An Empirical Investigation into the Matching Problems among Game Theoretically Coordinating Parties in a Virtual Organization

Virtual organization emerged as a highly flexible structure in response to the rapidly changing environment of 20th century. This organization consists of independently working parties that combine their best possible resources to exploit the emerging market opportunities. There are no formal control and coordination mechanisms employed by the classical hierarchical structures. Parties, therefore, manage their dependencies on each other through mutual understanding and trust. Mathematician John Nash, having significant contributions in Game Theory suggests that in every non-cooperative game there is at least one equilibrium point. At this point, according to him, every strategy of the player represents a response to the others’ strategies. Such equilibria could exist in a virtual organization, at which parties coordinate which each other to optimize their performance. Coordination/Matching problems are likely to arise among game theoretically coordinating parties in a virtual organization, mainly due to lack of binding agreements. By identifying and resolving these matching problems, virtual organizations could achieve efficiency and better coordination among parties.Virtual organization, Game theory, Matching problems, Coordination

Two-player preplay negotiation games with conditional offers

We consider an extension of strategic normal form games with a phase before the actual play of the game, where players can make binding offers for transfer of utilities to other players after the play of the game, contingent on the recipient playing the strategy indicated in the offer. Such offers transform the payoff matrix of the original game but preserve its non-cooperative nature. The type of offers we focus on here are conditional on a suggested 'matching offer' of the same kind made in return by the receiver. Players can exchange a series of such offers, thus engaging in a bargaining process before a strategic normal form game is played. In this paper we study and analyze solution concepts for two-player normal form games with such preplay negotiation phase, under several assumptions for the bargaining power of the players, such as the possibility of withdrawing previously made offers and opting out from the negotiation process, as well as the value of time for the players in such negotiations. We obtain results describing the possible solutions of such bargaining games and analyze the degrees of efficiency and fairness that can be achieved in such negotiation process

Competitive Auctions: Theory and Application

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competing auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

Competitive Auctions: Theory and Application

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competitive auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

Stable Matching Games

Gale and Shapley introduced a matching problem between two sets of agents where each agent on one side has an exogenous preference ordering over the agents on the other side. They defined a matching as stable if no unmatched pair can both improve their utility by forming a new pair. They proved, algorithmically, the existence of a stable matching. Shapley and Shubik, Demange and Gale, and many others extended the model by allowing monetary transfers. We offer a further extension by assuming that matched couples obtain their payoff endogenously as the outcome of a strategic game they have to play in a usual non-cooperative sense (without commitment) or in a semi-cooperative way (with commitment, as the outcome of a bilateral binding contract in which each player is responsible for his/her part of the contract). Depending on whether the players can commit or not, we define in each case a solution concept that combines Gale-Shapley pairwise stability with a (generalized) Nash equilibrium stability. In each case, we give the necessary and sufficient conditions for the set of stable allocations to be non-empty, we study its geometry (full/semi-lattice), and provide an algorithm that converges to its maximal element. Finally, we prove that our second model (with commitment) encompasses and refines most of the literature (matching with monetary transfers as well as matching with contracts)

Market formation and market selection

Abstract: The organization of markets is an important field of inquiry in modern economic theory. This monograph analyzes models which consider the formation and selection of markets. In these models, markets are organized by middlemen and used by traders. In Part I of the monograph, coalitions of middlemen are determined endogenously. Arrow/Debreu type consumers choose roles (middleman or trader) and markets in a non-cooperative market formation game. Distributions of consumers over roles and markets that are individually as well as coalitionally stable are investigated. In Part II, the competition in commission fees between exogenously given middlemen, who intermediate on a bilateral matching market is analyzed.