nep-gth New Economics Papers
on Game Theory
Issue of 2017‒11‒26
twenty papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Extensions of the Shapley value for Environments with Externalities By Inés Macho-Stadler; David Pérez-Castrillo; David Wettstein
  2. The Evolution of Cooperation: The Role of Costly Strategy Adjustments By Yaroslav Rosokha; Julian Romero
  3. Rules for Dividing a Disputed Resource in the Context of the Classical Liberal Argument for Peace By Michelle R. Garfinkel; Constantinos Syropoulos
  4. On the external validity of social preference games: a systematic lab-field study By Galizzi, Matteo M.; Navarro-Martínez, Daniel
  5. Information in Tullock contest By Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy ., Ezra; Aiche, A.
  6. Multiplier effect and comparative statics in global games of regime change By Szkup, Michal
  7. SIGNALING IN CONTESTS By Tomer Ifergane; Aner Sela
  8. THE THIRD PLACE GAME By Netanel Nissim; Aner Sela
  9. Until Taxes Do Us Part: Tax Penalties or Bonuses and the Marriage Decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  12. Competing Mechanisms with Limited Commitment By Suehyun Kwon
  13. Reasoning about Others’ Reasoning By Larbi Alaoui; Antonio Penta
  14. Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities By Mario Samano; Marc Santugini
  15. How do risk attitudes affect pro-social behavior? Theory and experiment By Sean Fahle; Santiago Sautua
  16. Could Vertical Integration Increase Innovation? By Chenyu Yang
  17. Segmentation versus agglomeration : competition between platforms with competitive sellers By Karle, Heiko; Peitz, Martin; Reisinger, Markus
  18. We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction. By Gloria Sheu; Charles Taragin
  19. Hypothetical thinking and the winner's curse: An experimental investigation By Moser, Johannes
  20. Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty By Mankan M. Koné; Carl Gaigné; Lota Dabio Tamini

  1. By: Inés Macho-Stadler; David Pérez-Castrillo; David Wettstein
    Abstract: Shapley (1953a) formulates his proposal of a value for cooperative games with transferable utility in characteristic function form, that is, for games where the re- sources every group of players has available to distribute among its members only depend on the members of the group. However, the worth of a coalition of agents often depends on the organization of the rest of the players. The existence of exter- nalities is one of the key ingredients in most interesting economic, social, or political environments. Thrall and Lucas (1963) provide the first formal description of set- tings with externalities by introducing the games in partition function form. In this chapter, we present the extensions of the Shapley value to this larger set of games. The different approaches that lead to the Shapley value in characteristic function form games (axiomatic, marginalistic, potential, dividends, non-cooperative) provide alternative routes for addressing the question of the most suitable extension of the Shapley value for the set of games in partition function form.
    Keywords: shapley value, Externalities
    JEL: C71 D62
    Date: 2017–11
  2. By: Yaroslav Rosokha; Julian Romero
    Abstract: We study the evolution of cooperation in the inde nitely repeated prisoner's dilemma when it is costly for players to adjust their strategy. Our experimental interface allows subjects to design a comprehensive strategy that then selects ac- tions for them in every period. We conduct lab experiments in which subjects can adjust their strategies during a repeated game but may incur a cost for doing so. We nd three main results. First, subjects learn to cooperate more when adjustments are costless than when they are costly. Second, subjects make more adjustments to their strategies when adjustments are costless, but they still make adjustments even when they are costly. Finally, we nd that cooperative strategies emerge over time when adjustments are costless but not when adjustments are costly. These results highlight that within-game experimentation and learning are critical to the rise of cooperative behavior. We provide simulations based on an evolutionary algorithm to support these results.
    Keywords: Inde nitely Repeated Games, Prisoner's Dilemma, Experiments, Co- operation, Strategies
    Date: 2017–07
  3. By: Michelle R. Garfinkel (Department of Economics, University of California-Irvine); Constantinos Syropoulos (Department of Economics and International Business, Drexel University)
    Abstract: In this paper, we study alternative forms of conflict resolution, both peaceful and non-peaceful, between two countries that compete for claims to a resource used to produce potentially traded goods. Consistent with the classical liberal argument, peace supports mutually beneficial trade, whereas war preempts it. War always induces countries to allocate resources into non-contractible arming ("guns") for superiority in conflict. Under peaceful settlement, countries might choose to arm as well for gaining leverage in negotiations, but arming is typically less than what it is under war. Building on the observation that arming itself affects the countries' bargaining sets, we compare the efficiency properties of division rules generated by three prominent bargaining solutions -- namely, splitting the surplus, equal sacrifice, and Nash bargaining -- and show how they depend on the gains from trade.
    Keywords: Resource disputes; gains from trade; negotiated settlements; variable threats; endogenous bargaining set
    JEL: C72 C78 D30 D74 F51
    Date: 2017–11
  4. By: Galizzi, Matteo M.; Navarro-Martínez, Daniel
    Abstract: We present a lab-field experiment designed to systematically assess the external validity of social preferences elicited in a variety of experimental games. We do this by comparing behavior in the different games with several behaviors elicited in the field and with self-reported behaviors exhibited in the past, using the same sample of participants. Our results show that the experimental social preference games do a poor job explaining both social behaviors in the field and social behaviors from the past. We also include a systematic review and meta-analysis of previous literature on the external validity of social preference games.
    JEL: J50
    Date: 2017–07–28
  5. By: Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy ., Ezra; Aiche, A.
    Abstract: We study the effect of changes of players' information on the equilibrium efforts and payoffs of Tullock contests in which the common value of the prize is uncertain. When the diseconomies of scale in exerting effort increase at a large (small) rate, in contests with symmetric information expected effort decreases (increases) as players become better informed, while in two-player contests with asymmetric information a player with information advantage exerts less (more) effort, in expectation, than his opponent. In classic Tullock contests with symmetric information the equilibrium expected effort and pay off are invariant to the information available to the players. And when information is asymmetric, a player's information advantage is rewarded. Moreover, in two-player contests, while both players exert the same expected effort regardless of their information, expected effort is smaller when one player has information advantage than when both players have the same information.Interestingly, the player with information advantage wins the prize less frequently than his opponent.
    Keywords: Tullock contests; Common-value; Asymmetric information; Information advantage
    JEL: D82 D44 C72
    Date: 2017–11–01
  6. By: Szkup, Michal
    Abstract: This paper provides a general analysis of comparative statics results in global games. I show that the effect of a change in any parameter of the global game model can be decomposed into the direct effect, which captures the effect of a change in parameters when agents' beliefs are held constant, and the multiplier effect, which captures the role of adjustments in agents' beliefs. I characterize conditions under which the multiplier effect is strong and relate it to the strength of strategic complementarities and the publicity multiplier emphasized in earlier work. Finally, I use the above insights to identify when comparative statics can be deduced from the model's primitives, when they do not depend on the information structure, and when they coincide with predictions of the complete information model.
    Keywords: global games, comparative statics, multiplier effect, strategic complementarities, publicity multiplier
    JEL: D80
    Date: 2017–08
  7. By: Tomer Ifergane (BGU); Aner Sela (BGU)
    Keywords: Contests, signaling, asymmetric information, incomplete information
    JEL: C70 D72 D82 D44
    Date: 2017
  8. By: Netanel Nissim (BGU); Aner Sela (BGU)
    Keywords: All-pay auctions, elimination tournaments, third place games
    JEL: D72 D82 D44
    Date: 2017
  9. By: Barigozzi, Francesca (University of Bologna); Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg)
    Abstract: The tax regimes applied to couples in many countries including the US, France, and Germany imply either a marriage penalty or a marriage bonus. We study how they affect the decision to get married by considering two potential spouses who play a marriage proposal game. At the end of the game they may get married, live together without formal marriage, or split up. In this signaling game, proposing (or getting married) is costly but can indicate strong love. The striking property we obtain is that a marriage bonus may actually reduce the probability that a couple gets married. If the bonus is sufficiently large, the signaling mechanism breaks down, and only a pooling equilibrium in which fewer couples get married remains. Similarly, a marriage penalty may increase the marriage probability. Specifically, the penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible. Our results also imply that marriage decisions in the laissez-faire are not necessarily privately optimal. In some cases a bonus or a penalty may effectively make the marriage decision more efficient; it may increase the number of efficient marriages that otherwise may not be concluded.
    Keywords: marriage penalty, marriage bonus, proposal game, signaling
    JEL: J12 D82 H31
    Date: 2017–10
  10. By: Alex Krumer (Swiss Institute for Empirical Research, University of St. Gallen, Switzerland); Reut Megidish (Dept. of Applied Economics and Dept.of Managing Human Resoursec, Sapir Academic College); Aner Sela (BGU)
    Keywords: Multi-stage contests, all-pay auctions, first-mover advantage, second-mover advantage, round-robin tournaments
    JEL: D0 L0 D20 D44 O31
    Date: 2017
  11. By: Chen Cohen (Department of Management and Economics, The Open University of Israel, Israel); Ofer Levi (Department of Mathematics and Computer Science, The Open University of Israel, Israel); Aner Sela (BGU)
    Keywords: All-pay auctions, asymmetric effort constraints, asymmetric players, weakly asymmetric players
    JEL: D44
    Date: 2017
  12. By: Suehyun Kwon
    Abstract: This paper studies competing mechanisms with limited commitment over infinite horizon. Between a mechanism and the agent, there is perfect monitoring, but each mechanism can have arbitrary signals about the interaction between other mechanisms and the agent. I show that if the agent’s type is common knowledge, any individually rational payoffs can be sustained in a perfect Bayesian equilibrium. If the agent’s type is his private information, Pareto frontier of mechanisms’ payoffs can be obtained by repeating the static optimal screening every period; in particular, price posting with the static optimal price is the optimal mechanism. The complete information case is a strong form of folk theorem while the incomplete information case shows that folk theorem breaks down with private information even as the discount factor goes to one. Results hold with any finite number of mechanisms, any discount factor and any monitoring technology including private monitoring.
    Keywords: competing mechanisms, limited commitment, private monitoring, price posting, folk theorem
    Date: 2016
  13. By: Larbi Alaoui; Antonio Penta
    Abstract: Recent experiments suggest that level-k behavior is often driven by subjects' beliefs, rather than their binding cognitive bounds. But the extent to which this is true in general is not completely understood, mainly because disentangling 'cognitive' and 'behavioral' levels is challenging experimentally and theoretically. In this paper we provide a simple experimental design strategy (the 'tutorial method') to disentangle the two concepts purely based on subjects' choices. We also provide a 'replacement method' to assess whether the increased sophistication observed when stakes are higher is due to an increase in subjects' own understanding or their beliefs over others' increased incentives to reason. We find evidence that, in some of our treatments, the cognitive bound is indeed binding for a large fraction of subjects. Furthermore, a significant fraction of subjects do take into account others' incentives to reason. Our findings also suggest that in general, level-k behavior should not be taken as driven either by cognitive limits alone or beliefs alone. Rather, there is an interaction between own cognitive bound and reasoning about the opponent's reasoning process. From a methodological viewpoint, the tutorial and replacement methods have broader applicability, and can be used to study the beliefs-cognition dichotomy and higher order beliefs e ects in non level-k settings as well.
    Keywords: cognitive bound, depth of reasoning, higher-order beliefs. level-k reasoning, replacement method, tutorial method
    JEL: C72 C92 D80
    Date: 2017–11
  14. By: Mario Samano; Marc Santugini
    Abstract: We analyze the type of market structures that arise in the long-run when quality externalities and asymmetric R&D capabilities exist in the context of a quality-ladder dynamic model. An example of such externalities is a patent release by the leading fi rm: an improvement of quality of this firm's good a ects the quality of the other fi rms' products. This externality can be thought of as an increase in compatibility in a network. We show that it is possible for this model to generate, in the long-run, multi-modal probability distributions over di fferent market structures from the same parameter values. In some cases, the lagging rm may even become the dominant fi rm depending on the degree of the externality. This may have implications for the estimation and simulation of this class of models.
    Keywords: Differentiated-good markets,Quality-ladder model,Externalities,Industry dynamics,Market structures,
    JEL: C61 C73 L13
    Date: 2017–11–15
  15. By: Sean Fahle; Santiago Sautua
    Abstract: We explore how risk preferences affect pro-social behavior in risky environments. We analyze a modified dictator game in which the dictator could, by reducing her own sure payoff, increase the odds that an unknown recipient wins a lottery. We first augment a standard social preferences model with reference-dependent risk attitudes and then test the model’s predictions for the dictator’s giving behavior using a laboratory experiment. As predicted by the model, giving behavior in the experiment is affected by the baseline risk faced by the recipient, the effectiveness of transfers in reducing baseline risk, and the dictator’s degree of loss aversion
    Keywords: other-regarding preferences; pro-social behavior; reference-dependent preferences; risk
    JEL: C91 D81 D91
    Date: 2017–11–02
  16. By: Chenyu Yang (University of Rochester)
    Abstract: This paper studies the effects of vertical integration on innovation in the chipset and smartphone industries. I formulate and estimate a dynamic structural model of the upstream chipset maker Qualcomm and downstream smartphone handset makers. The two sides make dynamic investment decisions and negotiate chipset prices via Nash bargaining. Using the estimates, I simulate market outcomes should Qualcomm merge with a downstream handset maker. I find that the vertical merger would increase innovation rates and social welfare, driven primarily by the investment coordination of the two merged firms.
    Date: 2017
  17. By: Karle, Heiko; Peitz, Martin; Reisinger, Markus
    Abstract: For many products, platforms enable sellers to transact with buyers. We show that the competitive conditions among sellers shape the market structure in platform industries. If product market competition is tough, sellers avoid competitors by joining different platforms. This allows platforms to sustain high fees and explains why, for example, in some online markets, several homogeneous platforms segment the market. Instead, if product market competition is soft, agglomeration on a single platform emerges, and platforms fight for the dominant position. These insights give rise to novel predictions. For instance, market concentration and fees are negatively correlated in platform industries, which inverts the standard logic of competition.
    Keywords: intermediation , two-sided markets , market structure , price competition , endogenous segmentation
    JEL: L13 D43
    Date: 2017
  18. By: Gloria Sheu (U.S. Department of Justice); Charles Taragin (U.S. Department of Justice)
    Date: 2017–10
  19. By: Moser, Johannes
    Abstract: There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue - also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information.
    Keywords: Hypothetical thinking; cursed equilibrium; winner's curse
    JEL: D03 D44 D82 D83 C91
    Date: 2017–11–03
  20. By: Mankan M. Koné; Carl Gaigné; Lota Dabio Tamini
    Abstract: This paper aimed to extend previous real option models to features of multinational firms' activities such as market competition and trade barriers. Few researchers have studied multinationals' optimal switching time from export to FDI using real options, and those who have done so have ignored trade policies and strategic interactions between firms. Yet, the presence of local competitors and trade costs influences the option value of waiting. We finnd that FDI in host countries with uncertain demand, strong competition and few barriers to trade will likely to be delayed with respect to immediate investment. In terms of policy implications, we nd that the trade and competition policies of host countries have lower deterrent e ffects on FDI when uncertainty is reduced.
    Keywords: Foreign Direct Investment,Imperfect Competition,Trade Liberalization,Real Options,
    JEL: F23 D21
    Date: 2017–11–15

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