A 'Truly Sequential' Resolution to Chainstore Paradox
3 Pages Posted: 22 Jul 2016
Date Written: July 10, 2016
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: Suggested Citation