DP4742 Complementarities and Games: New Developments

Author(s): Xavier Vives
Publication Date: November 2004
Keyword(s):
JEL(s): C61, C62, C72, C73, D83, E22, F32, G21, L13, O31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4742

The theory of monotone comparative statics and supermodular games is presented as the appropriate tool to model complementarities. The approach, which has not yet been fully incorporated into the standard toolbox of researchers, makes the analysis intuitive and simple, helps in deriving new results and in casting new light on old ones. The paper takes stock of recent contributions and develops applications to industrial organization (oligopoly, R&D, and dynamics), finance (currency and banking crisis) and macroeconomics (adjustment and menu costs). Particular attention is devoted to Markov games and to games of incomplete information (including global games).