Bargaining and Leverage in Option Demand Markets

There is keen interest in estimating empirical models of economic behavior in order to derive predictions that can be useful for strategic analysis and antitrust. The economic theories that form the foundation for empirical estimation often assume that agents are rational and act with foresight. In many models, fully rational agents not only calculate the immediate impact of their economic decisions, but through a repeated feedback loop leading to a fixed point must also account for how those decisions affect the decisions of other players and themselves. This sophisticated thinking is the essence of non-cooperative game theory ∗Corresponding author; Tel: 847-491-8682; Fax: 847-467-1777; Addr: 2001 Sheridan Rd, Evanston IL 60208 For example, the chainstore paradox, which requires considerable foresight, fuels skepticism over whether firms can profit by predatory pricing.