Stackelberg Social Equilibrium in Water Markets

Harold Houba and Françeska Tomori
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Harold Houba: School of Business and Economics and Tinbergen Institute, Vrije Universiteit Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands

Games, 2023, vol. 14, issue 4, 1-9

Abstract: Market power in water markets can be modeled as simultaneous quantity competition on a river structure and analyzed by applying social equilibrium. In an example of a duopoly water market, we argue that the lack of backward induction logic implies that the upstream supplier foregoes profitable strategic manipulation of water to the downstream supplier. To incorporate backward induction, we propose the Stackelberg social equilibrium concept. We prove the existence of Stackelberg social equilibrium in duopoly water markets with an upstream–downstream river structure and derive it in the example of a duopoly market.

Keywords: water markets; market power; Stackelberg social equilibrium; social equilibrium; duopoly (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2023
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