Commitment and observability in a contracting environment

V Bhaskar

Games and Economic Behavior, 2009, vol. 66, issue 2, pages 708-720

Abstract: This paper examines leader-follower games where a leader must purchase an essential input from a price-setting supplier in order to take an action. We show that equilibrium outcomes when the followers perfectly observe the leaders' actions cannot be approximated by mixed equilibrium outcomes of the game where followers imperfectly observe the leaders' actions, i.e. they are not accessible. Accessibility fails since in a pure strategy equilibrium, a supplier makes positive profits; however in an equilibrium where a leader randomizes, supplier profits must be zero. Our result follows from a generalized indifference principle that mixed strategies must satisfy in economic environments. While supplier profits cannot be approximated, player action profiles are accessible. Our results also apply to games with costly observation.

Keywords: Commitment; Imperfect; observation; Mixed; strategies; Pricing; games (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6WFW ... 31742e776875242f6384
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:gamebe:v:66:y:2009:i:2:p:708-720

Access Statistics for this article

Games and Economic Behavior is edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Series data maintained by Heidi Boesdal ().