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on Game Theory |
| By: | Heller, Yuval; Kuzmics, Christoph |
| Abstract: | An equilibrium is communication-proof if it is unaffected by new opportunities to communicate and renegotiate. We characterize the set of equilibria of coordination games with pre-play communication in which players have private preferences over the feasible coordinated outcomes. Communication-proof equilibria provide a narrow selection from the large set of qualitatively diverse Bayesian Nash equilibria in such games. Under a communication-proof equilibrium, players never miscoordinate, play their jointly preferred outcome whenever there is one, and communicate only the ordinal part of their preferences. Moreover, such equilibria are robust to changes in players' beliefs, interim Pareto efficient, and evolutionarily stable. |
| Keywords: | cheaptalk, communication-proofness, renegotiation-proofness, secrethandshake, incomplete information, evolutionary robustness |
| JEL: | C72 C73 D82 |
| Date: | 2020–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102926&r= |
| By: | Lijun Bo; Shihua Wang; Xiang Yu |
| Abstract: | This paper studies a mean field game (MFG) problem in a market with a large population of heterogeneous agents. Each agent aims to maximize the terminal wealth under a CRRA type relative performance, in which the interaction occurs by the competition with peers. We start from the model with n agents, in which the underlying risky assets subject to a common noise and contagious jump risk modelled by a multi-dimensional Hawkes process. With a continuum of agents, we formulate the MFG problem and characterize a deterministic mean field equilibrium in an analytical form, allowing us to investigate some impacts of model parameters in the limiting model and discuss the financial implications. More importantly, it is shown that this mean field equilibrium can serve as an approximate Nash equilibrium for the n-player game problem when n is sufficiently large. The explicit order of the approximation error is also derived. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.00799&r= |
| By: | David Pérez-Castrillo; Chaoran Sun |
| Abstract: | We define the proportional ordinal Shapley (the POSh) solution, an ordinal concept for pure exchange economies in the spirit of the Shapley value. Our construction is inspired by Hart and Mas-Colell's (1989) characterization of the Shapley value with the aid of a potential function. The POSh exists and is unique and essentially single-valued for a fairly general class of economies. It satisfies individual rationality, anonymity, and properties similar to the null-player and null-player out properties in transferable utility games. Moreover, the POSh is immune to agents' manipulation of their initial endowments: It is not D-manipulable and does not suffer from the transfer paradox. Finally, we construct a bidding mechanism à la Pérez-Castrillo and Wettstein (2001) that implements the POSh in subgame perfect Nash equilibrium for economies where agents have homothetic preferences and positive endowments. |
| Keywords: | shapley value, exchange economy, ordinal solution, potential, Implementation |
| JEL: | D63 D50 C72 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1274&r= |
| By: | Promit Kanti Chaudhuri (Indira Gandhi Institute of Development Research) |
| Abstract: | In this paper, a differentiated product economy is modeled where firms strategically set up autonomous rival divisions and the divisions play the quantity competition game `a la Cournot or by means of monopolistic competition, where the divisions are unaware of the impact of their output either on the firm's total output or on the total industry output. This case of divisions being unaware of the impact of their outputs on the firm's aggregate output or on the industry total output is termed as `Strategic Inattention'. The incentive to divisionalize still remains within the firms even in the case of the `Strategic Inattention', but the incentive is lower than the case of normal Cournot competition. Next in a duopoly, the firms play a three stage game. In the first stage, the firms decide whether to let their divisions utilize or ignore the information on the impact of their individual output on the firm's total output or industry total output. In the second stage the firms strategically decide on the number of divisions and in the final stage the divisions compete against each other in terms of quantity. It is seen that one firm deciding to be inattentive to the information available and the other firm using that information, is the equilibrium outcome. Thus inattentive and attentive firms coexist in a Subgam Perfect Nash Equilibrium. This result is in sharp contrast to the findings of Cellini et al. (2020). |
| Keywords: | Divisionalization, information, Monopolistic competition, Oligopoly, Strategic interaction |
| JEL: | D43 L11 L13 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-020&r= |
| By: | Michelacakis, Nickolas |
| Abstract: | We consider a mixed ownership duopoly delegation model with spatial price discrimination and constant, albeit different, marginal production costs. In contrast to what holds true for a private duopoly, the Nash equilibrium, absent delegation, for a mixed duopoly with discriminatory pricing according to location is both consistent and socially optimal. We find that under Nash conjectures, in most cases, firm owners have a strong incentive to delegate location decisions to managers. In such cases, firms locate closer to each other. The intensity of the competition leads to lower prices, lower profits, for both firms, and increased surplus for the consumer. |
| Keywords: | mixed duopoly; delegation; spatial competition; consistent conjectures; Nash equilibrium |
| JEL: | D43 L13 L21 L22 R32 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109011&r= |
| By: | Manon Francois |
| Abstract: | We study the choice between source-based and destination-based corporate taxes in a two-country model, allowing multinational firms to use transfer pricing to allocate profits across tax jurisdictions. We show that source-based taxation is a Nash equilibrium for tax revenue maximizing jurisdictions if domestic and foreign firms generate large revenues. We also show that destination-based taxes are a Nash equilibrium when firms generate low revenues, which implies the presence of multiple equilibria. Both the source and the destination principle coexist in equilibrium when domestic and foreign corporate revenues are intermediate. However, the source principle always tax-dominates the destination principle. |
| Keywords: | tax competition, multinational firms, corporate taxes, transfer pricing |
| JEL: | F23 H00 H25 H26 H71 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9211&r= |
| By: | Hernán Vallejo |
| Abstract: | This article builds a simple model of oligopoly and uses it to make a detailed characterization of the equilibrium prices; quantities; mark-ups; price elasticities of market demand; price elasticities of residual demand; and welfare, all in terms of the parameters of the model. This is done under five different conjectures -Collusion, Threat, Cournot, Stackelberg and Bertrand-. The results of the model are used do comparative statics. |
| Keywords: | Oligopoly, Collusion, Threat, Cournot, Stackelberg, Bertrand, mark-up |
| JEL: | C70 C71 D43 L13 |
| Date: | 2021–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:019428&r= |
| By: | Daniel Keniston; Bradley J. Larsen; Shengwu Li; J.J. Prescott; Bernardo S. Silveira; Chuan Yu |
| Abstract: | This paper uses detailed data on sequential offers from seven vastly different real-world bargaining settings to document a robust pattern: agents favor offers that split the difference between the two most recent offers on the table. Our settings include negotiations for used cars, insurance injury claims, a TV game show, auto rickshaw rides, housing, international trade tariffs, and online retail. We demonstrate that this pattern can arise in a perfect Bayesian equilibrium of an alternating-offer game with two-sided incomplete information, but this equilibrium is far from unique. We then provide a robust-inference argument to explain why agents may view the two most recent offers as corresponding to the potential surplus. Split-the-difference offers under this weaker, robust inference can then be viewed as fair. We present a number of other patterns in each data setting that point to split-the-difference offers as a strong social norm, whether in high-stakes or low-stakes negotiations. |
| JEL: | C7 C78 D9 D91 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29111&r= |
| By: | Leandro Arozamena; Juan-José Ganuza; Federico Weinschelbaum |
| Abstract: | In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm. |
| Keywords: | Auctions, Favoritism, Auction Design, Renegotiation, Corruption |
| JEL: | C72 D44 D82 |
| Date: | 2021–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:col:000518:019429&r= |
| By: | Claire Chambolle (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Hugo Molina (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We develop a unified theory of exclusive dealing and exclusionary bundling. In a framework with two competing manufacturers which supply their product(s) through a monopolist retailer, we show that buyer power restores the profitability of such practices involving inefficient exclusion. The mechanism underlying this exclusion is that the compensation required by the retailer to renounce selling the rival product erodes with its buyer power. Among others, we further show that our theory holds when the buyer power differs across manufacturers or when the retailer can strategically narrow (or expand) its product assortment. |
| Keywords: | Vertical relations,Buyer power,Exclusive dealing,Exclusionary Bundling,Nash-in-Nash bargaining with Threat of Replacement |
| Date: | 2021–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03231803&r= |
| By: | Tom Phelan; Alexis Toda |
| Abstract: | We analyze equilibrium behavior and optimal policy within a Susceptible-Infected-Recovered epidemic model augmented with potentially undiagnosed agents who infer their health status and a social planner with imperfect enforcement of social distancing. We define and prove the existence of a perfect Bayesian Markov competitive equilibrium and contrast it with the efficient allocation subject to the same informational constraints. We identify two externalities, static (individual actions affect current risk of infection) and dynamic (individual actions affect future disease prevalence), and study how they are affected by limitations on testing and enforcement. We prove that a planner with imperfect enforcement will always wish to curtail activity, but that its incentives vanish as testing becomes perfect. When a vaccine arrives far into the future, the planner with perfect enforcement may encourage activity before herd immunity. We find that lockdown policies have modest welfare gains, whereas quarantine policies are effective even with imperfect testing. |
| Keywords: | efficiency; externalities; lockdown; perfect Bayesian equilibrium; quarantine |
| JEL: | C73 D50 D62 I12 |
| Date: | 2021–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:92950&r= |
| By: | Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Julien Fixary (UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We determine the topological structure of the graph of pairwise stable weighted networks. As an application, we obtain that for large classes of polynomial payoff functions, there exists generically an odd number of pairwise stable networks. This improves the results in Bich and Morhaim ([5]) or in Herings and Zhan ([14]), and can be applied to many existing models, as for example to the public good provision model of Bramoullé and Kranton ([8]), the information transmission model of Calvó-Armengol ([9]), the two-way flow model of Bala and Goyal ([2]), or Zenou-Ballester's key-player model ([3]). |
| Keywords: | Weighted Networks,Pairwise Stable Networks Correspondence,Generic oddness |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03287524&r= |
| By: | Jason R. Blevins; Minhae Kim |
| Abstract: | We introduce a sequential estimator for continuous time dynamic discrete choice models (single-agent models and games) by adapting the nested pseudo likelihood (NPL) estimator of Aguirregabiria and Mira (2002, 2007), developed for discrete time models with discrete time data, to the continuous time case with data sampled either discretely (i.e., uniformly-spaced snapshot data) or continuously. We establish conditions for consistency and asymptotic normality of the estimator, a local convergence condition, and, for single agent models, a zero Jacobian property assuring local convergence. We carry out a series of Monte Carlo experiments using an entry-exit game with five heterogeneous firms to confirm the large-sample properties and demonstrate finite-sample bias reduction via iteration. In our simulations we show that the convergence issues documented for the NPL estimator in discrete time models are less likely to affect comparable continuous-time models. We also show that there can be large bias in economically-relevant parameters, such as the competitive effect and entry cost, from estimating a misspecified discrete time model when in fact the data generating process is a continuous time model. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.02182&r= |
| By: | Hernan Bejarano (Center of Economics Research and Teaching, Economics Division (CIDE), Mexico.); Joris Gillet (Middlesex University, Business School.); Ismael Rodriguez-Lara (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | We experimentally investigate the effect of a negative endowment shock that can cause inequality in a trust game. Our goal is to assess whether different causes of inequality have different effects on trust and trustworthiness. In our trust game, we vary whether there is inequality (in favor of the second mover) or not and whether the inequality results from a random negative shock (i.e., the outcome of a die roll) or exists from the outset. Our findings suggest that inequality causes firstmovers to send more of their endowment and second-movers to return more. However, we do not find support for the hypothesis that the cause of the inequality matters. Behavior after the occurrence of a random shock is not significantly different from the behavior in treatments where the inequality exists from the outset. Our results highlight the need to be cautious when interpreting the effects on trust and trustworthiness of negative random shocks in the field (such as natural disasters). Our results suggest that these effects are primarily driven by the inequality caused by the shock and not by any of the additional characteristics of the shock, like saliency or uncertainty. |
| Keywords: | Trust game, endowment heterogeneity, random shocks, inequality aversion, experimental economics. |
| JEL: | C91 D02 D03 D69 |
| Date: | 2021–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:21/06&r= |
| By: | Kazunori Miwa (Graduate School of Economics, Osaka University) |
| Abstract: | This study experimentally investigates the interaction between firms f information acquisition decisions and disclosure. In particular, I focus on a Cournot duopoly market under industry-wide demand uncertainty. The results demonstrate that acquiring industry-wide demand information improves firms f production decisions in that firms can adjust their quantity levels depending on the market demand. However, disclosure diminishes a firm fs incentive to acquire such information. This is because once the information, which a firm acquired at a cost, is subsequently disclosed, a rival firm can take a free ride on the disclosed information and make a more informed decision. Hence, disclosure decreases the benefit of acquiring information for the disclosing firm. Taken together, although acquiring information improves production decisions, disclosure decreases the incentive to do so and thus, deteriorates a firm fs internal information environment. This leads to inefficient production, which in turn might have a substantial impact on market outcomes. |
| Keywords: | Information acquisition; Disclosure; Duopoly; Experiment |
| JEL: | L13 M41 M48 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1301r&r= |
| By: | Sarah Auster; Nicola Pavoni |
| Abstract: | We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also superior awareness of the set of actions that are actually feasible. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal's cost of distorting the agent's choices and increases the principal's willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. We demonstrate that limited awareness of actions improves communication in such games: the principal makes a coarser inference from the recommendations of the privately informed agent and accepts a larger number of his proposals. |
| Keywords: | Unawareness, optimal delegation, strategic disclosure |
| JEL: | D82 D83 D86 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_256v2&r= |