Eugen Kováč

Technological Leadership and Persistence of Monopoly Under Endogenous Entry: Static Versus Dynamic Analysis

We build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader’s intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader’s investment decisions with those of the social planner.

Reversibility in dynamic coordination problems

Agents at the beginning of a dynamic coordination process (1) are uncertain about actions of their fellow players and (2) anticipate receiving strategically relevant information later on in the process. In such environments, the (ir)reversibility of early actions plays an important role in the choice among them. We characterize the strategic eects of the reversibility option on the coordination outcome. Such an option can either enhance or hamper ecient coordination, and we determine the direction of the eect based only on simple features of the coordination problem. The analysis is based on a generalization of the Laplacian property known from static global games: players at the beginning of a dynamic game act as if they were entirely uninformed about aggregate play of fellow players in each stage of the coordination process.

Optimal Sequential Delegation

The paper extends the optimal delegation framework to a dynamic environment where the agent initially has private information merely about the distribution of the state and learns the true state only as the relation proceeds. The principal may want to elicit the agents initial information and offers a menu of delegation sets where the agent first chooses a delegation set and subsequently an action within this set. We characterize environments under which it is optimal and under which it is not optimal to elicit the agents initial information and characterize optimal delegation menus. In the former case, delegation sets may be disconnected and may feature gaps.

Market share dynamics in a duopoly model with word-of-mouth communication

We analyze dynamic price competition in a homogeneous goods duopoly, where consumers exchange information via word-of-mouth communication. A fraction of consumers, who do not learn any new information, remain locked-in at their previous supplier in each period. We analyze Markov perfect equilibria in which firms use mixed pricing strategies. Market share dynamics are driven by the endogenous price dispersion. Depending on the parameters, we obtain different ‘classes’ of dynamics. When firms are impatient, there is a tendency towards equal market shares. When firms are patient, there are extended intervals of market dominance, interrupted by sudden changes in the leadership position.

Speculation and Survival in Financial Markets

The paper analyzes a finite time economy with a single risky asset which pays a one-shot payoff (dividend). The payoff is random and its distribution is not known à priori. Agents observe public signals (random draws from the same distribution) and update their beliefs about the payoff. They trade in order to reshuffle their portfolios according to new beliefs. Agents may use various updating rules and are considered to be of two types: sophisticated who are aware of their future beliefs and prices, and naive who are not. Drawing on the methodology by Sandroni (2000), it is shown that among sophisticated agents, those with less accurate beliefs are driven out, in the sense that their wealth becomes arbitrarily small when the number of signals is sufficiently large. On the other hand, it is shown that this statement may not hold in economies with naive agents only, where even agents with inaccurate beliefs may survive.