
on Game Theory 
Issue of 2013‒11‒22
eight papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  Siegfried Berninghaus (Karlsruhe Institute of Technology, Institute of Economics); Stephan Schosser (University of Magdeburg, Department of Economics); Bodo Vogt (University of Magdeburg, Department of Economics) 
Abstract:  For games of simultaneous action selection and network formation, gametheoretic behavior and experimental observations are not in line: While theory typically predicts inefficient outcomes for (anti)coordination games, experiments show that subjects tend to play efficient (non Nash) strategy profiles. A reason for this discrepancy is the tendency to model corresponding games as oneshot and derive predictions. In this paper, we calculate the equilibria for a finitely repeated version of the HawkDove game with endogenous network formation and show that the repetition leads to additional equilibria, namely the efficient ones played by human subjects. We confirm our results by an experimental study. In addition, we show both theoretically and experimentally that the equilibria reached crucially depend on the order in which subjects adjust their strategy. Subjects only reach efficient outcomes if they first adapt their action and then their network. If they choose their network first, they do not reach efficient outcomes. 
Keywords:  Network games, Hawk/Dove games, finitely repeated game 
JEL:  D85 C72 C73 C92 
Date:  2013–11–13 
URL:  http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013048&r=gth 
By:  Lisa Bruttel (Department of Economics, University of Konstanz, Germany); Werner Güth (Max Planck Institute of Economics, Jena, Germany) 
Abstract:  In the twoperson sequential best shot game, first player 1 contributes to a public good and then player 2 is informed about this choice before contributing. The payoff from the public good is the same for both players and depends only on the maximal contribution. Efficient voluntary cooperation in the repeated best shot game therefore requires that only one player should contribute in a given round. To provide better chances for such cooperation, we enrich the sequential best shot base game by a third stage allowing the party with the lower contribution to transfer some of its periodic gain to the other party. Participants easily establish cooperation in the finitely repeated game. When cooperation evolves, it mostly takes the form of 'labor division,' with one participant constantly contributing and the other constantly compensating. However, in a treatment in which compensation is not possible, (more or less symmetric) alternating occurs frequently and turns out to be almost as efficient as labor division. 
Keywords:  best shot game, coordination, transfer, experiment 
JEL:  C71 C73 C91 
Date:  2013–10–31 
URL:  http://d.repec.org/n?u=RePEc:knz:dpteco:1324&r=gth 
By:  Debasis Mishra (Indian Statistical Institute, New Delhi); Anup Pramanik (Indian Statistical Institute, New Delhi); Souvik Roy (Indian Statistical Institute, New Delhi) 
Abstract:  We consider implementation of a deterministic allocation rule using transfers in quasilinear private values environments. We show that if the type space is a multidimensional domain satisfying some ordinal restrictions, then an allocation rule is implementable in such a domain if and only if it satisfies a familiar and simple condition called 2cycle monotonicity. Our ordinal restrictions cover type spaces which are nonconvex, e.g., the single peaked domain and its generalizations. We apply our result to show that in the single peaked domain, a local version of 2cycle monotonicity is necessary and sufficient for implementation and every locally incentive compatible mechanism is incentive compatible. 
Keywords:  implementation, 2cycle monotonicity, revenue equivalence, local incentive compatibility 
JEL:  D44 D71 D82 D86 
Date:  2013–05 
URL:  http://d.repec.org/n?u=RePEc:ind:isipdp:1307&r=gth 
By:  Qingmin Liu; Konrad Mierendorff; Xianwen Shi 
Abstract:  We study auction design in the standard symmetric independent private values environment, where the seller lacks the commitment power to withhold an unsold object off the market. The seller has a single object and can conduct an infinite sequence of standard auctions with reserve prices to maximize her expected profit. In each period, the seller can commit to a reserve price for the current period but cannot commit to future reserve prices. We analyze the problem with limited commitment through an auxiliary mechanism design problem with full commitment, in which an additional constraint reflects the sequential rationality of the seller. We characterize the maximal profit achievable in any perfect Bayesian equilibrium in the limit as the period length vanishes. The static full commitment profit is not achievable but the seller can always guarantee the profit of an efficient auction. If the number of buyers exceeds a cutoff which is small for many distributions, the efficient auction is optimal. Otherwise, the efficient auction is not optimal, and we give conditions under which the optimal solution consists of an initial auction with a nontrivial reserve price followed by a continuously decreasing price path. The solution is described by a simple ordinary differential equation. Our analysis combines insights from bargaining, auctions, and mechanism design. 
Keywords:  Auctions, Commitment, Bargaining, Mechanism Design, Coase Conjecture 
JEL:  D44 C73 C78 
Date:  2013–11–15 
URL:  http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa504&r=gth 
By:  Dokka Venkata Satyanarayana, Trivikram; Crama, Yves; Spieksma, Frits 
Abstract:  We consider a special class of axial multidimensional assignment problems called multidimensional vector assignment (MVA) problems. An instance of the MVA problem is defined by m disjoint sets, each of which contains the same number n of pdimensional vectors with nonnegative integral components, and a cost function defined on vectors. The cost of an mtuple of vectors is defined as the cost of their componentwise maximum. The problem is now to partition the m sets of vectors into n mtuples so that no two vectors from the same set are in the same mtuple and so that the total cost of the mtuples is minimized. The main motivation comes from a yield optimization problem in semiconductor manufacturing. We consider two classes of polynomialtime heuristics for MVA, namely, hub heuristics and sequential heuristics, and we study their approximation ratio. In particular, we show that when the cost function is monotone and subadditive, hub heuristics, as well as sequential heuristics, have finite approximation ratio for every fixed m. Moreover, we establish better approximation ratios for certain variants of hub heuristics and sequential heuristics when the cost function is monotone and submodular, or when it is additive. We provide examples to illustrate the tightness of our analysis. Furthermore, we show that the MVA problem is APXhard even for the case m = 3 and for binary input vectors. Finally, we show that the problem can be solved in polynomial time in the special case of binary vectors with fixed dimension p. 
Keywords:  Multidimensional assignment; Approximability; Worstcase analysis; Submodularity; Wafertowafer integration; 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:ner:leuven:urn:hdl:123456789/404023&r=gth 
By:  Renaud Bourlès (AMSE  AixMarseille School of Economics  AixMarseille Univ.  Centre national de la recherche scientifique (CNRS)  École des Hautes Études en Sciences Sociales [EHESS]  Ecole Centrale Marseille (ECM)); Yann Bramoullé (AMSE  AixMarseille School of Economics  AixMarseille Univ.  Centre national de la recherche scientifique (CNRS)  École des Hautes Études en Sciences Sociales [EHESS]  Ecole Centrale Marseille (ECM)) 
Abstract:  We provide the first theoretical analysis of altruism in networks. Agents are embedded in a fixed, weighted network and care about their direct friends. Given some initial distribution of incomes, they may decide to support their poorer friends. We study the resulting noncooperative transfer game. Our analysis highlights the importance of indirect gifts, where an agent gives to a friend because his friend himself has a friend in need. We uncover four main features of this interdependence. First, we show that there is a unique profile of incomes after transfers, for any network and any utility functions. Uniqueness in transfers holds on trees, but not on arbitrary networks. Second, there is no waste in transfers in equilibrium. In particular, transfers flow through indirect paths of highest altruistic strength. Third, a negative shock on one agent cannot benefit others and tends to affect socially closer agents first. In addition, an income redistribution that decreases inequality exante can increase inequality expost. Fourth, altruistic networks decrease income inequality. In contrast, more altruistic or more homophilous networks can increase inequality. 
Keywords:  private transfers; social networks; altruism; income redistribution; income inequality 
Date:  2013–11 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:halshs00881451&r=gth 
By:  Andre DE PALMA; Fay DUNKERLEY; Stefan PROOST 
Abstract:  Many transport and other service problems come down to simple network choices: what mode and/ or route to take, if some of the routes and modes are congested and their use can be priced or not priced by different operators. The operators can have different objective functions: public or private monopoly, private duopoly, etc.. This standard problem has been studied in many variants, mostly using the assumption of perfect substitutability between alternatives, so that in the deterministic Wardrop equilibrium, all routes that are used have the same generalized cost. This paper examines in more detail the role of the perfect substitutability assumption. Users of a network consume transport services, which are differentiated in two ways. There are objective differences in quality (length of route, congestion level) perceived by all users and there are individual idiosyncratic preferences for transport services. The resulting stochastic equilibrium is analysed on a simple parallel network for four types of ownership regimes: private ownership, coordinated public ownership, mixed publicprivate and public Stackelberg leadership. We find that, firstly, when total demand is fixed and there is congestion, then by controlling one route a government can achieve the First Best allocation, although the second route is privately operated or unpriced. This result holds whatever the level of substitutability and whatever the levels of congestion. Secondly, whenever imperfect substitutability is present, private supply of one of the two routes becomes relatively less efficient because the private supplier has an additional source of market power to exploit. If the better of the two routes is privately supplied it is always insufficiently used. However, if only one route can be privately operated, then this should always be the intrinsically better route. 
Date:  2013–11 
URL:  http://d.repec.org/n?u=RePEc:ete:ceswps:ces13.21&r=gth 
By:  Sergio Currarini (University of Leicester, Universita' di Venezia and EuroMediterranean Center on Climate Change); Marco A. Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") 
Abstract:  We study the welfare effects of parallel trade (PT) considering investment in quality. We thus revisit the case for allowing PT in researchintensive industries. We find that quality may be higher with than without PT, depending on how consumersÕ preferences for quality differ across countries. Conditional on quality, consumer surplus may rise in the source country, or fall in the destination country of PT. We find that PT reduces ex post welfare, and improving quality is a necessary (and sometimes sufficient) condition for PT to increase welfare ex ante. 
Keywords:  Parallel trade; Price discrimination; R&D investment; Intellectual property rights 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:aeg:report:201314&r=gth 