Pooling Equilibrium Research Articles

Store brand entry with asymmetric cost information

This study conducts a research on the dominated-retailer’s establishment strategy of a store brand in a supply chain, in which the retailer possesses private knowledge of the store brand’s product cost, while the manufacturer is only informed about the distribution of this cost information. The store brand entry with asymmetric information initiates a signaling game between the chain members. Through comparing equilibrium outcomes, we find that the pooling equilibrium consistently prevails as the dominant equilibrium, suggesting that the informed retailer is reluctant to reveal the cost information to her national brand cooperative manufacturer. We also explore the influence of a retailer’s store brand entry on the national-brand manufacturer’s performance. The findings reveal that, with asymmetric cost information, mutually beneficial outcomes for all parties involved can be achieved by the establishment of a store brand. Furthermore, we delve into how the asymmetric cost information affects the performance of the chain members. Surprisingly, our findings demonstrate that asymmetric cost information may be desirable not only for retailer, but also for the less informed manufacturer under specific circumstances. This suggests the possibility of supply chain members reaching a mutual agreement on the structure of asymmetric cost information.

Information transmit strategy of e-commerce platform with financially constrained supplier

A signaling game model is constructed in the framework of a supply chain system consisting of a financially constrained supplier and an e-commerce platform acting as marketplace and a creditor simultaneously. The primary concern of this work is to investigate how the e-commerce platform, which has superior information about market demand, indirectly communicates this information to the financially constrained supplier through its marketing efforts. Under both separating and pooling equilibria, the decisions and profits of each member of the supply chain are firstly considered. Furthermore, using an “intuitive criterion”, the e-commerce platform’s dominant strategy and its influencing factors are analyzed. The results show that when there is a significant difference in the marginal marketing costs, the platform tends to choose the separating equilibrium. When the difference in marginal marketing costs is relatively slight, the e-commerce platform’s dominant strategy depends on the capital of the supplier and the level of market demand fluctuations. Specifically, the e-commerce platform will select the pooling equilibrium when market demand fluctuations are minimal, but the platform will select the separating equilibrium when market demand fluctuations are substantially large. If the supplier’s capital is increased within a certain range, the e-commerce platform is more motivated to select the pooling equilibrium. In addition, the platform usage fee ratio, the platform loan interest rate and the supplier’s prior beliefs are important factors influencing the platform’s decision.

Equilibrium information in credence goods

We study credence goods in a general model. A consumer may suffer a loss which is a continuous random variable. Privately observing the loss value, an expert can provide a repair at a price to eliminate the consumer's loss. All perfect-Bayesian equilibria are inefficient, in that some losses are not repaired. In closed form, we derive a pooling equilibrium (where losses are inferred to be in an interval), and a separating equilibrium (where losses are precisely inferred). If the expert can acquire an information structure on losses, the first best is achieved by a binary signal. Results are robust when cost and loss are random and correlated, and when there are multiple experts.

The role of consumer reviews in e-commerce platform credit supervision: A signaling game model based on complex network

Although fraudulent operations on e-commerce platforms have been repeatedly mentioned, neither its causes nor the complexity among merchants has been systematically established in the literature. Combined with a merchant complex network and game theory, we propose a signaling game model. The model highlights that the pooling equilibrium is why merchants transmit false signals. Imposing the penalty on dishonest merchants can shift to the separation equilibrium, an effective way to resolve the credit crisis. Meanwhile, we utilize consumer reviews to adjust the stability of the separation equilibrium and demonstrate the validity by numerical simulations. The results show that the enthusiasm and authenticity of reviews were complementary to penalty strategies. The moderate enthusiasm and influence of reviews, and high authenticity, are more conducive to the long-term development of the e-commerce platform. The findings of this study provide insight into platform credit supervision from the perspective of consumer reviews.

Championing and shaming in a credence good market: Which one to use?

AbstractWe analyze the performance of the championing and shaming inquiries by a Nongovernmental Organization in a signaling game played by a monopoly that sells a credence good to an uninformed consumer. Championing (shaming) means certifying (uncovering) a firm that sells a high (low) quality product. An inquiry alters the whole information structure of the signaling game. It provides redundant hard information in a separating equilibrium but it lowers the set of separating prices. We show that a high‐quality producer and the consumers welcome this inquiry in a pooling equilibrium as it enhances their expected payoffs. They prefer a championing over a shaming inquiry when the likelihood of a high‐quality producer is low. A championing inquiry may lower the consumer's expected payoff if it is run before the monopoly sets its price since the consumer may prefer paying a low pooling price for a credence good rather than a high price for a certified high‐quality good.

To insure or not to insure? Promoting trust and cooperation with insurance advice in markets

We design and test a novel insurance advice mechanism aimed at promoting trust and cooperation in markets with asymmetric information. In a buyer-seller game with third-party insurance, sellers have the option to advise buyers on whether to purchase insurance against the potential losses from the opportunistic behavior of strategic sellers. We hypothesize that advising not to purchase insurance introduces a psychological cost for defection. We develop a theoretical model that selects a pooling equilibrium where both cooperative and strategic sellers advise buyers not to purchase insurance. Once this advice has been given, strategic sellers choose not to defect if the associated psychological costs are sufficiently large. Data from a controlled laboratory experiment shows that the insurance advice mechanism significantly increases market efficiency, with buyers being more likely to purchase from sellers and sellers being more likely to cooperate. Furthermore, we find that the insurance advice mechanism is more effective when sellers can observe buyers’ insurance purchase decisions.

Spying and imperfect commitment in first-price auctions: a case of tacit collusion

We analyze Stackelberg leadership in a first-price auction. Leadership is induced by an information system, represented by a spy, that leaks one bidder’s bid before others choose their bids. However, the leader may secretly revise his bid with some probability; therefore, the leaked bid is only an imperfect signal. Whereas leadership with perfect commitment exclusively benefits the follower, imperfect commitment yields a collusive outcome, even if the likelihood that the leader may revise his bid is arbitrarily small. This collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also payoff dominant.

Decreased adhesion to endothelium leads to elevated neutrophil granulocyte count in hereditary angioedema patients

As many aspects of hereditary angioedema (HAE) due to C1-inhibitor (C1-INH) deficiency (C1-INH-HAE) cannot be explained with elevated bradykinin level alone, it has recently become clear that other factors also play an important role in the pathogenesis. One of these factors could be elevated neutrophil granulocyte (NG) counts, which are associated with increased NG activation in C1-INH-HAE patients; however, their origin has not been elucidated so far. Here, we aimed to investigate whether the excess of NGs is due to disturbed maturation, biased circulating/marginated pool equilibrium or decreased elimination. We enrolled 20 attack-free C1-INH-HAE patients together with 21 healthy controls and collected blood samples. We compared cell surface maturation markers, adhesion molecules, cytokine receptors, and Ca2+-mobilization of NG by flow cytometry, activation markers by ELISA, and NG/endothelial cell adhesion by automated pipetting system. Cell-surface markers showed normal maturation of NGs in C1-INH-HAE patients. Adhesion of NGs to endothelial cells pretreated with lipopolysaccharide or phorbol 12-myristate 13-acetate was significantly weaker in samples from C1-INH-HAE patients and bradykinin had no effect on the adhesion. NGs from C1-INH-HAE patients were in an activated state when assessed by soluble activation markers without any stimulation. Our data support that the maturation of NGs in C1-INH-HAE patients is normal, whereas adhesion properties of patient-derived NGs to the endothelium are reduced compared to those from healthy controls, indicating a bias between the circulating and marginated pools of NGs in patients. Bradykinin may not be responsible for reduced adhesion properties of NGs.

Accomplice plea bargains in the presence of costly juror effort

This is the first paper to study accomplice plea bargains when motivated jurors incur an effort cost. I find that a prosecutor who wishes to ensure punishment for the guilty, and acquittal for the innocent, induces a unique perfect Bayesian equilibrium which is fully separating, simultaneously minimizing court costs as well as jurors' cognitive efforts. In this equilibrium, a very harsh plea bargain (with negligible plea discounting) is offered, and is accepted by all guilty defendants, and rejected by all innocent ones. Though the prosecutor has the ability to induce semi-separating equilibria, he will prefer the fully separating one. We can use the Cho-Kreps intuitive criterion to show that a pooling equilibrium does not exist. My results contrast sharply with the plea bargaining literature which finds a tradeoff between sorting efficiency and the harshness of punishments meted out to the guilty and which does not support a fully separating equilibrium.

Security token offerings versus loan guarantees for risk-averse entrepreneurs under asymmetric information

We compare two competitive financing schemes, loan guarantees and security token offerings (STOs), for a risk-averse entrepreneur to start a project. We show that, if information is symmetric, STOs are better than loan guarantees. Under asymmetric information, we derive the highest equity price that makes low-type entrepreneurs’ imitation unprofitable. If the project risk is sufficiently high, loan guarantees (STOs) induce pooling (separating) equilibrium, and otherwise the opposite holds. Generally the higher the project risk, the less the share of equity retained by entrepreneurs and the less the project value. STOs might make project value increase with project risk. In the view of high-type entrepreneurs, if project risk is not very high or entrepreneurs do not dislike risk too much, loan guarantees are better than STOs, and otherwise the opposite holds true.

Sequential equlibria in signaling games

The paper considers Bayesian multi-stage signaling games. Previously formulated for extensive-form games, concepts of sequential equilibrium, separating equilibrium and pooling equilibrium are specified, and calculating methods for these equilibria are also discussed. A competitive collision model with signals indicating rivals' states is studied as a specific example. We determine conditions for existence of separating and pooling equilibria with ordered competition, in which the competition object goes to one of the rivals without a rigid encounter. Model parameters ranges of the equilibria existence are also determined.

How reverse information sharing supports pricing and sales effort decisions: Signaling game-based incentive mechanism design

The importance of information sharing in a supply chain (SC) is well known. However, how it could be used as an instrument to affect decisions on pricing and sales effort remains uncertain. Based on the investigation of apparel industry, this study formulates a signaling game and uses it to examine the impact of information sharing on operational decisions of a SC that involves a supplier who possesses private demand information and a retailer who promotes sales, where two information-sharing strategies are considered: Mandatory information-sharing (MS) and no information-sharing (NS). Under MS strategy, the supplier actively shares demand information with the retailer. The traditional Stackelberg game is studied. Backward induction is used to obtain the equilibrium solutions and ex ante expected profits. Under NS strategy, the dynamic game evolves to the signaling game. The supplier’s mimicking mechanism is investigated considering the conflicting impacts of the retail price and sales effort. Furthermore, we examine the separating equilibrium and pooling equilibrium. The intuitive criterion is used to refine the multiple equilibria. At last, the SC members’ preferences on information sharing strategies are analyzed.

The impact of capacity information on lexicographical capacity allocation

We consider a manufacturer that has a capacity constraint and allocates capacity according to the lexicographic mechanism, which involves assigning different priority levels to different retailers. The manufacturer sells products to two competing retailers: a high-priority one and a low-priority one. The manufacturer's capacity information is either public or private, which makes our paper the first to examine the impact of capacity information on the capacity allocation problem of a manufacturer. We investigate two contract types: wholesale-price and wholesale-price-and-quantity. Our results show that when capacity information is public, the manufacturer will always prefer a wholesale-price contract. Moreover, it can benefit from a lower capacity limit (capacity scarcity) due to the retailer's capacity-withholding behavior. Interestingly, the high-priority retailer may prefer that the manufacturer use a wholesale-price-and-quantity contract to limit how many items the retailer can order. When capacity information is private, the retailer can order more than the capacity of a low-type manufacturer to reveal the manufacturer's capacity level under the wholesale-price contract. At the same time, under a wholesale-price contract, the manufacturer may not want to supply all the order quantities to the retailers to avoid disclosing its capacity level. We find that pooling equilibrium can survive the Intuitive Criterion, and the manufacturer cannot benefit from capacity scarcity and withholding no longer occurs. Lastly, contrary to the case where capacity information is public, the manufacturer may prefer the wholesale-price-and-quantity contract when capacity information is private. Therefore, it is possible to achieve a win-win situation between supply chain partners with the right contract type, which is not possible when capacity information is public.

Hiding and herding in market entry

We model entry decisions of rival firms into a new market with uncertain common entry costs, potential product market competition, and experimentation. We show that a separating equilibrium, where firms enter only when they learn that the cost is low and are immediately followed by their rival, always exists. We also show the existence of pooling equilibria. In these equilibria, uninformed firms coordinate to enter at specific entry dates with positive probability and firms that learn that the cost is low before those dates strategically delay their entry to hide under the cover of the uninformed firms. We show that these pooling equilibria, which do not trigger immediate entry, are more likely to exist with an early than a late entry date, that they are unique given a fixed entry date, and that equilibrium payoffs are nonmonotonic in the entry date. We also study recurrent-entry pooling equilibria with multiple entry dates for uninformed firms.

Effect of electric parameters on weld pool dynamic behavior in GTAW

Assembling robot with human welder's intelligence is a good way to rapidly realize intelligent welding manufacturing. How to finely and accurately control dynamic weld pool, however, is a key issue for the intelligent robotic welding. To this end, an improved experimental system is built to simultaneously sense the weld pool dynamics and the electric parameters. The ROI signal of reflection laser images was obtained by a novel image processing algorithm, and the correlation between the weld penetration and the ROI signal was further established. The human welder's responses on the weld pool were detailly analyzed by the experiments with varying electric parameter. The effect of the electric parameters on the weld pool equilibrium was also studied by the established model which included the latent heat of phase change. The results indicate that the welding current, welding speed and arc length mainly changes the heat input to the weld pool, and easily loses its stability, resulting in a lack of penetration or excessive penetration. The fastest change of the weld pool occurs on the adjustment of the welding current, and the weakest change of the weld penetration happens in the adjustment of the arc length. Simulations ensure that the new equilibrium of the weld pool can be achieved within 1.8 s via adjusting the welding current, within 2.1 s via adjusting the welding speed, within 8 s via adjusting the arc length, respectively, which might be used to optimize the intelligentized controller and improve the accurate of the human welder's intelligence model.

Voter conformism and inefficient policies.

A reelection-seeking politician makes a policy decision that can reveal her private information. This information bears on whether her political orientation and capabilities will be a good fit to future circumstances. We study how she may choose inappropriate policies to hide her information, even in the absence of specific conflicts of interests, and how voters’ conformism affects her incentives to do so. Conformism is independent from policies and from voters’ perceptions. Yet we identify a ‘conformism advantage’ for the incumbent that exists only when there is also an incumbency advantage. Conformism changes the incentives of the incumbent and favors the emergence of an efficient, separating equilibrium. It may even eliminate the pooling equilibrium (that can consist in inefficient persistence). Conformism has a mixed impact on social welfare however: it improves policy choices and the information available to independent voters, but fosters inefficient reelection in the face of a stronger opponent. When the incumbent is ‘altruistic’ and values social welfare even when not in power, she partly internalizes this latter effect. The impact of conformism is then non monotonous.

Optimal reinsurance design under the VaR risk measure and asymmetric information

<abstract><p>This paper analyzes a monopoly reinsurance market in the presence of asymmetric information. Insurers use Value-at-Risk measures to quantify their risks and have different risk exposures and risk preferences, but the type of each insurer is hidden information to the reinsurer. The reinsurer maximizes the expected profit under the constraint of incentive compatibility and individual rationality. We deduce the optimal reinsurance menu under the assumption that a type of insurer thinks he is at greater risks. Some comparative analyses are given for two strategies of separating equilibrium and pooling equilibrium.</p></abstract>

Selecting a Pooling Equilibrium in Signaling Games with Strong Preferences

Selecting a Pooling Equilibrium in Signaling Games with Strong Preferences

A signaling game approach of siting conflict mediation for the construction of waste incineration facilities under information asymmetry

One major challenge for the construction of waste incineration facilities (WIF) is the local opposition from the public, which is commonly known as the not-in-my-back-yard (NIMBY) conflict. In this article, we introduce the signaling game model for the first time to understand how information asymmetry will affect the decision of the public and the incineration plant during the construction of WIFs. The results show that, under the signaling game theoretical framework, the pooling equilibrium is the source of NIMBY conflict, and the imbalance in their respective expected returns plays a key role in this process. On the other hand, driving the game from the pooling equilibrium into the separation equilibrium is an effective approach to resolve NIMBY conflicts. We demonstrate the validity of the proposed framework by numerical simulations based on the results of three before-and-after surveys of locating the WIF in Songjiang district, Shanghai. The successful landing and operation of Songjiang's WIF prove that the effective combination of (1) active pollution reduction by the incinerators, (2) timely information disclosure, and (3) public engagement successfully contributed to the avoidance of the NIMBY conflict. The findings of this study provide insight into the effect of information asymmetry and potential mitigation measures on NIMBY conflicts.

Supply chain contracting with competing regretful retailers

We study a two‐tier supply chain with demand uncertainty where retailers experience regret from ex‐post inventory error. With a monopolist retailer, we find that individual rationality can lead to supply chain coordination and creates non‐trivial differences between regret and other reference points previously shown to be mathematically equivalent. Under competition, inventory regret can lead to either a separating or a pooling equilibrium despite the heterogeneity in their disutility from regret. The potential for a separating or pooling equilibria also differs substantially from the extant literature with implications for the wholesale price contracts and how competition dynamics impact industry service levels.