How profitable are strategic behaviors in a market?

Authors:
Ning Chen;Xiaotie Deng;Jie Zhang
Affiliations:
Division of Mathematical Sciences, School of Physical and Mathematical Sciences, Nanyang Technological University, Singapore;Department of Computer Science, University of Liverpool, UK;Department of Computer Science, City University of Hong Kong, Hong Kong
Venue:
ESA'11 Proceedings of the 19th European conference on Algorithms
Year:
2011

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Abstract

It is common wisdom that individuals behave strategically in economic environments. We consider Fisher markets with Leontief utilities and study strategic behaviors of individual buyers in market equilibria. While simple examples illustrate that buyers do get larger utilities when behaving strategically, we show that the benefits can be quite limited: We introduce the concept of incentive ratio to capture the extent to which utility can be increased by strategic behaviors of an individual, and show that the incentive ratio of Leontief markets is less than 2. We also reveal that the incentive ratios are insensitive to market sizes. Potentially, the concept incentive ratio can have applications in other strategic settings as well.