nep-gth New Economics Papers
on Game Theory
Issue of 2016‒07‒16
six papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Non-cooperative equilibrium with multiple deviators By Dmitry Levando
  2. Time-Inconsistent Stochastic Linear-quadratic Differential Game By Qinglong Zhou; Gaofeng Zong
  3. Correlation and coordination risk By Martin Geiger; Richard Hule
  4. The Nash bargaining solution in vertical relations with linear input prices By Aghadadashli, Hamid; Dertwinkel-Kalt, Markus; Wey, Christian
  5. The Evolution of Conventions under Condition-Dependent Mistakes By Ennio Bilancini; Leonardo Boncinelli
  6. Essays on bid rigging By Seres, Gyula

  1. By: Dmitry Levando
    Abstract: The paper suggests a non-cooperative simultaneous game, with a number of potential deviators is a parameter of the game. A definition of the game embeds mechanism design. The game has an equilibrium in mixed strategies. The equilibrium encompasses intra and inter group externalities and individual payoffs that make it different from a strong Nash, coalition-proof equilibrium and some other equilibrium concepts. We offer a non-cooperative stability criterion to describe a robustness of an equilibrium strategy profile to an increase in a number of deviators. The criterium may serve as a way to measure trust for the equilibrium in terms of a number of potential deviators.
    Keywords: Non-cooperative games
    JEL: C72
    Date: 2016
  2. By: Qinglong Zhou; Gaofeng Zong
    Abstract: We consider a general time-inconsistent stochastic linear-quadratic differential game. The time-inconsistency arises from the presence of quadratic terms of the expected state as well as state-dependent term in the objective functionals. We define an equilibrium strategy, which is different from the classical one, and derived a sufficient conditions for equilibrium strategies via a system of forward-backward stochastic differential equations. When the state is one-dimensional and the coefficients are all deterministic, we find an explicit equilibrium strategy. The uniqueness of such equilibrium strategy is also given.
    Date: 2016–07
  3. By: Martin Geiger; Richard Hule
    Abstract: We study the potential role of correlated refinancing abilities among different countries for the disruption of government bond markets in a currency union. Following Morris and Shin (2004) we use a global games framework and model the simultaneous investment decision into two assets, which are subject to correlated fundamental states, as a coordination problem with correlated imperfect information. Based on this model we evaluate the role of information about one country for the coordination of creditors of another country. We find, however, that the contagious effects on the price of debt precipitated through correlation are modest. Hence, assuming that investors behave as modeled in the global game, we conclude that correlated fundamentals that precipitate informational spillovers appear to be unlikely to play a major role for e.g. the disruption of some Eurozone government bond markets in the aftermath of the recent financial and economic crisis.
    Keywords: Government bond refinancing, global games, creditor coordination, currency union
    JEL: D82 G12
    Date: 2016–06
  4. By: Aghadadashli, Hamid; Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We re-examine the Nash bargaining solution when an upstream and a downstream firm bargain over a linear input price. We show that the profit sharing rule is given by a simple and instructive formula which depends on the parties' disagreement payoffs, the profit weights in the Nash-product and the elasticity of derived demand. A downstream firm's profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods' demand elasticity. Our simple formula generalizes to bargaining with N downstream firms when bilateral contracts are unobservable.
    Keywords: Nash Bargaining,Demand Elasticity
    JEL: L13
    Date: 2016
  5. By: Ennio Bilancini; Leonardo Boncinelli (Dipartimento di Scienze per l'Economia e l'Impresa)
    Abstract: In this paper we study the long run convention emerging from stag-hunt interactions when errors converge to zero at a rate that is positively related to the payoff earned in the previous period. We refer to such errors as condition-dependent mistakes. We find that, if interactions are sufficiently stable over time, then the payoff-dominant convention emerges in the long run. Moreover, if interactions are neither too stable nor too volatile, then the risk-dominant convention is selected in the long run. Finally, if interactions are quite volatile, then the maximin convention emerges even if it is not risk-dominant. We introduce the notion of \emph{condition-adjusted-risk-dominance} to characterize the convention emerging in the long run under condition-dependent mistakes. We contrast these results with the results obtained under alternative error models: uniform mistakes, i.e., errors converge to zero at a rate that is constant over states, and payoff-dependent mistakes, i.e., errors converge to zero at a rate that depends on expected losses.
    Keywords: risk-dominant; payoff-dominant; maximin; mistakes; stag hunt; stochastic stability.
    JEL: C72 C73
    Date: 2016
  6. By: Seres, Gyula (Tilburg University, School of Economics and Management)
    Abstract: Manipulating prices in auctions raises antitrust concerns. Collusion lowers the revenue of the auctioneer and creates information rents. Bid rigging is a prevalent phenomenon and the affected market is enormous. Public procurement amounts to between 10 and 25 percent of national GDP in industrialized countries. This doctoral thesis contributes to the literature by showing that the source of information asymmetry between cartel members has a profound effect on the feasibility and form of collusion. This point is not without policy relevance. Results of this thesis can contribute to our understanding on combating collusion and promoting allocative efficiency. Chapter 1 builds up a model showing public revelation of information by the auctioneer may foster cartel formation and decrease expected revenue, contradicting the Linkage Principle. Chapter 2 investigates the form of cartel mechanisms. A theoretical model shows why knockout auctions are the prevalent form of bid rigging. Full information revelation within cartel is generally not possible in equilibrium. Chapter 3 is an experimental study focusing on the effect of auction cartels on allocative efficiency. Robust estimates show that the effect is negative and significant.
    Date: 2016

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