nep-gth New Economics Papers
on Game Theory
Issue of 2017‒11‒05
fifteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Sion's minimax theorem and Nash equilibrium of symmetric multi-person zero-sum game By Satoh, Atsuhiro; Tanaka, Yasuhito
  2. Contagion in Stable Networks By Spiros Bougheas
  3. Fiscal Rules, Bailouts, and Reputation in Federal Governments By Alessandro Dovis; Rishabh Kirpalani
  4. Sequential Round-Robin Tournaments with Multiple Prizes By Christoph Laica; Arne Lauber; Marco Sahm
  5. Climate Agreements in a Mitigation-Adaptation Game By Bayramoglu, Basak; Finus, Michael; Jaques, Jean-Francois
  6. The Third Place Game By Sela, Aner
  7. The Survival and Demise of the State: A Dynamic Theory of Secession By Joan Esteban; Sabine Flamand; Massimo Morelli; Dominic Rohner
  8. Public Good Agreements under the Weakest-link Technology By Caparros, Alejandro; Finus, Michael
  9. A Note on First-Price Sealed-Bid Cattle Auctions in the Presence of Captive Supplies By Crespi, John M.; Xia, Tian
  10. Sequential Innovation, Naked Exclusion, and Upfront Lump-Sum Payments By Jay Pil Choi; Christodoulos Stefanadis
  11. Voluntary Export Restraints in a Trade Model with Sticky Price: Linear and Nonlinear Feedback Solutions By L. Lambertini; A. Palestini
  12. A Model of Collateral By Yu Awaya; Hiroki Fukai; Makoto Watanabe
  13. Strategic Corporate Social Responsibility By Lisa Planer-Friedrich; Marco Sahm
  14. The Two Faces of Information By Guillermo Ordonez; Gaetano Gaballo
  15. Equilibrium co-existence of public and private firms and the plausibility of price competition By Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M.

  1. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We will show that Sion's minimax theorem is equivalent to the existence of Nash equilibrium in a symmetric multi-person zero-sum game. If a zero-sum game is asymmetric, maximin strategies and minimax strategies of players do not correspond to Nash equilibrium strategies. However, if it is symmetric, the maximin strategy and the minimax strategy constitute a Nash equilibrium.
    Keywords: multi-person zero-sum game, Nash equilibrium, Sion's minimax theorem.
    JEL: C72
    Date: 2017–10–24
  2. By: Spiros Bougheas
    Abstract: We study the formation of networks in environments where agents derive benefits from other agents directly linked to them but suffer losses through contagion when any agent on a path connected to them is hit by a shock. We first consider networks with undirected links (e.g. epidemics, underground resistance organizations, trade networks) where we find that stable networks are comprised of completely connected disjoint subnetworks. Then, we consider networks with directed links and we find that the completely connected network is stable, although, its exact structure, and thus contagion implications, is sensitive to parameter values for costs and benefits. Lastly, we introduce aggregate externalities (e.g. fire sales for the case of financial networks) and we find that stable networks can be asymmetric, connected but not completely connected, thus capturing the main features of inter-industry and financial networks.
    Keywords: network formation, stability, contagion
    JEL: C72 D85
    Date: 2017
  3. By: Alessandro Dovis; Rishabh Kirpalani
    Abstract: Expectations of bailouts by central governments incentivize overborrowing by local governments. In this paper, we ask if fiscal rules can correct these incentives to overborrow when central governments cannot commit and if these rules will arise in equilibrium. We address these questions in a reputation model in which the central government can either be a commitment or a no-commitment type and the local governments learn about this type over time. We find that if the central government's reputation is low enough, then fiscal rules can lead to even more debt accumulation relative to the case with no rules. This is because the punishment for violating the fiscal rule worsens the payoffs of preserving reputation. Despite being welfare reducing, binding fiscal rules will arise in the equilibrium of a signaling game due to the incentives of the commitment type to reveal its type.
    JEL: E40 E6 E61 F5 H6 H7
    Date: 2017–10
  4. By: Christoph Laica; Arne Lauber; Marco Sahm
    Abstract: We examine the fairness and intensity of sequential round-robin tournaments with multiple prizes. With three symmetric players and two prizes, the tournament is completely fair if and only if the second prize is valued half of the first prize, regardless of whether matches are organized as Tullock contests or as allpay auctions. For second prizes different from half of the first prize, three-player tournaments with matches organized as Tullock contests are usually fairer than tournaments with matches organized as all-pay auctions. However, unless the second prize is very small, they are less intense in the sense that players exert less ex-ante expected aggregate effort per unit of prize money. Moreover, we specify how the relative size of the second prize influences the extent and the direction of discrimination as well as the intensity of three-player tournaments. Finally, we show that there is no prize structure for which sequential round-robin tournaments with four symmetric players are completely fair in general.
    Keywords: round-robin tournament, multiple prizes, fairness, intensity, Tullock contest, all-pay auction
    JEL: C72 D72
    Date: 2017
  5. By: Bayramoglu, Basak; Finus, Michael; Jaques, Jean-Francois
    Date: 2016–07–18
  6. By: Sela, Aner
    Abstract: We study an elimination tournament with four contestants, each of whom has either a high value of winning (a strong player) or a low value of winning (a weak player) and these values are common-knowledge. Each pair-wise match is modelled as an all-pay auction. The winners of the first stage (semifinal) compete in the second stage (final) for the first prize, while the losers of the first stage compete for the third prize. We examine whether or not the game for the third prize is profitable for the designer who wishes to maximize the total effort of the players. We demonstrate that if there are at least two strong players, there is always a seeding of the players such that the third place game is not profitable. On the other hand, if there are at least two weak players, then there is always a seeding of the players such that the third place game becomes profitable.
    Date: 2017–10
  7. By: Joan Esteban; Sabine Flamand; Massimo Morelli; Dominic Rohner
    Abstract: This paper describes the repeated interaction between groups in a country as a repeated Stackelberg bargaining game, where conflict and secessions can happen on the equilibrium path due to commitment problems. If a group out of power is sufficiently small and their contribution to total surplus is not too large, then the group in power can always maintain peace with an agreeable surplus sharing offer every period. When there is a mismatch between relative size and relative surplus contribution of the minority group, conflict can occur. While in the static model secession can occur only as peaceful outcome, in the infinite horizon game with high discount factor conflict followed by secession can occur. We discuss our full characterization of equilibrium outcomes in light of the available empirical evidence.
    Date: 2017
  8. By: Caparros, Alejandro; Finus, Michael
    Abstract: We analyze the formation of public good agreements under the weakest-link technol-ogy. Cooperation on migration policies, money laundering measures and biodiversityconservation e§orts are prime examples of this technology. Whereas for symmetricplayers, policy coordination is not necessary, for asymmetric players cooperation mat-ters but fails, in the absence of transfers. In contrast, with an optimal transfer scheme,asymmetry may not be an obstacle but an asset for cooperation. Counterintuitively, avery skewed distribution of interests may allow even the grand coalition being stable.We characterize various types and degrees of asymmetry and relate them to the stabil-ity of agreements and associate gains from cooperation. We compare our results withthose obtained under the well-known summation technology and demonstrate that theycan be derived under much more general conditions.
    Date: 2016
  9. By: Crespi, John M.; Xia, Tian
    Date: 2015–12–01
  10. By: Jay Pil Choi; Christodoulos Stefanadis
    Abstract: We present a potentially benign naked exclusion mechanism that can be applied to sequential innovation; a non-patentable original innovation by the incumbent supplier fosters derivative innovation by rivals. In the absence of an appropriate legal framework, the original innovator’s equilibrium exclusivity contracts block subsequent efficient entry even if there is (leader-follower) competition in the contracting phase. However, the legal framework may maximize social welfare by imposing a ban on upfront lumps-sum payments in exclusivity contracts (by all suppliers) combined with an outright ban on exclusivity contracts by the derivative innovator. The former ban precludes the exclusion of socially beneficial derivative innovation by causing the incumbent supplier to resort to accommodation, rather than to pure exclusion, strategies. The latter ban complements the former by preventing inefficient or excessive derivative innovation.
    Keywords: exclusivity, entry, fixed cost, lump-sum payment, sequential innovation
    JEL: L42 D43 D45
    Date: 2017
  11. By: L. Lambertini; A. Palestini
    Abstract: We revisit the adoption of voluntary export restraints (VERS) in the differential Cournot game with sticky price and intraindustry trade by Dockner and Haug (1991). The analysis relies on linear and nonlinear feedback strategies, to encompass the special cases considered in Fujiwara (2010) and to show that a VER may arise in correspondence of any free trade equilibrium generated by feedback information such that competition is at least as strong as under open-loop rules. This result can be interpreted in the light of the dynamic formulation of conjectural variations due to Dockner (1992).
    JEL: C73 D43 F12 L13
    Date: 2017–10
  12. By: Yu Awaya (University of Rochester); Hiroki Fukai (Kyushu University); Makoto Watanabe (Vrije Universiteit Amsterdam; Tinbergen Institute, The Netherlands)
    Abstract: This paper presents a simple equilibrium model in which collateralized credit emerges endogenously. Just like in repos, individuals cannot commit to the use of collateral as a guarantee of repayment, and both lenders and borrowers have incentives to renege. Our theory provides a micro-foundation to justify the borrowing constraints that are widely used in the existing macroeconomic models. We provide an explanation to the question of why assets are often used as collateral, rather than simply as a means of payment, why there is a tradeoff in assets between return and liquidity, and what kinds of assets are useful as collateral.
    Keywords: collateral; search; medium of exchange; voluntary separable repeated game
    JEL: C73
    Date: 2017–10–07
  13. By: Lisa Planer-Friedrich; Marco Sahm
    Abstract: We examine the strategic use of Corporate Social Responsibility (CSR) in imperfectly competitive markets. The level of CSR determines the weight a firm puts on consumer surplus in its objective function before it decides upon supply. First, we consider symmetric Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Third, we consider heterogeneous firms and show that asymmetric costs imply asymmetric CSR levels.
    Keywords: corporate social responsibility, market concentration, Cournot competition, entry deterrence, strategic delegation, evolutionary stability
    JEL: D42 D43 L12 L13 L21 L22
    Date: 2017
  14. By: Guillermo Ordonez (University of Pennsylvania); Gaetano Gaballo (European Central Bank)
    Abstract: Information is a double-edged sword. On the one hand, it increases investment efficiency when originating an asset. On the other hand, it decreases its liquidity value when trading it. We capture these two faces of information in a simple setting in which agents who invest in an asset know that they may hold it to maturity or may need to sell it beforehand because of a liquidity shock. As the efficiency of investment and the transaction value of the asset depend on how many agents acquire information there is multiple equilibria. Some of these may be inefficient, either with excessive information and insufficient liquidity or with insufficient information and inefficient investment.
    Date: 2017
  15. By: Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M.
    Abstract: We consider a differentiated product duopoly where a regulated firm competes with a private firm. The instrument of regulation is the level of privatization. First, the regulator determines the level of privatization to maximize social welfare. Then both firms endogenously choose the mode of competition (that is, whether to compete in price or quantity). Finally, the two firms compete in the market. Under a very general demand specification, we show that when the products are imperfect substitutes (complements), there is co-existence of private and public (strictly partially privatized) firms. Moreover, in the second stage, the firms compete in prices.
    Keywords: Partially private firm, price (Bertrand) competition, quantity (Cournot) competition
    JEL: D4 L1 L2
    Date: 2017–10–06

This nep-gth issue is ©2017 by Sylvain Béal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.