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A Model of Tacit Collusion: Nash-2 Equilibrium Concept

  • Marina SandomirskaiaEmail author
Chapter
Part of the Static & Dynamic Game Theory: Foundations & Applications book series (SDGTFA)

Abstract

We examine an equilibrium concept for 2-person non-cooperative games with boundedly rational agents which we call Nash-2 equilibrium. It is weaker than Nash equilibrium and equilibrium in secure strategies: a player takes into account not only current strategies but also all profitable next-stage responses of the partners to her deviation from the current profile that reduces her relevant choice set. We provide a condition for Nash-2 existence in finite games and complete characterization of Nash-2 equilibrium in strictly competitive games. Nash-2 equilibria in Hotelling price-setting game are found and interpreted in terms of tacit collusion.

Keywords

Nash-2 equilibrium Secure deviation Bertrand paradox Hotelling model Tacit collusion 

JEL Classification:

C72 D03 D43 D70 L13 

Notes

Acknowledgements

The study has been funded by the Russian Academic Excellence Project‘5-100’.

I am deeply indebted to Sergey Kokovin, Jacques-Francois Thisse, Fuad Aleskerov, Philip Ushchev, Alexey Iskakov, Mikhail Iskakov, Fedor Sandomirskiy, Nikolay Bazenkov, and Pavel Molchanov for the fruitful discussions. Remarks and suggestions of an anonymous referee were very useful. I also thank a great amount of colleagues who gave me valuable comments and support.

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.National Research University Higher School of EconomicsMoscowRussia

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