On trade in bilateral oligopolies with altruistic and spiteful agents
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On trade in bilateral oligopolies with altruistic and spiteful agents M. Lombardi1,2 · S. Tonin3 Received: 20 January 2019 / Accepted: 4 September 2019 © The Author(s) 2019
Abstract This paper studies the effects of altruism and spitefulness in a two-sided market in which agents behave strategically and trade according to the Shapley–Shubik mechanism. By assuming that altruistic agents have concerns for others on the opposite side of the market, it shows that agents always find advantageous to trade. However, they prefer to stay out of the market and consume their endowments when there are altruistic agents who have concerns for the welfare of those on the same side of the market, or when there are spiteful agents. These non-trade situations occur either because the necessary first-order conditions for optimality are violated or because agents’ payoff functions are not concave. Keywords Bilateral oligopoly · Noncooperative oligopoly · Nash equilibrium · Altruism and spitefulness JEL Classification D43 · D51
1 Introduction We often incorporate the preferences of others in our decision making. We do so because we intrinsically care about the welfare of other agents in the economy. In
We would like to thank Sayantan Ghosal, Antonio Villanacci, and two anonymous referees for their comments and suggestions. The usual disclaimer applies.
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S. Tonin [email protected] M. Lombardi [email protected]
1
Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, UK
2
Department of Economics and Statistics, University of Naples Federico II, Naples 81026, Italy
3
Durham University Business School, Durham University, Durham DH1 3LB, UK
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M. Lombardi, S. Tonin
this paper, we continue a line of inquiry begun by Dubey and Shubik (1985) and Dufwenberg et al. (2011) by investigating how altruism and spitefulness influence equilibrium outcomes in imperfectly competitive markets. We confine ourselves to a class of strategic market games introduced by Gabszewicz and Michel (1997), known as bilateral oligopoly.1 In this two-sided market model, agents act strategically and trade according to Shapley and Shubik (1977)’s mechanism (henceforth, Shapley–Shubik mechanism): they submit bids and offers to the mechanism and the price is determined by the ratio of total bids to total offers. The cornerstone of bilateral oligopoly is the assumption that individual agents’ behaviors are solely motivated by their personal concern. However, there is a considerable amount of both experimental and empirical evidence that individuals do not have independent preferences, in the sense that considerations of others influence individual behavior. This paper departs from the traditional assumption of independent preferences by assuming that agents act by considering both personal concern and concerns for the welfare of others. By following the growing literature on behavioral economics that constructs theoretical models with altruistic/spiteful agents (e.g., Levine 1998; Graziano et al. 2017; Bourlès et al. 2017),
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