On Construction of Subgame Perfect Nash Equilibria in Stackelberg Games

Francesco Caruso (), Maria Carmela Ceparano () and Jacqueline Morgan
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Francesco Caruso: Department of Economics and Statistics, University of Naples Federico II, Via Cintia 21, Naples 80126, Italy
Maria Carmela Ceparano: Centre for Studies in Economics and Finance, Department of Economics and Statistics, University of Naples Federico II, Via Cintia 21, Naples 80126, Italy

International Game Theory Review (IGTR), 2024, vol. 26, issue 02, 1-22

Abstract: Identifying a Subgame Perfect Nash Equilibrium (SPNE) of a two-player Stackelberg game could be not a manageable task, especially when the players have a continuum of actions and the follower’s best reply correspondence is not single-valued. Aim of the paper is to investigate the issue of construction of SPNEs in Stackelberg games by exploiting perturbations of both the action sets and the payoff functions of the leader and the follower. To achieve the goal, since the limit of SPNEs of perturbed games is not necessarily an SPNE of the original game even for classical perturbations, we prove under nonrestrictive convergence conditions how to produce an SPNE starting from a sequence of SPNEs of general perturbed games. This result allows to describe a procedure to find SPNEs that can accommodate various types of perturbations. More precisely, under mild assumptions on the data of the original game, we show that a large class of perturbed games (including, for example, perturbation approaches relying on the Tikhonov and entropic regularizations or motivated by altruistic and antagonistic behaviors) satisfies the convergence conditions for constructing an SPNE. The specific SPNE selections associated to such a class, together with their possible behavioral interpretations, are discussed and an illustrative example is provided.

Keywords: Subgame perfect Nash equilibrium; two-player Stackelberg game; bilevel optimization problem; constructive method; perturbation (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S021919892440005X

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