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Ordinal potentials in smooth games

Christian Ewerhart ()

No 265, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: A non-cooperative n-player game is called smooth if strategy spaces are non-degenerate compact intervals and payoff functions are twice continuously differentiable. In the class of smooth games, exact potential games are known to admit a convenient characterization in terms of cross-derivatives (Monderer and Shapley, 1996a). This characterization extends easily to weighted potential games. However, no analogous characterization is known for ordinal potential games. The present paper derives simple necessary conditions for a smooth game to admit an ordinal potential. First, any ordinal potential game must exhibit pairwise strategic complements or substitutes at any interior equilibrium. Second, in games with more than two players, a condition is obtained on the (modified) Jacobian at any interior equilibrium. Taken together, these conditions are shown to correspond to a local analogue of the Monderer-Shapley condition for weighted potential games. We identify two classes of economic games for which our necessary conditions are also sufficient.

Keywords: Ordinal potentials; smooth games; strategic complements and substitutes; semipositive matrices (search for similar items in EconPapers)
JEL-codes: C6 C72 D43 D72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
Date: 2017-10, Revised 2018-07
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