Imperfect Competition in Financial Markets and Capital Structure

Sergei Guriev, Dmitriy Kvaso

The Non-Constant-Sum Colonel Blotto Game

The Colonel Blotto game is a two-player constant-sum game in which each player simultaneously distributes her fixed level of resources across a set of contests. In the traditional formulation of the Colonel Blotto game, the players’ resources are “use it or lose it” in the sense that any resources which are not allocated to one of the contests are forfeited. This paper examines a non-constant-sum version of the Colonel Blotto game which relaxes this use it or lose it feature. We find that if the level of asymmetry between the players’ budgets is below a threshold, then the unique set of equilibrium univariate marginal distributions of the non-constant-sum game is equivalent up to an affine transformation to the unique set of equilibrium univariate marginal distributions of the constant-sum game. Once the asymmetry of the players’ budgets exceeds the threshold we construct a new equilibrium.Colonel Blotto game, all-pay auction, contests

The Non-Constant-Sum Colonel Blotto Game

The Colonel Blotto game is a two-player constant-sum game in which each player simultaneously distributes his fixed level of resources across a set of contests. In the traditional formulation of the Colonel Blotto game, the players’ resources are “use it or lose it” in the sense that any resources which are not allocated to one of the contests are forfeited. This article examines a non-constant-sum version of the Colonel Blotto game which relaxes this use it or lose it feature. We find that if the level of asymmetry between the players’ budgets is below a threshold, then there exists a oneto- one mapping from the unique set of equilibrium univariate marginal distribution functions in the constant-sum game to those in the non-constant-sum game. Once the asymmetry of the players’ budgets exceeds the threshold this relationship breaks down and we construct a new equilibrium.Colonel Blotto Game, All-Pay Auction, Contests, Mixed Strategies

Imperfect competition in financial markets and capital structure

We consider a model of corporate …nance with imperfectly competitive fi…nancial intermediaries. Firms can fi…nance projects either via debt or via equity. Because of asymmetric information about fi…rm's growth opportunities, equity fi…nancing involves a dilution cost. Nevertheless, equity emerges in equilibrium whenever fi…nancial intermediaries have sufficient market power. In the latter case, best fi…rms issue debt while the less pro…table …firms are equity-fi…nanced. We also show that strategic interaction between oligopolistic intermediaries results in multiple equilibria. If one intermediary chooses to buy more debt, the price of debt decreases, so the best equity-issuing fi…rms switch from equity to debt …nancing. This in turn decreases average quality of equity-fi…nanced pool, so other intermediaries also shift towards more debt.capital structure, pecking order theory of fi…nance, oligopoly in …financial markets, second degree price discrimination

Contracting on Time

The paper shows how time considerations, especially those concerning contract duration, affect incomplete contract theory. Time is not only a dimension along which the relationship unfolds, but also a continuous verifiable variable that can be included in contracts. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. We show that efficient investment can be induced either through a sequence of constantly renegotiated fixed-term contracts; or through a renegotiation-proof "evergreen" contract—a perpetual contract that allows unilateral termination with advance notice. We provide a detailed analysis of properties of optimal contracts

From Sabotage Games to Border Protection

Sabotage games on a graph involve Runner who wants to travel between two given vertices and Blocker who aims to prevent Runner from arriving at his destination by destroying edges. This paper introduces and studies several generalizations of sabotage games. First, it completely characterizes games with multiple destinations on weighted trees for both local and global cutting rules of arbitrary capacity, using an algorithmic labeling procedure. Second, it introduces the transformation procedure that associates a weighted tree with any weighted graph. The procedure allows complete characterization of games on weighted graphs for local cutting rules of arbitrary capacity and provides sufficient conditions for Blocker to win for global cutting rules. The applications of sabotage games to the issue of border security are discussed.21 p

Barter for price discrimination

We study barter as a discriminatory instrument in oligopoly with asymmetric information. Buyers (producers of final goods) differ in the quality of their products. Sellers (producers of inputs) use barter as a screening device: the higher quality buyers pay in cash while the lower quality ones pay in kind. Barter, identified with non-monetary contracts that give a seller control over a buyer's output, emerges in equilibrium even in the absence of financial constraints. There is a positive relationship between market concentration and the level of barter. Barter disappears as the market becomes more competitive. Barter and no-barter equilibria coexist for a range of market structures