Market exit and minimax regret
Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg
We study an overcrowded duopoly market where the only strategic variable is the exit time. We suppose that the surviving firm gets a positive monopoly profit and we focus on the classic context with complete information and identical firms. The only symmetric Nash equilibrium of this war of attrition is a mixed-strategy equilibrium that leads to a null expected payoff, i.e. the payoff a firm gets when it immediately exits the market. This result is not persuasive, both from an economic and from a strategic viewpoint. We argue that the minimax regret approach, that builds upon two opposite regrets - exiting the market too late and exiting the market too early - is more convincing. The minimax regret behavior, quite different from the mixed- strategy Nash equilibrium behavior, allows both firms to get a positive expected payoff.
Keywords: war of attrition; minimax regret; Nash equilibrium; maximin payoff; mixed strategy; duopoly. (search for similar items in EconPapers)
JEL-codes: C72 D4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2020-29
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