On the Coincidence of the Feedback Nash and Stackelberg Equilibria in Economic Applications of Differential Games

Abstract:     
In this paper the scope of the applicability of the Stackelberg equilibrium concept in differential games is investigated. Firstly, it is showed that for a class of differential games with state-interdependence the stationary feedback Nash equilibrium coincides with the stationary feedback Stackelberg equilibrium independently of the player being the leader of the game. Secondly, sufficient conditions for obtaining the coincidence between the two equilibria are defined. A review of different economic models shows that this coincidence is going to occur for a good number of economic applications of differential games. This result appears because of the continuous-time setting in which differential games are defined. In this setting the first movement advantage of the leader may disappears and then both equilibria coincide.

Number of Pages in PDF File: 28

Keywords: differential games, stationary feedback Nash equilibrium, stationary feedback Stackelberg equilibrium, coincidence

JEL Classification: C73, D62, H41, Q20, Q30

working papers series