nep-gth New Economics Papers
on Game Theory
Issue of 2008‒10‒07
thirteen papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Nash Equilibrium and Dynamics By Sergiu Hart
  2. Bertrand-Edgeworth games under oligopoly with a complete characterization for the triopoly By De Francesco, Massimo A.; Salvadori, Neri
  3. Monotone Comparative Statics for Games With Strategic Substitutes By Sunanda Roy; Tarun Sabarwal
  4. Existence of pure strategy equilibria in Bertrand-Edgeworth games with imperfect divisibility of money By De Francesco, Massimo A.
  5. A mechanism for solving bargaining problems between risk averse players By Emily Tanimura; Sylvie Thoron
  6. Error Cascades in Observational Learning: An Experiment on the Chinos Game By Francesco Feri; Miguel A. Meléndez-Jiménez; Giovanni Ponti; Fernando Vega Redondo
  7. Estimating Matching Games with Transfers By Jeremy T. Fox
  8. Asymptotic Equivalence of Probabilistic Serial and Random Priority Mechanisms By Yeon-Koo Che; Fuhito Kojima
  9. Asymmetric Information and the Signaling Role of Prices By Wassim Daher; Leonard J. Mirman; Marc Santugini
  10. Individual behavior and group membership: Comment By Matthias Sutter
  11. Mechanism Design and Communication Networks By Ludovic Renou; Tristan Tomala
  12. Efficiency Gains from Team-Based Coordination – Large-Scale Experimental Evidence By Francesco Feri; Bernd Irlenbusch; Matthias Sutter
  13. A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments By Victor Aguirregabiria; Chun-Yu Ho

  1. By: Sergiu Hart
    Abstract: John F. Nash, Jr., submitted his Ph.D. dissertation entitled Non-Cooperative Games to Princeton University in 1950. Read it 58 years later, and you will find the germs of various later developments in game theory. Some of these are presented below, followed by a discussion concerning dynamic aspects of equilibrium.
    Date: 2008–09
  2. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: The paper extends the analysis of price competition among capacity-constrained sellers beyond the cases of duopoly and symmetric oligopoly.We first provide some general results for the oligopoly and then focus on the triopoly, providing a complete characterization of the mixed strategy equilibrium of the price game. The region of the capacity space where the equilibrium is mixed is partitioned according to the features of the mixed strategy equilibrium arising in each subregion. Then computing the mixed strategy equilibrium becomes a quite simple task. The analysis reveals features of the mixed strategy equilibrium which do not arise in the duopoly
    Keywords: Bertrand-Edgeworth; Price game; Oligopoly; Triopoly; Mixed strategy equilibrium
    JEL: L13 D43 C72
    Date: 2008–05–11
  3. By: Sunanda Roy (College of Business and Public Administration, Drake University); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: This paper studies comparative statics of equilibria in models where the optimal responses under consideration are (weakly) decreasing in endogenous variables, and (weakly) increasing in exogenous parameters. Such models include parameterized games of strategic substitutes. The analysis provides a sufficient condition for existence of increasing equilibria at a higher parameter value. This condition is presented first for best-response functions; it can be translated easily to payoff functions with one-dimensional individual strategy spaces, and it has a natural analogue to best-response correspondences. The condition is tight in the sense that with a weakenened condition, the same result may not obtain. The results here apply to asymmetric equilibria, and are applied to two classes of examples – Cournot duopoly and tournaments. Moreover, sufficient conditions are presented to exhibit strong comparative statics of equilibria (that is, every equilibrium at a higher parameter value is greater than a given equilibrium at a lower parameter value), and to show existence of increasing equilibrium selections.
    Keywords: Monotone comparative statics, Weakly decreasing functions, Strategic substitutes, Payoff functions
    JEL: C60 C61 C62 C72
    Date: 2008–09
  4. By: De Francesco, Massimo A.
    Abstract: This paper incorporates imperfect divisibility of money in a price game where a given number of identical firms produce a homogeneous product at constant unit cost up to capacity. We find necessary and sufficient conditions for the existence of a pure strategy equilibrium. Unlike in the continuous action space case, under discrete pricing there may be a range of symmetric pure strategy equilibria - which we fully characterize - a range which may or may not include the competitive price. Also, we determine the maximum number of such equilibria when competitive pricing is itself an equilibrium.
    Keywords: Bertrand-Edgeworth competition; Price game; Oligopoly; Pure strategy equilibrium; Discrete pricing.
    JEL: L13 D43 C72
    Date: 2008–09–29
  5. By: Emily Tanimura (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Sylvie Thoron (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: We propose a mechanism for resolving bargaining problems.The mechanism allows two players to make a sequence of simultaneous propositions. At any step, as long as the players have not reached an agreement, they can choose to implement a lottery between the different propositions. In this aspect, the mechanism is similar to the so called final others arbitration. However, contrary to the existing scheme, our mechanism is not compulsory. The history of the negotiation process is recorded and players can refuse an offer and go back in the process to a previous step. This generates an evolving sequence of status-quo points and results in a sequence of equilibrium others of the two play-ers that gradually converge towards each other. Our model assumes nodiscounting and complete information. Rather than time preferences, the main incentive to reach an agreement under our mechanism comes from risk aversion. Players have an incentive to avoid the uncertainty related to the lotteries that occur when offers do not result in an agreement. Rather than incomplete information, the process gradualism is driven by the necessity to make step by step concessions in order to generate evolving threat points. We show that under this mechanism, the unique subgame perfect equilibrium that does not use weakly dominated strategies coincides with a well-known static solution concept, the Raiffa solution.
    Keywords: bargaining theory ; Raiffa bargaining solution ;risk aversion ; final offers arbitration ; chilling effect ; gradualism
    Date: 2008–09–30
  6. By: Francesco Feri; Miguel A. Meléndez-Jiménez; Giovanni Ponti; Fernando Vega Redondo
    Abstract: The paper reports an experimental study based on a variant of the popular Chinos game, which is used as a simple but paradigmatic instance of observational learning. There are three players, arranged in sequence, each of whom wins a fixed price if she manages to guess the total number of coins lying in everybody’s hands. Our evidence shows that, despite the remarkable frequency of equilibrium outcomes, deviations from optimal play are also significant. And when such deviations occur, we find that, for any given player position, the probability of a mistake is increasing in the probability of a mistake of her predecessors. This is what we call an error cascade, which we which we measure by way of two alternative models.
    Keywords: positional learning, error cascades
    JEL: C92 D8
    Date: 2008–09
  7. By: Jeremy T. Fox
    Abstract: Economists wish to use data on matches to learn about the structural primitives that govern sorting. I show how to use equilibrium data on who matches with whom for nonparametric identification and semiparametric estimation of match production functions in many-to-many, two-sided matching games with transferable utility. Inequalities derived from equilibrium necessary conditions underlie a maximum score estimator of match production functions. The inequalities do not require data on transfers, quotas, or production levels. The estimator does not suffer from a computational or data curse of dimensionality in the number of agents in a matching market, as the estimator avoids solving for an equilibrium and estimating first-stage match probabilities. I present an empirical application to automotive suppliers and assemblers.
    JEL: C1 C14 C71 D85 L22 L62
    Date: 2008–10
  8. By: Yeon-Koo Che (Dept. of Economics, Columbia University); Fuhito Kojima (Cowles Foundation, Yale University)
    Abstract: The random priority (random serial dictatorship) mechanism is a common method for assigning objects to individuals. The mechanism is easy to implement and strategy-proof. However this mechanism is inefficient, as the agents may be made all better off by another mechanism that increases their chances of obtaining more preferred objects. Such an inefficiency is eliminated by the recent mechanism called probabilistic serial, but this mechanism is not strategy-proof. Thus, which mechanism to employ in practical applications has been an open question. This paper shows that these mechanisms become equivalent when the market becomes large. More specifically, given a set of object types, the random assignments in these mechanisms converge to each other as the number of copies of each object type approaches infinity. Thus, the inefficiency of the random priority mechanism becomes small in large markets. Our result gives some rationale for the common use of the random priority mechanism in practical problems such as student placement in public schools.
    Keywords: Random assignment, Random priority, Probabilistic serial, Ordinal efficiency, Asymptotic equivalence
    JEL: C70 D61 D63
    Date: 2008–10
  9. By: Wassim Daher; Leonard J. Mirman; Marc Santugini (IEA, HEC Montréal)
    Abstract: We study asymmetric information and the signaling role of prices in a noiseless and imperfectly competitive environment. Here, the price is determined by market forces. After describing the general model, we study information flows in applications of industrial organization and finance: a quantity-setting monopoly, Cournot oligopoly, and a model of choice and allocation of a risky asset. For each application, there is a unique signaling equilibrium in which the price conveys all the information. Moreover, the signaling equilibrium differs from the full information equilibrium..
    Date: 2008–09
  10. By: Matthias Sutter
    Abstract: Charness et al. (2007b) have shown that group membership has a strong effect on individual decisions in strategic games when group membership is salient through payoff commonality. In this comment I show that their findings also apply to non-strategic decisions, even when no outgroup exists, and I relate the effects of group membership on individual decisions to joint decision making in teams. I find in an investment experiment that individual decisions with salient group membership are largely the same as team decisions. This finding bridges the literature on team decision making and on group membership effects.
    Keywords: Individual Behavior, Group Membership, Team Decision Making, Experiment
    JEL: C91 C92 D71
    Date: 2008–09
  11. By: Ludovic Renou; Tristan Tomala
    Abstract: This paper characterizes the class of communication networks for which, in any environment (utilities and beliefs), every incentive-compatible social choice function is (partially) implementable. Among others, in environments with either common and independent beliefs and private values or a bad outcome, we show that if the communication network is 2-connected, then any incentive-compatible social choice function is implementable. A network is 2-connected if each player is either directly connected to the designer or indirectly connected to the designer through at least two disjoint paths. We couple encryption techniques together with appropriate incentives to secure the transmission of each player’s private information to the designer.
    Keywords: Mechanism design; incentives; Bayesian equilibrium; communication networks; encryption; secure transmission; coding
    JEL: C7
    Date: 2008–09
  12. By: Francesco Feri; Bernd Irlenbusch; Matthias Sutter
    Abstract: The need for efficient coordination is ubiquitous in organizations and industries. The literature on the determinants of efficient coordination has focused on individual decision-making so far. In reality, however, teams often have to coordinate with other teams. We present an experiment with 825 participants, using six different coordination games, where either individuals or teams interact with each other. We find that teams coordinate much more efficiently than individuals. This finding adds one important cornerstone to the recent literature on the conditions for successful coordination. We explain the differences between individuals and teams using the experience weighted attraction learning model.
    Keywords: Coordination games, Individual decision-making, Team decision-making, Experience-weighted attraction learning, Experiment
    JEL: C71 C91 C92
    Date: 2008–09
  13. By: Victor Aguirregabiria; Chun-Yu Ho
    Abstract: This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors which may explain the adoption of hub-and-spoke networks: (1) travelers value the services associated with the scale of operation of an airline in the hub airport (e.g., more convenient check-in and landing facilities); (2) operating costs and entry costs in a route may decline with an airline's scale operation in origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As a methodological contribution, we propose and apply a simple method to deal with the problem of multiple equilibria when using the estimated model to predict the effects of changes in structural parameters. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines very importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.
    Keywords: Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactuals with multiple equilibria
    JEL: C10 C35 C63 C73 L10 L13 L93
    Date: 2008–09–29

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