Game Theory and Public Policy, SECOND EDITION

Game Theory and Public Policy, SECOND EDITION

Roger A. McCain

This book provides a critical, selective review of concepts from game theory and their applications in public policy, and further suggests some modifications for some of the models (chiefly in cooperative game theory) to improve their applicability to economics and public policy.

Chapter 13: Monopoly and monopsony revisited

Roger A. McCain

Subjects: economics and finance, game theory, politics and public policy, public policy


The previous two chapters have explored several aspects of an economic model that treats the business firm as a cooperative coalition with membership limited to agents who are linked by information-sharing links. Chapter 11 addresses the idea that rational cooperators will make decisions that are Pareto-optimal as among themselves. One implication is that, even though the coalition is both a monopolist in respect of its customer-members and a monopsonist in respect to its employees, the traditional analysis of monopoly and monopsony will not apply. This traditional analysis implies that the allocation of resources among employees, customers and proprietors will be inefficient, and this inefficiency, in itself, means that the analysis cannot apply to a group of rational cooperators comprising all those who jointly benefit from the activities of the firm. Chapter 12 considered two kinds of decisions that would further determine the coalition structure of an economy conceived in this way. In particular, the second section of Chapter 12 considers the noncooperative process of search and matching by which new links are made that may lead to the expansion of the coalition. The decisions to enter into this matching process are unavoidably noncooperative, since they are made before the informational links are made that might support cooperative decisions.

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