Dominant Equilibrium Research Articles

Coordination in Global Games with Heterogeneous Agents

This paper studies equilibrium selection in large coordination games played by heterogeneous agents, such as models of bank runs, currency attacks or technology adoption. Player payoffs are affected by the average action and the player’s type, as well as a global parameter reflecting economic fundamentals. I introduce the notion of ex ante risk dominance and show that it coincides with the global games selection in games with payoffs that are separable in average action and type. Ex ante risk dominance provides an economic interpretation behind the global games selection in terms of maximizing ex ante expected payoffs under pessimistic beliefs. I characterize the ex ante risk dominant equilibrium, pinning down the presence of tipping points in terms of economic fundamentals. I also show that payoff separability is needed for the global games selection to be uniform, that is, to be robust to changes in the distribution of signal noise.

Winter is Coming – But Not Yet. German Health Policy Under the Third Merkel Chancellorship

Health policy in Germany for a long time was considered to be hardly reformable. During the last 25 years, reforms became more frequent, yet substantial major policy change is still rare. When taking a closer look, German health policy follows phases of stability alternating with punctuations of this equilibrium when fundamental structural reforms occur. This contribution analyses the German health policy of the 18th legislative period against the backdrop of this newly emerging pattern of health policy making by applying Punctuated Equilibrium Theory (PET). Marginal reforms without profound reorganisation of the health system were only possible in this period because of the particularly favourable financial situation of sickness funds. Consequently, the conflicting parties and interest groups were able to postpone fundamental solutions to upcoming problems to a later point in time. After explaining the marginal reforms under the third Grand Coalition, it becomes clear that the dominant equilibrium is not going to last: Winter is coming and will bring about concussions in German health policy soon.

Corporate social responsibility and the choice of price versus quantities

This paper revisits the classic issue of comparison between price and quantity competition in the presence of Corporate Social Responsible (CSR) private firms. The results regarding CSR firms are in sharp contrast to the conventional wisdom regarding profit-seeking firms. In fact, profits can be larger under Cournot (resp. Bertrand) competition also when products are complements (resp. substitutes). Moreover, if the goods are substitutes, then the dominant strategy for each firm may be the choice of the price contract in the subgame perfect Nash equilibrium. Also, the dominant Bertrand strategy equilibrium when the goods are complements may be Pareto-inferior from the firms’ perspective. Finally, the cornerstone belief that Bertrand competition is more efficient than Cournot competition may also be reversed.

Conditional behavior and learning in similar stag hunt games

This paper reports an experiment using Stag Hunt games with different payoff ranges. Specifically, in one treatment for half of the games the payoff dominant and the risk dominant equilibrium coincide and for the other half of the games they conflict; in the second treatment they always conflict. The experiment provides evidence that the payoff range experienced by the participant influences the likelihood of efficient conventions emerging. In particular, experiencing games where payoff dominance and risk dominance coincide appears to make payoff dominance more attractive in games in which they conflict. In the experiment, we also observe conditional behavior emerging with experience. We develop a model of conditional expectations to explain these stylized facts that depends crucially on the assumption that after a brief learning period participants categorize their experience using the same relative bandwidth in both treatments even though the range of experience is twice as large in treatment 1 as it is in treatment 2. The assumption cannot be rejected by the data. The analysis provides a formal example in which increasing experienced diversity by changing the way similar experiences are categorized increases the likelihood of efficient conventions emerging in communities playing similar Stag Hunt games.

Pricing and quality competition in a brand-differentiated supply chain

We develop game-theoretic models to study a supply chain in which two manufacturers supply a product in quality-differentiated brands to a common retailer. The supply chain involves both vertical competition between the retailer and manufacturers, and horizontal competition between the two manufacturers. We examine the two manufacturers' pricing timing choices, either early or late, in both the manufacturers Stackelberg and retailer Stackelberg supply chains. The manufacturers are in horizontal competition in an endogenous timing game, with quality being exogenous or endogenous. The impact of the manufacturers' timing of pricing on the profits of the retailer, manufacturers, and supply chain are discussed. We find that when quality is exogenous, in the manufacturers Stackelberg supply chain, either sequential pricing game (either the high-quality manufacturer or low-quality manufacturer moves early) can be the equilibrium. The simultaneous game is the dominant equilibrium in a retailer Stackelberg supply chain, and it results in intensified price competition between the two brands. When quality is endogenous, the simultaneous game is always the dominant equilibrium for both manufacturers Stackelberg and retailer Stackelberg supply chains, and leads to a win-win situation for the retailer and the manufacturers, and the best performance for the entire supply chain. In the simultaneous game with endogenous quality, both the price and quality competitions between the two brands are softened as compared to the case in which the low-quality manufacturer moves first, and intensified as compared to the case in which the high-quality manufacturer moves first. The implications of, and new insights on, the two manufacturers’ choices of pricing timing are also discussed.

Green Investment and Coordination Failure: An Investors' Perspective

To achieve the goal of keeping global warming well below 2 °C, private investors have to shift capital from brown to green infrastructures and technologies and provide additional green investment. In this paper, we present a game-theoretic perspective on the challenge of triggering such investments. The question of climate change mitigation is often related to the prisoner's dilemma, a game with one Nash equilibrium. However, the authors perceive investment for mitigation and adaptation as a coordination problem of selecting among multiple equilibria. To illustrate this, we model a non-cooperative coordination game, related to the stag hunt, with a brown equilibrium with lower payoffs that can be achieved single-handedly and a green equilibrium with higher payoffs that requires coordination. As multiple experiments show, in such games actors often fail to coordinate on a payoff dominant equilibrium due to uncertainty. Thus, we discuss how uncertainty could be reduced along two options: one that concerns a change in the payoff structure of the game and another that concerns subjective probabilities.

Instability in the voluntary contribution mechanism with a quasi-linear payoff function: An experimental analysis

We conduct experiments to investigate the convergence of contributions in the voluntary contribution mechanism (VCM) with two quasi-linear payoff functions. One is linear with respect to private goods and nonlinear with respect to public goods; we call it “QL1.” The other is linear with respect to public goods and nonlinear with respect to private goods; we call it “QL2.” The system with QL1, built on the assumption of self-interested players and myopic Cournot best response dynamics, is not stable, but the system with QL2 has a dominant Nash equilibrium. This theoretical result predicts a “pulsing” of contributions in the VCM with QL1. Our experimental observations demonstrate that individual contributions are certainly converging to the dominant Nash equilibrium in the experiment with QL2. In the experiments with QL1, however, the dispersion of individual contributions increases progressively with repeated trials, and the contributions are still volatile in the experiments’ last periods, although we do not find a clearly unstable pulsing in the group's total contribution.

A NonCooperative Approach to Cost Allocation in Joint Replenishment

We consider the infinite-horizon multiple retailer joint replenishment problem with first-order interaction. In this model, the joint setup cost incurred by a group of retailers placing an order simultaneously consists of a group-independent major setup cost and retailer-specific minor setup costs. The goal is to determine an inventory replenishment policy that minimizes the long-run average system-wide cost. In this paper, we adopt a noncooperative approach to study the joint replenishment game. We consider the allocation rule in which the major setup cost is split equally among the retailers who place an order together, and each retailer pays his own holding and minor setup costs. Given the preannounced allocation rule, each retailer determines his replenishment policy to minimize his own cost anticipating the other retailers’ strategy. We show that a payoff dominant Nash equilibrium exists, and quantify the efficiency loss of the noncooperative outcome relative to the social optimum. Although the worst-case ratio between the best decentralized outcome and the social optimum is O((ln n)1/2), where n is the number of retailers, numerical results suggest that the best equilibrium is near optimal. The online appendix is available at https://doi.org/10.1287/opre.2017.1645 .

Quantum Theory of Atoms in Molecules Charge-Charge Transfer-Dipolar Polarization Classification of Infrared Intensities.

Fundamental infrared vibrational transition intensities of gas-phase molecules are sensitive probes of changes in electronic structure accompanying small molecular distortions. Models containing charge, charge transfer, and dipolar polarization effects are necessary for a successful classification of the C-H, C-F, and C-Cl stretching and bending intensities. C-H stretching and in-plane bending vibrations involving sp3 carbon atoms have small equilibrium charge contributions and are accurately modeled by the charge transfer-counterpolarization contribution and its interaction with equilibrium charge movement. Large C-F and C═O stretching intensities have dominant equilibrium charge movement contributions compared to their charge transfer-dipolar polarization ones and are accurately estimated by equilibrium charge and the interaction contribution. The C-F and C-Cl bending modes have charge and charge transfer-dipolar polarization contribution sums that are of similar size but opposite sign to their interaction values resulting in small intensities. Experimental in-plane C-H bends have small average intensities of 12.6 ± 10.4 km mol-1 owing to negligible charge contributions and charge transfer-counterpolarization cancellations, whereas their average out-of-plane experimental intensities are much larger, 65.7 ± 20.0 km mol-1, as charge transfer is zero and only dipolar polarization takes place. The C-F bending intensities have large charge contributions but very small intensities. Their average experimental out-of-plane intensity of 9.9 ± 12.6 km mol-1 arises from the cancellation of large charge contributions by dipolar polarization contributions. The experimental average in-plane C-F bending intensity, 5.8 ± 7.3 km mol-1, is also small owing to charge and charge transfer-counterpolarization sums being canceled by their interaction contributions. Models containing only atomic charges and their fluxes are incapable of describing electronic structure changes for simple molecular distortions that are of interest in classifying infrared intensities. One can expect dipolar polarization effects to also be important for larger distortions of chemical interest.

Experimental Gaming Comparison of Resource Allocation Rules in Case of Transferable Utilities

The present paper discusses the comparative analysis results of resource allocation rules using experiments in the form of business games. The comparative analysis involves five rules. The resource allocation mechanism that gives the efficient solution of the problem without transferable utility, implementing it as dominant strategy equilibrium in the agents game, so called Uniform rule. The mechanism with balanced payments introduced earlier by authors using the Groves Ledyard rule that gives the efficient solution of the problem as a Nash equilibrium in the agents game, as well as its modification reducing the dimension of the action space of the agents. The mechanism from the class of proportional allocation mechanisms, where, the efficient resource allocation also represents a Nash equilibrium, but the payments are unbalanced. Last mechanism in the comparative analysis was originally developed as a distributed optimization algorithm.

Allocation with demand competition: Uniform, proportional, and lexicographic mechanisms

AbstractWe examine capacity allocation mechanisms in a supply chain comprising a monopolistic supplier and two competing retailers with asymmetric market powers. The supplier allocates limited capacity to retailers according to uniform, proportional, or lexicographic mechanism. We study the impact of these allocation mechanisms on supplier pricing decisions and retailer ordering behavior. With individual order size no greater than supplier capacity, we show that all three mechanisms guarantee equilibrium ordering. We provide precise structures of retailer ordering decisions in Nash and dominant equilibria. Further, we compare the mechanisms from the perspective of the supplier, the retailers, and the supply chain. We show that regardless of whether retailer market powers are symmetric, lexicographic allocation with any priority sequence of retailers is better than the other two mechanisms for the supplier. Further, under lexicographic allocation, the supplier gains more profit by granting higher priority to the retailer with greater market power. We also extend our study to the case with multiple retailers. © 2017 Wiley Periodicals, Inc. Naval Research Logistics 64: 85–107, 2017

Coordination and transfer

We study the ability of subjects to transfer principles between related coordination games. Subjects play a class of order statistic coordination games closely related to the well-known minimum (or weak-link) and median games (Van Huyck et al. in Am Econ Rev 80:234–248, 1990, Q J Econ 106(3):885–910, 1991). When subjects play a random sequence of games with differing order statistics, play is less sensitive to the order statistic than when a fixed order statistic is used throughout. This is consistent with the prediction of a simple learning model with transfer. If subjects play a series of similar stag hunt games, play converges to the payoff dominant equilibrium when a convention emerges, replicating the main result of Rankin et al. (Games Econ Behav 32:315–337, 2000). When these subjects subsequently play a random sequence of order statistic games, play is shifted towards the payoff dominant equilibrium relative to subjects without previous experience. The data is consistent with subjects absorbing a general principle, play of the payoff dominant equilibrium, and applying it in a new related setting.

Evolution of intergranular corrosion resistance for HR3C heat-resistant austenitic stainless steel at elevated temperature

ABSTRACTAn attempt has been made to investigate the evolution of intergranular corrosion (IGC) resistance of HR3C heat-resistant austenitic stainless steel. The double-loop electrochemical potentiokinetic reactivation (DL-EPR) tests were conducted to evaluate the IGC resistance of HR3C steel. The results show that the side peaks can be observed in active–passive region of DL-EPR curves due to inhomogeneous distribution of the chromium dissolved in matrix. The variation of the degree of sensitisation (DOS) during sensitising at 800°C can be divided into three regions (sensitisation dominant region, desensitisation dominant region and equilibrium region). When HR3C steel is sensitised at 800°C for over 24 h, the equilibrium state in DOS can be reached. Simultaneously, the IGC morphologies after DL-EPR tests can correlate well with the DOS. On the basis of the equilibrium state in DOS, proper heat treatments and corrosion protection measures can be taken to avoid IGC of HR3C steel.

Complementary Monopolies and Bargaining

AbstractHow should complementarities affect antitrust merger policy? I introduce a two-stage strategic model in which complementary-input monopolists offer supply schedules to producers and then engage in bilateral bargaining with producers. The main result is that there is a unique weakly dominant strategy equilibrium, the equilibrium attains the joint-profit-maximizing outcome, and output equals that of a bundling monopoly. The result holds with perfect competition in the downstream market with both unit capacity and multiunit capacity. The result also holds with oligopoly competition in the downstream market. The result contrasts with the Cournot effect, which states that complementary-input monopolists choose total prices that are greater than the bundled-monopoly level. The analysis shows that consumers’ surplus and total producers’ surplus are greater with supply schedules and bargaining than with posted-price competition. The analysis has implications for antitrust policy toward vertical and conglo...

Combination of ICP-MS, capillary electrophoresis, and their hyphenation for probing Ru(III) metallodrug\u2013DNA interactions

Determination of the DNA-binding reactivity and affinity is an important part of a successful program for the selection of metallodrug candidates. For such assaying, a range of complementary analytical techniques was proposed and tested here using one of few anticancer metal-based drugs that are currently in clinical trials, indazolium trans-[tetrachloridobis(1H-indazole)ruthenate(III), and a DNA oligonucleotide. A high reactivity of the Ru drug was confirmed in affinity capillary electrophoresis (CE) mode, where adduct formation takes place in situ (i.e., in the capillary filled with an oligonucleotide-containing electrolyte). To further characterize the binding kinetics, a drug–oligonucleotide mixture was incubated for a different period of time, followed by ultrafiltration separation into two different in molecular weight fractions (>3 and <3 kDa). The time-dependent distribution profiles of the Ru drug were then assessed by CE-inductively coupled plasma mass spectrometry (ICP-MS), revealing that at least two DNA adducts exist at equilibrium conditions. Using standalone ICP-MS, dominant equilibrium amount of the bound ruthenium was found to occur in a fraction of 5–10 kDa, which includes the oligonucleotide (ca. 6 kDa). Importantly, in all three assays, the drug was used for the first time in in-vitro studies, not in the intact form but as its active species released from the transferrin adduct at simulated cancer cytosolic conditions. This circumstance makes the established analytical platform promising to provide a detailed view on metallodrug targeting, including other possible biomolecules and ex vivo samples.

Multi-period competitive cheap talk with highly biased experts

Each of n experts communicates with a principal about the privately observed quality of the expert's own project via cheap talk, with new independently drawn projects available each period until the principal adopts one. Even when experts are highly biased in that they only receive a positive payoff if their own project is selected, we show that informative equilibria may exist, characterize a large class of stationary equilibria, and find the Pareto dominant symmetric equilibrium. Experts face a tradeoff between inducing acceptance now versus waiting for a better project should the game continue. When the future is more highly valued experts send more informative messages, increasing the average quality of an adopted project and resulting in a Pareto improvement, while communication is harmed and payoffs can decline when there is more competition between experts.

An Efficient and Incentive Compatible Mechanism for Wholesale Electricity Markets

Being widely used in many deregulated wholesale electricity markets, the locational marginal pricing (LMP) mechanism is known to achieve social optimality in a competitive market. When profit-maximizing generators act strategically to manipulate prices; however, LMP may lead to high loss of economic efficiency. In this paper, we apply the Vickrey-Clarke–Groves (VCG) mechanism to wholesale electricity markets. We show that the VCG mechanism minimizes the total cost at a truth-telling dominant strategy equilibrium. We establish an important comparative result that the VCG mechanism always results in higher per-unit electricity prices than the LMP mechanism under any given set of reported supply curves. Numerical results show that the difference between the per-unit prices resulting from the two mechanisms is negligibly small (about 4%) in the IEEE 14-bus and 30-bus test systems. Finally, we apply the VCG mechanism to a day-ahead setting with start-up cost (of conventional generators) and intermittent renewable generation. We show that the VCG mechanism induces the truth-telling behavior of conventional generators in dominant strategies and yields each conventional generator a non-negative expected profit.

Global analysis for a two-strain avian influenza model with distributed delay and environmental transmission

A two-strain avian influenza model with distributed delay and environmental spread in humans is investigated. The model describes well the transmission of avian influenza between poultry and humans. In this study, we introduce the behavior of both high pathogenic avian influenza (HPAI) as strain two and low pathogenic avian influenza (LPAI) as strain one in a domestic poultry population. We also include the distribution of the strain two through the contaminated environment. We compute the strain reproduction numbers $\mathcal R_1$, $\mathcal R_2$ and the invasion $\hat{\mathcal R}_1$, $\hat{\mathcal R}_2$. We find that besides the disease-free equilibrium, there exist a dominance equilibrium for each strain and many coexistence equilibrium of both strain one and strain two if $\mathcal R_1=\mathcal R_2$. Using a Lyapunov functional, we are able to establish global stability of the disease-free equilibrium if $\max \{\mathcal R_1, \mathcal R_2\} 1$. Using a Lyapunov functional, we establish that the corresponding single-strain equilibrium $\varepsilon_i $ is globally stable. When $\mathcal R_1=\mathcal R_2>1$ and $\hat{\mathcal R}_1=\hat{\mathcal R}_2=1$, there are perhaps many coexistence equilibria of both strain one and strain two. Environmental transmission to humans may explain why avian influenza A (H7N9) virus has appear in humans in different places in China in 2013 and 2014. https://doi.org/10.28919/cmbn/2653

Multi-Period Competitive Cheap Talk with Completely Biased Experts

Each of n experts communicates with a principal about the privately observed quality of the expert's own project via cheap talk, with new independently drawn projects available each period until the principal adopts one. Even when experts are very biased in that they only receive a positive payoff if their own project is selected, we show that informative equilibria may exist, characterize the set of stationary equilibria, and find the Pareto dominant symmetric equilibrium. Experts face a tradeoff between inducing acceptance now versus waiting for a better project should the game continue. When the future is more highly valued experts send more informative messages, increasing the average quality of an adopted project and resulting in a Pareto improvement, while communication is harmed and payoffs can decline when there is more competition between experts.

Boston versus deferred acceptance in an interim setting: An experimental investigation

While much of the school choice literature advocates strategyproofness, recent research has aimed to improve efficiency using mechanisms that rely on non-truthtelling equilibria. We address two issues that arise from this approach. We first show that even in simple environments with ample feedback and repetition, agents fail to reach non-truthtelling equilibria. We offer another way forward: implementing truth-telling as an ordinal Bayes–Nash equilibrium rather than as a dominant strategy equilibrium. We show that this weaker solution concept can allow for more efficient mechanisms in theory and provide experimental evidence that this is also the case in practice. In fact, truth-telling rates are basically the same whether truthtelling is implemented as an ordinal Bayes–Nash equilibrium or a dominant strategy equilibrium. This provides a proof-of-concept that ordinal Bayes–Nash design might provide a middle path, achieving efficiency gains over strategy-proof mechanisms without relying on real-life agents playing a non-truth-telling equilibrium.