International Journal of Computer Trends and Technology- volume4Issue3- 2013

ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 352

Study on the evolutionary game of
real-estate developers and commercial
banks

Hongxing Yao
#1
, Changlan Li
*2
Institute of Finance and Economics, Jiangsu University
Zhenjiang, Jiangsu, 212013, PR China
Faculty of science, Jiangsu University
Zhenjiang, Jiangsu, 212013, PR China


Abstract This paper was based on the evolutionary
game theory to study the dynamic game behavior of
the real estate developers and commercial bank and
set up an evolutionary game model based on
asymmetric games, Through a study of the replicator
dynamics, the research analyzed the evolutionary
stable strategy. At last the simulation shows the effect
of Evolutionary path when the initial conditions are
changed. The results provide valuable reference for
the real estate developers and commercial banks.

Keywords real estate developers, commercial
banks, evolutionary game, replicator dynamics
I. INTRODUCTION
Due to the good implementation of the
policy of reform and opening up, China's
real estate market is also more and more
get the attention of people, and in the real
estate industry in our country's economy
also occupies an important position, not
only promoted the economic development
of China, but also solved the housing
problem of the national . And with the
implement of national related regulation
and control policy for real estate property
has also become a national discussion and
hot topic of concern. The property belongs
to the typical of capital intensive industry,
his development requires a lot of financial
support, so the real estate developers will
need to be reasonable financing channels to
raise funds for the development of real
estate.So far, real estate developers don't
get all of the financial support, so the part
of a large number of real estate developers
need money by requiring the loans from
commercial Banks. Therefore, real estate
developers and Banks between problem
has gradually become the focus.
Evolutionary game theory combines the
game theory and evolutionary ideas, and
belongs to the scope of research of game
theory and evolutionary economics.
Evolutionary game theory first appeared in
the field of biology, used to study the
biological behavior and evolution process
in the different environment. J.M aynard -
Smith and R.S elten combined game theory
with dynamic evolution theory, and put
forward the evolutionary game
theory(e.g.[1]). At present, the evolutionary
game model gradually transition to the
economic and social fields, is used for
simulating and analyzing the reality of
economic and social problems.
In recent years, evolutionary game
theory in our country have raised a hot
wave which is applied to various fields of
research, Sheng Zhaohan, analyses the
enterprise in the process of bidding online
dynamic evolution process of bidding
strategy and electricity market evolutionary
stable strategy by using evolutionary game
theory(e.g.[2],[3]). Mei Qiang, Ma Guojian
have studied the small and medium-sized
enterprise credit guarantee the evolvement
International Journal of Computer Trends and Technology- volume4Issue3- 2013


ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 353

path of Banks and guarantees the
company's payoff matrix by means of the
theory of evolution game theory (e.g.[5]).
Wang Dexiang, Wang Wei, have explored
and explained the formation of its reasons
through the analysis of our country
banking separate operation to mixed
operation dynamic process from the
perspective of the analysis of game
theory(e.g.[6]). Then Zhou Shaoshuai has
established a complete information
dynamic game model, and analyzed the
cooperative game process of banking and
real estate developers and feasibility
(e.g.[7]). In August 2010, Sun Yanmei and
Sun Changxiong have incorporated Game
theory into the analytical framework of real
option approach(e.g.[8]).Ma Guoshun, Wei
J ianzhou in 2011, have used evolutionary
game theory to study the real estate market
trading main body in the dynamic game
behavior, and built a evolutionary game
model based on asymmetric game property
transactions, according to the dynamic
replication, analyzed the evolutionary
stable strategy of three cases according to
the results once the real estate regulation
policy play a proper role, China's property
market will be steady and rational
development(e.g.[9]). In 2012, Zhang
Yuming, Liang Yilin have established the
fact of evolution game theory framework,
the innovative small and medium-sized
enterprises and commercial Banks' credit
behavior evolution and the evolution
stability standard were discussed, and the
innovation risk and rewards and
punishments regulation two dimensions to
build the fact of evolution game model,
analysis of two types of groups in the
evolutionary stable strategy of long-term
credit game(e.g.[10]).
II. THE ESTABLISHMENT OF THE MODEL
Assume that the real estate developers
invest a real estate project, but the funds
are insufficient; The commercial banks
have investment money and considering its
own business use the funds for investment
projects, then through the cooperation
between the real estate developers and the
commercial banks, the funds are given full
play to the role of the capital.
Assumes that real estate developers
have four kinds of strategies: first,
independent developers raise the funds and
complete the project development
independently; Second, through the credit
in the bank and get money. Bank loans just
withdraw the principal and obtain the
corresponding interest at maturity, and it
means that Banks are not in direct
investment and do not participate in the
joint development of the project; Third,
investment Banks involved directly in the
project development process;Fourth,
developers raised funds, and share profits
with the commercial Banks. Different
strategies for profit is as follows:
independent developers raise the funds
and complete the project development
independentlysuppose the profits of
development of the project areU ,the
probability of project success is ( ) 1 , 0
1
e p ,
and it reflects the developers' development
ability. At this timethe expected profits for
developers are U p
1
,commercial Banks
operating profits areG , then the vector for
the payment is ( ) G U p ,
1

Bank credit and obtain corresponding
interestit is one of the most common
method of cooperation. Both parties within
the scope of central bank credit policy loan
agreement for the price is P ,developers
access the price after the signing of bank
funds, and the probability of project
success increase to
2
p .Since then, all
developers will conduct the project
development risks independently, and have
the exclusive profits to project success. The
expected profits for developers are P U p -
2
,
for the commercial banks, they still have
principal due, and will also receive a loan
interest expenseP , namely, the size of
bank profits areP .then the vector for the
payment is: ( ) P P U p , -
2
.
International Journal of Computer Trends and Technology- volume4Issue3- 2013


ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 354

Real estate developers and commercial
banks development of cooperationthe
commercial banks provide funds, and the
developers provide resources and market
ability, bilateral cooperation participate in
the development of project.Developers use
the commercial banks money right now,
and promised sharing the profits after the
success of the project with the commercial
banks, and the share proportion is: ( ) 1 , 0 e r ,
the share proportion of commercial banks
is r - 1 .Suppose in this independent
investment banks probability of project
success is ( ) 1 , 0
3
e p
3
p and
2
p are
independent of each other, so the
probability of success of both sides
cooperation development
4
p is:
( )( )
2 3 4
- 1 - 1 - 1 p p p =
2 3 2 3
- p p p p + = and
2 4 3 4
, p p p p > > , this suggests that Banks
cooperating with developers make the
project development ability improved. At
this time, the wector for the paymentthe
expected profits for developers are U rp
4

and the commercial banks are( ) U p r
4
- 1 .We
assume the investment funds areT ,and the
banks expectations profits are( ) T U p r - - 1
4
.
Therefore, strategic combination vector
of payment as follows:
( ) ( ) T U p r U rp - - 1 ,
4 4

developers raised funds, and share
profits with the commercial Banks: the
share proportion: developers profit ratio
is ( ) 1 , 0 e h and the commercial banks profit
ratio is h - 1 .So the developers expect profits
is U hp
1
and the commercial banks will
share the profits: ( ) G U p h +
1
- 1 ,so the pay
vector as follows: ( ) ( ) G U p h U hp +
1 1
- 1 , .
p and p - 1 represent the real estate
developers in a game probability of
strategy
1
A and
2
A respectively. q and q - 1 resp
ectively is the probability of the
commercial Banks adopt strategies
1
B and
2
B ,the probability of selection can
also be understood as a group game
changing strategy, the proportion of
participants are shown in table below:
TABLE I THE PAYMENT MATRIX OF TACTICS
INTERACTION BETWEEN REAL ESTATE DEVELOPERS
AND COMMERCIAL BANKS
The commercial banks
strategy
1
B (co
operation)
strategy
2
B (no
t cooperation)
real-
estat
e
deve
lope
rs
strategy
1
A (coop
eration)
( ) ) - - 1
, (
4
4
T U p r
U rp



( ) ) - 1
, (
1
1
G U p h
U hp
+

strategy
2
A (not
cooperati
on )
( ) P P U p , -
2

( ) G U p ,
1

and G P <
The real estate developers adopting
expected return for strategy 1 is
( ) ( ) U hp q U qrp A E
1 4 1
- 1 + = (1)
The real estate developers adopting
expected return for strategy 2 is
( ) ( ) ( ) q U p P U p q A E - 1 -
1 2 2
+ = (2)
So the average adopting expected return
of the real estate developers is
( ) ( ) ( ) ( )
( ) ( )
( ) ( ) ( ) ( ) q U p P U p q p
U hp q U qrp p
A E p A pE A E
- 1 - - 1
- 1
1
1 2
1 4
2 1
+
+ + =
+ =
(3)
Assume that developers group selection
strategy
1
A in the individual accounted for
the growth rate of population proportion is
equal to the relative fitness of the strategy,
and the strategy adopted by the lower
earnings game will imitate the higher
revenue strategy, then the growth of
proportion of developers adopting the
strategy
1
A is:
( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) U p h q U p h P U p U rp
p p A E A E p
dt
dp
1 1 2 4
1
- 1 - - 1 -
- 1 -
+ +
= =
(4)
In a similar way, The commercial banks
adopting expected return for strategy 1 is
( ) ( ) ( ) ( )P p T U p r p B E - 1 - - 1
4 1
+ = (5)
The commercial banks adopting
expected return for strategy 2 is
( ) ( ) ( ) ( )G p G U p h p B E - 1 - 1
1 2
+ + = (6)
So the average adopting expected return
International Journal of Computer Trends and Technology- volume4Issue3- 2013


ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 355

of the commercial banks is

( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( ) G p G U p h p q
P p T U p r p q
B E q B qE B E
- 1 - 1 - 1
- 1 - - 1
- 1
1
4
2 1
+ + +
+ =
+ =
(7)
then the growth of proportion of the
commercial banks adopting the
strategy
1
B is:
( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( ) G P p U p h P T U p r
q q B E B E q
dt
dq
- - 1 - - - 1
- 1 -
1 4
1
+ +
= =
(8)
So, the dynamic differential equation
system of type (4) and type (8) can be
described the evolution of the cooperative
game between the real estate developers
and the commercial Banks:
( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( )

+ +
= =
+ +
= =
G P p U p h P T U p r
q q B E B E q
dt
dq
U p h q U p h P U p U rp
p p A E A E p
dt
dp
- - 1 - - - 1
- 1 -
- 1 - - 1 -
- 1 -
1 4
1
1 1 2 4
1
(9)
III. EVOLUTIONARY STABILITY ANALYSIS OF
THE MODEL
Suppose the Jacobian matrix of equation
(9) isJ ,and the determinant of J is ) (J Det ,
the track record is Tr .According to the
method of literature [1] ,we can discuss the
stability of the equation.
According to the method proposed by
Friedman, the dynamic equilibrium
stability of a group described by the
differential equation can be made of
Jaconbian matrix of the system of local
stability analysis [8]. Therefore, we have
the partial derivative of p and q for the
equation (9), then we have the Jacobian
matrices:
Among them we have
( ) ( ) ( ) ( ) ( ) U p h q U p h P U p U rp p J
1 1 2 4 11
- 1 - - 1 - 2 - 1 + + =
( ) ( ) ( ) U p h P U p U rp p p J
1 2 4 12
- 1 - - 1 + + =
( ) ( ) ( ) ( ) ( ) U p h P T U p r q q J
1 4 21
- 1 - - - 1 - 1 + =
( ) ( ) ( ) ( ) ( ) ( ) G P p U p h P T U p r q J - - 1 - - - 1 2 1
1 4 22
+ + =
The replicator dynamics equation (4)
shows that, Only when 1 , 0 = p
or
( )
( ) U p h P U p U rp
U p h
q
1 2
1
- 1 -
- 1
4
+ +
=
, the
proportion of the real estate developers
choosing the strategy 1 is stable. The
equation (8) shows that, only
when 1 , 0 = q or
( ) ( ) ( ) U p h P T U p r
G P
p
1 4
- 1 - - - 1
-
+
=
,the proportion of
the commercial banks choosing the
strategy 1 is stable. As a result, we know
the system has 5 equilibrium positions. 5
equilibrium positions are analyzed by using
the local stability of the Jacobian matrix,
and the results are shown in table II:
TABLE II THE ANALYTIC RESULTS OF LOCAL STABILITY

equilibrium positions
) (J Det
Tr result
0 0 = = q p ( ) ( ) P G U p h - - 1
1

+
( ) G P U p - h - 1 -
1
+
- ESS
1 0 = = q p ( )( ) P U p U rp P G +
2 4
- -
+
G U p U rp +
2 4
-
+
unbalance
0 1 = = q p ( ) ( ) ( ) ( ) G U p h T U p r U p h - - 1 - - - 1 - 1
1 4 1

+
( ) G T U p r - - - 1
4

+
unbalance
1 1 = = q p ( ) ( ) ( ) ( ) G U p h T U p r P U p U rp - - 1 - - - 1 -
1 4 2 4
+

+
U hp G T P U p
1 2
- - + +
-
ESS
( ) ( ) ( ) U p h P T U p r
G P
p
1 4
- 1 - - - 1
-
+
=
( )
( ) U p h P U p U rp
U p h
q
1 2 4
1
- 1 -
- 1
+ +
=



A


0

Saddle
point
International Journal of Computer Trends and Technology- volume4Issue3- 2013


ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 356

( ) ( ) ( )
( ) ( )
( )
( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) | |
( ) ( ) P U p U rp U p h
U p h U p r G P
U p h P T U p r
U p h P U p U rp
U p h P U p U rp
U p h P T U p r
+ =
+ =
+
+ +
+ +
+
= A
2
-
4 1
- 1
1
- 1 - G - 2P T -
4
- 1 -
2
1
- 1 - -
4
- 1
1
- 1
2
-
4
2
1
- 1
2
-
4
1
- 1 - -
4
- 1
-

The table II shows that there are two of

the five balance of the system which are
stable, and they are the evolutionary
stable strategy(ESS) which are
corresponding cooperation and
non-cooperation of the real estate
developers and thee commercial Banks.
In addition, there are two equilibrium
A,B and a saddle point C. The dynamic
evolution process of the real estate
developers and commercial banks in the
system are shown in figure 1 below:


Fig.1 the dynamic interactive process between the real estate
developers and commercial banks
As shown in figure 1, the broken line
which consists of two stable point A(0, 1)
and B (1, 0) and a saddle point C can be
seen as the system converges to different
critical path. When the initial state is in
the bottom of the area of the line, the
system will converge to (0, 0). In other
words, all real estate developers and
commercial banks will take
uncooperative strategies. That is to say,
the real estate developers and the
commercial banks in the area will
gradually become uncooperative
strategies among the evolution process
of the cooperation. When the initial state
is at the top of the line area, the system
will converge to (1,1) point. That is to
say, the real estate developers and the
commercial banks in the area will
gradually become cooperative strategies
among the evolution process of the
cooperation.
IV. THE SIMULATION ANALYSIS
Using the method of numerical
experiments, and combining with the
actual situation we assign the various
parameters in differential equations (9)
as follows:
5000 , 500 , 1800 , 400
, 6 . 0 , 9 . 0 , 3 . 0 , 2 . 0 , 3 . 0
4 2 1
= = = =
= = = = =
U P T G
h p p p r

So we can get the payoff matrix for
the real estate developers and
commercial banks:
( ) ( )
( ) ( )
|
|
.
|

\
|
600 , 1000 400 , 1100
1000 , 600 1350 1350

Then we make the evolution process of
simulation betweenp witht andq witht .
(1)Suppose the initial value of p andq are
0.3 and 0.7( it means that the real estate
developers and the commercial Banks
have 30% and 70% of the group which
select to cooperate with each other. At
this time, the initial state is at the top of
the line area). The simulation results
which are obtained by Matlab
simulation program are as follows in
figure 2:
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
t
p
,
q

Fig.2 the evolution process between p witht andq witht
We can see the results of the
1
0
1 p
q


A
B
C
International Journal of Computer Trends and Technology- volume4Issue3- 2013


ISSN: 2231-2803 http://www.internationaljournalssrg.org Page 357

simulation form the figure 2,when the
real estate developers and the
commercial Banks have 30% and 70%
of the group which select to cooperate
with each other.All real estate
developers and commercial banks will
take cooperative strategies finally.
(2)Suppose the initial value
of p andq are 0.7 and 0.3( it means that
the real estate developers and the
commercial Banks have 70% and 30%
of the group which select to cooperate
with each other. At this time, the initial
state is at the bottom of the line area).
The simulation results which are
obtained by Matlab simulation program
are as follows in figure 3:

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
t
p
,
q

Fig.3 the evolution process between p witht andq witht
We can see the results of the
simulation form the figure 3,when the
real estate developers and the
commercial Banks have 70% and 30%
of the group which select to cooperate
with each other.All real estate
developers and commercial banks will
take uncooperative strategies finally.
V. CONCLUSIONS
In this paper, the application of the
idea of evolutionary game theory was
used in the real estate developers and the
commercial banks cooperation evolution
game model, and we research the
dynamic evolution process of real estate
developers and commercial. Through a
study of the replicator dynamics, the
research analyzed the evolutionary
stable strategy. At last the simulation
shows the effect of Evolutionary path
when the initial conditions are changed.
The results provide valuable reference
for the real estate developers and
commercial banks. Whats more, this
paper discusses the evolution of the
game between the real estate developers
and the commercial banks. In fact, the
government is also play a big role in the
real estate market game. In the future,
we could also consider the government
as the game side of the evolutionary
property transactions game model .
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