0000000000170369
AUTHOR
Amparo Urbano
Pure Component Pricing in a Duopoly
In this paper, we focus on price competition between several multiproduct firms which produce differentiated systems, each consisting of two complementary products. It is shown here that if firms are restricted to pure component pricing (bundling is not allowed) whenever components produced are compatible, pure strategy equilibrium may not exist. With the use of bundling strategies, pure strategy equilibrium always exists. For the pure component pricing case we provide a full characterization for the existence of a pure strategy equilibrium.
NASH EQUILIBRIA IN A MODEL OF MULTIPRODUCT PRICE COMPETITION: AN ASSIGNMENT PROBLEM
We study the market interaction of a finite number of single-product firms and a representative buyer, where the buyer consumes bundles of these goods. The buyers' value function determines their willingness to pay for subsets of goods. We show that subgame perfect Nash-equilibrium outcomes are solutions of the linear relaxation of an integer programming assignment problem and that they always exits. The (subgame perfect) Nash-equilibrium price set is characterized by the Pareto frontier of the associated dual problem's projection on the firms' price vectors. We identify the Nash-equilibrium prices for monotonic buyers' value functions and, more importantly, we show that some central soluti…
SEA presidential address: Group connectivity and cooperation
A model-free methodology is used for the first time to estimate a daily volatility index (VIBEX-NEW) for the Spanish financial market.We use a public data set of daily option prices to compute this index and showthat daily changes in VIBEXNEW display a negative, tight contemporaneous relationship with IBEX daily returns, contrary to other common volatility indicators, as an implied volatility indicator or a GARCH(1,1) conditional volatility model. This relationship is approximately symmetric to the sign on VIBEX-NEW changes and asymmetric to the IBEX-35 returns sign, which make it clearly a suitable volatility index for the Spanish stock market. We also examine the relationship between curr…
Duopoly signal jamming
This paper examines a repeated duopoly market with heterogeneous outputs. Firms have (common) prior beliefs over the values of an unknown parameter of each firm's demand curve. Firms cannot observe rivals' quantities, but can observe market prices, which are subject to random disturbances and hence provide noisy information that firms use to update their beliefs concerning the unknown parameters' values. Each firm can potentially signal jam, or strategically vary its output level in order to manipulate the distribution of likely market prices and hence the likely inferences drawn by the opponent. We find that the opportunity to signal-jam introduces two conflicting effects, arising out of t…
Codification schemes and finite automata
This paper is a note on how Information Theory and Codification Theory are helpful in the computational design both of communication protocols and strategy sets in the framework of finitely repeated games played by boundedly rational agents. More precisely, we show the usefulness of both theories to improve the existing automata bounds of Neyman¿s (1998) work on finitely repeated games played by finite automata.
Security in digital markets
Abstract This paper contributes to the literature on security in digital markets. We analyze a two-period monopoly market in which consumers have privacy concerns. We make three assumptions about privacy: first, that it evolves over time; second, that it has a value that is unknown by all market participants in the first period; and third, that it may affect market participants' willingness to pay for products. The monopolist receives a noise signal about consumers' average privacy. This signal allows the monopolist to adjust the price in the second period and engage in price discrimination. The monopolist's price in period 2 acts as a signal to consumers about privacy. This signal, togethe…
The attraction effect in mid-involvement categories: An experimental economics approach
Abstract Contexts, the set of alternatives under consideration, usually influence consumer choice. One of the context effects, namely the attraction effect , spawns considerable conceptual and empirical research, consistent with the aforementioned influence in decision-making. Very recently, some authors have questioned the practical relevance and applicability of the attraction effect. As part of this debate, some authors show that most of the existent research includes important background factors at levels that do not correspond to business reality. In light of the above, this article applies the methodology of experimental economics to the analysis of the attraction effect. The methodol…
Brand price differentials in retail distribution: product quality and service quality
ABSTRACTA theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and a…
Duopoly experimentation: Cournot competition
Abstract This paper analyzes learning behavior in an industry facing uncertainty. We consider a duopoly game where firms have imperfect information about market demand and they learn through observing market prices. The main body of our study consists of showing how firms make the price a more informative signal through their experimental behavior, and how this behavior compares to its monopoly counterpart. We extend previous analysis to the case where the demand unknown parameter takes values on the real line. We also find that experimentation under Cournot duopoly is smaller than under monopoly whenever the demand's unknown parameter is sufficiently precise.
Rational Herding in Reward-Based Crowdfunding: An MTurk Experiment.
Crowdfunding is gaining popularity as a way of financing social sustainable initiatives. We performed a controlled economic experiment in MTurk by simulating a crowdfunding platform and developed a theoretical model that rationalizes herding behavior. The experiment was designed to test and quantify the causal effects of revealing specific information to prospective backers: (i) the number of early contributors already financing the project and (ii) positive opinions of other backers versus those of experts. The results show that early contributions to the campaign and positive opinions of peers act as a reinforcing signal to potential backers and affect backers&rsquo
Multiproduct trading with a common agent under complete information: Existence and characterization of Nash equilibrium
This paper focuses on oligopolistic markets in which indivisible goods are sold by multiproduct firms to a continuum of homogeneous buyers, with measure normalized to one, who have preferences over bundles of products. Our analysis contributes to the literature on private, delegated agency games with complete information, extending the insights by Chiesa and Denicolò (2009) to multiproduct markets with indivisibilities and where the agent's preferences need not be monotone. By analyzing a kind of extended contract schedules -mixed bundling prices- that discriminate on exclusivity, the paper shows that efficient equilibria always exist in such settings. There may also exist inefficient equil…
Statistical formats to optimize evidence-based decision making: A behavioral approach
Abstract Statistical information is crucial for managerial decision making. The decision-making literature in psychology and mathematical cognition documents how different statistical formats can facilitate certain types of decisions. The present analysis is the first of its kind to assess the impact of statistical formats in the presentation of data from market research on both the optimality of market decisions and the time required to perform the decision-making process. An economic experiment provides the data for this study. The experiment presents statistical information in simple frequencies and relative frequencies using numerical and pictorial representations in the context of diff…
Entry and espionage with noisy signals
Abstract We analyze the effect of industrial espionage on entry deterrence. We consider a monopoly incumbent who may expand capacity to deter entry, and a potential entrant who owns an Intelligence System. The Intelligence System (IS) generates a noisy signal based on the incumbentʼs actions. The potential entrant uses this signal to decide whether or not to enter the market. The incumbent may signal-jam to manipulate the likelihood of the noisy signals and hence affect the entrantʼs decisions. If the precision of the IS is commonly known, the incumbent benefits from his rivalʼs espionage. Actually, he benefits more the higher is the precision of the IS while the spying entrant is worse off…
REPEATED GAMES WITH PROBABILISTIC HORIZON
Repeated games with probabilistic horizon are defined as those games where players have a common probability structure over the length of the game's repetition, T. In particular, for each t, they assign a probability pt to the event that "the game ends in period t". In this framework we analyze Generalized Prisoners' Dilemma games in both finite stage and differentiable stage games. Our construction shows that it is possible to reach cooperative equilibria under some conditions on the distribution of the discrete random variable T even if the expected length of the game is finite. More precisely, we completely characterize the existence of sub-game perfect cooperative equilibria in finite s…
A Model of Multiproduct Price Competition
Abstract We provide a simple model of price competition in a multiproduct oligopoly market. The products are of general nature. We find that a pure strategy equilibrium exists and every equilibrium consumption maximizes the total social surplus. Consumers are characterized by a set function which determines their willingness to pay for every subset of products. If this function is convex, the set of equilibrium prices coincides with the core of a cooperative game generated by this set function and the firms extract total industry surplus. If it is concave, the only equilibrium price of a product is its marginal contribution to the consumer's total willingness to pay. Journal of Economic Lit…
A note on risk aversion and learning behavior
Abstract This paper analyzes the learning behavior of a risk-averse agent. We find two conflicting effects in the experimental behavior: a stronger preference for the ex post reduction in uncertainty, but ex ante the returns to information are more uncertain.
Computational Complexity and Communication: Coordination in Two-Player Games
The main contribution of this paper is the development and application of cryptographic techniques to the design of strategic communication mechanisms. One of the main assumptions in cryptography is the limitation of the computational power available to agents. We introduce the concept of limited computational complexity, and by borrowing results from cryptography, we construct a communication protocol to establish that every correlated equilibrium of a two-person game with rational payoffs can be achieved by means of computationally restricted unmediated communication. This result provides an example in game theory where limitations of computational abilities of players are helpful in solv…
Pragmatic languages with universal grammars
Abstract This paper constructs the equilibrium for a specific code that can be seen as a “universal grammar” in a class of common interest Sender–Receiver games where players communicate through a noisy channel. We propose a Senderʼs signaling strategy which does not depend on either the game payoffs or the initial probability distribution. The Receiverʼs strategy partitions the set of possible sequences into subsets, with a single action assignment to each of them. The Senderʼs signaling strategy is a Nash equilibrium, i.e. when the Receiver responds best to the Senderʼs strategy, the Sender has no incentive to deviate. An example shows that a tie-breaking decoding is crucial for the block…
Multiplicity in financial equilibrium with portfolio constrains under the generalized logarithmic utility model
Previous research on the effects of constraints to take unbounded positions in risky financial assets shows that, under the logarithmic utility function, multiplicity of equilibrium may emerge. This paper shows that this result is robust to either constant, decreasing or increasing relative risk aversion obtained under the generalized logarithmic utility function.
Introspection and equilibrium selection in 2 � 2 matrix games
Game theory lacks an explanation of how players' beliefs are formed and why they are in equilibrium. This is the reason why it has failed to make significant advances with the problem of equilibrium selection even for quite siniple games, as 2x2 games with two strict Nash equilibria. Our paper models the introspection process by which the selected equilibrium is achieved in this class of games. Players begin their analysis with imprecise priors, obtained under weak restrictions formulated as Axioms. For a large class of reasoning dynamics we obtain as the solution the risk dominant Nash equilibrium.
Are social and entrepreneurial attitudes compatible?
PurposeThe aim of this paper is to analyze the compatibility between entrepreneurial and social attitudes. Specifically, it seeks to analyze whether subjects with a more developed economic entrepreneurial attitude exhibit a less social attitude.Design/methodology/approachThe methodology integrates an economic experimental approach with a standard entrepreneurial intention questionnaire to analyze the interaction between entrepreneurial and social self‐perceptions and behavior.FindingsThere is empirical evidence that experimental entrepreneurial behavior (characterized by detecting an opportunity and accepting risk to take an economic advantage from it in laboratory experiments) reduces the …
Standard vs random dictator games: On the effects of role uncertainty and framing on generosity
This project was conducted while Ernesto Mesa-Vázquez was visiting Universidad Loyola Andalucia. He wants to particularly thank Pablo Brañas-Garza and Diego Jorrat for continued guidance and assessment with the experimental design. Álvaro Núñez-Bermúdez and the faculty members of the Economics and Business Sciences department at the University of Seville were very helpful in providing assistance for running the experiment. The paper has benefited from comments and suggestions provided by Maria Paz Espinosa, Giuseppe Attanassi, José Enrique Vila, Iván Arribas, Marco Faillo, Cristina Borra and participants at the Loyola Behavioral Lab and the Early Career Researchers in Experimental Economics…
Entry with two correlated signals : the case of industrial espionage and its positive competitive effects
Recent advances in information and communication technologies have increased the incentives for firms to acquire information about rivals. These advances may have major implications for market entry because they make it easier for potential entrants to gather valuable information about, for example, an incumbent’s cost structure. However, little theoretical research has actually analyzed this question. This paper advances the literature by extending a one-sided asymmetric information version of Milgrom and Roberts’ (1982) limit pricing model. Here, the entrant is allowed access to an intelligence system (IS) of a certain precision that generates a noisy signal on the incumbent’s cost struct…
A note on beliefs formation in signalling games
Abstract We present a new criterion, called incentive dominance, for belief formation in signalling games, which subsumes refinements criteria such as equilibrium dominance and divinity. It captures the principle of forward induction through explicitly modelling the player's thought process when forming preliminary beliefs.
Product Line Choice in Retail Duopoly
This paper develops a successive duopoly model to identify conditions under which differentiated retailers that compete in quantities, when deciding on the range of brands to offer, will carry overlapping product lines. They will do so when retail margins on each brand are not too asymmetric. Otherwise, the less profitable brand is foreclosed from the market. It is shown that welfare increases if the upstream industry is perfectly competitive, even though fewer brands may be sold. With price competition though, exclusive dealing arises when retailers are not too differentiated and in-store competition is sufficiently intense.
Identification of efficient equilibria in multiproduct trading with indivisibilities and non-monotonicity
Abstract This paper focuses on multiproduct trading with indivisibilities and where a representative agent may have non-monotonic preferences. In this framework, the set of firms’ profits (which comes from efficient subgame perfect Nash equilibria) is the Pareto frontier of some projection of the core of the game. We show that under monotonicity efficient subgame perfect Nash equilibria are achieved by single offers and the equilibrium characterization is easy to obtain. When dealing with non-monotonic preferences the problem becomes more challenging. Then, we define a pair of primal–dual linear programming problems that fully identifies the core of the game. A set of modified versions of t…