Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment

Date: 2014-09-01
By: Jos Jansen (Department of Economics and Business, Aarhus University, Denmark)
Andreas Pollak (University of Cologne)
URL: http://d.repec.org/n?u=RePEc:aah:aarhec:2014-20&r=net
We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor’s product-market strategy. Subsequently, we analyze the firms’ behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.
Keywords: duopoly, Cournot competition, Bertrand competition, information disclosure, incomplete information, common value, product differentiation, asymmetry, skewed distribution, laboratory experiment
JEL: C92 D22 D82 D83 L13 M4
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Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment

Date: 2014-09-01
By: Jos Jansen
Andreas Pollak
URL: http://d.repec.org/n?u=RePEc:kls:series:0075&r=net
We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor’s product-market strategy. Subsequently, we analyze the firms’ behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.
Keywords: duopoly, Cournot competition, Bertrand competition, information disclosure, incomplete information, common value, product differentiation, asymmetry, skewed distribution, laboratory experiment
JEL: C92 D22 D82 D83 L13 M4

Group contests of incomplete information

Date: 2014-09
By: Philip Brookins (Department of Economics, Florida State University)
Dmitry Ryvkin (Department of Economics, Florida State University)
URL: http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2014_09_02&r=net
We prove the existence of monotone pure strategy Bayesian equilibria in two types of contests between groups under incomplete information: (i) individual-level private information group contests, where each player only knows her own ability, and (ii) group-level private information group contests, where each player knows the abilities of all members of her group. In the latter case, we also show that the equilibrium is unique. We provide the results of exploratory numerical computations and discuss the qualitative properties of the equilibria.
Keywords: contest, group, incomplete information
JEL: D72 C72 C02

Experimental games on networks: Underpinnings of behavior and equilibrium selection

Date: 2014-04
By: Gary Charness
Francesco Feri
Miguel A. Meléndez-Jiménez
Matthias Sutter
URL: http://d.repec.org/n?u=RePEc:inn:wpaper:2014-14&r=net
In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion’s share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
Keywords: Random networks, Incomplete information, Connectivity, Clustering, Strategic substitutes, Strategic complements, Experiment
JEL: C71 C91 D03 D85

Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection

Date: 2014-04
By: Charness, Gary (University of California, Santa Barbara)
Feri, Francesco (University of Innsbruck)
Meléndez-Jiménez, Miguel A. (University of Malaga)
Sutter, Matthias (European University Institute)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp8104&r=net
In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion’s share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
Keywords: random networks, incomplete information, connectivity, clustering, strategic substitutes, strategic complements, experiment
JEL: C71 C91 D03 D85

Information and consumer fraud in a signalling model

Date: 2014-01
By: Silvia Martínez-Gorricho (Dpto. Análisis Económico Aplicado)
URL: http://d.repec.org/n?u=RePEc:ivi:wpasad:2014-01&r=net
This article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are fixed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.
Keywords: Consumer Fraud; Asymmetric Information; Price Signalling
JEL: D42 D82 G14 L15 L51

Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection

Date: 2013-07-22
By: Charness, Gary
Feri, Francesco
Meléndez-Jiménez, Miguel A
Sutter, Matthias
URL: http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt6m0584qv&r=net
Keywords: Social and Behavioral Sciences

Abstract.

We study behavior and equilibrium selection in network games. We conduct a series of experiments (with 580 participants) in which actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. In our initial set of experiments on 5-person networks, we find a great deal of qualitative and quantitative support for the theoretical predictions of the Galeotti, Goyal, Jackson, Vega-Redondo, and Yariv (2010) model. The degree of equilibrium play is striking, in particular with incomplete information. There are intriguing patterns in our data, such as a taste for positive payoffs (but also security) when this supports the choice of one of the potential equilibria in a complete-information setting. To shed further light on the underpinnings of behavior and equilibrium selection in the laboratory, we study three more 5-person networks and test robustness by conducting sessions with three 20-person networks. Overall, we see strong evidence that choices and the equilibrium played depend on one’s degree and the connectivity of the network, and suggestive evidence that choices also depend on the clustering in the network.
JEL Codes: C71, C91, D03, D85
Keywords: Random networks; Incomplete information; Connectivity; Clustering; Strategic substitutes; Strategic complements; Experiment

Individual Learning and Cooperation in Noisy Repeated Games

Date: 2013-07-06
By: Yuichi Yamamoto (Department of Economics, University of Pennsylvania)
URL: http://d.repec.org/n?u=RePEc:pen:papers:13-038&r=net
We investigate whether two players in a long-run relationship can maintain cooperation when the details of the underlying game are unknown. Specifically, we consider a new class of repeated games with private monitoring, where an unobservable state of the world influences the payoff functions and/or the monitoring structure. Each player privately learns the state over time but cannot observe what the opponent learned. We show that there are robust equilibria in which players eventually obtain payoffs as if the true state were common knowledge and players played a “belief-free” equilibrium. We also provide explicit equilibrium constructions in various economic examples
Keywords: repeated game, private monitoring, incomplete information, belief-free equilibrium, ex-post equilibrium, individual learning
JEL: C72

Games with Unawareness

Date: 2012-08
By: Feinberg, Yossi (Stanford University)
URL: http://d.repec.org/n?u=RePEc:ecl:stabus:2122&r=net
We provide a tool to model and solve strategic situations where players’ perceptions are limited, in the sense that they may only be aware of, or model, some of the aspects of the strategic situations at hand, as well as situations where players realize that other players’ perceptions may be limited. We define normal, repeated, incomplete information and dynamic (extensive) form games with unawareness using a unified methodology. A game with unawareness is defined as a collection of standard games (of the corresponding form). The collection specifies how each player views the game, how she views the other players’ perceptions of the game and so on. The modeler’s description of perceptions, the players’ description of other players’ reasoning, etc. are shown to have consistent representations. We extend solution concepts such as rationalizability and Nash equilibrium to these games and study their properties. It is shown that while unawareness in normal form games can be mapped to incomplete information games, the extended Nash equilibrium solution is not mapped to a known solution concept in the equivalent incomplete information games, implying that games with unawareness generate novel types of behavior.
JEL: C72

Equilibrium Selection in Experimental Games on Networks

Gary Charness, Francesco Feri, Miguel A. Meléndez-Jiménez, and Matthias Sutte (2012) “Equilibrium Selection in Experimental Games on Networks." working paper, Department of Economics, UC Santa Barbara. [pdf] [ideas]

 

==Abstract==

Abstract. We study behavior and equilibrium selection in experimental network games. We vary two  important  factors:  (a) actions are either  strategic  substitutes or  strategic complements, and (b)  subjects  have  either  complete  or  incomplete  information  about  the  structure  of  a  random network.  Play  conforms  strongly  to  the  theoretical  predictions,  providing  an  impressive behavioral  confirmation  of  the  Galeotti,  Goyal,  Jackson,  Vega-Redondo,  and  Yariv  (2010) model. The degree of  equilibrium play  is  striking,  even with  incomplete  information. We  find that  under  complete  information,  subjects  typically  play  the  stochastically-stable  (inefficient) equilibrium when the game involves strategic substitutes, but play the efficient one with strategic complements.   Our  results  suggest  that  equilibrium multiplicity may  not  be  a major  concern Subjects’ actions and realized outcomes under  incomplete  information depend strongly on both the degree and the connectivity. When there are multiple equilibria, subjects begin by playing the efficient equilibrium, but eventually converge to the inefficient one.