nep-gth New Economics Papers
on Game Theory
Issue of 2009‒02‒28
fourteen papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Axiomatic Theory of Equilibrium Selection for Games with Two Players, Perfect Information, and Generic Payoffs By Srihari Govindan; Robert Wilson
  2. Club Networks with Multiple Memberships and Noncooperative Stability By Frank H. Page, Jr., Myrna H. Wooders
  3. Is Having a Unique Equilibrium Robust? By Yannick Viossat
  4. Endogenous Network Dynamics By Frank H. Page, Jr., Myrna H. Wooders
  5. Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed? By Bosetti, Valentina; Carraro, Carlo; Tavoni, Massimo
  6. Negatively Correlated Bandits By Klein, Nicolas; Rady, Sven
  7. Central Bank Communication and Multiple Equilibria By Kozo Ueda
  8. Are antitrust lnes friendly to competition? An endogenous coalition formation approach to collusive cartels By David Bartolini; Alberto Zazzaro
  9. Risk-aversion and Prudence in Rent-seeking Games By TREICH Nicolas
  10. Raising Revenue With Raffles: Evidence from a Laboratory Experiment By Alexander Matros; Wooyoung Lim; Theodore Turocy
  11. Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs By Siddiqi, Hammad
  12. Information Acquisition During a Descending Auction By Wambach, Achim
  13. The Role of Liquidity Individuals in the Decision-Making By Steinbacher, Matjaz
  14. To Work or Not? Simulating Inspection Game with Labor Unions By Steinbacher, Matej; Steinbacher, Matjaz; Steinbacher, Mitja

  1. By: Srihari Govindan; Robert Wilson
    Date: 2009–02–15
  2. By: Frank H. Page, Jr., Myrna H. Wooders (Indiana University Bloomington Vanderbilt University)
    Abstract: Modeling club structures as bipartite directed networks, we formulate the problem of club formation as a noncooperative game of network formation and identify conditions on network formation rules and players’ network payoffs sufficient to guarantee that the game has a potential function. Our sufficient conditions on network formation rules require that each player be choose freely and unilaterally those clubs he joins and also his activities within these clubs (subject to his set of feasible actions). We refer to our conditions on rules as noncooperative free mobility. We also require that players’ payoffs be additively separable in player-specific payoffs and externalities (additive separability) and that payoff externalities — a function of club membership, club activities, and crowding — be identical across players (externality homogeneity). We then show that under these conditions, the noncooperative game of club network formation is a potential game over directed club networks and we discuss the implications of this result.
    Date: 2009–02
  3. By: Yannick Viossat (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)
    Abstract: We investigate whether having a unique equilibrium (or a given number of equilibria) is robust to perturbation of the payoffs, both for Nash equilibrium and correlated equilibrium. We show that the set of n-player finite games with a unique correlated equilibrium is open, while this is not true of Nash equilibrium for n>2. The crucial lemma is that a unique correlated equilibrium is a quasi-strict Nash equilibrium. Related results are studied. For instance, we show that generic two-person zero-sum games have a unique correlated equilibrium and that, while the set of symmetric bimatrix games with a unique symmetric Nash equilibrium is not open, the set of symmetric bimatrix games with a unique and quasi-strict symmetric Nash equilibrium is.
    Keywords: Correlated equilibrium; Linear duality; Unique equilibrium; Quasi-strict equilibrium
    Date: 2008–12
  4. By: Frank H. Page, Jr., Myrna H. Wooders (Indiana University Bloomington Vanderbilt University)
    Abstract: In all social and economic interactions, individuals or coalitions choose not only with whom to interact but how to interact, and over time both the structure (the “with whom”) and the strategy (“the how”) of interactions change. Our objectives here are to model the structure and strategy of interactions prevailing at any point in time as a directed network and to address the following open question in the theory of social and economic network formation: given the rules of network and coalition formation, the preferences of individuals over networks, the strategic behavior of coalitions in forming networks, and the trembles of nature, what network and coalitional dynamics are likely to emergence and persist. Our main contributions are (i) to formulate the problem of network and coalition formation as a dynamic, stochastic game, (ii) to show that this game possesses a stationary correlated equilibrium (in network and coalition formation strategies), (iii) to show that, together with the trembles of nature, this stationary correlated equilibrium determines an equilibrium Markov process of network and coalition formation which respects the rules of network and coalition formation and the preferences of individuals, and (iv) to show that, although uncountably many networks may form, this endogenous process of network and coalition formation possesses a nonempty finite set of ergodic measures and generates a finite, disjoint collection of nonempty subsets of networks and coalitions, each constituting a basin of attraction. Moreover, we extend to the setting of endogenous Markov dynamics the notions of pairwise stability (Jackson-Wolinsky, 1996), strong stability (Jackson-van den Nouweland, 2005), and Nash stability (Bala-Goyal, 2000), and we show that in order for any network-coalition pair to be stable (pairwise, strong, or Nash) it is necessary and sufficient that the pair reside in one of finitely many basins of attraction - and hence reside in the support of an ergodic measure. The results we obtain here for endogenous network dynamics and stochastic basins of attraction are the dynamic analogs of our earlier results on endogenous network formation and strategic basins of attraction in static, abstract games of network formation (Page and Wooders, 2008), and build on the seminal contributions of Jackson and Watts (2002), Konishi and Ray (2003), and Dutta, Ghosal, and Ray (2005).
    Date: 2009–02
  5. By: Bosetti, Valentina; Carraro, Carlo; Tavoni, Massimo
    Abstract: This paper analyses the cost implications for climate policy in developed countries if developing countries are unwilling to adopt measures to reduce their own GHG emissions. First, we assume that a 450 CO2 (550 CO2e) ppmv stabilisation target is to be achieved and that Non Annex1 (NA1) countries decide to delay their GHG emission reductions by 30 years. What would be the cost difference between this scenario and a case in which both developed and developing countries start reducing their emissions at the same time? Then, we look at a scenario in which the timing of developing countries’ participation is uncertain and again we compute the costs of climate policy in developed and developing countries. We find that delayed participation of NA1 countries has a negative impact on climate policy costs. Economic inefficiencies can be as large as 10-25 TlnUSD. However, this additional cost wanes when developing countries are allowed to trade emission reductions from their baseline emission paths during the 30-year delay period. Thus, irrespective of whether NA1 countries are immediately assigned an emission reduction target or not, they should nonetheless be included in a global carbon market. Technology deployment is also affected by the timing of developing countries’ mitigation measures. Delayed NA1-country participation in a climate agreement would scale down the deployment of coal with CCS throughout the century. On the other hand, innovation in the form of energy R&D investments would be positively affected, since it would become crucial in developed countries. Finally, uncertainty about the timing of NA1-country participation does not modify the optimal abatement strategy for developed countries and does not alter policy costs as long as a global carbon market is in place.
    Keywords: Climate Policy; Delayed Action; Stabilisation Costs; Uncertain Participation
    JEL: C72 H23 Q25 Q28
    Date: 2008–09
  6. By: Klein, Nicolas; Rady, Sven
    Abstract: We analyze a two-player game of strategic experimentation with two-armed bandits. Each player has to decide in continuous time whether to use a safe arm with a known payoff or a risky arm whose likelihood of delivering payoffs is initially unknown. The quality of the risky arms is perfectly negatively correlated between players. In marked contrast to the case where both risky arms are of the same type, we find that learning will be complete in any Markov perfect equilibrium if the stakes exceed a certain threshold, and that all equilibria are in cutoff strategies. For low stakes, the equilibrium is unique, symmetric, and coincides with the planner's solution. For high stakes, the equilibrium is unique, symmetric, and tantamount to myopic behavior. For intermediate stakes, there is a continuum of equilibria.
    Keywords: Bayesian Learning; Exponential Distribution; Markov Perfect Equilibrium; Poisson Process; Strategic Experimentation; Two-Armed Bandit
    JEL: C73 D83 O32
    Date: 2008–10
  7. By: Kozo Ueda (Institute for Monetary and Economic Studies, Deputy Director and Bank of Japan (Email: kouzou.ueda
    Abstract: We construct a simple model in which a central bank communicates with money market traders. We demonstrate that there exist multiple equilibria. In one equilibrium, traders truthfully reveal their own information, and by learning this, the central bank can make better forecasts. Another equilibrium is a gdog-chasing-its-tailh equilibrium in Blinder (1998). Traders mimic the central bankfs forecast, so the central bank simply observes its own forecast from traders. The latter equilibrium is socially worse in that inflation variability becomes larger. We also demonstrate that too high transparency of central banks is bad because it yields the gdog-chasing-its-tailh equilibrium, and that central banks should conduct continuous monitoring or emphasize that their forecasts are conditional because doing so eliminates the gdog- chasing-its-tailh equilibrium.
    Keywords: Transparency, disclosure, coordination
    JEL: C72 D83 E52
    Date: 2009–02
  8. By: David Bartolini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Abstract: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and a specilc rule of cartel formation. Then we extend the analysis to the case of N symmetric firms and a generic rule of coalition formation. Finally, we consider;the case of asymmetric firms and show that our results still hold for an industry;populated by one Stackelberg leader and two followers.
    Keywords: Antitrust policy, Coalition formation, Collusive cartels
    JEL: C70 L40 L41
    Date: 2009–02
  9. By: TREICH Nicolas
    Date: 2009–02
  10. By: Alexander Matros; Wooyoung Lim; Theodore Turocy
    Abstract: Lottery and raffle mechanisms have a long history as economic institutions for raising funds. In a series of laboratory experiments we find that total spending in raffles is much higher than Nash equilibrium predicts. Moreover, this overspending is persistent as the number of participants in the raffle increases. Subjects as a group do not strategically reduce spending as group sizes increase, in contrast to the comparative statics theory provides. The lack of strategic response cannot be explained by learning direction theory or level-$k$ reasoning models, although quantal response equilibrium can fit the observed distribution of choices. Much of the observed spending levels in the larger groups cannot be explained by financial incentives.
    JEL: C72 C92 D72
    Date: 2009–02
  11. By: Siddiqi, Hammad
    Abstract: Mullainathan, Schwartzstein, & Shleifer [Quarterly Journal of Economics, May 2008] put forward a model of coarse thinking. The essential idea behind coarse thinking is that agents put situations into categories and then apply the same model of inference to all situations in a given category. We extend the argument to strategies in a game-theoretic setting and propose the following: Agents split the choice-space into categories in comparison with salient choices and then choose each option in a given category with equal probability. We provide an alternative explanation for the puzzling results obtained in a Bertrand competition experiment as reported in Abbink & Brandts [Games and Economic Behavior, 63, 2008]
    Keywords: Laboratory experiments; Oligopoly; Price competition; Co-ordination games; Coarse Thinking
    JEL: L13 C90 D83 D43 C72
    Date: 2009–02–19
  12. By: Wambach, Achim
    Abstract: If bidders can acquire information during the auction the descending auction is no longer equivalent to a first-price-sealed-bid auction. Revenue equivalence does not hold. The incentive to acquire information can even be larger in a descending auction than in an ascending auction.
    Keywords: Descending auction; Dutch auction; First price sealed bid auction; Information acquisition
    JEL: D44 D82 D83
    Date: 2008–10
  13. By: Steinbacher, Matjaz
    Abstract: We simulate social network games of a portfolio selection to analyze the role of liquidity individuals for the developments in individuals’ decision-making in financial markets. Liquidity individuals prove to be a significant element in the decision-making process of the entire network, as they keep the information of non-dominant strategies alive. Their role is especially significant under omniscient individuals, whereas a little less under non-omniscient individuals. As long as individuals do not lose the information of all the alternatives, their role is insignificant.
    Keywords: social networks; portfolio analysis; stochastic finance
    JEL: G11 Z13 C73
    Date: 2009
  14. By: Steinbacher, Matej; Steinbacher, Matjaz; Steinbacher, Mitja
    Abstract: The model of social network is used to analyze the impact of the power of labor unions in the labor relations. We find that labor union capable to affect a pecuniary compensation of shirking employees lessens the motivation of employees to work and improve to the unionization rate. As a result, the performance of the firm is significantly deteriorated and its existence endangered. On the other hand, the inspection proved to be a successful method for “motivating” employees to work. By using non-omniscient agents, we also estimated the cost of that non-omniscience, which proved to be significant in all cases.
    Keywords: social networks; inspection game; evolutionary games
    JEL: D21 J51 Z13 C73
    Date: 2009–02

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