Changing preferences: an experiment and estimation of market-incentive effects on altruism

This paper studies how altruistic preferences are changed by markets and incentives. We conduct a laboratory experiment in a within-subject design. Subjects are asked to choose health care qualities for hypothetical patients in monopoly, duopoly, and quadropoly. Prices, costs, and patient benefits are experimental incentive parameters. In monopoly, subjects choose quality to tradeoff between profits and altruistic patient benefits. In duopoly and quadropoly, we model subjects playing a simultaneous-move game. Each subject is uncertain about an opponent's altruism, and competes for patients by choosing qualities. Bayes-Nash equilibria describe subjects' quality decisions as functions of altruism. Using a nonparametric method, we estimate the population altruism distributions from Bayes-Nash equilibrium qualities in different markets and incentive configurations. Markets tend to reduce altruism, although duopoly and quadropoly equilibrium qualities are much higher than those in monopoly. Although markets crowd out altruism, the disciplinary powers of market competition are stronger. Counterfactuals confirm markets change preferences.Accepted manuscrip

Endogenous timing in a mixed duopoly

This paper addresses the issue of endogenizing the equilibrium solution when a private - domestic or foreign - firm competes in the quantities with a public, welfare maximizing firm. Theoretical literature on mixed oligopolies, in fact, provides results and policy implications that crucially rely on the notion of equilibrium assumed, either sequential or simultaneous. In the framework of the endogenous timing model of Hamilton and Slutsky (1990), we show that simultaneous play never emerges as the equilibrium of mixed duopoly games. We provide sufficient conditions for the emergence of public and/or private leadership equilibria. These results are in sharp contrast with those obtained in private duopoly games in which simultaneous play is the general result. We show that the key difference lies in the fact that the objective of a welfare maximizing firm is generally increasing in the rival's output, while the contrary holds for private firms. We develop a comprehensive analysis of a mixed duopoly considering both the cases of domestic and international competition, and the possible strategic complementarity and substitutability. From a methodological viewpoint we make large use of the basic results of the theory of supermodular games in order to avoid extraneous assumptions such as concavity, existence and uniqueness of the equilibria

Backwards-induction outcome in a quantum game

In economics duopoly is a market dominated by two firms large enough to influence the market price. Stackelberg presented a dynamic form of duopoly that is also called `leader-follower' model. We give a quantum perspective on Stackelberg duopoly that gives a backwards-induction outcome same as the Nash equilibrium in static form of duopoly also known as Cournot's duopoly. We find two qubit quantum pure states required for this purpose.Comment: Revised in the light of referee's comments. Latex, 16 pages, 2 figures, To appear in Phy. Rev.

Privatization in oligopoly : the impact of the shadow cost of public funds

The aim of this paper is to investigate the welfare effect of privatization in oligopoly when the government takes into account the distortionary effect of raising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the firms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent efficiency gains, privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred

Rage Against the Machines: How Subjects Learn to Play Against Computers

We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment

Once Beaten, Never Again: Imitation in Two-Player Potential Games

We show that in symmetric two-player exact potential games, the simple decision rule "imitate-if-better" cannot be beaten by any strategy in a repeated game by more than the maximal payoff difference of the one-period game. Our results apply to many interesting games including examples like 2x2 games, Cournot duopoly, price competition, public goods games, common pool resource games, and minimum effort coordination games.Imitate-the-best, learning, exact potential games, symmetric games, relative payoffs, zero-sum games