RT Journal Article
T1 Forward induction and market entry with an endogenous outside option
A1 Morales-Siles, Antonio José
A1 Rodero-Cosano, Francisco Javier
K1 Teoría de juegos
K1 Mercado financiero - Modelos matemáticos
AB We consider a two-player sequential game in which players first choose whether to engage in a productive (market game) or unproductive activity (contest game) and then, if both players have chosen to enter the market, they compete in prices. Both economic activities are linked because the rents in the contest game are a fraction of the market profits. Subgame perfection predicts competitive pricing and a battle-of-the-sexes reduced-form game with two asymmetric Nash equilibrium, where only one firm enters. Our experimental results reject the prediction based on backward induction but are easily explained by forward induction arguments. The payoffs from the rent-seeking activity (outside option) influence pricing behaviour and prices do not converge to marginal costs. When the size of the rent seeking activities is large, firms coordinate better on economic activities and, in the event of market competition, prices converge to full collusion.
PB Springer Nature
YR 2023
FD 2023
LK https://hdl.handle.net/10630/39184
UL https://hdl.handle.net/10630/39184
LA eng
NO Morales, A.J., Rodero-Cosano, J. Forward induction and market entry with an endogenous outside option. Soc Choice Welf 61, 365–383 (2023). https://doi.org/10.1007/s00355-023-01455-5
NO https://openpolicyfinder.jisc.ac.uk/id/publication/8227
DS RIUMA. Repositorio Institucional de la Universidad de Málaga
RD 20 ene 2026