Feedback strategies in the market with uncertainties
Fuente:
arXiv
Gespeichert in:
| 1. Verfasser: | |
|---|---|
| Format: | Preprint |
| Veröffentlicht: |
2024
|
| Schlagworte: | |
| Online-Zugang: | |
| Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
| _version_ | 1866929551898050560 |
|---|---|
| author | Issah, Mustapha Nyenye |
| author_facet | Issah, Mustapha Nyenye |
| contents | We explore how dynamic entry deterrence operates through feedback strategies in markets experiencing stochastic demand fluctuations. The incumbent firm, aware of its own cost structure, can deter a potential competitor by strategically adjusting prices. The potential entrant faces a one-time, irreversible decision to enter the market, incurring a fixed cost, with profits determined by market conditions and the incumbent's hidden type. Market demand follows a Chan-Karolyi-Longstaff-Sanders Brownian motion. If the demand is low, the threat of entry diminishes, making deterrence less advantageous. In equilibrium, a weak incumbent may be incentivized to reveal its type by raising prices. We derive an optimal equilibrium using path integral control, where the entrant enters once demand reaches a high enough level, and the weak incumbent mixes strategies between revealing itself when demand is sufficiently low. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2410_16203 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Feedback strategies in the market with uncertainties Issah, Mustapha Nyenye Theoretical Economics Optimization and Control 93E03, 93E20 We explore how dynamic entry deterrence operates through feedback strategies in markets experiencing stochastic demand fluctuations. The incumbent firm, aware of its own cost structure, can deter a potential competitor by strategically adjusting prices. The potential entrant faces a one-time, irreversible decision to enter the market, incurring a fixed cost, with profits determined by market conditions and the incumbent's hidden type. Market demand follows a Chan-Karolyi-Longstaff-Sanders Brownian motion. If the demand is low, the threat of entry diminishes, making deterrence less advantageous. In equilibrium, a weak incumbent may be incentivized to reveal its type by raising prices. We derive an optimal equilibrium using path integral control, where the entrant enters once demand reaches a high enough level, and the weak incumbent mixes strategies between revealing itself when demand is sufficiently low. |
| title | Feedback strategies in the market with uncertainties |
| topic | Theoretical Economics Optimization and Control 93E03, 93E20 |
| url | https://arxiv.org/abs/2410.16203 |