nep-gth New Economics Papers
on Game Theory
Issue of 2020‒05‒18
six papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Degree-K subgame perfect Nash equilibria and the folk theorem By Zhonghao SHUI
  2. Identification and Inference of Network Formation Games with Misclassified Links By Candelaria, Luis E.; Ura, Takuya
  3. Implementation in Iterative Elimination of Obviously Dominated Strategies: An Experiment on King Solomon's Dilemma By Makoto Hagiwara; Fumihiro Yonekura
  4. Third-degree price discrimination in oligopoly when markets are covered By Dertwinkel-Kalt, Markus; Wey, Christian
  5. Social Interactions in Pandemics: Fear, Altruism, and Reciprocity By Laura Alfaro; Ester Faia; Nora Lamersdorf; Farzad Saidi
  6. Price Manipulation, Dynamic Informed Trading, and the Uniqueness of Equilibrium in Sequential Trading By Shino Takayama

  1. By: Zhonghao SHUI
    Abstract: In infinitely repeated n-player games, we introduce a notion of degree-K subgame perfect Nash equilibria, in which any set of players whose size is up to K can coalitionally deviate and can transfer their payoffs within the coalition. If we only assume that players’ actions are observable, a coalitional deviation with hidden deviators who play as in the equilibrium cannot be detected by the other players. Hence we consider two models in which the hidden deviators can and cannot be detected, respectively. In the first model, there is an observer who can detect any coalitional deviation and report it to all players. We show an extension of the standard folk theorem; all feasible payoff vectors in which the sum of payoffs within any feasible coalition is strictly larger than the counterpart of the minmax value defined for the coalition arise as a degree-K subgame perfect Nash equilibrium if players are sufficiently patient. In the second model where the hidden deviators cannot be distinguished, we characterize degree-K subgame perfect equilibrium payoff vectors under patience by strategies which punish all players after any deviation. Finally, we adopt a new approach to characterize degree-n subgame perfect Nash equilibrium payoff vectors in the first model, since the punishment in the above folk theorem does not work when the grand coalition is feasible.
    Keywords: Folk theorem; Coalition; Perfect monitoring; Subgame perfect Nash equilibrium
    JEL: C72 C73 D43
    Date: 2020–05
  2. By: Candelaria, Luis E. (University of Warwick); Ura, Takuya (University of California, Davis)
    Abstract: This paper considers a network formation model when links are potentially measured with error. We focus on a game-theoretical model of strategic network formation with incomplete information, in which the linking decisions depend on agents’ exogenous attributes and endogenous network characteristics. In the presence of link misclassification, we derive moment conditions that characterize the identified set for the preference parameters associated with homophily and network externalities. Based on the moment equality conditions, we provide an inference method that is asymptotically valid when a single network of many agents is observed. Finally, we apply our proposed method to study trust networks in rural villages in southern India.
    Keywords: Misclassification ; Network formation models ; Strategic interactions ; Incomplete information JEL codes: C13 ; C31
    Date: 2020
  3. By: Makoto Hagiwara (Faculty of Economics, Osaka University of Economics, Research Institute for Economics and Business Administration, Kobe University); Fumihiro Yonekura (School of Engineering, Tokyo Institute of Technology)
    Abstract: "King Solomon's Dilemma" is based on a biblical story and this can be considered as an allocation problem for an indivisible object among two players. A social planner wants to assign the object without payment to the player whose valuation is the highest. We say that such an allocation is "first-best." We experimentally compare the relative performance of the mechanism of Mihara (Japanese Economic Review, 63(3), 420-429, 2012) and a mechanism which we modify Mihara's mechanism. We find that a modified Mihara's mechanism relatively works better than Mihara's mechanism from the following five view points: (1) the proportion of the first-best allocations; (2) the proportion of the right-player allocations; (3) resource inefficiency and wrong-player infficiency; (4) net mean efficiency; and (5) players' behavior.
    Keywords: Implementation in iterative elimination of obviously dominated strategies; King Solomon's Dilemma; Mihara's mechanism; Ascending clock auctions; Laboratory experiment
    JEL: C92 D44 D78
    Date: 2020–04
  4. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing, when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the consumer surplus gain from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: Third-Degree Price Discrimination,Uniform Pricing,Harmonic Mean Formula,Covered Demand
    JEL: D43 L13 L41 K21
    Date: 2020
  5. By: Laura Alfaro; Ester Faia; Nora Lamersdorf; Farzad Saidi
    Abstract: In SIR models, homogeneous or with a network structure, infection rates are assumed to be exogenous. However, individuals adjust their behavior. Using daily data for 89 cities worldwide, we document that mobility falls in response to fear, as approximated by Google search terms. Combining these data with experimentally validated measures of social preferences at the regional level, we find that stringency measures matter less if individuals are more patient and altruistic preference traits, and exhibit less negative reciprocity community traits. We modify the homogeneous SIR and the SIR-network model to include agents' optimizing decisions on social interactions. Susceptible individuals internalize infection risk based on their patience, infected ones do so based on their altruism, and reciprocity matters for internalizing risk in SIR networks. A planner further restricts interactions due to a static and a dynamic inefficiency in the homogeneous SIR model, and due to an additional reciprocity inefficiency in the SIR-network model. We show that partial or targeted lockdown policies are efficient only when it is possible to identify infected individuals.
    JEL: D62 D64 D85 D91 I10
    Date: 2020–05
  6. By: Shino Takayama (School of Economics, University of Queensland)
    Abstract: We study the manipulation of prices in a dynamic version of the Glosten and Milgrom (1985) model with a long-lived informed trader. The conditions under which a unique equilibrium exists are clarified. We show that within the unique equilibrium, bid and ask prices are monotonically increasing functions of the market maker’s belief, and we characterize the situations in which this equilibrium involves manipulation of prices by the informed trader. Finally, we describe a computational method to find equilibria in the model, and give simulation results that confirm and extend our theoretical findings.
    Keywords: Market microstructure; Glosten–Milgrom; Insider trading; Dynamic trading; Price formation; Sequential trade; Asymmetric information; Bid–ask spreads.
    JEL: D82 G12
    Date: 2020–05–05

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