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 language | English |
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Pages (from-to) | 455–478 |
Number of pages | 24 |
Journal | Theory and Decision |
Volume | 85 |
Issue number | 3-4 |
Early online date | 26 Jun 2018 |
DOIs | |
Publication status | Published - Oct 2018 |
Keywords
- Non-cooperative game
- partial cooperation
- Partial Cooperative Equilibrium
- Leadership Equilibrium
- multi-market oligopoly
- international pollution abatement
Profiles
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Emiliya Lazarova
- School of Economics - Professor in Economics
- Applied Econometrics And Finance - Member
- Economic Theory - Member
Person: Research Group Member, Academic, Teaching & Research