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on Game Theory |
| By: | Christian Ewerhart; Haoyuan Zeng |
| Abstract: | This paper studies mediation in infinitely repeated games with perfect monitoring. In departure from the literature, we assume that all private messages and internal records are publicly revealed at the end of each stage. We call the resulting equilibrium concept mediated subgame perfect equilibrium (MSPE). It is shown that the revelation principle holds. We introduce an effective correlated minimax value, which can be conveniently determined as the solution of a linear program, and use it to derive necessary and sufficient conditions for the implementability of payoffs under an MSPE. These conditions are standard for two-player games with a sufficient degree of patience but are, in general, strictly more permissive. Examples illustrate the impact of effective correlated minimax profiles and the subtle role of internal records. |
| Keywords: | Infinitely repeated games, mediation, revelation principle, perfect folk theorem, effective minimax value, correlated equilibrium, threat points |
| JEL: | C72 C73 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:484 |
| By: | Carina I. Hausladen; Marcel H. Schubert; Christoph Engel |
| Abstract: | Behavior in repeated public goods games continues to challenge standard theory: heterogeneous social preferences can explain first-round contributions, but not the substantial volatility observed across repeated interactions. Using 50, 390 decisions from 2, 938 participants, we introduce two methodological advances to address this gap. First, we cluster behavioral trajectories by their temporal shape using Dynamic Time Warping, yielding distinct and theoretically interpretable behavioral types. Second, we apply a hierarchical inverse Q-learning framework that models decisions as discrete switches between latent cooperative and defective intentions. This approach reveals a large (21.4%) and previously unmodeled behavioral type -- Switchers -- who frequently reverse intentions rather than commit to stable strategies. At the same time, the framework recovers canonical strategic behaviors such as persistent cooperation and free-riding. Substantively, recognizing intentional volatility helps sustain cooperation: brief defections by Switchers often reverse, so strategic patience can prevent unnecessary breakdowns. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.08803 |
| By: | Nicholas H. Kirk |
| Abstract: | We introduce the Sustainable Exploitation Equilibrium (SEE), a refinement of Markov Perfect Equilibrium (MPE) for dynamic games with an exploiter-exploitee structure. SEE imposes two additional discipline conditions: (i) viability, requiring state trajectories to remain inside a sustainability set; and (ii) renegotiation-proofness with exploiter-optimal selection, to retain only those viable equilibria that are immune to Pareto-improving renegotiations, with ties resolved in favor of the exploiter. In our base formulation the exploitee cannot exit the relationship (no outside option), but retains a strategic effort margin that affects dynamics and payoffs. We establish existence under appropriate conditions and illustrate SEE in a hegemon-client model of foreign politics, where tribute demands trade off against the client's governance effort. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.07629 |
| By: | Bohan Zhang |
| Abstract: | This paper develops a theoretical model of platform competition where user-generated content (UGC) quality arises endogenously from the composition of the user base. Users differ in their relative preferences for content quality and network size, and platforms compete by choosing advertising intensity, which affects user utility through perceived quality. We characterize equilibrium platform choice, identifying conditions under which equilibria are stable. The model captures how platforms' strategic decisions shape user allocation and market outcomes, including coexistence and dominance scenarios. We consider two types of equilibria in advertising levels: Nash equilibria and Stackelberg equilibria, and discuss the industry and policy implications of our results. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.08876 |
| By: | Martin Gairing; Adrian Vetta; Zhanzhan Zhao |
| Abstract: | How should cities invest to improve social welfare when individuals respond strategically to local conditions? We model this question using a game-theoretic version of Schelling's bounded neighbourhood model, where agents choose neighbourhoods based on concave, non-monotonic utility functions reflecting local population. While naive improvements may worsen outcomes - analogous to Braess' paradox - we show that carefully designed, small-scale investments can reliably align individual incentives with societal goals. Specifically, modifying utilities at a total cost of at most $0.81 \epsilon^2 \cdot \texttt{opt}$ guarantees that every resulting Nash equilibrium achieves a social welfare of at least $\epsilon \cdot \texttt{opt}$, where $\texttt{opt}$ is the optimum social welfare. Our results formalise how targeted interventions can transform supra-negative outcomes into supra-positive returns, offering new insights into strategic urban planning and decentralised collective behaviour. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.08642 |
| By: | Kemal Ozbek |
| Abstract: | We study optimal auction design in an independent private values environment where bidders can endogenously -- but at a cost -- improve information about their own valuations. The optimal mechanism is two-stage: at stage-1 bidders register an information acquisition plan and pay a transfer; at stage-2 they bid, and allocation and payments are determined. We show that the revenue-optimal stage-2 rule is the Vickrey--Clarke--Groves (VCG) mechanism, while stage-1 transfers implement the optimal screening of types and absorb information rents consistent with incentive compatibility and participation. By committing to VCG ex post, the pre-auction information game becomes a potential game, so equilibrium information choices maximize expected welfare; the stage-1 fee schedule then transfers an optimal amount of payoff without conditioning on unverifiable cost scales. The design is robust to asymmetric primitives and accommodates a wide range of information technologies, providing a simple implementation that unifies efficiency and optimal revenue in environments with endogenous information acquisition. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.07798 |
| By: | Mayada Oudah; John Wooders |
| Abstract: | Facial expressions are central to human interaction, yet their role in strategic decision-making has received limited attention. We investigate how real-time facial communication influences cooperation in repeated social dilemmas. In a laboratory experiment, participants play a repeated Prisoner's Dilemma game under two conditions: in one, they observe their counterpart's facial expressions via gender-neutral avatars, and in the other no facial cues are available. Using state-of-the-art biometric technology to capture and display emotions in real-time, we find that facial communication significantly increases overall cooperation and, notably, promotes cooperation following defection. This restorative effect suggests that facial expressions help participants interpret defections less harshly, fostering forgiveness and the resumption of cooperation. While past actions remain the strongest predictor of behavior, our findings highlight the communicative power of facial expressions in shaping strategic outcomes. These results offer practical insights for designing emotionally responsive virtual agents and digital platforms that sustain cooperation in the absence of physical presence. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15211 |
| By: | Kang Rong; Qianfeng Tang |
| Abstract: | We study surplus division in network constrained bilateral matching markets with transferable utility. We introduce a new solution concept, the credible bargaining solution, which refines stability by requiring that, for each matched pair of buyer and seller, surplus be divided according to the Nash bargaining solution with respect to credible outside options, defined as their payoffs in some stable outcome of the submarket obtained by removing their link. We establish general properties of the credible bargaining solution, prove existence, and provide a complete characterization in the unit-surplus case based on the notion of essential links. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.09198 |
| By: | Junyao Zhao |
| Abstract: | In Bayesian single-item auctions, a monotone bidding strategy--one that prescribes a higher bid for a higher value type--can be equivalently represented as a partition of the quantile space into consecutive intervals corresponding to increasing bids. Kumar et al. (2024) prove that agile online gradient descent (OGD), when used to update a monotone bidding strategy through its quantile representation, is strategically robust in repeated first-price auctions: when all bidders employ agile OGD in this way, the auctioneer's average revenue per round is at most the revenue of Myerson's optimal auction, regardless of how she adjusts the reserve price over time. In this work, we show that this strategic robustness guarantee is not unique to agile OGD or to the first-price auction: any no-regret learning algorithm, when fed gradient feedback with respect to the quantile representation, is strategically robust, even if the auction format changes every round, provided the format satisfies allocation monotonicity and voluntary participation. In particular, the multiplicative weights update (MWU) algorithm simultaneously achieves the optimal regret guarantee and the best-known strategic robustness guarantee. At a technical level, our results are established via a simple relation that bridges Myerson's auction theory and standard no-regret learning theory. This showcases the potential of translating standard regret guarantees into strategic robustness guarantees for specific games, without explicitly minimizing any form of swap regret. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.03853 |
| By: | Joshua Kavner |
| Abstract: | Many multiagent systems rely on collective decision-making among self-interested agents, which raises deep questions about coalition formation and stability. We study social choice with endogenous, outcome-contingent transfers, where agents voluntarily form contracts that redistribute utility depending on the collective decision, allowing fully strategic, incentive-aligned coalition formation. We show that under consensus rules, individually rational strong Nash equilibria (IR-SNE) always exist, implementing welfare-maximizing outcomes with feasible transfers, and provide a simple, efficient algorithm to construct them. For more general anonymous, monotonic, and resolute rules, we identify necessary conditions for profitable deviations, sharply limiting destabilizing coalitions. By bridging cooperative and noncooperative perspectives, our approach shows that transferable utility can achieve core-like stability, restoring efficiency and budget balance even where classical impossibility results apply. Overall, this framework offers a practical and robust way to coordinate large-scale strategic multiagent systems. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15563 |
| By: | Bin Liu; Jingfeng Lu; Xianwen Shi |
| Abstract: | We study bilateral trade when private information arrives sequentially: the buyer learns her signal before the seller. In private values, this timing asymmetry restores efficiency: the efficient trade rule is implementable by a direct mechanism that is incentive compatible, exact budget balanced, and individually rational (interim for the buyer and ex ante for the seller). With interdependent values, efficiency can fail. We give primitive feasibility conditions and show that they hinge on how the seller’s cost responds to the buyer’s signal in the trading region. Allowing disclosure of the buyer’s report does not expand implementability. |
| Keywords: | Bilateral Trade, Mixed Participation, Efficiency, Disclosure |
| JEL: | D82 D61 |
| Date: | 2026–01–26 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-816 |
| By: | Hardhik Mohanty; Bhaskar Krishnamachari |
| Abstract: | USDC and USDT are the dominant stablecoins pegged to \$1 with a total market capitalization of over \$300B and rising. Stablecoins make dollar value globally accessible with secure transfer and settlement. Yet in practice, these stablecoins experience periods of stress and de-pegging from their \$1 target, posing significant systemic risks. The behavior of market participants during these stress events and the collective actions that either restore or break the peg are not well understood. This paper addresses the question: who restores the peg? We develop a dynamic, agent-based mean-field game framework for fiat-collateralized stablecoins, in which a large population of arbitrageurs and retail traders strategically interacts across explicit primary (mint/redeem) and secondary (exchange) markets during a de-peg episode. The key advantage of this equilibrium formulation is that it endogenously maps market frictions into a market-clearing price path and implied net order flows, allowing us to attribute peg-reverting pressure by channel and to stress-test when a given mechanism becomes insufficient for recovery. Using three historical de-peg events, we show that the calibrated equilibrium reproduces observed recovery half-lives and yields an order flow decomposition in which system-wide stress is predominantly stabilized by primary-market arbitrage, whereas episodes with impaired primary redemption require a joint recovery via both primary and secondary markets. Finally, a quantitative sensitivity analysis of primary-rail frictions identifies a non-linear breakdown threshold. Beyond this point, secondary-market liquidity acts mainly as a second-order amplifier around this primary-market bottleneck. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.18991 |
| By: | Liang Chen |
| Abstract: | Platform giants in China have operated with persistently compressed margins in highly concentrated markets for much of the past decade, despite market shares exceeding 60\% in core segments. Standard theory predicts otherwise: either the weaker firm exits, or survivors raise prices to monopoly levels. We argue the puzzle dissolves once firms are viewed as ecosystem optimizers rather than single-market profit maximizers. We develop a dynamic game in which a firm's willingness to subsidize depends on the spillover value its users generate in adjacent markets -- what we call \textit{ecosystem complementarity}. When this complementarity is strong enough, perpetual below-cost pricing emerges as the unique stable equilibrium. The result is not predation in the classical sense; there is no recoupment phase. It is a permanent state of subsidized competition, rational for each firm individually but potentially inefficient in aggregate. We characterize the equilibrium, establish its dynamic stability, and show that welfare losses compound over time as capital flows into subsidy wars rather than innovation. The model's predictions are consistent with observed patterns in Chinese platform markets and suggest that effective antitrust intervention should target cross-market capital flows rather than prices. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15303 |
| By: | Aggey Simons (Semenov) (Department of Economics, University of Ottawa, Canada); Jean Baptiste Tondji (Department of Economics, The University of Texas Rio Grande Valley, USA) |
| Abstract: | We develop an oligopoly theory of brand authenticity as a belief-based credence attribute valued by only a subset of consumers. Firms choose prices and costly authenticity efforts, while managers may derive private non-pecuniary benefits from being perceived as intrinsically motivated. Heterogeneity in consumer preferences and managerial motivations jointly determines equilibrium authenticity provision, pricing, and consumer sorting. Firms led by more authenticity-driven managers invest more and, under standard complementarity conditions, charge price premia. Authenticity is privately unsustainable when the attentive audience is small, viable when it is large, and fragile at intermediate sizes. In this fragile region, laissez-faire equilibrium exhibits inefficient exit despite socially valuable participation, reflecting an extensive-margin inefficiency that can be addressed by participation support or belief-based certification. |
| Keywords: | Authenticity, Authenticity-Driven Motivations, Market Segmentation, Oligopoly Pricing, Non-price Competition, Welfare |
| JEL: | C72 D21 D42 D60 L13 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ott:wpaper:2601e |
| By: | Haufler, Andreas; Kato, Hayato |
| Abstract: | The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. We analyse tax competition among multiple tax havens and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT. Upon the introduction of a moderately low GMT rate, the havens commit to the single uniform GMT rate for all multinationals. However, gradual increases in the GMT rate induce the havens, and subsequently the non-haven, to adopt discriminatory, lower tax rates for small multinationals. Our calibration exercise shows that introducing a GMT rate of 15\% results in a regime where only the havens adopt split tax rates. Welfare and tax revenues fall in the havens but rise in the non-haven, yielding a positive net gain worldwide. |
| Keywords: | Tax avoidance; Global minimum tax; Profit shifting; Multinational firms |
| JEL: | F23 H25 H87 |
| Date: | 2025–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127558 |
| By: | Rui Yao; Xinyu Ma; Kenan Zhang |
| Abstract: | This study models a Mobility-as-a-Service (MaaS) system as a multi-leader-multi-follower game that captures the complex interactions among the MaaS platform, service operators, and travelers. We consider a coopetitive setting where the MaaS platform purchases service capacity from service operators and sells multi-modal trips to travelers following an origin-destination-based pricing scheme; meanwhile, service operators use their remaining capacities to serve single-modal trips. As followers, travelers make both mode choices, including whether to use MaaS, and route choices in the multi-modal transportation network, subject to prices and congestion. Inspired by the dual formulation for traffic assignment problems, we propose a novel single-level variational inequality (VI) formulation by introducing a virtual traffic operator, along with the MaaS platform and multiple service operators. A key advantage of the proposed VI formulation is that it supports parallel solution procedures and thus enables large-scale applications. We prove that an equilibrium solution always exists given the negotiated wholesale price of service capacity. Numerical experiments on a small network further demonstrate that the wholesale price can be tailored to align with varying system-wide objectives. The proposed MaaS system demonstrates potential for creating a "win-win-win" outcome -- service operators and travelers are better off compared to the "without MaaS" scenario, meanwhile the MaaS platform remains profitable. Such a Pareto-improving regime can be explicitly specified with the wholesale capacity price. Similar conclusions are drawn from the experiment of an extended multi-modal Sioux Falls network, which also validates the scalability of the proposed model and solution algorithm. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.19880 |
| By: | Erwin J. Sacoto-Cabrera; Luis Guijarro; Jose R. Vidal; Vicent Pla |
| Abstract: | The provision of services by more than one operator over a common network infrastructure, as enabled by 5G network slicing, is analyzed. Two business models to be implemented by a network operator, who owns the network, and a virtual operator, who does not, are proposed. In one business model, named \emph{strategic}, the network operator provides service to its user base and the virtual operator provides service to its user base and pays a per-subscriber fee to the network operator. In the other business model, named \emph{monopolistic}, the network operator provides service to both user bases. The two proposals are analyzed by means of a model that captures both system and economic features. As regards the systems features, the slicing of the network is modeled by means of a Discriminatory Processor Sharing queue. As regards the economic features, the incentives are modeled by means of the user utilities and the operators' revenues; and game theory is used to model the strategic interaction between the users' subscription decision and the operators' pricing decision. In both business models, it is shown that the network operator can be provided with the appropriate economic incentives so that it acquiesces in serving the virtual operator's user base (monopolistic model) and in allowing the virtual operator to provide service over the network operator's infrastructure (strategic model). From the point of view of the users, the strategic model results in a higher subscription rate than the monopolistic model. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15103 |
| By: | Pawe{\l} Niszczota; Elia Antoniou |
| Abstract: | While delegating tasks to large language models (LLMs) can save people time, there is growing evidence that offloading tasks to such models produces social costs. We use behavior in two canonical economic games to study whether people have different expectations when decisions are made by LLMs acting on their behalf instead of themselves. More specifically, we study the social appropriateness of a spectrum of possible behaviors: when LLMs divide resources on our behalf (Dictator Game and Ultimatum Game) and when they monitor the fairness of splits of resources (Ultimatum Game). We use the Krupka-Weber norm elicitation task to detect shifts in social appropriateness ratings. Results of two pre-registered and incentivized experimental studies using representative samples from the UK and US (N = 2, 658) show three key findings. First, people find that offers from machines - when no acceptance is necessary - are judged to be less appropriate than when they come from humans, although there is no shift in the modal response. Second - when acceptance is necessary - it is more appropriate for a person to reject offers from machines than from humans. Third, receiving a rejection of an offer from a machine is no less socially appropriate than receiving the same rejection from a human. Overall, these results suggest that people apply different norms for machines deciding on how to split resources but are not opposed to machines enforcing the norms. The findings are consistent with offers made by machines now being viewed as having both a cognitive and emotional component. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15312 |
| By: | Xia Han; Bin Li; Yao Luo |
| Abstract: | We propose a new framework for studying optimal insurance under information asymmetry within the Stackelberg game framework. In this setting, a monopolistic insurer faces uncertainty regarding a customer's loss distribution or risk attitude. The customer is assumed to follow a mean–variance preference in continuous time, while the insurer sets premiums through a risk loading based on the expected loss. An optimal menu is explicitly derived for a general class of aggregate loss models. Our approach connects with the extensive literature on optimal insurance demand, stemming from the seminal work of Arrow (1963), and leads to an interesting finding: a nonlinear pricing structure for risk-type uncertainty versus a linear pricing structure for risk-attitude uncertainty. Specifically, if an insurer is uncertain about a customer's risk type and seeks to elicit this information, the risk loading (premium minus expected loss) is set lower for high-risk individuals to encourage them to select the corresponding contract. In contrast, if the insurer is only uncertain about the customer's risk attitude, no such discounts---in terms of risk loading---are provided. This reveals that information about customers' risk types is more valuable than information about their risk attitudes. Additionally, we compare our optimal menu with the worst-case contract derived from the maxmin expected utility, we find that our optimal menu increases the insurer's expected profit and enhances the likelihood of trading. |
| Keywords: | Optimal insurance; Information asymmetry; Stackelberg game framework; Risk loading; Nonlinear pricing; Linear pricing; Ambiguity |
| JEL: | D82 G22 D81 |
| Date: | 2026–01–22 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-815 |
| By: | Kelley, Tim |
| Keywords: | Institutional and Behavioral Economics |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:360816 |