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Optimal switching from competition to cooperation: a preliminary exploration

Raouf Boucekkine (), Carmen Camacho () and Benteng Zou ()
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Carmen Camacho: Paris School of Economics, CNRS

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper, we tackle a generic optimal regime switching problem where the decision making process is not the same from a regime to another. Precisely, we consider a simple model of optimal switching from competition to cooperation. To this end, we solve a two- stage optimal control problem. In the first stage, two players engage in a dynamic game with a common state variable and one control for each player. We solve for open-loop strategies with a linear state equation and linear-quadratic payoffs. More importantly, the players may also consider the possibility to switch at finite time to a cooperative regime with the associated joint optimization of the sum of the individual payoffs. Using theoretical analysis and numerical exercises, we study the optimal switching strategy from competition to cooperation. We also discuss the reverse switching.

Keywords: Cooperation; competition; dynamic games; multi-stage optimal control. (search for similar items in EconPapers)
JEL-codes: C61 D71 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-ore
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https://wwwfr.uni.lu/content/download/123291/14280 ... ry%20exploration.pdf (application/pdf)

Related works:
Chapter: Optimal Switching from Competition to Cooperation: A Preliminary Exploration (2021)
Working Paper: Optimal switching from competition to cooperation: a preliminary exploration (2021)
Working Paper: Optimal switching from competition to cooperation: a preliminary exploration (2021)
Working Paper: Optimal switching from competition to cooperation: a preliminary exploration (2020) Downloads
Working Paper: Optimal switching from competition to cooperation: a preliminary exploration (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:20-02

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