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Preopening and Equilibrium Selection

Author

Listed:
  • Stefano Lovo

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Riccardo Calcagno

    (VU - Vrije Universiteit Amsterdam [Amsterdam])

Abstract

We introduce a form of pre-play communication that we call "preopening" for standard normal form, two player games. During the preopening players announce their strategy using a communication system which is subject to stochastic failures. Players payoffs depend on the action profile posted on the system at the end of the preopening. We show that the preopening allows players to coordinate on one pure strategy equilibrium of the game when the system failures hit the two players idiosyncratically. In such a case the preopening always leads the players to select the Pareto superior Nash equilibrium when this exhibits the maximum attainable payoff for each player. Moreover, in the class of two action games of conflicting interests the preopening leads to select the equilibrium preferred by the player with (i) the strongest preference over different equilibria, (ii) the lower cost of miscoordination or (iii) the less efficient posting system.

Suggested Citation

  • Stefano Lovo & Riccardo Calcagno, 2010. "Preopening and Equilibrium Selection," Working Papers hal-00540793, HAL.
    • Handle: RePEc:hal:wpaper:hal-00540793
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    References listed on IDEAS

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    Cited by:

    1. , & , & , & ,, 2014. "Asynchronicity and coordination in common and opposing interest games," Theoretical Economics, Econometric Society, vol. 9(2), May.
    2. Roy, Nilanjan, 2017. "Action revision, information and collusion in an experimental duopoly market," MPRA Paper 77033, University Library of Munich, Germany.
    3. Ruben Juarez & Rajnish Kumar, 2013. "Implementing efficient graphs in connection networks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 359-403, October.
    4. Selma Boussetta, 2017. "The role of pre-opening mechanisms in fragmented markets," Post-Print hal-02156145, HAL.
    5. Bruno Biais & Christophe Bisière & Sébastien Pouget, 2014. "Equilibrium Discovery and Preopening Mechanisms in an Experimental Market," Management Science, INFORMS, vol. 60(3), pages 753-769, March.
    6. Dutta, Prajit K., 2012. "Coordination need not be a problem," Games and Economic Behavior, Elsevier, vol. 76(2), pages 519-534.
    7. Yevgeny Tsodikovich, 2021. "The worst-case payoff in games with stochastic revision opportunities," Annals of Operations Research, Springer, vol. 300(1), pages 205-224, May.
    8. Roy, Nilanjan, 2023. "Fostering collusion through action revision in duopolies," Journal of Economic Theory, Elsevier, vol. 208(C).
    9. Yuichiro Kamada & Michihiro Kandori, 2020. "Revision Games," Econometrica, Econometric Society, vol. 88(4), pages 1599-1630, July.

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    More about this item

    Keywords

    preopening; equilibrium selection; bargaining; cheap talk;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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