Dynamic Addiction Games

Peter Bardsley

No 632, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: A continuous time dynamic price and quantity game is analysed between the seller and the consumer of an addictive substance. Consumption dynamics are modelled using a Becker Murphy rational addiction model. Conditional on the buyer's consumption strategy, a monopoly seller manipulates the price to maximise current value profits. The seller sets a low price at first and then raises the price as the consumer becomes addicted. The consumer understands this, and consumes less than would a myopic agent.

Keywords: GAMES; DRUG ADDICTION (search for similar items in EconPapers)
JEL-codes: C73 D11 D12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 1998
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Citations: View citations in EconPapers (3)

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