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Optimal switching from competition to cooperation: a preliminary exploration

Abstract : In this paper, we tackle a generic optimal regime switching problem where the decision making process is not the same from a regime to another. Precisely, we consider a simple model of optimal switching from competition to cooperation. To this end, we solve a two- stage optimal control problem. In the first stage, two players engage in a dynamic game with a common state variable and one control for each player. We solve for open-loop strategies with a linear state equation and linear-quadratic payoffs. More importantly, the players may also consider the possibility to switch at finite time to a cooperative regime with the associated joint optimization of the sum of the individual payoffs. Using the- oretical analysis and numerical exercises, we study the optimal switching strategy from competition to cooperation. We also discuss the reverse switching.
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https://hal-amu.archives-ouvertes.fr/hal-02950698
Contributor : Elisabeth Lhuillier <>
Submitted on : Monday, September 28, 2020 - 11:22:08 AM
Last modification on : Saturday, October 3, 2020 - 3:30:03 AM

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  • HAL Id : hal-02950698, version 1

Citation

Raouf Boucekkine, Carmen Camacho, Benteng Zou. Optimal switching from competition to cooperation: a preliminary exploration. V. Veliov; J. Haunschmied; R. Kovacevic; W. Semmler. Dynamic Economic Problems with Regime Switches, Springer Nature Switzerland AG, In press, 978-3-030-54575-8. ⟨hal-02950698⟩

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