Econometrica: May, 1977, Volume 45, Issue 4

A Two-Person Exchange Model

https://doi.org/0012-9682(197705)45:4<843:ATEM>2.0.CO;2-4
p. 843-852

King-Tak Lee

This paper deals with a situation of middle-man behavior between two otherwise separated economies. A two-person noncooperative exchange game is proposed whereby each player's strategy consists of two parts taken in a sequence: a price strategy, to be followed by a demand strategy. The concept of a special kind of mixed strategies is introduced, and a solution is defined in terms of a Nash equilibrium pair of such mixed strategies. It is shown that a trivial class of equilibria always exists, and that under certain conditions, more interesting nontrivial equilibria can exist as well.