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Supermodular Function

A function is supermodular if the componentwise maximum of two inputs is greater than or equal to the function evaluated at the componentwise minimum. This concept is used in economics and game theory to analyze strategic complementarity, where one player's actions incentivize higher actions from other players. Supermodularity corresponds to strategic complementarity, while submodularity corresponds to strategic substitutability. Supermodularity and submodularity are also defined for functions over subsets.

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31 views3 pages

Supermodular Function

A function is supermodular if the componentwise maximum of two inputs is greater than or equal to the function evaluated at the componentwise minimum. This concept is used in economics and game theory to analyze strategic complementarity, where one player's actions incentivize higher actions from other players. Supermodularity corresponds to strategic complementarity, while submodularity corresponds to strategic substitutability. Supermodularity and submodularity are also defined for functions over subsets.

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Supermodular function

In mathematics, a function

is supermodular if

for all , , where denotes the componentwise maximum and the componentwise
minimum of and .

If −f is supermodular then f is called submodular, and if the inequality is changed to an equality the
function is modular.

If f is twice continuously differentiable, then supermodularity is equivalent to the condition[1]

Supermodularity in economics and game theory


The concept of supermodularity is used in the social sciences to analyze how one agent's decision affects
the incentives of others.

Consider a symmetric game with a smooth payoff function defined over actions of two or more
players . Suppose the action space is continuous; for simplicity, suppose each action is
chosen from an interval: . In this context, supermodularity of implies that an increase in player
's choice increases the marginal payoff of action for all other players . That is, if any
player chooses a higher , all other players have an incentive to raise their choices too. Following
the terminology of Bulow, Geanakoplos, and Klemperer (1985), economists call this situation strategic
complementarity, because players' strategies are complements to each other.[2] This is the basic property
underlying examples of multiple equilibria in coordination games.[3]

The opposite case of supermodularity of , called submodularity, corresponds to the situation of strategic
substitutability. An increase in lowers the marginal payoff to all other player's choices , so strategies
are substitutes. That is, if chooses a higher , other players have an incentive to pick a lower .

For example, Bulow et al. consider the interactions of many imperfectly competitive firms. When an
increase in output by one firm raises the marginal revenues of the other firms, production decisions are
strategic complements. When an increase in output by one firm lowers the marginal revenues of the other
firms, production decisions are strategic substitutes.
A supermodular utility function is often related to complementary goods. However, this view is disputed.[4]

Submodular functions of subsets


Supermodularity and submodularity are also defined for functions defined over subsets of a larger set.
Intuitively, a submodular function over the subsets demonstrates "diminishing returns". There are
specialized techniques for optimizing submodular functions.

Let S be a finite set. A function is submodular if for any and ,


. For supermodularity, the inequality is reversed.

The definition of submodularity can equivalently be formulated as

for all subsets A and B of S.

Theory and enumeration algorithms for finding local and global maxima (minima) of submodular
(supermodular) functions can be found in "Maximization of submodular functions: Theory and
enumeration algorithms", B. Goldengorin.[5]

See also
Pseudo-Boolean function
Topkis's theorem
Submodular set function
Superadditive
Utility functions on indivisible goods

Notes and references


1. The equivalence between the definition of supermodularity and its calculus formulation is
sometimes called Topkis' characterization theorem. See Milgrom, Paul; Roberts, John
(1990). "Rationalizability, Learning, and Equilibrium in Games with Strategic
Complementarities". Econometrica. 58 (6): 1255–1277 [p. 1261]. doi:10.2307/2938316 (http
s://doi.org/10.2307%2F2938316). JSTOR 2938316 (https://www.jstor.org/stable/2938316).
2. Bulow, Jeremy I.; Geanakoplos, John D.; Klemperer, Paul D. (1985). "Multimarket Oligopoly:
Strategic Substitutes and Complements". Journal of Political Economy. 93 (3): 488–511.
CiteSeerX 10.1.1.541.2368 (https://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.541.
2368). doi:10.1086/261312 (https://doi.org/10.1086%2F261312). S2CID 154872708 (https://
api.semanticscholar.org/CorpusID:154872708).
3. Cooper, Russell; John, Andrew (1988). "Coordinating coordination failures in Keynesian
models" (http://cowles.yale.edu/sites/default/files/files/pub/d07/d0745-r.pdf) (PDF). Quarterly
Journal of Economics. 103 (3): 441–463. doi:10.2307/1885539 (https://doi.org/10.2307%2F1
885539). JSTOR 1885539 (https://www.jstor.org/stable/1885539).
4. Chambers, Christopher P.; Echenique, Federico (2009). "Supermodularity and preferences".
Journal of Economic Theory. 144 (3): 1004. CiteSeerX 10.1.1.122.6861 (https://citeseerx.ist.
psu.edu/viewdoc/summary?doi=10.1.1.122.6861). doi:10.1016/j.jet.2008.06.004 (https://doi.
org/10.1016%2Fj.jet.2008.06.004).
5. Goldengorin, Boris (2009-10-01). "Maximization of submodular functions: Theory and
enumeration algorithms" (https://www.sciencedirect.com/science/article/pii/S037722170800
7418). European Journal of Operational Research. 198 (1): 102–112.
doi:10.1016/j.ejor.2008.08.022 (https://doi.org/10.1016%2Fj.ejor.2008.08.022). ISSN 0377-
2217 (https://www.worldcat.org/issn/0377-2217).

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