The majority of economic transactions take place through markets. Markets have a myriad of different structures. They are central in organizing production and allocating surpluses between participants. On some occasions, market participants cannot affect the outcome.
However, on other occasions, market participants can follow complicated strategies to affect production allocation in their favor.
What kind of strategies do market participants employ?
How do the strategies of different participants interact?
Do their strategies affect market efficiency besides allocation?
Markets with intense competition tend to reduce the competing firms’ market power. Firms could form cartels to control the market and extract a greater share of the economic surplus if left unregulated. For this reason, collusion and cartel formation are illegal practices in most market economies today.
However, legally binding contracts are not necessary for firms to coordinate. Firms can use dynamic strategies to collude tacitly.
What kind of strategies can lead to tacit collusion?
What is the role of the means of competition in tacit collusion?
How can competition authorities measure market power?
The role of information is central in strategic interactions. Observing other players’ actions before choosing leads to fundamentally different interactions and outcomes. Unobserved actions are not the only pieces of information relevant when players interact.
In many social interactions, players are not fully aware of the state of nature of the game. They are unaware of the characteristics of other players with whom they interact.
How can we analyze interactions under such uncertain conditions?
How do economic agents interact with one another when information is incomplete?
Does uncertainty exacerbate or diminish the intensity of social dilemmas?
Including uncertainty in market models complicates the analysis. However, some results obtained when ignoring it can be less conducive. For instance, the nature of online marketplaces has many characteristics resembling price competition.
Yet, many firms make profits in such marketplaces, contrary to the model predictions of deterministic competition in prices.
How can uncertainty affect competition in markets?
Do the insights and results of competition change when uncertainty is taken into account?
Does uncertainty have a uniform impact in all markets?