nep-gth New Economics Papers
on Game Theory
Issue of 2007‒05‒04
seven papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. "Tit-For-Tat Equilibria in Discounted Repeated Games with Private Monitoring" By Hitoshi Matsushima
  2. Perfect Equilibria in a Negotiation Model with Different Time Preferences By Harold Houba; Quan Wen
  3. Endogenous Coalition Formation in Contests By Santiago Sanchez-Pages
  4. A Subsidized Vickrey Auction for Cost Sharing By Jesse A. Schwartz; Quan Wen
  5. Cooperative Production and Efficiency By Carmen Beviá; Luis C. Corchón
  6. Marginal contribution, reciprocity and equity in segregated groups: Bounded rationality and self-organization in social networks By Alan Kirman; Sheri Markose; Simone Giasante; Paolo Pin
  7. Strategic Advertisement with Externalities: A New Dynamic Approach By R. Joosten

  1. By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo)
    Abstract: We investigate infinitely repeated games with imperfect private monitoring. We focus on a class of games where the payoff functions are additively separable and the signal for monitoring a player's action does not depend on the other player's action. Tit-for-tat strategies function very well in this class, according to which each player's action in each period depends only on the signal for the opponent's action one period before. With almost perfect monitoring, we show that even if the discount factors are fixed low, efficiency is approximated by a tit-for-tat Nash equilibrium payoff vector.
    Date: 2007–04
  2. By: Harold Houba (Vrije Universiteit and Tinbergen Institute); Quan Wen (Department of Economics, Vanderbilt University)
    Abstract: The players behave quite differently in the negotiation model under different time preferences than under common time preferences. Conventional analysis in this literature relies on the key presumption that all continuation payoffs are bounded from above by the bargaining frontier resulted from stationary contracts. When players have different time preferences, however, intertemporal trade may lead to continuation payoffs above the bargaining frontier. In this paper, we provide a thorough study of this problem when players have different time preferences. Our results tie up all the previous findings, and also clarify the confusion that arose in the past.
    Keywords: Bargaining, negotiation, time preference, endogenous threats
    JEL: C72 C73 C78
    Date: 2006–03
  3. By: Santiago Sanchez-Pages
    Abstract: This paper analyzes coalition formation in a model of contests with linear costs. Agents first form groups and then compete by investing resources. Coalitions fight for prizes that are assumed to be subject to rivalry, so their value is non-increasing in the size of the group. This formulation encompasses as particular cases some models proposed in the rent-seeking literature. We show that the formation of groups generates positive spillovers and analyze two classes of games of coalition formation. A contest among individual agents is the only stable outcome when individual defections leave the rest of the group intact. More concentrated coalition structures, including the grand coalition, are stable when groups collapse after a defection, provided that rivalry is not too strong. Results in a sequential game of coalition formation suggest that there exists a non-monotonic relationship between the level of underlying rivalry and the level of social conflict.
    Keywords: Contests, coalition formation, conflict, rivalry.
    JEL: C72 D72 D74
  4. By: Jesse A. Schwartz (Department of Economics, Kennesaw State University); Quan Wen (Department of Economics, Vanderbilt University)
    Abstract: We introduce a subsidized Vickrey auction for cost sharing problems. Although the average, marginal, and serial cost sharing mechanisms are budget-balanced, they are not allocatively efficient and they do not induce players to truthfully reveal their values as a dominant strategy. The conventional Vickrey auction, on the other hand, is allocatively efficient and does induce truthful bidding as a dominant strategy, but also generates an overpayment. This paper modifies the conventional Vickrey auction so that some of the overpayment is used to subsidize additional production without upsetting the players' incentives to bid truthfully. Although this subsidized Vickrey auction is not allocatively efficient, it always Pareto dominates the conventional Vickrey auction and sometimes dominates other existing cost sharing mechanisms.
    Keywords: Cost sharing, dominant strategy implementation, Vickrey auction, subsidized Vickrey auction
    JEL: C72 D44 H42
    Date: 2007–04
  5. By: Carmen Beviá; Luis C. Corchón
    Abstract: We characterize the sharing rule for which a contribution mechanism achieves efficiency in a cooperative production setting when agents are heterogeneous. The sharing rule bears no resemblance to those considered by the previous literature. We also show for a large class of sharing rules that if Nash equilibrium yields efficient allocations, the production function displays constant returns to scale, a case in which cooperation in production is useless.
    Keywords: Cooperative Production, sharing rules, efficiency
    JEL: D29 D6 D78
    Date: 2007–04–23
  6. By: Alan Kirman; Sheri Markose; Simone Giasante; Paolo Pin
    Abstract: We study the formation of social networks that are based on local interaction and simple rule following. Agents evaluate the profitability of link formation on the basis of the Myerson-Shapley principle that payoffs come from the marginal contribution they make to coalitions. The NP-hard problem associated with the Myerson-Shapley value is replaced by a boundedly rational 'spatially' myopic process. Agents consider payoffs from direct links with their neighbours (level 1) which can include indirect payoffs from neighbours' neighbours (level 2) and up to M-levels that are far from global. Agents dynamically break away from the neighbour to whom they make the least marginal contribution. Computational experiments show that when this self-interested process of link formation operates at level 2 neighbourhoods, agents self-organize into stable and efficient network structures that manifest reciprocity, equity and segregation reminiscent of hunter gather groups. A large literature alleges that this is incompatible with self-interested behaviour and market oriented marginality principle in the allocation of value. We conclude that it is not this valuation principle that needs to be altered to obtain segregated social networks as opposed to global components, but whether it operates at level 1 or level 2 of social neighbourhoods. Remarkably, all M>2 neighbourhood calculations for payoffs leave the efficient network structures identical to the case when M=2.
    Date: 2007–04–28
  7. By: R. Joosten
    Abstract: We model and analyze strategic interaction over time in a duopolis-tic market. Each period the firms independently and simultaneously choose whether to advertise or not. Advertising increases the own immediate sales, but may also cause an externality, e.g., increase or decrease the immediate sales of the other firm ceteris paribus. There exists also an effect of past advertisement efforts on current sales. The 'market potential' of each firm is determined by its own but also by its opponent's past efforts. A higher effort of either firm leads to an increase of the market potential, however the impact of the own past efforts is always stronger than the impact of the opponent's past efforts. How much of the market potential materializes as immediate sales, then depends on the current advertisement decisions. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion using methods inspired by the repeated-games literature. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.
    Keywords: advertising, externalities, average rewards, equilibria Length 21 pages
    JEL: C72 C73 L13 M31 M37
    Date: 2007–04

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