A 'Truly Sequential' Resolution to Chainstore Paradox

3 Pages Posted: 22 Jul 2016

Date Written: July 10, 2016

Abstract

This paper resolves the chainstore paradox by viewing each game of a monopolist against a single competitor as a sequential game. Every game is done under perfect and complete information. In this sequential game, with subgame perfection imposed, the number of sequential stages - even or odd - matter greatly for the resulting equilibrium, with odd supporting the deterrence theory equilibrium and even supporting the induction theory equilibrium.

Keywords: chainstore paradox, sequential game, parity, subgame perfection, deterrence theory, backward induction

JEL Classification: C72, C73

Suggested Citation

Kim, Bryce, A 'Truly Sequential' Resolution to Chainstore Paradox (July 10, 2016). Available at SSRN: https://ssrn.com/abstract=2807682 or http://dx.doi.org/10.2139/ssrn.2807682

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