nep-gth New Economics Papers
on Game Theory
Issue of 2022‒11‒14
twenty papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Cournot Meets Bayes-Nash: A Discontinuity in Behavior in Finitely Repeated Duopoly Games By Argenton, Cédric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  2. A Group Public Goods Game with Position Uncertainty By Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Sonali SenGupta
  4. Safe Implementation By Gavan, Malachy James; Penta, Antonio
  5. Relative-Performance Delegation Destabilizes Upstream Collusion By Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji
  6. AI-powered tiebreak mechanisms: An application to chess By Nejat Anbarci; Mehmet S. Ismail
  7. Optimal Execution with Identity Optionality By Rene Carmona; Claire Zeng
  8. Social Preferences on Networks By Rezaei, Sarah; Rosenkranz, Stephanie; Weitzel, Utz; Westbrock, Bastian
  9. The Predictive Power of Luck: Luck and Risk-Taking in a Repeated Risky Investment Game By Holden, Stein T.; Tione, Sarah; Katengeza, Samson; Tilahun, Mesfin
  10. Globalization? Trade War? A Counterbalance Perspective By Hu, Arthur; Hu, Xingwei; Tong, Hui
  11. Secrecy Rules and Exploratory Investment: Theory and Evidence from the Shale Boom By Thomas R. Covert; Richard L. Sweeney
  12. Greedy Transaction Fee Mechanisms for (Non-)myopic Miners By Yotam Gafni; Aviv Yaish
  13. A Dynamic Model of Predation By Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
  14. Artificial Intelligence, Ethics, and Intergenerational Responsibility By Victor Klockmann; Alicia von Schenk; Marie Claire Villeval
  15. Miss Congeniality in Crisis : a theoretical model of gender, cooperation and leadership By Cheong, Jeanne Yi-Ern
  16. Content Quality Assurance on Media Platforms with User-Generated Content By Xingzhen Zhu; Markus Lang; Helmut Dietl
  17. Platform Oligopoly with Endogenous Homing: Implications for Mergers and Free Entry By Takanori ADACHI; Susumu SATO; Mark J. TREMBLAY
  18. Fair Effect Attribution in Parallel Online Experiments By Alexander Buchholz; Vito Bellini; Giuseppe Di Benedetto; Yannik Stein; Matteo Ruffini; Fabian Moerchen
  19. Fair cost sharing: big tech vs telcos By Jullien, Bruno; Bouvard, Matthieu
  20. Market Effects of Sponsored Search Auctions By Motta, Massimo; Penta, Antonio

  1. By: Argenton, Cédric; Ivanova-Stenzel, Radosveta; Müller, Wieland
    JEL: D43 L13 C72 C92
    Date: 2022
  2. By: Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Sonali SenGupta
    Abstract: We model a dynamic public good contribution game, where players are (naturally) formed into groups. The groups are exogenously placed in a sequence, with limited information available to players about their groups' position in the sequence. Contribution decisions are made by players simultaneously and independently, and the groups' total contribution is made sequentially. We try to capture both inter and intra-group behaviors and analyze different situations where players observe partial history about total contributions of their predecessor groups. Given this framework, we show that even when players observe a history of defection (no contribution), a cooperative outcome is achievable. This is particularly interesting in the situation when players observe only their immediate predecessor groups' contribution, where we observe that players play an important role in motivating others to contribute.
    Date: 2022–10
  3. By: Andrew MACKENZIE; Yu ZHOU
    Abstract: We consider a model of tract housing where buyers and sellers have (i) wealth constraints, and (ii) unit demand over identical indivisible objects represented by a valuation. First, we characterize the strong core. Second, we characterize the bilat- eral weak core, or the weak core allocations with no side-payments. Finally, when buyer wealth constraints and valuations are private information and when trans- fers are discrete, we introduce two families of pendulum auctions, both of which consist of obviously strategy-proof selections of the bilateral weak core. The buyer- optimal pendulum auctions are preferred by the buyers but are inefficient when side-payments are possible, while the efficient pendulum auctions are efficient
    Keywords: tract housing, core, pendulum auction, almost-synchronized equilibrium, private wealth constraints, efficiency, obvious strategy-proofness
    JEL: C72 D41 D47 D82
    Date: 2022–08
  4. By: Gavan, Malachy James; Penta, Antonio
    Abstract: We introduce Safe Implementation, a notion of implementation that adds to the standard requirements the restriction that deviations from the baseline solution concept induce outcomes that are acceptable. The primitives of Safe Implementation therefore include both a Social Choice Correspondence, as standard, and an Acceptability Correspondence, each mapping every state of the world to a subset of allocations. This framework generalizes standard notions of implementation, and can accommodate a variety of considerations, including robustness concerns with respect to mistakes in play, model misspecification, behavioral considerations, state-dependent feasibility restrictions, limited commitment, etc. We provide results both for general solution concepts and for the case in which agents’ interaction is modelled by Nash Equilibrium. In the latter case, we identify necessary and sufficient conditions (namely, Comonotonicity and safety-no veto) that restrict the joint behavior of the Social Choice and Acceptability Correspondences. These conditions are more stringent than Maskin’s (1978), but coincide with them when the safety requirements are vacuous. We also show that these conditions are quite permissive in important economic applications, such as environments with single-crossing preferences and in problems of efficient allocation of in-divisible goods, but also that Safe Implementation can be very demanding in environments with ‘rich’ preferences, regardless of the underlying solution concept.
    Keywords: Comonotonicity; mechanism design; implementation; robustness; resilience; safe implementation; safety no-veto
    JEL: C72 D82
    Date: 2022–10–11
  5. By: Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji
    Abstract: This paper analyzes upstream firms’ collusive sustainability when downstream firms adopt the relative-performance delegation in an infinitely repeated Cournot or Bertrand game. We find that relative-performance delegation makes managers act more aggressive and upstream collusion more difficult to sustain compared to sales-revenue delegation. The driving force is that downstream relative-performance delegation makes more profits for the deviated firm. This result holds regardless of the competition modes.
    Keywords: Relative-performance delegation; Upstream collusion; Vertically related market; Competition modes
    JEL: D21 D43 L13 L21
    Date: 2022–08–17
  6. By: Nejat Anbarci; Mehmet S. Ismail
    Abstract: In this paper, we propose that AI systems serve as a judge in the event of a draw in games such as chess and in the event of a tie in tournaments. More specifically, we introduce a family of AI-based scoring mechanisms and the concept of "tiebreak strategyproofness" in $n$-person zero-sum games. A mechanism is called tiebreak strategyproof (TSP) if it is always in the best interest of every player to choose the "best" action according to a given AI system. As such, we introduce a practicable scoring mechanism in chess and show that it is TSP, i.e., it is never in the interest of a player to deliberately play a worse move to increase their advantage in case the game goes to the tiebreak. In other words, TSP mechanisms are immune to such strategic manipulations. We also show that the current "speed-chess" tiebreaks are not TSP or immune to manipulation with an example from 2018 world chess championship between Carlsen and Caruana.
    Date: 2022–10
  7. By: Rene Carmona; Claire Zeng
    Abstract: This paper investigates the impact of anonymous trading on the agents' strategy in an optimal execution framework. It mainly explores the specificity of order attribution on the Toronto Stock Exchange, where brokers can choose to either trade with their own identity or under a generic anonymous code that is common to all the brokers. We formulate a stochastic differential game for the optimal execution problem of a population of $N$ brokers and incorporate permanent and temporary price impacts for both the identity-revealed and anonymous trading processes. We then formulate the limiting mean-field game of controls with common noise and obtain a solution in closed-form via the probabilistic approach for the Almgren-Chris price impact framework. Finally, we perform a sensitivity analysis to explore the impact of the model parameters on the optimal strategy.
    Date: 2022–10
  8. By: Rezaei, Sarah; Rosenkranz, Stephanie; Weitzel, Utz; Westbrock, Bastian
    JEL: D85 C70 C91 H41
    Date: 2022
  9. By: Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tione, Sarah (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Katengeza, Samson (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: Can luck predict risk-taking behavior in games of chance? Economists have not widely studied this issue although overconfidence, optimism-, and pessimism bias have received substantial attention in recent years. In this study, we investigate how good and bad luck outcomes in a simple repeated risky investment game affect risk-taking behavior in the following rounds of the same game where the outcome (luck) in the game is determined by the throwing of a die after each round. The outcome of the previous round's die-throw is known when the subjects decide how risky their next choice in the game will be. A sample of 718 university students is used as subjects in the game in a recursive within-subject design. The results demonstrate a strong impact of luck on risk-taking behavior that lasts not only to the next round but also into another two follow-up rounds, with cumulative effects. A time delay of 1-2 months between Round 1 and Round 2 did not wipe out the luck effect and it was only slightly weaker than the luck effect from Round 2 to Rounds 3 and 4 that followed immediately after Round 2. Many recent studies have shown that risk preferences respond to recent shocks. This study indicates that random shocks such as luck in previous games (states of nature) influence risk-taking behavior. Our study suggests that the causal mechanism goes through subjective beliefs in luck based on past experiences that influence expectations and thereby risk-taking behavior.
    Keywords: Risky investment game; Luck; Illusion of control; Repeated game; Predictive power.
    JEL: D80 H51
    Date: 2022–10–29
  10. By: Hu, Arthur; Hu, Xingwei; Tong, Hui
    Abstract: The embrace of globalization and protectionism among economies has ebbed and flowed over the past few decades. These fluctuations call for quantitative analytics to help countries improve their trade policies. Changing attitudes about globalization also imply that the best trade policies may vary over time and be country-specific. We argue that the imports and exports of all economies constitute a counterbalanced network where conflict and cooperation are two sides of the same coin. Quantitative competitiveness is then formulated for each country using a network counterbalance equilibrium. A country could improve its relative strength in the network by embracing globalization, protectionism, trade collaboration, or conflict. This paper presents the necessary conditions for globalization and trade wars, evaluates their side effects, derives national bargaining powers, identifies appropriate targets for conflict or collaboration, and recommends fair resolutions for trade conflicts. Data and events from the past twenty years support these conditions.
    Keywords: globalization, trade war, counterbalance equilibrium, national competitiveness, bargaining power, authority distribution
    JEL: C71 C78 F11 F13 F15 O24
    Date: 2022
  11. By: Thomas R. Covert; Richard L. Sweeney
    Abstract: We analyze how information disclosure policy affects investment efficiency in non-cooperative settings with information externalities. In a two-firm, two-period model, we characterize equilibrium behavior under policies which disclose whether investment returns exceed a predefined level. These policies include complete secrecy, in which players only observe rival actions, as well as full disclosure, in which players also perfectly observe rival returns. With less disclosure (higher disclosure thresholds), there is less free riding, but additional losses from incomplete information aggregation. We characterize the surplus maximizing disclosure threshold in this environment, and show how it depends on firms' patience. We then apply the model to the early years of the shale boom in Pennsylvania and West Virginia, which at the time were governed by complete secrecy and full disclosure, respectively. We find that full disclosure would have maximized surplus in both states, generating 49% and 160% more value than complete secrecy.
    JEL: D82 L51 L71
    Date: 2022–10
  12. By: Yotam Gafni; Aviv Yaish
    Abstract: Decentralized cryptocurrencies are payment systems that rely on aligning the incentives of users and miners to operate correctly and offer a high quality of service to their users. Recent literature studies the mechanism design problem of the auction serving as the transaction fee mechanism (TFM). We show that while the protocol that requires a user to ``pay as bid'' and greedily chooses among available transactions based on their fees is not dominant strategy incentive-compatible (DSIC) for users, it has a Bayesian-Nash equilibrium (BNE) where bids are slightly shaded. Relaxing this incentive compatibility requirement circumvents the impossibility result of [16] and allows for an approximately revenue and welfare optimal, myopic miners incentive-compatibility (MMIC), and off-chain-agreement (OCA)-proof mechanism. We prove its guarantees using different benchmarks, and in particular, show it is the revenue optimal Bayesian incentive-compatible (BIC), MMIC and 1-OCA-proof mechanism among a large class of mechanisms. We move beyond the myopic model to a model where users offer transaction fees for their transaction to be accepted, as well as report their urgency level by specifying the time to live (TTL) of the transaction, after which it expires. We show guarantees provided by the greedy allocation rule, as well as a better-performing non-myopic rule. The above analysis is stated in terms of a cryptocurrency TFM, but applies to other settings, such as cloud computing and decentralized ``gig'' economy, as well.
    Date: 2022–10
  13. By: Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
    Abstract: Growing concern about the market power of big tech giants has led to renewed interest in predatory behavior. We study the feasibility and prof- itability of predation in a dynamic environment, using a parsimonious infinite- horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to ac- commodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies.
    JEL: D43 L41
    Date: 2022–10–24
  14. By: Victor Klockmann (Goethe-University Frankfurt am Main, University of Würzburg = Universität Würzburg , Max Planck Institute for Human Development - Max-Planck-Gesellschaft); Alicia von Schenk (Goethe-University Frankfurt am Main, University of Würzburg = Universität Würzburg , Max Planck Institute for Human Development - Max-Planck-Gesellschaft); Marie Claire Villeval (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: In the future, artificially intelligent algorithms will make more and more decisions on behalf of humans that involve humans' social preferences. They can learn these preferences through the repeated observation of human behavior in social encounters. In such a context, do individuals adjust the selfishness or prosociality of their behavior when it is common knowledge that their actions produce various externalities through the training of an algorithm? In an online experiment, we let participants' choices in dictator games train an algorithm. Thereby, they create an externality on future decision making of an intelligent system that affects future participants. We show that individuals who are aware of the consequences of their training on the payoffs of a future generation behave more prosocially, but only when they bear the risk of being harmed themselves by future algorithmic choices. In that case, the externality of artificially intelligence training increases the share of egalitarian decisions in the present.
    Keywords: Artificial Intelligence,Morality,Prosociality,Generations,Externalities
    Date: 2022
  15. By: Cheong, Jeanne Yi-Ern (Monash University)
    Abstract: Why do female leaders do better in crisis situations than their male counterparts as a stylised fact? We integrate intrinsic preference into a Leader – Expert coordination game to model the impact of dominant strategies on the effectiveness of crisis management outcomes. We show that given the Leader has intrinsic preference for cooperative (competitive) behaviour, the Expert will reciprocate in kind which results in the highest (lowest) social outcome. Using cultural transmission theory to develop the theoretical micro-foundation of this preference, we find socialisation inefficiencies arising from two-parent socialisation result in the persistence of cooperative traits in women and competitive traits in men, thereby providing a mechanism for more effective crisis management by female leaders. Drawing upon feminist and leadership theory to inform our assumptions, we suggest that collective ability to deal with crisis will be improved if male leaders are more cooperative.
    Keywords: gender ; crisis management ; cultural transmission ; leadership JEL Classification: J16 ; B52 ; B54 ; C71
    Date: 2022
  16. By: Xingzhen Zhu (School of Economics and Management, Nanjing University of Science and Technology); Markus Lang (Institute of Sport Sciences, University of Lausanne); Helmut Dietl (Department of Business Administration, University of Zurich)
    Abstract: This paper develops a duopoly model of user-generated content (UGC) platforms that compete for consumers and content producers in two-sided markets with network externalities. Each platform can choose the level of investment into a content quality assurance (CQA) system and the level of advertising. Our model shows that network effects are crucial in determining the platforms' optimal strategy and the behavior (single vs. multi-homing) of their users. Specifically, we find that consumers are multi-homing and producers are single-homing when the network effects obtained by producers are weak, while the opposite is true if these network effects are strong. Moreover, our model shows that the user behavior and the network effects determine whether a platform has incentives to place ads and/or invest into CQA. In general, weak network effects induce a platform to invest into a CQA system except when consumers and producers are multi-homing. The results in our model suggests the need for platform companies to assess the magnitude of network effects on their platform to predict the behavior of their users, which in turn will determine the optimal CQA and advertising strategy.
    Keywords: UGC platform; two-sided market; multi-homing; network externalities; platform investment
    JEL: C72 D85 L14
    Date: 2022–10
  17. By: Takanori ADACHI; Susumu SATO; Mark J. TREMBLAY
    Abstract: Consumer multi-homing is considered to be critical for competition policy regarding digital platforms. To assess the role of consumer multi-homing in competition policy, we embed consumer multi-homing into a model of oligopolistic competition between two-sided platforms and apply it to mergers and free entry. We find that a required level of merger-specific cost reduction is larger if consumers benefit more from multi-homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi-homing. We also show that reductions to sellers' benefit from multi- homing reduces entry (i.e., is an e ective barrier to entry). These results contrast the popular belief that multi-homing mitigates the need for stricter competition policy.
    Keywords: Two-sided markets; Indict network externalities; Multi-homing; Platform entry; Platform mergers.
    JEL: D40 L10 L20 L40
    Date: 2022–03
  18. By: Alexander Buchholz; Vito Bellini; Giuseppe Di Benedetto; Yannik Stein; Matteo Ruffini; Fabian Moerchen
    Abstract: A/B tests serve the purpose of reliably identifying the effect of changes introduced in online services. It is common for online platforms to run a large number of simultaneous experiments by splitting incoming user traffic randomly in treatment and control groups. Despite a perfect randomization between different groups, simultaneous experiments can interact with each other and create a negative impact on average population outcomes such as engagement metrics. These are measured globally and monitored to protect overall user experience. Therefore, it is crucial to measure these interaction effects and attribute their overall impact in a fair way to the respective experimenters. We suggest an approach to measure and disentangle the effect of simultaneous experiments by providing a cost sharing approach based on Shapley values. We also provide a counterfactual perspective, that predicts shared impact based on conditional average treatment effects making use of causal inference techniques. We illustrate our approach in real world and synthetic data experiments.
    Date: 2022–10
  19. By: Jullien, Bruno; Bouvard, Matthieu
    Abstract: We study a cost-sharing mechanism where a content provider contributes to covering the costs incurred by a network operator when delivering content to consumers. The costshare not only boosts the content provider's incentives to moderate trac but also aects the price composition for consumers buying access and content. We show the overall eect on consumer welfare depends on the content provider's ability to monetize users. When that ability is high, introducing a cost-share can lead to lower overall prices and higher consumer welfare. We study the robustness of this result to long-term investments in cost reduction by the operator and to heterogeneity in consumers' taste for content. In extensions with multiple contents and multiple operators, contractual externalities arise that suggest a role for regulation.
    Date: 2022–10–25
  20. By: Motta, Massimo; Penta, Antonio
    Abstract: We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival’s brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available in-formation on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand’s characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival’s organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival’s bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant’s link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent’s brand to exist.
    Keywords: Digital advertising; auctions; oligopoly; search engines; brands; horizontal agreements
    Date: 2022–10–11

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