Economic Theory, Game Theory and Applications

This page contains working papers on pure and applied economic theory, in particular general equilibrium models and game theoretic applications to questions other than social network analysis.


Stability of Cartels in Multi-market Cournot Oligopolies

by Subhadip Chakrabarti, Robert P. Gilles and Emiliya Lazarova

April 2017

Abstract:

We look at how firms form cartels in a situation in which these firms compete in two different markets. In a well-established insight, it has been shown that when firms compete using quantities in a single market, there emerges a merger paradox in the sense that firms do not benefit from forming such a cartel. This prevents a cartel from emerging in such a setting.

We consider a competitive situation in which firms operate on two different markets. Firms can form cartels on either market. Using Core stability, we show that in these situations the merger paradox vanishes and cartels will emerge in both markets.

PDF file of this paper: Multimarket2017


Partial Cooperation in Strategic Multi-sided Decision Situations

by Subhadip Chakrabarti, Robert P. Gilles and Emiliya Lazarova

December 2016

Abstract:

We consider a normal form game in which there is a single exogenously given coalition of cooperating players that can write a binding agreement on pre-selected actions. These collective actions typically represent a certain strict subset of strategies in the players’ strategy space. The actions represented by the other dimensions of the strategy space remain under the sovereign, individual control of the players.

We consider a standard extension of the Nash equilibrium concept denoted as a partial cooperative equilibrium as well as an equilibrium concept in which the coalition of cooperators has a leadership position. Existence results are developed for these new equilibrium concepts. We identify conditions on these partial cooperative games under which the various equilibrium concepts are equivalent.

We apply this game theoretic framework to existing models of multi-market oligopolies and international pollution abatement. In a multi-market oligopoly typically a merger paradox emerges in the partial cooperative equilibrium, which vanishes if the cartel of collaborators exploits its leadership position. Our application to international pollution abatement treaties shows that cooperation by a sufficiently large group of countries results in a Pareto improvement over the standard tragedy of the commons outcome described by the Nash equilibrium.

PDF file of this paper: PCoop2016


Stability in a Network Economy: The Role of Institutions

by Robert P. Gilles, Emiliya A. Lazarova and Pieter H.M. Ruys

April 2015; Published: September 2015

Abstract:

We consider an economy in which agents are embedded in a network of potential value-generating relationships. Agents are assumed to be able to participate in three types of economic interactions: Autarkic self-provision; bilateral interaction; and multilateral collaboration.

We introduce two stability concepts and provide sufficient and necessary conditions on the network structure that guarantee existence, in cases of the absence of externalities, link-based externalities and crowding externalities. We show that institutional arrangements based on socioeconomic roles and leadership guarantee stability. In particular, the stability of more complex economic outcomes requires more strict and complex institutional rules to govern economic interactions. We investigate strict social hierarchies, tiered leadership structures and global market places.

PDF file of this paper: RelEcon2015


Local Conventions in Game Play in an Evolving Dual Social Network Framework

by Zhengzheng Pan and Robert P. Gilles

December 2010

Abstract:
People usually perform economic interactions within the social setting of a small group, while they obtain relevant information from a broader source. We capture this feature with a dynamic interaction model based on two separate social networks. Individuals play a coordination game in an interaction network, while updating their strategies using information from a separate influence network through which information is disseminated. In each time period, the interaction and influence networks co-evolve, and the individuals’ strategies are updated through a modified naive learning process. We show that both network structures and players’ strategies always reach a steady state, in which players form fully connected groups and converge to local conventions. We also analyze the influence exerted by a minority group of strongly opinionated players on these outcomes.

PDF File of this paper: PanGilles2010


Updated: 2017-04-04