nep-gth New Economics Papers
on Game Theory
Issue of 2017‒12‒11
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Network Formation with Multigraphs and Strategic Complementarities By Sumit Joshi; Sudipta Sarangi; Ahmed Saber Mahmud
  2. An evolutionary analysis of bidding behaviour in fair division games By Werner Güth; Paul Pezanis-Christou
  3. Cascading Defections from Cooperation Triggered by Present-Biased Behaviors in the Commons By Persichina, Marco
  4. Identification of individuals and groups in a public goods experiment By Sven Christens; Astrid Dannenberg; Florian Sachs
  6. The problem of aggregating experts?' opinions to select the winner of a competition By Pablo Amorós
  7. Unilateral and Multilateral Sanctions: A Network Approach By Sumit Joshi; Ahmed Saber Mahmud
  8. Competing Combinatorial Auctions By Kittsteiner, Thomas; Ott, Marion; Steinberg, Richard
  9. Watch your Words: an Experimental Study on Communication and the Opportunity Cost of Delegation By Armenak Antinyan; Luca Corazzini; Elena D\'Agosotino; Filippo Pavesi
  10. Reliable Electricity: The Effects of System Integration and Cooperative Measures to Make it Work By Hagspiel, Simeon
  11. Fiscal Rules, Bailouts, and Reputation in Federal Governments By Rishabh Kirpalani; Alessandro Dovis
  12. Imitation perfection: A simple rule to prevent discrimination in procurement By Mass, Helene; Fugger, Nicolas; Gretschko, Vitali; Wambach, Achim
  13. Preferences and decision support in competitive bidding By Fugger, Nicolas; Gillen, Philippe; Rasch, Alexander; Zeppenfeld, Christopher
  14. Cournot Competition in Wholesale Electricity Markets: The Nordic Power Exchange, Nord Pool By Lundin, Erik; Tangerås, Thomas
  15. Market Power and Forward Prices By Ruddell, Keith; Downward, Tony; Philpott, Andy
  16. Choice on the simplex domain By Bossert, Walter; Peters, Hans
  17. Analysis of Merger Control in A Network Products Market By Tsuyoshi Toshimitsu
  18. Zone Pricing in Retail Oligopoly By Brian Adams; Kevin R. Williams
  19. On the Value of Persuasion by Experts By Alonso, Ricardo; Câmara, Odilon

  1. By: Sumit Joshi (George Washington University); Sudipta Sarangi (Virginia Tech); Ahmed Saber Mahmud (Johns Hopkins University)
    Abstract: Economic agents are typically connected to others in multiple network relationships, and the archi- tecture of one network could be shaped by connections in other networks. This paper examines the formation of one network when connections in a second network are inherited under two scenarios: (i) the inherited network is asymmetric allowing for a wide range of graphs called nested split graphs, and (ii) the inherited network is a symmetric type of network belonging to a subclass of regular graphs. Both the inherited and endogenously formed networks are interdependent because the respective actions in each are (weak) strategic complements. This property is su¢ cient to show that those who inherit high centrality will continue to have high centrality. Additionally, the network formed by the agents induces a coarser partition than the inherited network, suggesting the possibility of being able to improve network centrality, but only in a limited manner. Thus, our analysis explains preferential attachment and why inequality is often entrenched in society, how asymmetries in one network may be magniÖed or diminished in another, and what determines the identity of players occupying the various vertices of asymmetric equilibrium networks.
    Keywords: Network formation, multigraphs, strategic complementarities, Katz-Bonacich centrality, nested split graphs
    JEL: C72 D85
    Date: 2017
  2. By: Werner Güth (Max Planck Institute for Collective Goods (Bonn) and LUISS (Rome)); Paul Pezanis-Christou (School of Economics, University of Adelaide)
    Abstract: We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information and counterfactual considerations via (i) optimally responding to individual conjectural beliefs concerning other bidders' behavior, what avoids counterfactual bidding, and (ii) determining the evolutionarily stable conjectural beliefs when fitness is measured by expected payoffs, what does not require common knowledge. Compared to auctions, fair division games feature interactive bidding contests in closed groups due to sharing the sales price equally among bidders. We axiomatically justify the game forms of first- and second-price fair division games, the former (latter) being over-bidding (under-bidding) proof, and we provide a condition for evolutionarily stable bidding to coincide with equilibrium bidding irrespectively of the number of bidders.
    Date: 2017–10
  3. By: Persichina, Marco
    Abstract: This work shows that defective behaviors from the cooperative equilibrium in the management of common resources can be fueled and triggered by the presence of agents with myopic behaviors; a similar phenomenon is also possible with cooperative motivations. This paper demonstrates and discusses that the apparent and detectable decay of the cooperative choices in the dilemmas of common resources are not an exclusive and indisputable signal of an escalation in free-riding intentions, but can also be an outcome of the present-biased preferences and myopic behaviors of the cooperative agents. In fact, within the context populated by conditional cooperators with a heterogeneous myopic discount factor, in the absence of information about agents’ intentions, the present-biased preferences can trigger a strategy that directs the community to excessively increase its harvesting level, even in presence of the other-regarding motives. The behavior implemented by naïve agents, even if done with cooperative intent, can activate a dynamic of cascading defections from the cooperative strategy within the harvester group. Therefore, a lowering of the cooperative behaviors can also be the effect of the absence of coordination instruments in response to the cognitive bias that influences human behaviors.
    Keywords: Present bias, Commons, Cooperation, Cascading Defections, Naïve Agent.
    JEL: C71 C73 D03 D90 Q20 Q29
    Date: 2016–07–20
  4. By: Sven Christens (University of Kassel); Astrid Dannenberg (University of Kassel); Florian Sachs (University of Magdeburg)
    Abstract: Revealing the identities of contributors has been shown to increase cooperation in public goods games. In this paper we experimentally investigate whether this finding holds true when decisions are made by groups rather than individuals. We distinguish between groups in which members can discuss face-to-face to reach a decision and groups in which members communicate via computer chat. The results confirm the positive effect of identification on cooperation among individuals. For groups, however, we only find a small and temporary effect of identification, irrespective of the type of communication. The reason for this is that the sensitivity to others’ opinions plays an important role for individual decisions but not for group decisions.
    Keywords: Climate change; public goods experiment; cooperation; group decisions; face-to-face communication; computer chat communication; identification; shame
    JEL: C72 C91 C92 H41
    Date: 2017
  5. By: Ori Haimanko (BGU)
    Keywords: Simple Games, Compound Games, Banzhaf Power Index, Banzhaf value, Composition Property, Semivalues, Transfer, Symmetry, Positivity, Dummy
    JEL: C71 D72
    Date: 2017
  6. By: Pablo Amorós (Department of Economics, University of Málaga)
    Abstract: The honest opinions of a group of experts must be aggregated to determine the deserving winner of a competition. The aggregation procedure is majoritarian if, whenever a majority of experts honestly believe that a contestant is the best one, then that contestant is considered the deserving winner. The fact that an expert believes that a contestant is the best one does not necessarily imply that she wants this contestant to win as, for example, she might be biased in favor of some other contestant. Then, we have to design a mechanism that implements the deserving winner. We show that, if the aggregation procedure is majoritarian, such a mechanism exists only if the experts are totally impartial. This impossibility result is very strong as it does not depend on the equilibrium concept considered. Moreover, the result still holds if we replace majoritarianism by anonymity and other reasonable property called respect for the jury. The impossibility result is even stronger if we focus on Nash implementation: no majoritarian aggregation procedure can be Nash implemented even if the experts are totally impartial.
    Keywords: mechanism design; aggregation of experts? opinions; jury
    JEL: C72 D71 D78
    Date: 2017–11
  7. By: Sumit Joshi (George Washington University); Ahmed Saber Mahmud (Johns Hopkins University)
    Abstract: The extensive literature on efficacy of sanctions has been mainly focused on a dyadic inter- action between sender and target. In contrast, this paper examines sanctions when the sender and target are embedded in a network of linkages to other agents and each agent’s utility is a function of the size of the agent’s component. Efficacy of sanctions is then a function of two factors: the network structure binding the sender and target, and the con- cavity/convexity of utility in the component size. We consider both unilateral sanctions and multilateral sanctions. We demonstrate how the network architecture, together with the specification of utility, qualifies and sometimes reverses the main tenets of the dyadic approach. We add to the recent work on identifying network architectures that sustain cooperation via the threat of exclusion by showing that the utility specification matters. Thus the same network can be efficacious for sanctions if utility is convex in component size but not if it is concave.
    Keywords: Unilateral sanctions, Multilateral sanctions, Sender, Target, Networks, Spanning trees, Cutsets
    JEL: C72 D74 D85
    Date: 2017
  8. By: Kittsteiner, Thomas; Ott, Marion; Steinberg, Richard
    Abstract: We investigate if and how revenue-maximizing auctioneers restrict combinatorial bidding in the presence of auctioneer competition. Two sellers offer the same set of two heterogeneous items to six bidders in a VCG mechanism. Each bidder desires either the first item, the second item, or the package of both items. First, each seller decides on which packages to allow bids. Then, each bidder selects which of the two sellers’ auctions to participate in. We find that, in contrast to a monopolistic seller, duopolistic sellers do not both offer an unrestricted VCG mechanism, i.e., a combinatorial auction. Rather they segment the market via their respective choice of allowable package bids: One seller attracts bidders who desire a single item; the other seller attracts bidders who desire both items.
    Keywords: Auctioneer competition,Combinatorial auctions,VCG mechanism
    JEL: D44 C72 D82
    Date: 2017
  9. By: Armenak Antinyan (International Academy of Business and Economics, Tianjin University of Finance and Economics); Luca Corazzini (Department of Economics, University of Venice \"Ca’ Foscari\"); Elena D\'Agosotino (Department of Economics (SEAM), University of Messina.); Filippo Pavesi (Department of Economics (University of Verona))
    Abstract: We consider a principal-agent relationship, and study the interplay between communication and the opportunity cost of delegation in influencing the principal’s choice to delegate and the agent’s propensity to prove worthy of trust. In order to this, we adopt a lost-wallet game in which the agent that wishes to be trusted can send a free-form message to his counterpart in the initial stage of the game. We find that communication is effective since it attenuates the effect of the opportunity cost of delegation on the principal’s choice. In particular, when the opportunity cost of delegation is high, communication increases beliefs on the amount that the agent will return in case of delegation. Moreover, we find that non-precise statements of intent are more frequent in the presence of lower opportunity costs of delegation, in which case we document an illusion effect: the agent incorrectly expects non-precise communication to exert positive effects on principal’s beliefs and her propensity to delegate.
    Keywords: Communication, Promises, Trust, Delegation, Guilt, Lost-Wallet Game, Language Precision
    JEL: C7 C9 D03 D8
    Date: 2017–12
  10. By: Hagspiel, Simeon (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: We investigate the effects of system integration for reliability of supply in regional electricity systems along with cooperative measures to support it. Specifically, we set up a model to contrast the benefits from integration through statistical balancing (i.e., a positive externality) with the risk of cascading outages (a negative externality). The model is calibrated with a comprehensive dataset comprising 28 European countries on a high spatial and temporal resolution. We find that positive externalities from system integration prevail, and that cooperation is key to meet reliability targets efficiently. To enable efficient solutions in a non-marketed environment, we formulate the problem as a cooperative game and study different rules to allocate the positive and negative effects to individual countries. Strikingly, we find that without a mechanism, the integrated solution is unstable. In contrast, proper transfer payments can be found to make all countries better off in full integration, and the Nucleolus is identified as a particularly promising candidate. The rule could be used as a basis for compensation payments to support the successful integration and cooperation of electricity systems.
    Keywords: Electricity; Reliability of Supply; Generation Adequacy; System Integration; Cooperative Game
    JEL: C63 C71 Q42 Q48
    Date: 2017–12–04
  11. By: Rishabh Kirpalani (NYU); Alessandro Dovis (University of Pennsylvania)
    Abstract: Expectations of bailouts by central governments incentivize over-borrowing by local governments. In this paper, we ask if fiscal rules can correct these incentives to over-borrow when central governments cannot commit and if they 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 local govern- ments learn about this type over time. Our first main result is that if the reputation of the central government is low enough, then fiscal rules can be welfare reducing as they can lead to even more debt accumulation relative the case with no rules. This is because the costs of enforcing the punishment associated with the fiscal rule worsens the payoffs of preserving reputation and incentivizes the no-commitment type to re- veal its type earlier relative to an environment without rules. This early resolution of uncertainty makes over-borrowing more attractive for the local governments. 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. The model can be used to shed light on the numerous examples throughout history where tight fiscal rules were instituted but were not enforced ex-post, such as the Stability and Growth Pact.
    Date: 2017
  12. By: Mass, Helene; Fugger, Nicolas; Gretschko, Vitali; Wambach, Achim
    Abstract: Procurement regulation aimed at curbing discrimination requires equal treatment of sellers. However, Deb and Pai (2017) show that such regulation imposes virtually no restrictions on the ability to discriminate. We propose a simple rule - imitation perfection - that restricts discrimination significantly. It ensures that in every equilibrium bidders with the same value distribution and the same valuation earn the same expected surplus. If all bidders are homogeneous, revenue and social surplus optimal auctions which are consistent with imitation perfection exist. For heterogeneous bidders however, it is incompatible with revenue and social surplus optimization. Thus, a trade-off between non-discrimination and optimality exists.
    Keywords: discrimination,symmetric auctions,procurement regulation
    JEL: D44 D73 D82 L13
    Date: 2017
  13. By: Fugger, Nicolas; Gillen, Philippe; Rasch, Alexander; Zeppenfeld, Christopher
    Abstract: We examine bidding behavior in first-price sealed-bid and Dutch auctions, which are strategically equivalent under standard preferences. We investigate whether the empirical breakdown of this equivalence is due to (non-standard) preferences or due to the different complexity of the two formats (i.e., a different level of mathematical/ individual sophistication needed to derive the optimal bidding strategy). We first elicit measures of individual preferences and then manipulate the degree of complexity by offering various levels of decision support. Our results show that the equivalence of the two auction formats only breaks down in the absence of decision support. This indicates that the empirical breakdown is caused by differing complexity between the two formats rather than non-standard preferences.
    Keywords: Auctions,Decision support system,Experiment,Loss aversion,Preferences
    JEL: D44 D81
    Date: 2017
  14. By: Lundin, Erik (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: Horizontal shifts in bid curves observed in wholesale electricity markets are consistent with Cournot competition. Quantity competition reduces the informational requirements associated with evaluating market performance because the markups of all producers then depend on the same inverse residual demand curve instead of one for each firm. We apply the model to the day-ahead market of the Nordic power exchange, Nord Pool, for the years 2011–2013. Results suggest that mark-ups were 8–11 percent. We find some support for the hypothesis that the division of Sweden into price areas in 2011 increased the exercise of market power.
    Keywords: Cournot competition; Market design; Market performance; Nord Pool; Walrasian auction; Wholesale electricity market
    JEL: D22 D40 D43 D44
    Date: 2017–11–21
  15. By: Ruddell, Keith (Research Institute of Industrial Economics (IFN)); Downward, Tony (University of Auckland); Philpott, Andy (University of Auckland)
    Abstract: We construct a model of strategic behavior in sequential markets which exhibits a persistent forward price premium. On the spot market, producers wield market power while purchasers are price takers. Producers with forward commitments have less incentive to raise prices on the spot market. Purchasers are thus willing to pay a premium to producers for forward contracts. We argue that this type of forward premium is not susceptible to arbitrage by speculators on the forward market, since purchasers prefer forward contracts backed by producers.
    Keywords: Forward pricing; Electricity markets; Market power; Arbitrage
    JEL: D43 G13 L12 L13 Q41
    Date: 2017–11–29
  16. By: Bossert, Walter (centre interuniversitaire de recherche en economie quantitative (cireq)); Peters, Hans (QE / Mathematical economics and game the)
    Abstract: One unit of a good has to be divided among a group N of individuals who each are entitled to a minimal share and these shares sum up to less than one. The associated set of choice problems consists of the unit simplex and all its full-dimensional subsimplices with the same orientation. We characterize all choice rules that are independent of irrelevant alternatives, continuous, and monotonic. The resulting rules are what we refer to as N-path choice functions. If there are only three individuals, the monotonicity property can be weakened. We also consider the issue of rationalizability and show that, for the threeagent case, excluding cycles of length three in the revealed preference relation implies the strong axiom of revealed preference, that is, the exclusion of cycles of any length.
    Keywords: choice functions, simplex domain, rationalizability
    JEL: D11 D71
    Date: 2017–12–05
  17. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Using a horizontally differentiated three-firm model, we consider horizontal merger and antitrust policy in a network products market, where we observe network externalities and compatibilities (interconnectivities) between products and services. In particular, if the degree of network compatibilities in the case of a merger is sufficiently larger than that of product substitutability, consumer surplus is larger than in the premerger case. Thus, the proposed merger is allowed by antitrust authorities based on the positive effect on consumer surplus. In this case, the merger is Pareto improving.
    Keywords: horizontal merger; antitrust policy; network externality; compatibility; consumer surplus standard; horizontally differentiated Cournot competition
    JEL: D43 K21 L12 L15 L41
    Date: 2017–11
  18. By: Brian Adams (Bureau of Labor Statistics); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. Zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in rural markets, where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer price discrimination does.
    Keywords: Zone pricing, Market segmentation, Price discrimination in oligopoly, Micromarketing, Retailing
    JEL: C13 L67 L81
    Date: 2017–02
  19. By: Alonso, Ricardo; Câmara, Odilon
    Abstract: We consider a persuasion model in which a sender influences the actions of a receiver by selecting an experiment (public signal) from a set of feasible experiments. We ask: does the sender benefit from becoming an expert - observing a private signal prior to her selection? We provide necessary and sufficient conditions for a sender to never gain by becoming informed. Our key condition (sequential redundancy) shows that the informativeness of public experiments can substitute for the sender's expertise. We then provide conditions for private information to strictly benefit or strictly hurt the sender. Expertise is beneficial when the sender values the ability to change her experimental choice according to her private information. When the sender does not gain from expertise, she is strictly hurt when different types cannot pool on an optimal experiment.
    Keywords: Bayesian persuasion; experts.; information design
    JEL: D83
    Date: 2017–12

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