nep-gth New Economics Papers
on Game Theory
Issue of 2011‒08‒22
three papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Hidden Information, Bargaining Power, And Efficiency: An Experiment By Antonio Cabrales; Gary Charness; Marie-Claire Villeval
  2. Price Discrimination Through Communication By Itai Sher; Rakesh Vohra
  3. Coordination and Social Learning By Chong Huang

  1. By: Antonio Cabrales (Departamento de Economía - Universidad Carlos III de Madrid); Gary Charness (Department of Economics, University of California - University of California, Santa Barbara); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    Abstract: We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents' informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more 'generous' (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
    Keywords: experiment; hidden information; bargaining power; competition; efficiency
    Date: 2011
  2. By: Itai Sher; Rakesh Vohra
    Abstract: We study a seller's optimal mechanism for maximizing revenue when the buyer may present evidence relevant to the buyer's value, or when different types of buyer have a differential ability to communicate. We introduce a dynamic bargaining protocol in which the buyer first makes a sequence of concessions in a cheap talk phase, and then at a time determined by the seller, the buyer presents evidence to support his previous assertions, and then the seller makes a take-it-or-leave-it offer. Our main result is that the optimal mechanism can be implemented as a sequential equilibrium of our dynamic bargaining protocol. Unlike the optimal mechanism to which the seller can commit, the equilibrium of the bargaining protocol also provides incentives for the seller to behave as required. We thereby provide a natural procedure whereby the seller can optimally price discriminate on the basis of the buyer's evidence. JEL Code: C78, D82, D83.
    Keywords: price discrimination, communication, bargaining, commitment, evidence, network flows
    Date: 2011–06–01
  3. By: Chong Huang (Department of Economics, University of Pennsylvania)
    Abstract: This paper studies the interaction between coordination and social learning in a dynamic regime change game. Social learning provides public information to which players overreact due to the coordination motive. So coordination affects the aggregation of private signals through players' optimal choices. Such endogenous provision of public information results in inefficient herds with positive probability, even though private signals have an unbounded likelihood ratio property. Therefore, social learning is a source of coordination failure. An extension shows that if players could individually learn, inefficient herding disappears, and thus coordination is successful almost surely. This paper also demonstrates that along the same history, the belief convergence differs in different equilibria. Finally, social learning can lead to higher social welfare when the fundamentals are bad.
    Keywords: Coordination, social learning, inefficient herding, dynamic global game, common belief
    JEL: C72 C73 D82 D83
    Date: 2011–08–05

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