Increasing Dominance with No Efficiency Effect

9 Pages Posted: 31 Oct 2008

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2000

Abstract

I uncover a new force towards increasing dominance (the property whereby, in dynamic games, the leader tends to increase her lead in expected terms). The new effect results from the strategic choice of covariance in races. I assume that players must choose not the amount of resources to spend but how to allocate those resources. I show that the laggard has an incentive to chose a different path from the leader. In equilibrium, this results in the laggard choosing a less promising path, in effect trading off lower expected value for lower correlation with respect to the leader. This in turn leads to increasing dominance. In order to make the point as clear as possible and differentiate it from the forces previously characterized, I assume that no joint payoff (or efficiency) effect is present.

Keywords: Dynamic competition, increasing dominance, e±ciency effect, R&D

Suggested Citation

Cabral, Luis M. B., Increasing Dominance with No Efficiency Effect (August 2000). NYU Working Paper No. EC-00-06. Available at SSRN: https://ssrn.com/abstract=1292685

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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