The Tallest-Building Game

Economically speaking, should one look up to the businesspeople who build skyscrapers, or look down at them? Calculation is involved in reaching the answer obtained in this study:

A Game-Theoretic Analysis of Skyscrapers,” Robert W. Helsley and William C. Strange, Journal of Urban Economics, vol. 64, no. 1, July 2008, pp. 49-64. The authors explain:

“The bottom line of all of this is that skyscraper construction sometimes takes place in the context of a contest between rival builders. This paper carries out a game-theoretic analysis of such a skyscraper contest. A builder is assumed to have a payoff function that depends in part on profits, as derived from a standard model of urban spatial structure. Builder payoff also depends on whether the builder has developed the tallest structure in his or her market. The paper considers both simultaneous- and sequential-move skyscraper games. The main conclusion that emerges from the analysis is that the contest results in dissipation, with the value of the tallest-building prize at least partially lost in the poor economics of skyscrapers.”