Balance of Power

Jan Boone

No 4733, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper argues that the efficiency distribution of players in a game determines how aggressively these players interact. We formalize the idea of balance of power: players fight very inefficient players but play softly versus equally (or more) efficient players. This theory of conduct predicts that entry by new firms leads to a less aggressive outcome if it creates a balance of power. A balance of power is created if more players get technologies that are close to the most efficient technology. Using a related argument, we show that an increase in entry costs can lead to more aggressive outcomes.

Keywords: Pricing games; Folk theorem; Refinement of predicted outcomes; Supergames; Contestable market (search for similar items in EconPapers)
JEL-codes: C72 D43 L41 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Balance of Power (2004)
Working Paper: Balance of power (2004)
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