nep-gth New Economics Papers
on Game Theory
Issue of 2018‒11‒26
37 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Countering the Winner’s Curse: Optimal Auction Design in a Common Value Model By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. The strategic environment effect in beauty contest games By Nobuyuki Hanaki; Yukio Koriyama; Angela Sutan; Marc Willinger
  3. Escalating games: how intermediate levels of conflict affect stability of cooperation By Dubovik, Andrei; Parakhonyak, Alexei
  4. Do we need to listen to all stakeholders?: communicating in a coordination game with private information By Cabrales, Antonio; Drouvelis, Michalis; Gurguc, Zeynep; Ray, Indrajit
  5. Financial Restrictions and Competitive Balance in Sports Leagues By Grabar, Vsevolod; Sonin, Konstantin
  6. The Secret Behind The Tortoise and the Hare: Information Design in Contests By Alejandro Melo Ponce
  7. An Equitable Nash Solution to Nonconvex Bargaining Problems By Xu, Yongsheng; Yoshihara, Naoki
  8. Negotiating Cooperation under Uncertainty: Communication in Noisy, Indefinitely Repeated Interactions By Dvorak, Fabian; Fehrler, Sebastian
  9. Gains in evolutionary dynamics: a unifying approach to stability for contractive games and ESS By Dai Zusai
  10. Free-on-board and uniform delivered pricing strategies in pure and mixed spatial duopolies: the strategic role of cooperatives By Panagiotou, Dimitrios; Stavrakoudis, Athanassios
  11. Partially-Honest Nash Implementation: A Full Characterization By Lombardi, Michele; Yoshihara, Naoki
  12. Network Formation with Local Complements and Global Substitutes: The Case of R&D Networks By Hsieh, Chih-Sheng; König, Michael; Liu, Xiaodong
  13. Heterogeneity and aggregation in evolutionary dynamics: a general framework without aggregability By Dai Zusai
  14. Decarbonization of Power Markets under Stability and Fairness: Do They Influence Efficiency? By Christoph Weissbart
  15. Predicting and Understanding Initial Play By Drew Fudenberg; Annie Liang
  16. Information nudges and self-control By Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
  17. When Does an Additional Stage Improve Welfare in Centralized Assignment? By Battal Doğan; M. Bumin Yenmez
  18. Choosing in a Large World: The Role of Focal Points as a Mindshaping Device By Lauren Larrouy; Guilhem Lecouteux
  19. Fair Cake-Cutting among Families By SEGAL-HALEVI, Erel; NITZAN, Shmuel
  20. Voting as a signal of education By Nicholas Janetos
  21. Dynamic Information Acquisition from Multiple Sources By Annie Liang; Xiaosheng Mu; Vasilis Syrgkanis
  22. Media Freedom in the Shadow of a Coup By Boleslavsky, Ralph; Shadmehr, Mehdi; Sonin, Konstantin
  23. Bargaining Power between Food Processors and Retailers: Evidence from Japanese Milk Transactions By Hayashida, K.
  24. Bad news turned good: reversal under censorship By Aleksei Smirnov; Egor Starkov
  25. Monetary and Macroprudential Policy Coordination Among Multiple Equilibria By Itai Agur
  26. Pricing algorithms in oligopoly: theory and antitrust implications By Jacques THEPOT
  27. Extending the Cass Trick By Lionel de Boisdeffre
  28. Fads and imperfect information By Nicholas Janetos
  29. Distributional stability and deterministic equilibrium selection under heterogeneous evolutionary dynamics By Dai Zusai
  30. Variation margins, fire sales, and information-constrained optimality By Biais, Bruno; Heider, Florian; Hoerova, Marie
  31. The I.O. of ethics and cheating when consumers do not have rational expectations By Thanassoulis, John
  32. Bounded Rationality And Learning: A Framwork and A Robustness Result* By Aislinn Bohren; Daniel Hauser
  33. The Vertical Cooperative An experiment on cooperation and punishment across networks By Fatas, E; Miguel A. Meléndez-Jiménez; Hector Solaz
  34. Altruism and Risk Sharing in Networks By Bourles, Renaud; Bramoulle, Yann; Perez-Richet, Eduardo
  35. Strategic Fertility, Education Choices and Conflicts in Deeply Divided Societies By Emeline Bezin; Bastien Chabé-Ferret; David de la Croix
  36. Inequality of Opportunity in Earnings in Rural China By Shi, X.
  37. Economic Incentives for Collective Action in Agriculture: Evidence from Agricultural Co-operatives in Tigray, North Ethiopia By Gezahegn, T.W.; Maertens, M.

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. The optimal mechanism exhibits either neutral selection, wherein the object is randomly allocated at a price that all bidders are willing to pay, or advantageous selection, wherein the object is allocated with higher probability to bidders with lower signals. If neutral selection is optimal, then the object is sold with probability one by a deterministic posted price. If advantageous selection is optimal, the object is sold with probability less than one at a random price. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the ?rst-price, second-price or English auctions) deliver lower revenue because of the adverse selection generated by the allocation rule: if a bidder wins the good, then he revises his expectation of its value downward. We further show that the posted price mechanism is optimal among those mechanisms that always allocate the good. A su?icient condition for the posted price to be optimal among all mechanisms is that there is at least one potential bidder who is omitted from the auction. Our qualitative results extend to more general common value environments where adverse selection is high.
    Keywords: Optimal auction, Common values, Maximum game, Posted price, Revenue equivalence, Adverse selection, Neutral selection, Advantageous selection
    JEL: C72 D44 D82 D83
    Date: 2018–11
  2. By: Nobuyuki Hanaki; Yukio Koriyama; Angela Sutan; Marc Willinger
    Abstract: Recent experimental studies have shown that observed outcomes deviate significantly morefrom the Nash equilibrium when actions are strategic complements than when they are strategic substitutes. This "strategic environment effect" offers promising insights into the aggregate consequences of interactions among heterogeneous boundedly rational agents, but its macroeconomic implications have been questioned because the underlying experiments involve a small number of agents. We studied beauty contest games with a unique interior Nash equilibrium to determine the critical group size for triggering the strategic environment effect, and we use both theory and experiments to shed light on its effectiveness. Based on cognitive hierarchy and level-K models, we show theoretically that the effect is operative for interactions among three or more agents. Our experimental results show a statistically significant strategic environment effect for groups of five or more agents, establishing its robustness against the increase in the population size. Our results bolster other experimental ndings on the strategic environment effects that are relevant for macroeconomic issues such as price fluctuations and nominal rigidity.
    Keywords: beauty contest games, iterative reasoning, strategic substitutability, strategic complementarity
    JEL: C72 C91
    Date: 2018–11
  3. By: Dubovik, Andrei; Parakhonyak, Alexei
    Abstract: We argue that cooperation can become more fragile if (i) there are sufficiently many intermediate levels of cooperation and (ii) players cannot respond with large punishments to small deviations. Such disproportional punishments can be perceived as unreasonable or players can face external constraints---political checks, negative publicity, etc. Specifically, we show that regardless of how patient the players are, any prisoner's dilemma game can be extended with intermediate levels of cooperation in such a way that full conflict is the only equilibrium outcome of the extended game.
    Keywords: conflict escalation, intermediate levels of conflict, repeated games, prisoners dilemma
    JEL: C73 D74 F51
    Date: 2018–09–17
  4. By: Cabrales, Antonio (Department of Economics, University College London); Drouvelis, Michalis (University of Birmingham); Gurguc, Zeynep; Ray, Indrajit (Cardiff Business School)
    Abstract: We consider an experiment with a version of the Battle of the Sexes game with two-sided private information, preceded by a round of either one-way or two-way cheap talk. We compare different treatments to study truthful revelation of information and subsequent payoffs from the game. We find that the players are overall truthful about their types in the cheap-talk phase in both one-way and two-way talk. Furthermore, the unique symmetric cheap-talk equilibrium in the two-way cheap talk game is played when the players fully reveal their information; however, they achieve higher payoffs in the game when the talk is one-way as the truthful reports facilitate desired coordination.
    Keywords: Battle of the Sexes, Private Information, Cheap talk, Coordination.
    JEL: C72 C92 D83
    Date: 2018–11
  5. By: Grabar, Vsevolod; Sonin, Konstantin
    Abstract: A dramatic surge in revenues from TV broadcasting and brand-selling forced modern football clubs, simultaneously involved in domestic and European competitions, to operate in a new environment. In response, the Union of European Football Associations introduced the Financial Fair Play Regulations, a set of financial regulations that affect all major European clubs. To assess the impact of financial restrictions (e.g., salary caps) on the default risk for individual clubs and competitive balance, we construct a game-theoretic model where clubs make decisions on the amounts they borrow and spend on the team. The impact of financial restrictions on competitive balance is positive; the total amount of debt also decreases at equilibrium. Finally, we show that financial restrictions create more incentives to invest in second-tier clubs compared to the situation in which there are no financial regulations.
    Keywords: financial regulation; competitive balance; financial regulation; investment tournaments; UEFA Financial Fair Play
    JEL: C72 D63 G28
    Date: 2018–09
  6. By: Alejandro Melo Ponce
    Abstract: I analyze the optimal information disclosure problem under commitment of a "contest designer" in a class of binary action contests with incomplete information about the abilities of the players. If the contest designer wants to incentivize the players to play in equilibrium a particular strategy profile, she can design an information disclosure rule, formally a stochastic communication mechanism, to which she will commit and then use to "talk" with the players. The main tool to carry out the analysis is the concept of Bayes Correlated Equilibrium recently introduced in the literature. I find that the optimal information disclosure rules involves private information revelation (manipulation), which is also cost-effective for the designer. Furthermore, the optimal disclosure rule involves asymmetric and in most cases correlated signals that convey only partial information about the abilities of the players.
    JEL: C72 C79 D44 D82 D83
    Date: 2018–11–20
  7. By: Xu, Yongsheng; Yoshihara, Naoki
    Abstract: This paper studies the Nash solution to non-convex bargaining problems. Given the multiplicity of the Nash solution in this context, we refine the Nash solution by incorporating an equity consideration. The proposed refinement is defined as the composition of the Nash solution and a variant of the Kalai-Smorodinsky solution. We then present an axiomatic characterization of the new solution.
    Keywords: non-convex bargaining problem, Nash solution, equitable Nash solution, equity principle, binary weak axiom of revealed preference
    JEL: C71 C78 D6 D7
    Date: 2018–10
  8. By: Dvorak, Fabian (University of Konstanz); Fehrler, Sebastian (University of Konstanz)
    Abstract: Case studies of cartels and recent theory suggest that repeated communication is key for stable cooperation in environments where signals about others' actions are noisy. However, empirically the exact role of communication is not well understood. We study cooperation under different monitoring and communication structures in the laboratory. Under all monitoring structures - perfect, imperfect public, and imperfect private - communication boosts efficiency. However, under imperfect monitoring, where actions can only be observed with noise, cooperation is stable only when subjects can communicate before every round of the game. Beyond improving coordination, communication increases efficiency by making subjects' play more lenient and forgiving. We further find clear evidence for the exchange of private information - the central role ascribed to communication in recent theoretical contributions.
    Keywords: infinitely repeated games, monitoring, communication, cooperation, strategic uncertainty, prisoner's dilemma
    JEL: C72 C73 C92 D83
    Date: 2018–10
  9. By: Dai Zusai
    Abstract: In this paper, we investigate gains from strategy revisions in deterministic evolutionary dynamics. To clarify the gain from revision, we propose a framework to reconstruct an evolutionary dynamic from optimal decision with stochastic (possibly restricted) available action set and switching cost. Many of major dynamics can be constructed in this framework. We formally define net gains from revisions and obtain several general properties of the gain function, which leads to Nash stability of contractive games---generalization of concave potential games---and local asymptotic stability of a (regular) evolutionary stable state. The unifying framework allows us to apply the Nash stability to mixture of heterogeneous populations, whether heterogeneity is observable or unobservable or whether heterogeneity is in payoffs or in revision protocols. This extends the known positive results on evolutionary implementation of social optimum through Pigouvian pricing to the presence of heterogeneity and non-aggregate payoff perturbations. While the analysis here is confined to general strategic-form games, we finally discuss that the idea of reconstructing evolutionary dynamics from optimization with switching costs and focusing on net revision gains for stability is promising for further applications to more complex situations.
    Date: 2018–05
  10. By: Panagiotou, Dimitrios; Stavrakoudis, Athanassios
    Abstract: The present work analyzes free-on-board against uniform delivered strategic prices in pure and mixed duopolistic spatial markets with reference to the food sector. Along with investor owned firms (IOFs) that maximize profits, we introduce member welfare maximizing cooperatives (COOPs) and examine their impact on the strategic pricing choices. Demand is price responsive. We use a two stage game between two IOFs, between an IOF and a COOP, and between two COOPs. The findings indicate that the introduction of COOPs acts as a disciplinary factor regarding the pricing behavior of the IOFs. As competition in the spatial market escalates, we move from the quasi--collusive (FOB,FOB) Nash equilibrium, where there are only IOFs in the market, to the more aggressive (UD,UD) strategic pricing configuration where COOPs replace one or both IOFs in the market.
    Keywords: oligopoly spatial competition; mixed; free-on-board; uniformly delivered
    JEL: C72 D40 L13 Q13
    Date: 2018
  11. By: Lombardi, Michele; Yoshihara, Naoki
    Abstract: A partially-honest individual is a person who follows the maxim, "Do not lie if you do not have to" to serve your material interest. By assuming that the mechanism designer knows that there is at least one partially-honest individual in a society of n ≥ 3 individuals, a social choice rule (SCR) that can be Nash implemented is termed partially-honestly Nash implementable. The paper offers a complete characterization of the n-person SCRs that are partially-honestly Nash implementable. It establishes a condition which is both necessary and sufficient for the partially-honest Nash implementation. If all individuals are partially-honest, then all SCRs that satisfy the property of unanimity are partially-honestly Nash implementable. The partially-honest Nash implementation of SCRs is examined in a variety of environments.
    Keywords: Nash implementation, pure strategy Nash equilibrium, partial-honesty, Condition μ*
    JEL: C72 D71
    Date: 2018–10
  12. By: Hsieh, Chih-Sheng; König, Michael; Liu, Xiaodong
    Abstract: We introduce a stochastic network formation model where agents choose both actions and links. Neighbors in the network benefit from each other's action levels through local complementarities and there exists a global interaction effect reflecting a strategic substitutability in actions. We provide a complete equilibrium characterization in the form of a Gibbs measure, and show that the model is consistent with empirically observed networks. We then use our equilibrium characterization to show that the model can be conveniently estimated even for large networks. The policy relevance is demonstrated with examples of firm exit, mergers and subsidies in R&D collaboration networks.
    Keywords: key player; mergers and acquisitions; network formation; peer effects; Subsidies; technology spillovers
    JEL: C11 C63 C73 D83 L22
    Date: 2018–09
  13. By: Dai Zusai
    Abstract: We consider general evolutionary dynamics under persistent payoff heterogeneity and study the dynamic relation between the strategy composition over different types and the aggregate strategy distribution of the entire population. It is rigorously proven that continuity of either the revision protocol or the type distribution guarantees the existence of a unique solution trajectory. In many major evolutionary dynamics, an agent's switching rate between actions increases with the payoff gain from this switch, which causes nonaggregability: the current strategy composition must be identified to predict the transition of the aggregate strategy. Looking at the strategy composition, we retain equilibrium stationarity in general and stability in potential games under admissible dynamics. Local stability of an equilibrium composition under any admissible dynamic can be tested by local stability of the corresponding aggregate equilibrium under the best response dynamic with i.i.d.~payoff perturbation. All the results are maintained under heterogeneity in revision protocols.
    Date: 2018–05
  14. By: Christoph Weissbart
    Abstract: Market integration is seen as a complementary measure to decarbonize energy markets. In the context of power markets, this translates into regions that coordinate to maximize welfare in the power market with respect to a climate target. Yet, the maximization of overall welfare through cooperation leads to redistribution and can result in the reduction of a region's welfare compared to the case without cooperation. This paper assesses why cooperation in the European power market is not stable from the perspective of single regions and identifies cost allocations that increase fairness. In a first step, the EU-REGEN model is applied to find the future equilibrium outcome of the European power market under a cooperative, subadditive cost-sharing game. Secondly, resulting cost allocations are analyzed by means of cooperative game theory concepts. Results show that the value of cooperation is a € 69 billion reduction in discounted system cost and rational behavior of regions can maintain at most 16 % of this reduction. The evaluation of alternative cost allocations reveals the trade-off between accounting for robustness against cost changes and individual rationality. Moreover, the cost-efficient decarbonization path of the European power sector under the grand coalition is characterized by the interplay between wind power, gas power, and biomass with geologic storage of CO2. Last, with singleton coalitions only, the market outcome shifts to a higher contribution from nuclear power.
    Keywords: decision under risk, time constraints, opportunity costs, rational behavior, lab experiment, structural estimation, drift diffusion model
    JEL: C60 C70 L90 Q40
    Date: 2018
  15. By: Drew Fudenberg (Department of Economics, MIT); Annie Liang (Department of Economics, University of Pennsylvania)
    Abstract: We take a machine learning approach to the problem of predicting initial play in strategic-form games, with the goal of uncovering new regularities in play and improving the predictions of existing theories. The analysis is implemented on data from previous laboratory experiments, and also a new data set of 200 games played on Mechanical Turk. We use two approaches to uncover new regularities in play and improve the predictions of existing theories. First, we use machine learning algorithms to train prediction rules based on a large set of game features. Examination of the games where our algorithm predicts play correctly, but the existing models do not, leads us to introduce a risk aversion parameter that we find significantly improves predictive accuracy. Second, we augment existing empirical models by using play in a set of training games to predict how the models' parameters vary across new games. This modified approach generates better out-of-sample predictions, and provides insight into how and why the parameters vary. These methodologies are not special to the problem of predicting play in games, and may be useful in other contexts.
    Date: 2017–11–14
  16. By: Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
    Abstract: We study the optimal design of information nudges for present-biased consumers who have to make sequential consumption decisions without exact prior knowledge of their long-term consequences. For arbitrary distributions of risk, there exists a consumer-optimal information nudge that is of cutoff type, recommending consumption or abstinence according to the magnitude of the risk. Under a stronger bias for the present, the target group receiving a credible signal to abstain must be tightened. We compare this nudge with those favored by a health authority or a lobbyist. When some consumers are more strongly present-biased than others, a traffic-light nudge is optimal.
    Keywords: Information Design,Information Nudges,Present-Biased Preferences,Self-Control
    JEL: C73 D82
    Date: 2018
  17. By: Battal Doğan; M. Bumin Yenmez
    Abstract: We study multistage centralized assignments to allocate scarce resources based on priorities in the context of school choice. We characterize the capacity-priority profiles of schools under which an additional stage of assignment may improve student welfare when the deferred acceptance algorithm is used at each stage. If the capacity-priority profile is acyclic, then no student prefers any subgame-perfect Nash equilibrium (SPNE) outcome of the 2-stage enrollment system to the truthful equilibrium outcome of the 1-stage enrolment system. If the capacity-priority profile is not acyclic, then an SPNE outcome of the 2-stage enrollment system may Pareto dominate the truthful equilibrium outcome of the 1-stage enrollment system.
    Date: 2018–11–18
  18. By: Lauren Larrouy (Université Côte d'Azur; GREDEG CNRS); Guilhem Lecouteux (Université Côte d'Azur; GREDEG CNRS)
    Abstract: The aim of this paper is to offer a theory of coordination that considers the role of the context within which the individuals interact, and to develop a rigorous analysis of salience and focal points. This requires dealing with how agents choose in ‘large worlds’ (in Savage’s sense). We highlight the role of mindshaping in the formation of individual preferences and beliefs and show how social focal points can generate prior beliefs. We conclude by discussing normative implications of our analysis, since it suggests that agents are socially-embedded entities, whose preferences and beliefs are shaped by social dynamics and norms.
    Keywords: coordination, mindshaping, belief formation, preference formation, large world
    JEL: B41 C72 D81
    Date: 2018–11
  19. By: SEGAL-HALEVI, Erel; NITZAN, Shmuel
    Abstract: We study the fair division of a continuous resource, such as a land-estate or a time-interval, among pre-specified groups of agents, such as families. Each family is given a piece of the resource and this piece is used simultaneously by all family members, while different members may have different value functions. Three ways to assess the fairness of such a division are examined. (a) *Average fairness* means that each family’s share is fair according to the ”family value function”, defined as the arithmetic mean of the value functions of the family members. (b) *Unanimous fairness* means that all members in all families feel that their family received a fair share according to their personal value function. (c) *Democratic fairness* means that in each family, at least half the members feel that their family’s share is fair. We compare these criteria based on the number of connected components in the resulting division, and based on their compatibility with Pareto-efficiency.
    Keywords: fair division, cake-cutting, public good, club good, fair-share, no-envy
    Date: 2018–11
  20. By: Nicholas Janetos (Penn Wharton Budget Model)
    Abstract: Since the chance of swaying the outcome of an election by voting is usually very small, it cannot be that voters vote solely for that purpose. So why do we vote? One explanation is that smarter or more educated voters have access to better information about the candidates, and are concerned with appearing to have better information about the candidates through their choice of whether to vote or not. If voting behavior is publicly observed then more educated voters may vote to signal their education, even if the election itself is inconsequential and the cost of voting is the same across voters. I explore this explanation with a model of voting where players are unsure about the importance of swaying the election and high type players receive more precise signals. I introduce a new information ordering, a weakening of Blackwell's order, to formalize the notion of information precision. Once voting has occurred, players visit a labor market and are paid the expected value of their type, conditioning only on their voting behavior. I find that in very large games, voter turnout and the signaling return to voting remains high even though the chance of swaying the election disappears and the cost of voting is the same for all types. I explore generalizations of this model, and close by comparing the stylized features of voter turnout to the features of the model.
    Keywords: Voting, signaling
    JEL: D72 D80
    Date: 2017–05–01
  21. By: Annie Liang (Department of Economics, University of Pennsylvania); Xiaosheng Mu (Department of Economics, Harvard University); Vasilis Syrgkanis (Microsoft Research, New England)
    Abstract: Consider a decision-maker who dynamically acquires Gaussian signals that are related by a completely flexible correlation structure. Such a setting describes information acquisition from news sources with correlated biases, as well as aggregation of complementary information from specialized sources. We study the optimal sequence of information acquisitions. Generically, myopic signal acquisitions turn out to be optimal at sufficiently late periods, and in classes of informational environments that we describe, they are optimal from period 1. These results hold independently of the decision problem and its (endogenous or exogenous) timing. We apply these results to characterize dynamic information acquisition in games.
    Date: 2017–08–17
  22. By: Boleslavsky, Ralph; Shadmehr, Mehdi; Sonin, Konstantin
    Abstract: Popular protests and palace coups are the two domestic threats to dictators. We show that free media, which informs citizens about their rulers, is a double-edged sword that alleviates one threat, but exacerbates the other. Informed citizens may protest against a ruler, but they may also protest to restore him after a palace coup. In choosing media freedom, the leader trades off these conflicting effects. We develop a model in which citizens engage in a regime change global game, and media freedom is a ruler's instrument for Bayesian persuasion, used to manage the competing risks of coups and protests. A coup switches the status quo from being in the ruler's favor to being against him. This introduces convexities in the ruler's Bayesian persuasion problem, causing him to benefi t from an informed citizenry. Rulers tolerate freer press when citizens are pessimistic about them, or coups signal information about them to citizens.
    Keywords: authoritarian politics; Bayesian persuasion; coup; global games; media freedom; protest; signaling
    JEL: D72 D82
    Date: 2018–09
  23. By: Hayashida, K.
    Abstract: Since the 1990s, several studies have pointed out that Japanese retailers exert buyer power over upstream firms in milk transactions (the buyer power hypothesis), despite the high level of competition between supermarkets and between milk suppliers. The conventional new empirical industrial organization approach, which assumes price-taking behavior on either side of players, is not appropriate for this market. Instead, we use the bilateral Nash bargaining model. Using purchase data for the period June 2012--December 2014, we estimate a structural bargaining model for each market in order to identify the relative bargaining strength of the respective agents. The results show that retailers tend to have stronger bargaining power than processors, even in the case of low market concentration. Therefore, these results support the buyer power hypothesis for wholesale milk transactions. In addition, we show the local small and medium-sized supermarkets have moderate bargaining power in the case of NB milk, whereas top-share supermarkets, discounters, and drugstores attempt almost take-it-or-leave-it offers. Finally, we identify the regional differences in the bargaining power of each brand and retailer, highlighting the differences for COOP milk in each region and in the market strategies of large supermarkets. Acknowledgement : I am grateful to Nao Koike for his kindness in providing me with the data used in this study. I would also like to thank Nobuhiro Suzuki for his support, and Takeshi Sato for his critical reviews of the first draft of this paper. Any errors or omissions are author's responsibility.
    Keywords: Agricultural and Food Policy
    Date: 2018–07
  24. By: Aleksei Smirnov; Egor Starkov
    Abstract: Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.
    Keywords: Censorship, dynamic games, disclosure, moderated learning
    JEL: D82 D83 D90
    Date: 2018–11
  25. By: Itai Agur
    Abstract: The notion of a tradeoff between output and financial stabilization is based on monetary-macroprudential models with unique equilibria. Using a game theory setup, this paper shows that multiple equilibria lead to qualitatively different results. Monetary and macroprudential authorities have tools that impose externalities on each other's objectives. One of the tools (macroprudential) is coarse, while the other (monetary policy) is unconstrained. We find that this asymmetry always leads to multiple equilibria, and show that under economically relevant conditions the authorities prefer different equilibria. Giving the unconstrained authority a weight on "helping" the constrained authority ("leaning against the wind") now has unexpected effects. The relation between this weight and the difficulty of coordinating is hump-shaped, and therefore a small degree of leaning worsens outcomes on both authorities' objectives.
    Date: 2018–11–02
  26. By: Jacques THEPOT (LaRGE Research Center, Université de Strasbourg)
    Abstract: Pricing algorithms are computerized procedures that a seller may use to adapt instantaneously its price to market conditions, including to prices quoted by its rivals. These algorithms are related to the extensive use of web-collectors which contribute in many industries to identifying the best price. In such settings, price competition operates between algorithms, no longer between executives of brick and mortar companies. In this context, the question is to know whether economic efficiency is achieved as implicit forms of collusion may arise between the sellers. This paper is aimed at discussing this conceptual issue in a price-setting homogeneous product oligopoly with decreasing returns to scale where algorithms implement downward and upward matching policies. Using fixed point argument akin to general equilibrium theory, we find a multiplicity of equilibria with prices located between collusion and Cournot, if matching is allowed upward and downward. When matching operates only for price undercutting, this multiplicity is extended up to a bottom value of the market price, close to the competitive price. This bypasses the Bertrand-Edgeworth paradox. As a result, pricing algorithms may contribute to the stability of the market and also to welfare improvement.
    Keywords: oligopoly, antitrust law, cost structure.
    JEL: K21 L13 L41
    Date: 2018
  27. By: Lionel de Boisdeffre (Université Paris1 Panthéon-Sorbonne - Centre d'Economie de la Sorbonne)
    Abstract: In a celebrated 1984 paper, David Cass provided an existence theorem for financial equilibria in incomplete markets with exogenous yields. The theorem showed that, when agents had symmetric information and ordered preferences, equilibria existed on purely financial markets and could be supported by any collection of state prices. This theorem built on the so-called "Cass trick", along which one agent in the economy had an Arrow-Debreu budget set, with one single budget constraint, while all other agents were constrained à la Radner (1972), that is, in every state of nature, given the financial transfers that the asset market permitted. The current paper extends Cass' theorem and the Cass trick to asymmetric information and non-ordered preferences. It shows that any collection of individual state prices under asymmetric information supports an equilibrium, provided one agent had full information. If the latter condition fails, the Cass trick cannot apply. A weaker result holds, namely equilibrium exists under the no-arbitrage condition
    Keywords: sequential equilibrium; perfect foresight; existence of equilibrium; rational expectations; incomplete markets; asymmetric information; arbitrage
    JEL: D52
    Date: 2018–09
  28. By: Nicholas Janetos (Penn Wharton Budget Model)
    Abstract: A fad is something that is popular for a time, then unpopular. For example, in the 1960s tailï¬ ns on cars were popular, in the 1970s they were not. I study a model in which fads are driven through the channel of imperfect information. Some players have better information about past actions of other players, and all players have preferences for choosing the same actions as well-informed players. In equilibrium, better informed (high-type) players initially pool on a single action choice. Over time, the low-type players learn which action the high-type players are pooling on, and start to mimic them. Once a tipping point is reached, the high-type players switch to a dfferent action, and the process repeats. I explicitly compute equilibria for a speciï¬ c parameterization of the model. Low-type players display instrumental preferences for conformity, choosing actions which appear more popular, while high-type players sometimes coordinate on actions which appear unpopular. Improving the quality of information to low-type players does not improve their payoffs, but increases the rate at which high-type players switch between actions.
    Keywords: Fads, social norms
    JEL: D83
    Date: 2017–05–01
  29. By: Dai Zusai
    Abstract: In the presence of persistent payoff heterogeneity, the evolution of the aggregate strategy hugely depends on the underlying strategy composition under many evolutionary dynamics, while the aggregate dynamic under the standard BRD reduces to a homogenized smooth BRD, where persistent payoff heterogeneity averages to homogeneous transitory payoff shocks. In this paper, we consider deterministic evolutionary dynamics in heterogeneous population and develop the stronger concept of local stability by imposing robustness to persistent payoff heterogeneity. It is known that nonaggregability holds generically if the switching rate in a given evolutionary dynamic correlates with the payoff gain from a switch. To parameterize the payoff sensitivity of an evolutionary dynamic, we propose to use tempered best response dynamics with bounded support of switching costs.
    Date: 2018–05
  30. By: Biais, Bruno; Heider, Florian; Hoerova, Marie
    Abstract: Protection buyers use derivatives to share risk with protection sellers, whose assets are only imperfectly pledgeable because of moral hazard. To mitigate moral hazard, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some of their own assets. We analyse, in a general-equilibrium framework, whether this leads to inefficient fire sales. If investors buying in a fire sale interim can also trade ex ante with protection buyers, equilibrium is information-constrained efficient even though not all marginal rates of substitution are equalized. Otherwise, privately optimal margin calls are inefficiently high. To address this inefficiency, public policy should facilitate ex-ante contracting among all relevant counterparties.
    Keywords: constrained efficiency; fire sales; macro-prudential regulation; Pecuniary externalities; variation margins
    JEL: D62 D82 G13 G18
    Date: 2018–09
  31. By: Thanassoulis, John
    Abstract: I study the incentive of firms to be unethical in competitive markets, by conducting practices which illicitly harm stakeholders (consumers, workers, the environment) so as to raise profits. I offer a theoretical analysis which embeds consistent philosophical concerns (utilitarian, Kantian, and in some settings, Rawlsian) to evaluate the moral dilemma managers face of cheating stakeholders for profit in a model of competition with regulatory oversight. I characterise sufficiency conditions which apply broadly and which yield the result that more competition raises the equilibrium level of malpractice in Nash Equilibria of the competition game. If agents reason more deontologically, professing a duty-ethic, then oligopoly is linked to malpractice. I explore how firm level changes impact equilibrium malpractice drawing predictions for some aspects of FDI and for behavioural changes as firms approach the technological frontier.
    Keywords: Competition; Ethics; Malpractice; Moral Dilemma
    Date: 2018–09
  32. By: Aislinn Bohren (Department of Economics, University of Pennsylvania); Daniel Hauser (Department of Economics, Aalto University)
    Abstract: We explore model misspecification in an observational learning framework. Individuals learn from private and public signals and the actions of others. An agent's type specifies her model of the world. Misspecified types have incorrect beliefs about the signal distribution, how other agents draw inference and/or others' payoffs. We establish that the correctly specified model is robust in that agents with approximately correct models almost surely learn the true state asymptotically. We develop a simple criterion to identify the asymptotic learning outcomes that arise when misspecification is more severe. Depending on the nature of the misspecification, learning may be correct, incorrect or beliefs may not converge. Different types may asymptotically disagree, despite observing the same sequence of information. This framework captures behavioral biases such as confirmation bias, false consensus effect, partisan bias and correlation neglect, as well as models of inference such as level-k and cognitive hierarchy.
    Keywords: Social learning, model misspecification, bounded rationality
    JEL: D82 D83
    Date: 2017–05–01
  33. By: Fatas, E; Miguel A. Meléndez-Jiménez; Hector Solaz
    Abstract: We experimentally study punishment patterns across network structures, and their effect on cooperation. In a repeated public goods setting, subjects can only observe and punish their neighbors. Centralized structures (like the star network) outperform other incomplete networks and reach contribution levels like the ones observed in a complete network. Our results suggest that hierarchical network structures with a commonly observed player benefit more from sanctions not because central players punish more, but because they follow, and promote, different punishment patterns. While quasi-central players in other incomplete architectures (like the line network) retaliate, and get trapped in the vicious circle of antisocial punishment, central players in the star network do not punish back, increase their contributions when sanctioned by peripheral players, and sanction other participants in a prosocial manner. Our results illustrate recent field studies on the evolutionary prevalence of hierarchical networks. We document a network-based rationale for this positive effect in an identity-free, fully anonymous environment.
    Keywords: Public good experiments, networks, monitoring, punishment
    Date: 2018–11–14
  34. By: Bourles, Renaud; Bramoulle, Yann; Perez-Richet, Eduardo
    Abstract: We provide the first analysis of the risk-sharing implications of altruism networks. Agents are embedded in a fixed network and care about each other. We study whether altruistic transfers help smooth consumption and how this depends on the shape of the network. We identify two benchmarks where altruism networks generate efficient insurance: for any shock when the network of perfect altruism is strongly connected and for any small shock when the network of transfers is weakly connected. We show that the extent of informal insurance depends on the average path length of the altruism network and that small shocks are partially insured by endogenous risk-sharing communities. We uncover complex structural effects. Under iid incomes, central agents tend to be better insured, the consumption correlation between two agents is positive and tends to decrease with network distance, and a new link can decrease or increase the consumption variance of indirect neighbors. Overall, we show that altruism in networks has a first-order impact on risk and generates specific patterns of consumption smoothing.
    Keywords: altruism; Informal Insurance; networks; Risk Sharing
    Date: 2018–09
  35. By: Emeline Bezin (Paris School of Economics); Bastien Chabé-Ferret (ISER, University of Essex & IZA, Bonn); David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Fertility becomes a strategic choice when having a larger population helps to gain power. Minority groups might find it optimal to promote high fertility among their members - this is known as the \weapon of the womb" argument. If, in addition, parents have to invest resources to educate their children, a higher fertility for strategic motives might reduce their investment. Indonesian census data dispel this view, as minority religious groups do not invest less in education. If anything, they invest more in education, as well as in their number of children. This finding is consistent with human capital being an input to appropriation. Solving for the Nash equilibrium of a game between two groups with two strategic variables, we derive the condition under which the minority group displays a higher investment in both the quantity and quality of children. The material cost of conflict involved through the weapon of the womb mechanism is mitigated when human capital enters the contest function.
    Keywords: fertility, quality-quantity trade-off, minorities, conflict, population engineering, human capital, Nash equilibrium, Indonesia
    JEL: D74 J13 J15
    Date: 2018–10–19
  36. By: Shi, X.
    Abstract: This paper seeks to quantify the role of inequality of opportunity in individual earnings that is associated with family background, gender, ethnic minority status, region of birth and birth cohorts in rural China. Using the China Labour-force Dynamics Survey (CLDS) for 2014, we find that the share of inequality of opportunity in individual earnings in rural China for the full sample is 20.4 percent. A Shapley-value decomposition approach reveals the contribution of each of the circumstances. This result varies across birth cohorts: the youngest cohort 1981-1990 has the lowest total inequality in earnings, but it turns out to be the one with highest circumstantial inequality as well as the partial inequality of opportunities stemming from each of the circumstances, with the only exception of gender. A closer investigation shows that three effort variables own education, off-farm employment and marital status are pivotal in determining income inequality, but migration is not. Circumstances influence individual earnings, not only directly, but also indirectly through these three effort variables. Acknowledgement : The author is most grateful for the technical assistance (sharing related Stata and R codes) provided by Dr. Francisco H. G. Ferreira at the World Bank, Professor Markus J ntti at Stockholm University in Sweden and Dr. Florian Ch vez Ju rez at the National Laboratory for Public Policy in Mexico City,and also for the insightful comments made by Dr. Jane Golley at the Australian National University.
    Keywords: Labor and Human Capital
    Date: 2018–07
  37. By: Gezahegn, T.W.; Maertens, M.
    Abstract: Collective action via smallholder co-operatives is extensively discussed in the literature as an institutional solution to overcome market failures in developing countries. In some cases, however, the establishment of farmer groups incurs transaction costs that imply farmers may be better off not organizing. The success of collective action depends on the ability of individuals to make credible commitments and participation. Technical and human skills are also important for a group to succeed. In Ethiopia, co-operatives are actively promoted by the government to play a role in the agricultural sector. However, in the country in general and Tigray region in particular, the situation with co-operatives doesn't seem to be favorable for the full exploitation of the benefits of collective action: the majority of the co-operatives are established under the impulse of external partners without regard to the farmers' real needs and interests. Applying insights from game theory, this study examines the existence of economic incentives for farmers' collective action in the study area by testing for the condition of cost subadditivity in service provision. Findings show that costs would drop by 28.32 - 92.3% if farmers join hands in relatively big rather than small co-operatives. Acknowledgement : We are greatly indebted to VLIR UOS, Belgium for the financial support that made this article a reality.
    Keywords: Marketing
    Date: 2018–07

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