Conditional and Unconditional Multiple Equilibria with Strategic Complementarities

Stefania Borla and Peter Simmons

Discussion Papers from Department of Economics, University of York

Abstract: We take a general model of externalities matching the Cooper & John framework with identical agents. If each agent's payoff depends on a parameter interpreted as the favourableness of the environment, we explore how the number of Nash equilibria varies with this parameter, especially in the cases in which the reaction curves are either concave or convex. In many examples the environmental conditions are themselves endogenous because either market or regulatory forces interact with agents' Nash equilibrium actions. This gives the idea of a simultaneous equilibrium in the environment and players' symmetric actions. We analyse how this generalised equilibrium behaves as a function of some additional parameters conditioning the environmental response to players actions. We show that generally there is a fold bifurcation in these equilibria. We illustrate the principles with two examples from industrial economics (cost spillovers between firms and demand spillovers under imperfect competition).

Keywords: cost spillovers; Nash and Market equilibrium; coordination failure. (search for similar items in EconPapers)
JEL-codes: C62 C72 D43 D62 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-mic
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