[en] 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 twostage
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 theoretical
analysis and numerical exercises, we study the optimal switching strategy from
competition to cooperation. We also discuss the reverse switching.
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Boucekkine, Raouf
Camacho, Carmen
ZOU, Benteng ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)
External co-authors :
yes
Language :
English
Title :
Optimal Switching from Competition to Cooperation: A Preliminary Exploration
Publication date :
2020
Main work title :
Dynamic economic problems with regime switches
Author, co-author :
Haunschmied, Josef
Kovacevic, Raimund
Semmler, Willi
Veliov, Vladimir
Publisher :
Springer
Collection name :
Dynamic Modeling and Econometrics in Economics and Finance 25
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