seller subsequently chooses a DIC direct mechanism from his menu. The complete set of a seller's profits that are supportable in a (symmetric) equilibrium is the interval between the minmax value of his profit with respect to DIC direct mechanisms and his profit in the joint profit maximization. The set of a seller's equilibrium profits is robust to the possibility of a seller's deviation to any arbitrary mechanism in the standard environment with linear utilities and independent private type. Further, with no limited liability or with no capacity constraints, the set of a seller's equilibrium profits coincides with the set of his feasible (i.e., individually rational and incentive compatible) profits. Given a number of buyers, the number of sellers can be endogenized and is equal to the largest number at which a seller's profit in the joint profit maximization is non-negative: As the number of buyers increases, competition is neutralized because only the monopoly terms of trade prevails in the market, whereas the range of a seller's equilibrium profits shrinks to his reservation profit.

Keywords: competing mechanisms; dominant strategy incentive compatible direct mechanisms; robust equilibrium allocations; market information (search for similar items in EconPapers)
JEL-codes: C72 D47 D82 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-cta, nep-des, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2018-11

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