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on Game Theory |
| By: | Paraskevas Lekeas; Giorgos Stamatopoulos (Department of Economics, University of Crete, Greece) |
| Abstract: | Cooperative game theory studies situations where groups or coalitions of players act collectively by signing binding agreements. The starting point of the theory is to determine the worth each coalition can achieve when its members act independently of the players outside the coalition. In games with orthogonal coalitions, i.e., coalitions that do not affect one another, this task is quite straightforward, as it suffices to study the actions of the insiders only. However, when orthogonality is absent, or in other words, when there are inter-coalitional externalities, the specification of the worth of a coalition requires the studying of the actions of the players in all coalitions. Therefore, when a number of players contemplate to form a coalition in an environment with externalities they need to have a theory, or a conjecture, about the actions of the players outside the proposed coalition. Clearly, different conjectures lead to different specifications of the worth or value of the coalition, which in turn affects the outcome of the game. In particular, these conjectures determine the core of the cooperative game. The core is the set of all outcomes (allocations of the value that the entire society of players generates) that no coalition has incentive to block and act on its own. Non-emptiness of the core means that cooperation among all players in the game is feasible. The literature on cooperative games with externalities has proposed a number of such coalitional conjectures, each giving rise to a specific core notion. According to α and β-conjectures (Aumann 1959), the members of a coalition compute their worth assuming that the outside players select their strategies so as to minimize the payoff of the coalition; the α and β-core are then defined with respect to the resulting coalitional payoffs. According to γ-conjectures (Chander&Tulkens 1997), it is assumed that the outsiders select individual best strategies, i.e., they form only singleton coalitions; the γ-core is then accordingly defined. The same approach can be followed under the additional assumption that each coalition assumes for itself the role of Stackelberg leader (Currarini&Marini 2003). The r-theory (Huang&Sjostrom 2003; Koczy 2007) proposes that the members of a coalition compute their worth by looking recursively on the sub-games played among the outsiders; the r-core arises when the solution concept employed in these sub-games is the core itself. Economists often restore to cooperative games with externalities to model various economic environments. Applications include the use of α and β-core in oligopolistic markets (Zhao 1999; Norde et al. 2002; Lardon 2010); the use of γ-core in economies with production externalities (Chander&Tulkens 1997; Chander 2007; Helm 2012), in oligopolies (Rajan 1989; Lardon 2010; Lardon 2012) or in extensive-form games (Chander&Wooders 2012); the use of sequential γ-core for cooperative games with strategic complements (Currarini&Marini 2003) or for economies with enviromental externalities (Marini 2013), etc. The main focus of these papers is to find conditions under which the core is non-empty. The current paper focuses too on cooperative games with externalities but takes a different route. It assumes that when a group of players S contemplate to break off from the rest of the society, they are uncertain about the partition that the players outside S will form. Hence, they assign various probability distributions on the set of all possible partitions. These probabilistic beliefs do not necessarily reflect the behavior of the outsiders, i.e., beliefs need not be consistent with actual choices. Given the beliefs, no natter how they form, one can compute the expected worth of S and define the core of the resulting cooperative game. The task that arises then is to find conditions on the data of the game (i.e., payoff functions and probability distributions) that guarantee the non-emptiness of the core, or, in other words, guarantee that the cooperation of all players in the game is feasible. The motivation of our paper is twofold. First, we are intersted in generalizing (some of) the existing approaches on the definition of the core. For example, the γ-core notion is a special case of our approach that arises when each coalition assigns probability one to the event that the outsiders will form only singleton coalitions. Secondly, our paper could be read as a work on bounded rationality in its relation to cooperative games. The assignment of a (non-equilibrium) probability distribution on the set of parititions of the outsiders may reflect the cognitive inability of the members of a coalition to accurately deduce the outsiders' equilibrium partition. In this sense, probabilistic beliefs act as a rule of thumb. This approach is particularly relevant for games with a large number of players, where the number of different partitions can be very large. We apply the above framework to cooperative games generated by (symmetric) aggregative normal form games, i.e., games where the payoff of a player depends on his strategy and on the sum of the strategies of all players. Many economic models have an aggregative structure, such as oligopoly models, rent-seeking games, contest games, etc. We focus, in particular, on aggregative games that satisfy the following properties: (a) each player's payoff function has a bilinear form (this gives us the family of linear aggregative games introduced by Martimort&Stole 2010); (b) each player's payoff and marginal payoff decrease in the aggregate value of all players' strategies. The bilinear form assumption, in particular, is used as it allows us to simplify considerably the objective function of each coalition. |
| Keywords: | aggregative game; cooperative game; core; stochastic dominance |
| JEL: | C71 |
| Date: | 2016–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1605&r=gth |
| By: | Fabrizio Germano; Jonathan Weinstein; Peio Zuazo-Garin |
| Abstract: | Predictions under common knowledge of payoffs may differ from those under arbi- trarily, but finitely, many orders of mutual knowledge; Rubinstein’s (1989) Email game is a seminal example. Weinstein and Yildiz (2007) showed that the discontinuity in the example generalizes: for all types with multiple rationalizable (ICR) actions, there exist similar types with unique rationalizable action. This paper studies how a wide class of departures from common belief in rationality impact Weinstein and Yildiz’s discontinuity. We weaken ICR to ICR?, where ? is a sequence whose nth term is the probability players attach to (n - 1)th -order belief in rationality. We find that Weinstein and Yildiz’s discontinuity holds when higher-order belief in rationality remains above some threshold (constant ?), but fails when higher-order belief in rationality eventually becomes low enough (? converging to 0). |
| Keywords: | robustness, Rationalizability, bounded rationality, Incomplete Information, belief hierarchies |
| JEL: | C72 D82 D83 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:947&r=gth |
| By: | Matthew Embrey (Department of Economics, University of Sussex); Friederike Mengel (Department of Economics, University of Essex); Ronald Peeters (Department of Economics, Maastricht University) |
| Abstract: | We introduce a novel method to elicit strategies in indefinitely repeated games and apply it to games of strategic substitutes and complements. We find that out of 256 possible unit recall machines (and 1024 full strategies) participants could use, only five machines are used more than 5 percent of the time. Those are “static Nash”, “myopic best response”, “Tit-for-Tat” and two “Nash reversion” strategies. We compare outcome data with “hot” treatments and find that the fact that we elicit strategies did not affect the path of play. We also discuss applications to IO literature and compare insights to previous literature on strategy elicitation mostly focused on the prisoner's dilemma. |
| Keywords: | indefinitely repeated games; strategy elicitation; experiments |
| JEL: | C7 C9 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:sus:susewp:0317&r=gth |
| By: | Besanko, David; Tong, Jian; Wu, Jianjun |
| Abstract: | Conventional Bayesian games of incomplete information are limited in their ability to represent severe incompleteness of information. Using an illustrative example of (seller offer) sequential bargaining with one-sided incomplete information, we analyze a dynamic game under ambiguity. The novelty of our model is the stark assumption that the seller has complete ignorance---represented by the set of all plausible prior distributions---over the buyer's type. We propose a new equilibrium concept---Perfect Objectivist Equilibrium (POE)---in which multiple priors and full Bayesian updating characterize the belief system, and the uninformed player maximizes the infimum expected utility over non-weakly-dominated strategies. We provide a novel justification for refining POE through Markov perfection, and obtain a unique refined equilibrium. This results in a New "Coase Conjecture"---a competitive outcome arising from an apparent monopoly, which does not require the discount rate to approach zero, and is robust to reversion caused by reputation equilibria. |
| Date: | 2016–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:1606&r=gth |
| By: | Subhasish M. Chowdhury (University of East Anglia); Dan Kovenock (Chapman University); David Rojo Arjona (University of Leicester); Nathaniel T. Wilcox (Chapman University) |
| Abstract: | This article examines behavior in two-person constant-sum Colonel Blotto games in which each player maximizes the expected total value of the battlefields won. A lottery contest success function is employed in each battlefield. Recent experimental research on such games provides only partial support for Nash equilibrium behavior. We hypothesize that the salience of battlefields affects strategic behavior (the salient target hypothesis). We present a controlled test of this hypothesis – against Nash predictions – when the sources of salience come from certain asymmetries in either battlefield values or labels (as in Schelling (1960)). In both cases, subjects over- allocate the resource to the salient battlefields relative to the Nash prediction. However, the effect is stronger with salient values. In the absence of salience, we replicate previous results in the literature supporting the Nash prediction. |
| Keywords: | conflict, experiment, Colonel Blotto, focal point, asymmetry |
| JEL: | C72 C91 D72 D74 |
| Date: | 2016–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:16-12&r=gth |
| By: | Richard Cornes; Roger Hartley; Yuji Tamura |
| Abstract: | We expand the scope of the two-aggregate method by applying it to a situation where many heterogeneous players are free to contribute to both aggregates. Such situations naturally arise in various resource allocation problems. Hence our method is useful in many applications. A production-appropriation model is employed to illustrate how the problem of establishing the Nash equilibrium can be reduced from solving n > 2 best response functions in n unknowns to solving two consistency conditions in two unknowns. We then conduct a comparative static exercise that the conventional approach could not handle easily? if at all? to demonstrate the power of our method. |
| Keywords: | noncooperative game, aggregate game, con?ict, appropriation |
| JEL: | C72 D74 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:696&r=gth |
| By: | Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen |
| Abstract: | We explore the impact of private information in sealed-bid first-price auctions. For a given symmetric and arbitrarily correlated prior distribution over values, we characterize the lowest winning-bid distribution that can arise across all information structures and equilibria. The information and equilibrium attaining this minimum leave bidders indifferent between their equilibrium bids and all higher bids. Our results provide lower bounds for bids and revenue with asymmetric distributions over values. We also report further characterizations of revenue and bidder surplus including upper bounds on revenue. Our work has implications for the identification of value distributions from data on winning bids and for the informationally robust comparison of alternative bidding mechanisms. |
| Keywords: | Bayes correlated equilibrium; common values; First-price auction; information structure; interdependent values; private values; reserve price.; revenue; surplus; welfare bounds |
| JEL: | C72 D44 D82 D83 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11782&r=gth |
| By: | Yuval Heller (Bar-Ilan University) |
| Abstract: | Various papers have presented folk theorem results for repeated games with private monitoring that rely on belief-free equilibria. I show that these equilibria are not robust against small perturbations in the behavior of potential opponents. Specifically, I show that essentially none of the belief-free equilibria is evolutionarily stable, and that in generic games none of these equilibria is neutrally stable. Moreover, in a large family of games (which includes many public good games), the belief-free equilibria fail to satisfy even a very mild stability refinement. |
| Keywords: | Belief-free equilibrium, evolutionary stability, private monitoring, repeated Prisoner’s Dilemma, communication |
| JEL: | C73 D82 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2017-01&r=gth |
| By: | Tommy ANDERSSON; Lars EHLERS |
| Abstract: | The member states of the European Union received 1.2 million first time asylum applications in 2015 (a doubling compared to 2014). Even if asylum will be granted for many of the refugees that made the journey to Europe, several obstacles for successful integration remain. This paper focuses on one of these obstacles, namely the problem of finding housing for refugees once they have been granted asylum. In particular, the focus is restricted to the situation in Sweden during 2015–2016 and it is demonstrated that market design can play an important role in a partial solution to the problem. More specifically, because almost all accommodation options are exhausted in Sweden, the paper investigates a matching system, closely related to the system adopted by the European NGO “Refugees Welcome”, and proposes an easy-to-implement algorithm that finds a stable maximum matching. Such matching guarantees that housing is provided to a maximum number of refugees and that no refugee prefers some landlord to their current match when, at the same time, that specific landlord prefers that refugee to his current match. |
| Keywords: | refugees, private landlords, forced migration, market design, stable maximum matchings |
| JEL: | C71 C78 D71 D78 F22 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:13-2016&r=gth |
| By: | Béatrice Boulu-Reshef (Centre d'Economie de la Sorbonne); Samuel H. Brott (Berkeley Research Group, LLC, Washington); Adam Zylbersztejn (GATE L-SE, Université Lumière Lyon 2) |
| Abstract: | We study a finitely repeated public goods game (based on the voluntary contribution mechanism) played under complete uncertainty about the marginal benefit of the public good relative to the private consumption (commonly known as the marginal per capita return: neither one's marginal per capita return nor other players' marginal per capita returns are known at the time of decision-making. We show that contributions are equivalent when the rate of return is predetermined and when it is uncertain, and display a similar decay over time. Combined with the previous experimental findings, our results suggest that the cooperation in public goods games is sensitive to the source of uncertainty about marginal per capita return |
| Keywords: | Cooperation; uncertainty; voluntary contribution mechanism; public good; expected return |
| JEL: | H41 D81 C91 C92 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17004&r=gth |
| By: | Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen |
| Abstract: | We study auction design when bidders have a pure common value equal to the maximum of their independent signals. In the revenue maximizing mechanism, each bidder makes a payment that is independent of his signal and the allocation discriminates in favor of bidders with lower signals. We provide a necessary and sufficient condition under which the optimal mechanism reduces to a posted price under which all bidders are equally likely to get the good. This model of pure common values can equivalently be interpreted as model of resale: the bidders have independent private values at the auction stage, and the winner of the auction can make a take-it-or-leave-it-offer in the secondary market under complete information. |
| Keywords: | common values; descending auction; global incentive constraints; local incentive constraints; maximum value game; Optimal auction; posted price; resale; revenue maximization; wallet game |
| JEL: | C72 D44 D82 D83 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11783&r=gth |
| By: | Johannemann, Kirsten; Morasch, Karl; Wiens, Marcus |
| Abstract: | In this experimental study we examine the behavior of Bundeswehr officers and officer candidates regarding their willingness to cooperate. Due to the military training which focuses on comradeship and reliable teamwork even under extreme conditions, we expect a strong bond between soldiers and therefore more cooperation among them. Furthermore there are additional norms for soldiers that explicitly call for social responsibility and an appropriate behavior relative to civilians. For that reason we also expect more altruism and trust of soldiers compared to pure civilian groups. To explore these issues in an experimental setting, the subjects had to play the dictator game, the ultimatum game, and the trust game. These three established experiments allow us to measure and distinguish between different aspects of social and cooperative motivation. We find that soldiers are on average more altruistic, more cooperative, and more trusting as well as more trustworthy. These results do not only hold for the interaction among soldiers but in most cases also with regard to the behavior of soldiers towards civilians. |
| Keywords: | Experiment,Dictator Game,Ultimatum Game,Trust Game,Cooperative Behavior,Professional Norms,Military |
| JEL: | C72 C78 C91 D01 D63 D64 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ubwwpe:20161&r=gth |
| By: | Abhijit Ramalingam (University of East Anglia); Brock V. Stoddard (University of South Dakota); James M. Walker (Indiana University) |
| Abstract: | We experimentally investigate the effect of naturally occurring competition for the resources of team members with ‘divided loyalties’ on the ability of teams to overcome the free-rider problem associated with the provision of public goods. We find that such competition alone creates ‘winners’ and ‘losers’. However, if groups are able to determine their membership, they are able to attract the ‘loyalties’ of all team members. By eschewing the study of additional mechanisms that require external intervention or alterations of payoff functions, our work highlights the role played by implicit market competition and endogenous self-governance of membership in promoting cooperation. |
| Keywords: | public goods, experiment, divided loyalties, competition, resources, endogenous membership |
| JEL: | C72 C91 C92 H41 |
| Date: | 2016–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:16-15&r=gth |
| By: | Stefano Galavotti (Department of Economics and Management, University of Padova); Luigi Moretti (Centre d'Economie de la Sorbonne); Paola Valbonesi (Department of Economics and Management, University of Padova) |
| Abstract: | We study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closet to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms' observed bidding behavior departs from equilibrium and can be predicted by a sophistication index, which captures the firms' accumulated capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders' behavior. We also investigate whether and how firms learn to bid strategically through experience |
| Keywords: | cognitive hierarchy; auctions; beauty-contest; public procurement |
| JEL: | C70 D01 D44 D83 H57 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17003&r=gth |
| By: | Brendan Pass |
| Abstract: | We consider the theoretical properties of a model which encompasses bi-partite matching under transferable utility on the one hand, and hedonic pricing on the other. This framework is intimately connected to tripartite matching problems (known as multi-marginal optimal transport problems in the mathematical literature). We exploit this relationship in two ways; first, we show that a known structural result from multi-marginal optimal transport can be used to establish an upper bound on the dimension of the support of stable matchings. Next, assuming the distribution of agents on one side of the market is continuous, we identify a condition on their preferences that ensures purity and uniqueness of the stable matching; this condition is a variant of a known condition in the mathematical literature, which guarantees analogous properties in the multi-marginal optimal transport problem. We exhibit several examples of surplus functions for which our condition is satisfied, as well as some for which it fails. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1701.04431&r=gth |
| By: | Francesco Fallucchi (University of East Anglia); R. Andrew Luccasen (Mississippi University for Women); Theodore L. Turocy (University of East Anglia) |
| Abstract: | We re-analyse participant behaviour in standard economics experiments studying voluntary contributions to a public good. Previous approaches were based in part on a priori models of decision-making, such as maximising personal earnings, or reciprocating the behaviour of others. Many participants however do not conform to one of these models exactly, requiring ad hoc adjustments to the theoretical baselines to identify them as belonging to a given behavioural type. We construct a typology of behaviour based on a similarity measure between strategies using hierarchical clustering analysis. We identify four clearly distinct behavioural types which together account for over 90% of participants in six experimental studies. The resulting type classification distinguishes behaviour across groups more consistently than previous approaches. |
| JEL: | C65 C71 H41 |
| Date: | 2017–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:17-01&r=gth |
| By: | Becker, Johannes Gerd; Gersbach, Hans |
| Abstract: | We consider an infinitely repeated reappointment game in a principal-agent relationship and examine the consequences of threshold contracts, which forbid reappointment if the principal's utility is too low. Typical examples are voter-politician or government-public servant relationships. The agent chooses costly effort and enjoys being in office until he is deselected. The principal observes a noisy signal of the agent's effort and decides whether to reappoint the agent or not. We analyse the stationary Markovian equilibria of this game with and without threshold contracts. We identify the circumstances under which such threshold contracts are welfare-improving or beneficial for the principal, which, in turn, may justify attempts to introduce such contracts in politics. |
| Keywords: | asymmetric information; commitment.; principal-agent model; reappointment; repeated game; stationary Markovian strategies; threshold contracts; threshold strategies |
| JEL: | C83 D82 D86 H11 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11766&r=gth |
| By: | Subhasish M. Chowdhury (University of East Anglia); Joo Young Jeon (University of East Anglia); Abhijit Ramalingam (University of East Anglia) |
| Abstract: | We analyze the effects of property rights and the resulting loss aversion on contest outcomes. We study three treatments: in ‘gain’ two players start with no prize and make sunk bids to win a prize; whereas in ‘loss’ both the subjects start with prizes and whoever loses the contest loses their prize. Finally, in ‘mixed’ one player starts with a prize, which stays with him if he wins but is transferred to the rival otherwise. Since the differences among the treatments arise only from framing, the expected utility or the standard loss aversion models predict no difference in bids across treatments. We introduce a new model with loss aversion in which the property rights are made salient. This model predicts average bids in descending order in the loss, the mixed, and the gain treatment; and higher bids by the player with property rights in the mixed treatment. The results from a laboratory experiment broadly support these predictions. In the laboratory, no significant difference is found in bids in the loss (gain) treatment versus bids by property rights holder (non-holder) in the mixed treatment. A model incorporating both loss aversion and social preference explains this result. |
| Keywords: | contest, experiment, framing, property rights, loss aversion |
| JEL: | C91 C72 D23 D74 |
| Date: | 2016–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:16-14&r=gth |
| By: | A. Antoci; S. Borghesi; G. Iannucci |
| Abstract: | This paper studies environmental corruption via a random matching evolutionary game be- tween a population of firms and a population of bureaucrats who have to decide whether to release a “green” license to the firms. A firm obtains the license if the bureaucrat checks that it complies with environmental regulations, otherwise it is sanctioned. The model assumes that there are two types of bureaucrats (honest and dishonest), two types of firms (com- pliant and non-compliant), and two possible crimes (corruption and extortion). Corruption occurs when a dishonest bureaucrat accepts a bribe from a non-compliant firm, while extor- tion occurs when a dishonest bureaucrat claims a bribe from a compliant firm. When there is no dominance of strategies, we show that there exist two bistable regimes, in which two attractive stationary states exist, and two regimes with an internal stable equilibrium, corre- sponding to the mixed strategy Nash equilibrium of the one-shot static game, surrounded by closed trajectories. From comparative statics analysis performed on the latter two dynamic regimes, it emerges that policy instruments may help the Public Administration reduce both corruption and extortion, although increasing sanctions and detection probability do not al- ways get the desired results. |
| Keywords: | Bureaucratic corruption,Evolutionary games,Environmental regulations,Eco- nomics of crime. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:201615&r=gth |
| By: | V. Pelligra; T. Reggiani; T. Medda |
| Abstract: | One of the most common criticisms about the external validity of lab experiments in economics concerns the representativeness of participants usually considered in these studies. The ever-increasing number of experiments and the prevalent location of research centers in university campuses produced a peculiar category of subjects - Students with high level of laboratory experience built through repeated participations in experimental sessions. We investigate whether the experience accumulated in this way biases subjects’ behaviour in a set of simple games widely used to study social preferences (Dictator Game, Ultimatum Game, Trust Game, and Prisoner’s Dilemma Game). Our main finding shows that subjects with a high level of experience in lab experiments do not behave in a significantly different way from novices. |
| Keywords: | lab experiment,External Validity,Experimental Methodology,Experience |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:201610&r=gth |
| By: | Camera, Gabriele; Gioffré, Alessandro |
| Abstract: | Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments |
| Keywords: | cooperation,repeated games,social dilemmas |
| JEL: | C6 C7 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:162&r=gth |
| By: | Zvika Neemam (Tel Aviv University); Aniko Ory (Cowles Foundation, Yale University); Jungju Yu (Yale School of Management) |
| Abstract: | We study a model of collective reputation and use it to analyze the benefit of collective brands. Consumers form beliefs about the quality of an experience good that is produced by one firm that is part of a collective brand. Consumers’ limited ability to distinguish among firms in the collective and to monitor firms’ investment decisions creates incentives to free-ride on other firms’ investment efforts. Nevertheless, we show that collective brands induce stronger incentives to invest in quality than individual brands under two types of circumstances: if the main concern is with quality control and the baseline reputation of the collective is low, or if the main concern is with the acquisition of specialized knowledge and the baseline reputation of the collective is high. We also contrast the socially optimal information structure with the profit maximizing choice of branding if branding is endogenous. Our results can be applied to country-of-origin, agricultural appellation, and other collective brands. |
| Keywords: | Branding, Collective reputation, Commitment, Country of origin |
| JEL: | C70 D21 D40 D70 L10 L50 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2068&r=gth |