Market Structure Games: Dynamic Approaches

Abstract

This chapter extends the discussion began in Chapter 3 about dynamic models of oligopoly. It discusses two streams of models dealing with multiplayer decision-making in multistage settings. The chapter is organized as follows. Section 4.1 discusses the concept of commitment and how limiting one’s own flexibility might create strategic value for the committing firm, thus contradicting standard real options thinking that suggests that flexibility is always of value. Section 4.2 considers situations when firms may find it beneficial to cooperate with their rivals and have no long-term incentive to “cheat” on them.