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Nash equilibria for dividend distribution with competition

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Listed:
  • Tiziano De Angelis
  • Fabien Gensbittel
  • St'ephane Villeneuve

Abstract

We construct Nash equilibria in feedback form for a class of two-person stochastic games of singular control with absorption, arising from a stylized model for corporate finance. More precisely, the paper focusses on a strategic dynamic game in which two financially-constrained firms operate in the same market. The firms distribute dividends and are faced with default risk. The strategic interaction arises from the fact that if one firm defaults, the other one becomes a monopolist and increases its profitability. The firms choose their dividend distribution policies from a class of randomised strategies and we identify two types of equilibria, depending on the firms' initial endowments. In both situations the optimal strategies and the equilibrium payoffs are found explicitly.

Suggested Citation

  • Tiziano De Angelis & Fabien Gensbittel & St'ephane Villeneuve, 2023. "Nash equilibria for dividend distribution with competition," Papers 2312.07703, arXiv.org, revised Oct 2024.
    • Handle: RePEc:arx:papers:2312.07703
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    References listed on IDEAS

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    1. H. Dharma Kwon & Hongzhong Zhang, 2015. "Game of Singular Stochastic Control and Strategic Exit," Mathematics of Operations Research, INFORMS, vol. 40(4), pages 869-887, October.
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    5. Bruce H. Kobayashi, 2010. "The Law and Economics of Predatory Pricing," Chapters, in: Keith N. Hylton (ed.), Antitrust Law and Economics, chapter 6, Edward Elgar Publishing.
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