Government intervention policies in competition of financial chains: a game theory approach

Raziyeh Reza-Gharehbagh (College of Industrial Engineering, South Tehran Branch, Islamic Azad University, Tehran, Iran)
Ashkan Hafezalkotob (College of Industrial Engineering, South Tehran Branch, Islamic Azad University, Tehran, Iran)
Ahmad Makui (Department of Industrial Engineering, Iran University of Science and Technology, Tehran, The Islamic Republic of Iran)
Mohammad Kazem Sayadi (Iran Telecommunication Research Center, Tehran, The Islamic Republic of Iran)

Kybernetes

ISSN: 0368-492X

Publication date: 1 August 2019

Abstract

Purpose

This study aims to analyze the competition of two financial chains (FCs) when the government intervenes in the financial market to prohibit the excessively high-interest rate by minimizing the arbitrages caused by speculative transactions. Each FC comprises an investor and one intermediary, attempts to finance the capital-constrained firms in financing needs.

Design/methodology/approach

Using a Stackelberg game theoretic framework and formulating two- and three-level optimization problems for six possible scenarios, the authors establish an integrative framework to evaluate the scenarios through the lens of the two main decision-making structures of the FCs (i.e. centralized and decentralized) and three policies of the government (i.e. speculation minimizing, revenue gaining and utility maximizing).

Findings

Solving the problem results in optimal values for tariffs, which guarantee a stable competitive market. Consequently, policymaking by the government influences the decision variables, which is shown in a numerical study. The authors find that the government can orchestrate the FCs in the competitive market by imposing tariffs and prohibiting high-interest rates via regulating the speculation impacts, which guarantees a stable market and facilitates the financing of capital-constrained firms.

Research limitations/implications

This paper aids the financial markets and governments to control the interest rate by minimizing the speculation level.

Originality/value

This paper investigates the impact of government intervention policies – as a leading player – on the competition of FCs – as followers – in providing financial services and making profits. The government imposes tariffs on the interest rate to stabilize the market by limiting speculative transactions. The paper presents the mathematical models of the optimization problems through the game-theoretic framework and comparison of the scenarios through a numerical experiment.

Keywords

Citation

Reza-Gharehbagh, R., Hafezalkotob, A., Makui, A. and Sayadi, M.K. (2019), "Government intervention policies in competition of financial chains: a game theory approach", Kybernetes, Vol. 49 No. 3, pp. 960-981. https://doi.org/10.1108/K-10-2018-0539

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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