Home  About us  Contact
 

Separating Equilibrium (separating + equilibrium)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Welfare-improving adverse selection in credit markets,

INTERNATIONAL ECONOMIC REVIEW, Issue 4 2002
James Vercammen
A model of simultaneous adverse selection and moral hazard in a competitive credit market is developed and used to show that aggregate borrower welfare may be higher in the combined case than in the moral-hazard-only case. Adverse selection can be welfare improving because in the pooling equilibrium of the combined model, high-quality borrowers cross subsidize low-quality borrowers. The cross subsidization reduces the overall moral hazard effort effects, and the resulting gain in welfare may more than offset the welfare loss stemming from distorted investment choices. The analysis focuses on pooling equilibria because model structure precludes separating equilibria. [source]

Office-seeking politicians, interest groups and split contributions in a campaign finance model

INTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 4 2007
Shino Takayama
D72; D82; M37 The present paper investigates an extended version of Prat's campaign finance models. In this model, interest groups make contributions to politicians to influence policy decisions. Voters are assumed to judge candidates on two aspects: policy promises and nonpolicy personal qualities referred to as valence. There are two types of voters. Among these, uninformed voters only observe campaign contributions that take the role of a signaling medium. We solve the equilibrium of the game between politicians and interest groups. We then specify conditions under which a separating equilibrium exists and study the effect of split contributions on the welfare of the median voter. [source]

Optimal pricing strategy for foreign market entry: a game theoretic approach

MANAGERIAL AND DECISION ECONOMICS, Issue 8 2006
Young-Han Kim
Given that pricing plays an important role in a company's international competitive strategy, researchers have long argued the need for theory building in the area of international pricing. This study develops an optimal pricing strategy for foreign market entry using a game theoretic framework. The proposed model assumes two firms, a local incumbent and a foreign entrant, competing in a market. Consumers know the quality of the incumbent's offering, but do not know how it compares to that of the foreign entrant's. Based on these assumptions, and using the theory of inference making, we propose an upward price distortion by the entrant firm as an optimal entry strategy under incomplete information. The paper presents a game theoretic derivation to establish that the game has a unique intuitive separating equilibrium where the entrant firm stands to gain by engaging in upward price distortion to signal high quality to consumers. Copyright © 2006 John Wiley & Sons, Ltd. [source]

The Role of Information Revelation in Elimination Contests,

THE ECONOMIC JOURNAL, Issue 536 2009
Jun Zhang
In this article, we investigate how information revelation rules affect the existence and the efficiency of equilibria in two-round elimination contests. We establish that no symmetric separating equilibrium exists under the full revelation rule and find that the non-existence result is very robust. We then characterise a partially efficient separating equilibrium under the partial revelation rule when players' valuations are uniformly distributed. We finally investigate the no revelation rule and find that it is both most efficient and optimal in maximising the total efforts from the contestants. Within our framework, more information revelation leads to less efficient outcomes. [source]

Why do Shareholders Allow Their Managers to be Gatekeepers in Corporate Control Contests?,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 6 2008
Kyung Suh Park
Abstract This paper formulates a theoretical model to explain why target shareholders under corporate control contests allow their managers to play the role of a gatekeeper despite the conflicting incentive of the managers to resist takeover attempts that might increase firm value. The paper claims that sometimes the existence of a manager with a conflicting goal can contribute to enhancing the welfare of his shareholders under a corporate control contest where bidders have the choice of takeover methods. We set up a game-theoretical model and derive a separating equilibrium where bidders with higher synergy prefer a tender offer to a merger, and the bidders are forced to pay higher takeover premium in a hostile tender offer due to the existence of informed target managers who can make counteroffers under a merger deal. [source]