Balance of Power

CentER Discussion Paper No. 2004-104

33 Pages Posted: 7 Dec 2004

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

This paper argues that the efficiency distribution of players in a game determines how aggressively these players interact. We formalize the idea of balance of power: players fight very inefficient players but play softly versus equally (or more) efficient players. This theory of conduct predicts that entry by new firms leads to a less aggressive outcome if it creates a balance of power. A balance of power is created if more players get technologies that are close to the most efficient technology. Using a related argument, we show that an increase in entry costs can lead to more aggressive outcomes.

Keywords: Pricing games, Folk theorem, refinement of predicted outcomes, supergames, contestable market

JEL Classification: D43, C72, L41

Suggested Citation

Boone, Jan, Balance of Power (October 2004). CentER Discussion Paper No. 2004-104, Available at SSRN: https://ssrn.com/abstract=627364 or http://dx.doi.org/10.2139/ssrn.627364

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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