Stackelberg Social Equilibrium in Water Markets

Market power in water markets can be modeled as simultaneous quantity competition on a river structure and analyzed by applying social equilibrium. In an example of a duopoly water market, we argue that the lack of backward induction logic implies that the upstream supplier foregoes profitable strat...

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Bibliographic Details
Published in:Games 2023-08, Vol.14 (4), p.54
Main Authors: Houba, Harold, Tomori, Françeska
Format: Article
Language:English
Subjects:
Duopoly
Equilibrium
Game theory
market power
Markets
Profit maximization
Rivers
social equilibrium
Stackelberg social equilibrium
Suppliers
Upstream
Water markets
Willingness to pay
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Summary:Market power in water markets can be modeled as simultaneous quantity competition on a river structure and analyzed by applying social equilibrium. In an example of a duopoly water market, we argue that the lack of backward induction logic implies that the upstream supplier foregoes profitable strategic manipulation of water to the downstream supplier. To incorporate backward induction, we propose the Stackelberg social equilibrium concept. We prove the existence of Stackelberg social equilibrium in duopoly water markets with an upstream–downstream river structure and derive it in the example of a duopoly market.
ISSN:2073-4336
2073-4336
DOI:10.3390/g14040054