The War of Attrition under Uncertainty: Theory and Robust Testable Implications

Jean-Paul Décamps, Fabien Gensbittel and Thomas Mariotti

No 22-1374, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study a symmetric-information war of attrition in which the players' rewards depend on exogenous market conditions evolving as a homogeneous linear diffusion process. Using that a Markovian strategy can be represented by a stopping region along with an intensity measure of stopping, we fully characterize mixed-strategy Markovperfect equilibria through a variational system for the players' value functions. When players are asymmetric, in any such equilibrium each player randomizes at a discrete set of thresholds for market conditions. As a result, players may alternatively find themselves in a position of strength or weakness on the equilibrium path. Delayed concessions occur because a player currently in a position of weakness can hope for market conditions to eventually turn in his favor. In the standard duopoly model of exit under uncertainty, the firms' stock prices and their return volatilities comove negatively over the attrition region and exhibit patterns documented by technical analysis.

Keywords: War of Attrition; Mixed-Strategy Equilibrium; Uncertainty. (search for similar items in EconPapers)
JEL-codes: C61 D25 D83 (search for similar items in EconPapers)
Date: 2022-10, Revised 2025-12
New Economics Papers: this item is included in nep-gth and nep-mic
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Related works:
Working Paper: The War of Attrition under Uncertainty: Theory and Robust Testable Implications (2023)
Working Paper: The War of Attrition under Uncertainty: Theory and Robust Testable Implications (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:127448

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