Skiba Phenomena in Markov Perfect Equilibria of Asymmetric Differential Games

Herbert Dawid (), Michel Y. Keoula and Peter Kort
Additional contact information
Herbert Dawid: Bielefeld University
Michel Y. Keoula: Bielefeld University

A chapter in Dynamic Perspectives on Managerial Decision Making, 2016, pp 63-76 from Springer

Abstract: Abstract This paper examines the existence of Markov-Perfect-Equilibria that give rise to coexisting locally stable steady states in asymmetric differential games. The strategic interactions between an incumbent in a market and a potential competitor, which tries to enter the market through product innovation, are considered. Whereas the potential entrant invests in the build-up of a knowledge stock, which is essential for product innovation, the incumbent tries to reduce this stock through interference activities. It is shown that in the presence of upper bounds on investment activities of both firms a Markov-Perfect-Equilibrium exists under which, depending on the initial conditions, the knowledge stock converges either to a positive steady state, thereby inducing an entry probability of one, or to a steady state with zero knowledge of the potential entrant. In the later case the entry probability is close to zero. It is shown that this Markov-Perfect-Equilibrium is characterized by a discontinuous value function for the incumbent and it is discussed that this feature is closely related to the existence of upper bounds on the investments of the players. Removing these constraints in general jeopardizes the existence of a Markov-Perfect-Equilibrium with multiple locally stable steady states.

Keywords: Differential Games; Markov Perfect Equilibrium (MPE); Knowledge Stock; Interference Activities; Local Value Function (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-319-39120-5_4

Ordering information: This item can be ordered from
http://www.springer.com/9783319391205

DOI: 10.1007/978-3-319-39120-5_4

Access Statistics for this chapter

More chapters in Dynamic Modeling and Econometrics in Economics and Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().