nep-gth New Economics Papers
on Game Theory
Issue of 2021‒09‒20
sixteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Marginalism, Egalitarianism and E ciency in Multi-Choice Games By David Lowing; Kevin Techer
  2. Dynamic Games in Empirical Industrial Organization By Victor Aguirregabiria; Allan Collard-Wexler; Stephen P. Ryan
  3. Empowerment of social norms on water consumption By Pauline Pedehour; Lionel Richefort
  4. Land for peace? Israel-Palestine through the lens of game theory By Amal Ahmad
  5. Strategic Inventories in a Supply Chain with Downstream Cournot Duopoly By Xiaowei Hu; Jaejin Jang; Nabeel Hamoud; Amirsaman Bajgiran
  6. Information Payoffs: An Interim Perspective By Laura Doval; Alex Smolin
  7. Bayesian Persuasion With Costly Information Acquisition By Ludmila Matysková; Alfonso Montes
  8. Why Minimum Corporate Income Taxation Can Make the High-Tax Countries Worse off: the Compliance Dilemma By Hindriks, Jean; Nishimura, Yukihiro
  9. Quadratic Funding with Incomplete Information By Luis V. M. Freitas; Wilfredo L. Maldonado
  10. Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation? By Philipp Chapkovski; Luca Corazzini; Valeria Maggian
  11. Avoiding the Cost of your Conscience: Belief Dependent Preferences and Information Acquisition By Claire Rimbaud; Alice Soldà
  12. Renegotiation and Discrimination in Symmetric Procurement Auctions By Leandro Arozamena; Juan José Ganuza; Federico Weinschelbaum
  13. Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-period versus intertemporal price discrimination By Didier Laussel; Ngo Van Long; Joana Resende
  14. Improving recycling: How far should we go? By Belleflamme, Paul; Ha, Huan
  15. Contracts as a Barrier to Entry: Impact of Buyer's Asymmetric Information and Bargaining Power By David Martimort; Jérôme Pouyet; Thomas Trégouët
  16. The Competitive Effects of Vertical Integration in Platform Markets By Jérôme Pouyet; Thomas Trégouët

  1. By: David Lowing (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique, GRDF - Gaz Réseau Distribution France); Kevin Techer (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The search for a compromise between marginalism and egalitarianism has given rise to many discussions. In the context of cooperative games, this compromise can be understood as a trade-off between the Shapley value and the Equal division value. We investigate this compromise in the context of multi-choice games in which players have several activity levels. To do so, we propose new extensions of the Shapley value and of the Weighted Division values to multi-choice games. Contrary to the existing solution concepts for multi-choice games, each one of these values satisfies a core condition introduced by Grabisch and Xie (2007), namely Multi-Efficiency. We compromise between marginalism and egalitarianism by introducing the multi-choice Egalitarian Shapley values, computed as the convex combination of our extensions. To conduct this study, we introduce new axioms for multi-choice games. This allows us to provide an axiomatic foundation for each of these values.
    Keywords: Multi-choice games,Multi-choice Shapley value,Multi-choice Equal division value,Multi-choice Egalitarian Shapley values Multi-choice games,Multi-choice Egalitarian Shapley values
    Date: 2021
  2. By: Victor Aguirregabiria; Allan Collard-Wexler; Stephen P. Ryan
    Abstract: This survey is organized around three main topics: models, econometrics, and empirical applications. Section 2 presents the theoretical framework, introduces the concept of Markov Perfect Nash Equilibrium, discusses existence and multiplicity, and describes the representation of this equilibrium in terms of conditional choice probabilities. We also discuss extensions of the basic framework, including models in continuous time, the concepts of oblivious equilibrium and experience-based equilibrium, and dynamic games where firms have non-equilibrium beliefs. In section 3, we first provide an overview of the types of data used in this literature, before turning to a discussion of identification issues and results, and estimation methods. We review different methods to deal with multiple equilibria and large state spaces. We also describe recent developments for estimating games in continuous time and incorporating serially correlated unobservables, and discuss the use of machine learning methods to solving and estimating dynamic games. Section 4 discusses empirical applications of dynamic games in IO. We start describing the first empirical applications in this literature during the early 2000s. Then, we review recent applications dealing with innovation, antitrust and mergers, dynamic pricing, regulation, product repositioning, advertising, uncertainty and investment, airline network competition, dynamic matching, and natural resources. We conclude with our view of the progress made in this literature and the remaining challenges.
    Keywords: Dynamic games; Industrial organization; Market competition; Structural models; Estimation; Identification; Counterfactuals
    JEL: C57 C63 C73 L11 L13
    Date: 2021–09–03
  3. By: Pauline Pedehour (Université de Nantes); Lionel Richefort (Université de Nantes)
    Abstract: This study develops a model of water extraction with endogenous social norms. Many users are connected by a unique shared resource that can become scarce in case of over-exploitation. Preferences of individuals are guided by their extraction values and their taste for conformity to social norms which provide incentives to follow others. As the main result of this study, the uniqueness of the Nash equilibrium is established under a sufficient condition. Afterward, some comparative statics analysis shows the effects of change in individual heterogeneous parameters, conformism, and density of the network on the global quantity extracted. Welfare and social optimum properties are established to avoid the tragedy of the commons and sub-optimal consumptions of water. Lastly, this theoretical framework is completed by extensions to highlight levers of water preservation, including the calibration of social norm incentives.
    Keywords: Comparative statics, Conformism, Nash equilibrium, Network, Social norms, Water extraction
    JEL: D04 D80 Q01 Q25
    Date: 2021–07
  4. By: Amal Ahmad (Department of Economics, University of Massachusetts Amherst)
    Abstract: Why have Israel and the Palestinians failed to implement a “land for peace” solution, along the lines of the Oslo Accords? This paper studies the application of game theory to this question. I show that existing models of the conflict largely rely on unrealistic assumptions about what the main actors are trying to achieve. Specifically, they assume that Israel is strategically interested in withdrawing from the occupied territories pending resolvable security concerns but that it is obstructed from doing so by violent Palestinians with other objectives. I use historical analysis along with bargaining theory to shed doubt on this assumption, and to argue that the persistence of conflict has been aligned with, not contrary to, the interests of the militarily powerful party, Israel.
    Keywords: Israel-Palestine, international conflicts, strategic behavior
    JEL: D74 F51
    Date: 2021
  5. By: Xiaowei Hu; Jaejin Jang; Nabeel Hamoud; Amirsaman Bajgiran
    Abstract: The inventories carried in a supply chain as a strategic tool to influence the competing firms are considered to be strategic inventories (SI). We present a two-period game-theoretic supply chain model, in which a singular manufacturer supplies products to a pair of identical Cournot duopolistic retailers. We show that the SI carried by the retailers under dynamic contract is Pareto-dominating for the manufacturer, retailers, consumers, the channel, and the society as well. We also find that retailer's SI, however, can be eliminated when the manufacturer commits wholesale contract or inventory holding cost is too high. In comparing the cases with and without downstream competition, we also show that the downstream Cournot duopoly undermines the profits for the retailers, but benefits all others.
    Date: 2021–09
  6. By: Laura Doval; Alex Smolin
    Abstract: We study the payoffs that can arise under some information structure from an interim perspective. There is a set of types distributed according to some prior distribution and a payoff function that assigns a value to each pair of a type and a belief over the types. Any information structure induces an interim payoff profile which describes, for each type, the expected payoff under the information structure conditional on the type. We characterize the set of all interim payoff profiles consistent with some information structure. We illustrate our results through applications.
    Date: 2021–09
  7. By: Ludmila Matysková; Alfonso Montes
    Abstract: A sender choosing a signal to be disclosed to a receiver can often in fluence the receiver's actions. Is persuasion harder when the receiver has additional information sources? Does the receiver benefit from having them? We extend Bayesian persuasion to a receiver's acquisition of costly information. The game can be solved as a standard Bayesian persuasion under an additional constraint - the receiver never learns. The `threat' of learning hurts the sender. However, the outcome can also be worse for the receiver, in which case the receiver's possibility to gather additional information decreases social welfare. Furthermore, we propose a new solution method that does not rely directly on concavification, which is also applicable to standard Bayesian persuasion.
    Keywords: Bayesian persuasion, Rational inattention, Costly information acquisition, Information design
    JEL: D72 D81 D82 D83
    Date: 2021–04
  8. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University)
    Abstract: Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the strategic interaction between minimum taxation and tax compliance. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective international tax compliance requires enforcement coordination between countries (e.g. exchange of information). We show that under sufficient market asymmetry (translating into the tax differential), minimum taxation may induce the low-tax countries to withdraw from international tax compliance agreements. We then show that such a breakdown of cooperation can make the high-tax country worse off compared to the absence of minimum taxation.
    Keywords: profit shifting ; tax competition ; tax enforcement
    JEL: C72 F23 F68 H25 H87
    Date: 2021–07–28
  9. By: Luis V. M. Freitas; Wilfredo L. Maldonado
    Abstract: A recently proposed mechanism for the provision of continuous public goods is the so-called quadratic funding mechanism, which has been shown to provide socially optimal outcomes under complete information. In this work we show that the conditions to obtain the same desirable property under incomplete information are strongly restrictive. We also propose two measures for the size of the inefficiency and show how that deadweight loss responds to changes in the size of the population, the valuation of the public good by individuals and the variance of the expected value of contributions to the fund.
    Keywords: Public goods provision; incomplete information; quadratic funding mechanism
    JEL: C72 D82 H41
    Date: 2021–09–08
  10. By: Philipp Chapkovski (National Research University Higher School of Economics, Russian Federation); Luca Corazzini (Department of Economics, University Of Venice CÃ Foscari); Valeria Maggian (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: Whistleblowing is a powerful and rather inexpensive instrument to contrast tax evasion. Despite the deterrent effects on tax evasion, whistleblowing can reduce trust and undermine agents’ attitude to cooperate with group members. Yet, no study has investigated the potential spillover effects of whistleblowing on ingroup cooperation. This paper reports results of a laboratory experiment in which subjects participate in two consecutive phases in unchanging groups: a tax evasion game, followed by a generalized gift exchange game. Two dimensions are manipulated in our experiment: the inclusion of a whistleblowing stage in which, after observing others’ declared incomes, subjects can signal other group members to the tax authority, and the provision of information about the content of the second phase before the tax evasion game is played. Our results show that whistleblowing is effective in both curbing tax evasion and improving the precision of tax auditing. Moreover, we detect no statistically significant spillover effects of whistleblowing on ingroup cooperation in the subsequent generalized gift exchange game, with this result being unaffected by the provision of information about the experimental task in the second phase. Finally, the provision of information does not significantly alter subjects’ (tax and whistleblowing) choices in the tax evasion game: thus, knowledge about perspective ingroup cooperation did not alter attitude towards whistleblowing.
    Keywords: Tax evasion, whistleblowing, ingroup cooperation, spillover effects, laboratory experiment
    JEL: H26 C90 D02
    Date: 2021
  11. By: Claire Rimbaud (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon); Alice Soldà (Heidelberg University)
    Abstract: Pro-social individuals face a trade-off between their monetary and moral motives. Hence, they may be tempted to exploit the uncertainty in their decision environment in order to reconcile this trade-off. In this paper, we investigate whether individuals with belief-dependent preferences avoid the monetary cost of behaving according to their moral standards by strategically acquiring information about others'expectations. We test the predictions of an information acquisition model in an online experiment. We use a modified trust-game in which we introduce uncertainty about the second movers' beliefs about first-movers' expectations. Our design enables to (i) identify participants with belief-based preferences and (ii) investigate their information acquisition strategy.Consistent with our predictions of subjective preferences, we find that most individuals classified as belief-dependent strategically select their source of information to avoid the cost of their conscience.
    Keywords: Belief-dependent preferences,illusory preferences,information acquisition,self-serving biases,experiment Belief-dependent preferences,experiment
    Date: 2021–08–25
  12. By: Leandro Arozamena (Universidad Torcuato Di Tella / CONICET); Juan José Ganuza (Universitat Pompeu Fabra / Barcelona GSE); Federico Weinschelbaum (Universidad Torcuato Di Tella / CONICET)
    Abstract: In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) evenwhen explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm.
    Keywords: Auctions, Favoritism, Auction Design, Renegotiation, Corruption
    JEL: C72 D44 D82
    Date: 2021–08
  13. By: Didier Laussel; Ngo Van Long; Joana Resende
    Abstract: A durable good monopolist faces a continuum of heterogeneous customers who make purchase decisions by comparing present and expected price-quality offers. The monopolist designs a sequence of price-quality menus to segment the market. We consider the Markov Perfect Equilibrium (MPE) of a game where the monopolist is unable to commit to future price-quality menus. We obtain the novel results that (a) under certain conditions, the monopolist covers the whole market in the first period (even when a static Mussa-Rosen monopolist would not cover the whole market), because this is a strategic means to convince customers that lower prices would not be offered in future periods, and that (b) this can happen only under the stage-wise Stackelberg leadership assumption (whereby consumers base their expectations on the value of the state variable at the end of the period). Conditions under which MPE necessarily involve sequentially trading are also derived. Un monopoleur de biens durables fait face à un continuum de clients hétérogènes qui prennent des décisions d'achat en comparant les offres qualité-prix actuelles et attendues. Le monopole conçoit une séquence de menus qualité-prix pour segmenter le marché. Nous considérons l'équilibre parfait de Markov (MPE) d'un jeu où le monopoleur est incapable de s'engager sur les futurs menus de qualité-prix. Nous prouvons que (a) dans certaines conditions, le monopoleur couvre l'ensemble du marché dans la première période (même lorsqu'un monopoleur statique de Mussa-Rosen ne couvrirait pas l'ensemble du marché), car c'est un moyen stratégique de convaincre les clients que des prix plus bas ne seraient pas proposés dans les périodes futures, et que (b) cela ne peut se produire que sous l'hypothèse de leadership par étapes de Stackelberg (dans laquelle les consommateurs fondent leurs attentes sur la valeur de la variable d'état à la fin de la période). Les conditions dans lesquelles le MPE implique nécessairement des échanges séquentiels sont également dérivées.
    Keywords: Intertemporal price discrimination,Durable goods monopoly,Product quality,Markov perfect equilibrium, Discrimination tarifaire intertemporelle,Monopoleur des biens durables,La qualité des produits,équilibre parfait de Markov
    JEL: C73 D42 L12 L15
    Date: 2021–09–07
  14. By: Belleflamme, Paul (Université catholique de Louvain, LIDAM/CORE, Belgium); Ha, Huan (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We analyze the strategic interaction between competing firms that source their inputs from either primary or recycled material. Because the manufacturers’ primary production today serves as input for the recyclers’ production tomorrow, manufacturers can limit the recyclers’ scale of operation by reducing their output. Improving the recycling process generates then two opposite effects: it reduces primary production tomorrow by exposing manufacturers to stronger competition from recyclers, but it also lowers the manufacturers’ incentives to reduce their primary production today. Making the recycling process too efficient might then be counterproductive for the environment. This intuition equally applies to remanufacturing.
    Keywords: Recycling, remanufacturing, circular economy, strategic entry accommodation
    JEL: L13 L72 O13 Q58
    Date: 2021–07–01
  15. By: David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers.
    Keywords: foreclosure,excessive entry,exclusionary behavior,incomplete information
    Date: 2021–08–30
  16. By: Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: We analyze vertical integration between platforms providing operating systems to manufacturers of devices in presence of indirect network effects between buyers of devices and developers of applications. Vertical integration creates market power over non-integrated manufacturers and application developers. That market power provides the merged entity with the ability to coordinate pricing decisions across both sides of the market, which allows to better internalize network effects. Vertical integration does not systematically lead to foreclosure and can benefit all parties, even in the absence of efficiency gains. Its competitive impact depends on the strength and the structure of indirect network effects.
    Keywords: vertical integration,platform markets,network effects,foreclosure
    Date: 2021–08–30

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