Strategic Nonparticipation

Abstract

We study a model that involves identity-dependent, asymmetric negative external effects. Willingness to pay, which can be computed only in equilibrium, will reflect, besides private valuations, also preemptive incentives stemming from the desire to minimize the negative externalities. We find that the best strategy of some agents is simply not to participate in the market, although they cannot in this way avoid the negative external effects. An illustration is made for the acquisition of patents in oligopolistic markets. Finally, we show that even when we allow full communication and side payments between agents, all coalitional agreements are unstable.

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