Stackelberg Social Equilibrium in Water Markets
Houba, H. and Tomori, F. (2023): "Stackelberg Social Equilibrium in Water Markets", Games
Market power in water markets can be modeled as simultaneous quantity competition on a river structure and analyzed by applying social equilibrium. In an example of a duopoly water market, the authors argue that the lack of backward induction logic implies that the upstream supplier foregoes profitable strategic manipulation of water to the downstream supplier. To incorporate backward induction, they propose the Stackelberg social equilibrium concept. The authors prove the existence of Stackelberg social equilibrium in duopoly water markets with an upstream-downstream river structure and derive it in the example of a duopoly market.