Partial Cooperation in Strategic Multi-sided Decision Situations

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Abstract

We consider a normal form game in which there is a single exogenously given coalition of cooperating players that can write a binding agreement on pre-selected actions. The actions representing other dimensions of the strategy space remain under the sovereign, individual control of the players.
We consider a standard extension of the Nash equilibrium concept denoted as a partial cooperative equilibrium as well as an equilibrium concept in which the coalition of cooperators has a leadership position. Existence results are stated and we identify conditions under which the various equilibrium concepts are equivalent.
We apply this framework to existing models of multi-market oligopolies and international pollution abatement. In a multi-market oligopoly typically a merger paradox emerges in the partial cooperative equilibrium. The paradox vanishes if the cartel attains a leadership position.
For international pollution abatement treaties, cooperation by a sufficiently large group of countries results in a Pareto improvement over the standard tragedy of the commons outcome described by the Nash equilibrium.
Original languageEnglish
Pages (from-to)455-478
Number of pages24
JournalTheory and Decision
Volume85
Issue number3-4
Early online date26 Jun 2018
DOIs
Publication statusEarly online date - 26 Jun 2018

Bibliographical note

Published for "Theory and Decision", a 3* journal.

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