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Dynamic game under ambiguity: the sequential bargaining example, and a new "coase conjecture"

Dynamic game under ambiguity: the sequential bargaining example, and a new "coase conjecture"
Dynamic game under ambiguity: the sequential bargaining example, and a new "coase conjecture"
Conventional Bayesian games of incomplete information are limited in their ability to represent severe incompleteness of information. Using an illustrative example of (seller offer) sequential bargaining with one-sided incomplete information, we analyze a dynamic game under ambiguity. The novelty of our model is the stark assumption that the seller has complete ignorance---represented by the set of all plausible prior distributions---over the buyer's type. We propose a new equilibrium concept---Perfect Objectivist Equilibrium (POE)---in which multiple priors and full Bayesian updating characterize the belief system, and the uninformed player maximizes the infimum expected utility over non-weakly-dominated strategies. We provide a novel justification for refining POE through Markov perfection, and obtain a unique refined equilibrium. This results in a New "Coase Conjecture"---a competitive outcome arising from an apparent monopoly, which does not require the discount rate to approach zero, and is robust to reversion caused by reputation equilibria.
0966-4246
1606
University of Southampton
Besanko, David
f883b3af-f490-4125-b05e-5a047a56d8e2
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
Wu, Jianjun
b5d3072d-431a-4650-9d04-9ce11d7c3a93
Besanko, David
f883b3af-f490-4125-b05e-5a047a56d8e2
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
Wu, Jianjun
b5d3072d-431a-4650-9d04-9ce11d7c3a93

Besanko, David, Tong, Jian and Wu, Jianjun (2016) Dynamic game under ambiguity: the sequential bargaining example, and a new "coase conjecture" (Discussion Papers in Economics and Econometrics, 1606) Southampton, GB. University of Southampton 45pp.

Record type: Monograph (Discussion Paper)

Abstract

Conventional Bayesian games of incomplete information are limited in their ability to represent severe incompleteness of information. Using an illustrative example of (seller offer) sequential bargaining with one-sided incomplete information, we analyze a dynamic game under ambiguity. The novelty of our model is the stark assumption that the seller has complete ignorance---represented by the set of all plausible prior distributions---over the buyer's type. We propose a new equilibrium concept---Perfect Objectivist Equilibrium (POE)---in which multiple priors and full Bayesian updating characterize the belief system, and the uninformed player maximizes the infimum expected utility over non-weakly-dominated strategies. We provide a novel justification for refining POE through Markov perfection, and obtain a unique refined equilibrium. This results in a New "Coase Conjecture"---a competitive outcome arising from an apparent monopoly, which does not require the discount rate to approach zero, and is robust to reversion caused by reputation equilibria.

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Published date: 16 December 2016
Organisations: Economics

Identifiers

Local EPrints ID: 404617
URI: http://eprints.soton.ac.uk/id/eprint/404617
ISSN: 0966-4246
PURE UUID: 6b00fc40-26fb-4fb2-a487-59060b8a0b33
ORCID for Jian Tong: ORCID iD orcid.org/0000-0001-9367-4853

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Date deposited: 13 Jan 2017 14:05
Last modified: 04 Oct 2018 00:33

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