Rational decision making under uncertainty of reaction: Nash-2 equilibrium concept
We examine an equilibrium concept for 2-person non-cooperative games with boundedly rational agents which we call Nash-2 equilibrium. It is weaker than Nash equilibrium and equilibrium in secure strategies: a player takes into account not only current strategies but also all profitable next-stage responses of the partners to her deviation from the current profile that reduces her relevant choice set. We provide a condition for Nash-2 existence in finite games and complete characterization of Nash-2 equilibrium in strictly competitive games. Nash-2 equilibria in Hotelling price-setting game are found and interpreted in terms of tacit collusion.
In the article has been offered the author's approach to the formation of prices on the differentiated product. This approach is based on customer perception of empathic consumer’s assessment of product’s properties. The multidimensional analytical model allows to evaluate and shape the space of consumer expectations, space basic product’s expression of properties, space investigational product’s expression of properties. This model allows to evaluate the importance of each properties of the product to the consumer, to determine the integrated indicators characterizing the level of implementation of consumer expectations and in the base of the investigational product, reasonably form the price level on the investigational product
A new concept of equilibrium in secure strategies (EinSS) in non-cooperative games is presented. The EinSS coincides with the Nash Equilibrium when Nash Equilibrium exists and postulates the incentive of players to maximize their profit under the condition of security against actions of other players. The new concept is illustrated by a number of matrix game examples and compared with
other closely related theoretical models. We prove the existence of equilibrium in secure strategies in two classic games that fail to have Nash equilibria. On an infinite line we obtain the solution in secure strategies of the classic Hotelling’s price game (1929) with a restricted reservation price and linear transportation costs. New type of monopolistic equilibria in secure strategies are discovered in the Tullock Contest (1967, 1980) of two players.
The paper analyzes oligopolistic competition in a market for a differentiated product. A comparative analysis of competition models by Cournot (output competition) and Bertrand (price competition) under prerequisites put forward by the authors shows that under Bertrand competition the price level will be lower. Whereas interrelation between firms output and profit is ambiguous (if goods produced are substitutes), and depend, other things being equal, on the attractiveness of the good offered by the firm. The results obtained are illustrated using Russia’s automotive market review. In particular, an attempt is made to classify some decisions made by car producers as the one or the other competition strategy analyzed in the theoretical part of the paper.
We develop a model of monopolistic competition that accounts for consumers' heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers' tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.
We consider a model of location-price competition between two firms, located on the circle. Nash equilibrium, equilibrium in secure strategies, and Nash-2 equilibrium are compared. We demonstrate that Nash-2 equilibrium exists for any locations of firms. The set of Nash-2 equilibria is treated as tacit collusion.
In this paper we consider choice problems under the assumption that the preferences of the decision maker are expressed in the form of a parametric partial weak order without assuming the existence of any value function. We investigate both the sensitivity (stability) of each non-dominated solution with respect to the changes of parameters of this order, and the sensitivity of the set of non-dominated solutions as a whole to similar changes. We show that this type of sensitivity analysis can be performed by employing techniques of linear programming.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.