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on Game Theory |
| By: | Jens Gudmundsson; Jens Leth Hougaard |
| Abstract: | Blockchain-based smart contracts offer a new take on credible commitment, where players can commit to actions in reaction to actions of others. Such reaction-function games extend on strategic games with players choosing reaction functions instead of strategies. We formalize a solution concept in terms of fixed points for such games, akin to Nash equilibrium, and prove equilibrium existence. Reaction functions can mimic "trigger" strategies from folk theorems on infinitely repeated games -- but now in a one-shot setting. We introduce a refinement in terms of safe play. We apply our theoretical framework to symmetric investment games, which includes two prominent classes of games, namely weakest-link and public-good games. In both cases, we identify a safe and optimal reaction function. In this way, our findings highlight how blockchain-based commitment can overcome trust and free-riding barriers. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.14413 |
| By: | Yusuke Yamaguchi (Institute of Social and Economic Research, The University of Osaka, JAPAN, Toulouse School of Economics, FRANCE, and Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN) |
| Abstract: | Bilateral bargaining is often facilitated by an intermediary. In many settings, however, the intermediary shares interests with one of the negotiating parties and lacks both commitment and enforcement power. This paper examines how such a biased intermediary affects bargaining outcomes. I consider a stylized bilateral trade framework and compare two bargaining games: a seller-offer bargaining game, in which the seller proposes a price, and a mediated bargaining game, in which the intermediary proposes a price and traders pay her commissions. By focusing on the set of communication equilibria in both games, I characterize the outcomes achievable when players are allowed general preplay and intraplay communication. I show that if the intermediary's bias is sufficiently small, the mediated bargaining game can yield a higher expected social surplus than the seller-offer bargaining game in the second-best scenario. This result provides a rationale for the widespread use of biased intermediaries in practice, even when their bias is common knowledge. |
| Keywords: | Bargaining; Intermediary; Bias; Communication equilibrium |
| JEL: | C78 D82 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-20 |
| By: | Giuseppe De Marco (University of Naples Parthenope and CSEF); Maria Romaniello (Università degli Studi della Campania Luigi Vanvitelli.); Alba Roviello (University of Napoli Federico II) |
| Abstract: | We analyze the effects of guilt aversion in the Battle of Sexes game by exploiting the theory of psychological games and the concept of psychological Nash equilibrium. Then we examine the impact of ambiguity in the (second-order) beliefs by taking into account the theory of psychological games under ambiguity. Our results show that the sensitivity to guilt affects some equilibrium of the game since a player might be willing to accept a lower expected utility to compensate the otherÕs disutility from guilt. Ambiguity, in turn, makes this effect more evident as it makes it greater the disutility from guilt. |
| Keywords: | Battle of sexes, guilt aversion, psychological games, maxmin preferences. |
| Date: | 2024–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:741 |
| By: | Yukihiko Funaki (Waseda University) |
| Abstract: | Cooperative game theory addresses two problems: coalition formation and payoff distribution. We hypothesize that the existence of the core, which is a fundamental concept in cooperative game theory, affects coalition formation, and we examine this hypothesis through a laboratory experiment. In the experiment, three subjects in a group bargain with each other on both the coalition formation and the payoff distribution simultaneously. The bargaining protocol is unstructured, i.e., similar to a real bargaining situation. As a result, we obtain the following findings. First, the existence of a core strongly induces the formation of the grand coalition. Second, resulting allocations are frequently in the core when it exists and are at least in the equal division core, which is an extension of the core. Finally, resulting allocations that are outside of the equal division core mostly arise due to ignorance of domination via coalition BC, which is the lowest-value two-person coalition. |
| Keywords: | laboratory experiment, unstructured bargaining, cooperative games, the core, communication |
| JEL: | C71 C91 C92 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2515 |
| By: | Guanxing Fu; Ulrich Horst |
| Abstract: | We study mean field portfolio games under Epstein-Zin preferences, which naturally encompass the classical time-additive power utility as a special case. In a general non-Markovian framework, we establish a uniqueness result by proving a one-to-one correspondence between Nash equilibria and the solutions to a class of BSDEs. A key ingredient in our approach is a necessary stochastic maximum principle tailored to Epstein-Zin utility and a nonlinear transformation. In the deterministic setting, we further derive an explicit closed-form solution for the equilibrium investment and consumption policies. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.07231 |
| By: | Gagnie Pascal Yebarth |
| Abstract: | This paper provides a comprehensive review of the literature on tax policy within the framework of strategic market games (SMG). We refer to a simple prototype of SMGs called bilateral oligopoly models. The review reveals that the effects and effectiveness of redistributive tax policies depend on the preferences of individuals who behave strategically in trade. A crucial element of this analysis is the influence of strategic interactions on the price formation mechanism and, therefore, on the optimality of a tax-and-transfer policy to improve allocation efficiency. Then, we connect our findings to broader discussions in the literature, specifically regarding the effects of taxation on general and partial equilibrium (tax incidence: ad valorem versus per unit taxes; optimal taxation and market power; market imperfections, strategic interactions, and taxation). Although the comparison remains conceptually complicated, we show the complementarity of the diverse literature. |
| Keywords: | Imperfect competition, Market power, Strategic market game, Tax policy. |
| JEL: | C72 D43 D51 H22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-34 |
| By: | Jihwan Do (Yonsei University); Nicolas Riquelme (Universidad de los Andes) |
| Abstract: | We revisit Cournot competition with asymmetric demand information by introducing a common input supplier. We characterize a unique equilibrium where information spills over through screening and signaling in vertical contracting. The equilibrium outcomes either coincide with those under complete information or involve quantity distortions. Compared to the independent-supplier case, the presence of the common supplier enhances both consumer and producer surplus under mild downstream competition. Under intense competition, producer surplus can decline, although consumer surplus may still increase. Our findings reveal informational efficiency gains of upstream mergers and the possibility of a welfare improvement even when direct efficiency gains are absent. |
| Keywords: | Cournot competition; Asymmetric information; Common agency; Information transmission; Vertical contracting; Screening; Signaling. |
| JEL: | D82 D86 L13 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-251 |
| By: | Rabah Amir (University of Iowa); Adriana Gama (El Colegio de Mexico) |
| Abstract: | This paper provides a thorough characterization of the properties of Cournot’s complementary monopoly model (or oligopoly with perfect complements) in a general setting, including existence, uniqueness and the comparative statics effects of entry. As such, this serves to unify various results from the extant literature that have typically been derived with limited generality. In addition, several studies have suggested that Cournot’s complementary monopoly model is the dual problem to the standard Cournot oligopoly model. This result crucially relies on the assumption that the firms have no production costs. This paper shows that if the production costs of the firms are different from zero, the nice duality between these two oligopoly settings breaks down. One implication of this breakdown is that, in contrast to the Cournot model, oligopoly with perfect complements can be a game of strategic complements in a global sense even in the presence of production costs. |
| Keywords: | oligopoly with perfect complements, price competition, horizontal integration, supermodularity |
| JEL: | C72 D43 L13 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:emx:ceedoc:2025-04 |
| By: | Yulia Evsyukova (University of Mannheim and ZEWÐLeibniz Centre for European Economic Research); Federico Innocenti (Università di Verona); Niccolò Lomys (CSEF and Università degli Studi di Napoli Federico II) |
| Abstract: | We study how framing interplays with information design. Whereas Sender conceives all contingencies separately, Receiver cannot initially distinguish among some of them, i.e., has a coarse frame. To influence Receiver’s behavior, Sender first decides whether to refine Receiver’s frame and then designs an information structure for the chosen frame. Sender faces a trade-off between keeping Receiver under the coarse frame — thus concealing part of the information structure — and reframing — hence inducing Receiver to revise preferences and prior beliefs after telling apart initially indistinguishable contingencies. Sender benefits from re-framing if this enhances persuasion possibilities or makes persuasion unnecessary. Compared to classical information design, Receiver’s frame becomes more critical than preferences and prior beliefs in shaping the optimal information structure. Although a coarse worldview may open the doors to Receiver’s exploitation, re-framing can harm Receiver in practice, thus questioning the scope of disclosure policies. |
| Keywords: | Framing; Information Design; Disclosure Policies. |
| JEL: | D1 D8 D9 G2 G4 M3 |
| Date: | 2024–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:743 |
| By: | Jihwan Do (Yonsei University); Jeremy Kettering (Alvernia University) |
| Abstract: | We examine a model of imperfect competition characterized by endogenous entry, where two firms decide whether to enter the market or remain out and subsequently determine their output upon entry. A key aspect of the model is the presence of uncertain market demand, with one firm possessing an informational advantage over its competitor. It is shown that in the unique equilibrium with endogenous entry, informational asymmetry distorts the entry incentives for the better-informed firm, potentially causing it to earn lower profits than its rival. Moreover, market entry may be excessive from a consumer surplus viewpoint, and more precise information can have non-monotonic effects on welfare due to the entry distortions. Within this framework, we also analyze various regulatory measures and policies aimed at enhancing consumer welfare. |
| Keywords: | Oligopoly; Market entry; Asymmetric information; Competition policy; Strategic disadvantage of information |
| JEL: | D43 D82 L13 L50 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-253 |
| By: | Bos, Iwan; Cesi, Berardino; Marini, Marco A. |
| Abstract: | This note examines cartel stability in a vertically differentiated duopoly with quality-anchored buyers. It is shown that such buyers are a facilitating factor for collusion. |
| Keywords: | Captive Consumers, Cartel Stability, Collusion, Quality-Anchored Buyers, Ver- tical Product Differentiation. |
| JEL: | C7 C71 C72 D4 D43 L1 L13 |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125064 |
| By: | Saïd Souam; Mohamed Mehdi Aït-Hamlat |
| Abstract: | This article investigates the multifaceted interplay between crime and terrorism through a game-theoretic framework encompassing three key actors: a Government, a Terrorist Group, and a Population. By modeling how each player allocates resources between terrorism, criminal activities, counterterrorism, and anti-crime efforts, we explain the strategic dependencies that shape policy and group behavior. A distinctive aspect of our analysis is the population’s capacity to support the government’s action, effectively substituting for part of the state’s counterterrorism resources under certain conditions. We show that a terrorist group faced with profitable criminal opportunities may shift efforts away from terrorist violence, although this redirection depends critically on the government’s resource allocation and the population’s perceived threat. Comparative statics illustrate how changes in parameters such as costs of crime or terrorism, public attitudes toward violence, and government budgets influence equilibrium outcomes. We show that increased government attention to one threat (terrorism or crime) can inadvertently strengthen the other, underscoring the importance of balanced policy measures. Our findings shed new light on the symbiotic relationship between terrorist and criminal activities, providing insights into how coordinated policy interventions, spanning law enforcement, socio-economic development, and public outreach could more effectively disrupt the crime-terror nexus. |
| Keywords: | Terrorism, organized crime, crime-terror nexus, public policies, game theory |
| JEL: | D74 K42 H56 K14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-33 |
| By: | Marie Obidzinski (Université Paris Panthéon Assas, CRED UR 7321, 75005 Paris, France); Yves Oytana (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France) |
| Abstract: | We study the design of optimal liability sharing rules when the use of an AI prediction by a human user may cause external damage. To do so, we set up a game-theoretic model in which an AI manufacturer chooses the level of accuracy with which an AI is developed (which increases the reliability of its prediction) and the price at which it is distributed. The user then decides whether to buy the AI. The AI’s prediction gives a signal about the state of the world, while the user chooses her effort to discover the payoffs in each possible state of the world. The user may be susceptible to an automation bias that leads her to overestimate the algorithm’s accuracy (overestimation bias). In the absence of an automation bias, we find that full user liability is optimal. However, when the user is prone to an overestimation bias, increasing the share of liability borne by the AI manufacturer can be beneficial for two reasons. First, it reduces the rent that the AI manufacturer can extract by exploiting the user’s overestimation bias by underinvesting or overinvesting in the AI accuracy. Second, due to the nature of the interaction between algorithm accuracy and the user effort, the user may be incentivized to increase her (too low) judgment effort. |
| Keywords: | liability sharing, advisory algorithm, automation bias, prediction, judgment effort |
| JEL: | K13 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2025-08 |
| By: | Juan Ortner (Boston University); Sylvain Chassang (Princeton University); Kei Kawai (University of California Berkeley and& University of Tokyo); Jun Nakabayashi (Kyoto University) |
| Abstract: | Auctioneers suspecting bidder collusion often lack the formal evidence needed for legal recourse. A practical alternative is to design auctions that hinder collusion. Since Abreu et al. (1986), economic theory has emphasized imperfect monitoring as a constraint on collusion, but evidence remains scarce on whether: (i) information frictions meaningfully limit real-world collusion; and (ii) auctioneers can effectively exploit these frictions. Indeed, transparency concerns prevent the introduction of explicit randomness in auction design. We make progress on this issue by studying the impact of subjective scoring in auctions run by Japan’s Ministry of Land, Infrastructure, and Transportation. The adoption of scoring auctions significantly reduced winning bids in ways inconsistent with competition. Model-based inference suggests that the cartel’s dynamic obedience constraints were binding and tightened by imperfect monitoring. Subjective scoring can successfully leverage imperfect monitoring frictions to reduce the scope of collusion. |
| Keywords: | procurement, scoring, cartel discipline, imperfect monitoring |
| JEL: | D44 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:342 |