Browsing by Subject "game theory"

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  • Toikka, Juuso (2004)
    In this thesis we analyze how patent policy affects the strategic behavior of firms. We develop an infinite horizon model of innovation where each period firms are randomly matched to ideas which can be developed into innovations. The model allows for simultaneous independent discovery so that the number of firms producing the same innovation is determined endogenously. The issues that we consider are (1) innovators' optimal choice of protection between patents and (trade) secrecy, and (2) the effect of patents on the firms' ability to sustain tacit collusion. In studying the choice of protection, we find that firms may find it optimal to patent even if patent protection is weaker than protection under secrecy. This follows because of the prisoner's dilemma created by the patent policy: If no one else patents, the firm gets the patent and the corresponding monopoly profits for sure whereas secrecy yields only oligopoly profits in the event that there are others that have developed the same innovation. On the hand, if the competitors patent when successful, then secrecy yields positive profits only when no competitor is successful with the same innovation. Applying for the patent gives the innovator a chance of receiving a monopoly even when others are successful. This explains how the patent policy can at the same time enhance incentives to innovate and increase the spreading of information through increased spillovers. We show that welfare maximizing patent policy may either reduce or increase spillovers. Turning to the effects of patents on the competitiveness of an industry, we argue that a patent system makes collusion among innovators more difficult. Our argument is based on two properties of the patent system. First, a patent not only protects against infringement but also against punishment by former collusion members. Second, a deviator has an equal chance with the former collusion members to get a patent on future innovations. We show that if a patent system reduces spillovers, it renders collusion impossible. Moreover, it is possible to design a patent system that simultaneously increases knowledge spillovers and eliminates collusion.
  • Miettinen, Topi (2006)
    Experiments suggest that communication increases the contribution of public goods (Ledyard, 1995) and also that people trade off the benefit of lying against the harm that they inflict on others (Gneezy, 2005). We construct a two-player model of pre-play negotiation that assumes the latter and implies the former finding. We call a strategy profile agree¬able if an agreement to play accordingly would not be broken and if both players have an incentive to reach such an agreement. In a symmetric game with strategic substitutes, as the standard Cournot duopoly, the trading off of benefit and harm when lying implies that players' incentives to respect an agreement decrease with its efficiency. Such conflicts may be absent in symmetric games with (weak) strategic complements. In fact, in the linear public good game or the moral hazard in teams, an efficient agreement is agreeable if and only if any non-equilibrium action profile is agreeable. JEL Classification C72, C78, Z13
  • Sääksvuori, Lauri (2007)
    Markets are the necessary prerequisite for human development. The freehold of a property and the freedom of exchange are the bedrocks of individual and societal well-being. However, economic research has proved that the markets do not efficiently allocate goods under asymmetric information. The affluence through free markets is dependent on others whose behavior we do not know or even fully understand. Conventionally, attempts to solve the problems of imperfect information have relied on jurisdiction and establishment of hierarchical organizations. The rise of the Internet has lately revolutionized the customs of social and economic exchange. Electronic marketplaces span the boundaries of cultural and juristically inconsistent territories, as a result, the prevailing contract monitoring turns out to be inadequate. Should the virtual exchange obey existing laws, the transaction costs may top the benefits of trade, and thus prevent otherwise mutually valuable transactions. In this study, we examine conditions for the endogenously emerging markets based on trust and reputation. The analysis is focused on the effects of different forms of feedback information in markets that suffer from moral hazard due to sequential trading. The study presents data-oriented evidence on why and when people trust each other in economic transactions. Electronic markets, particularly electronic auctions, are presented as the primary application context for the feedback system based on trust and reputations. The experimental data for the research were collected in a laboratory experiment taking advantage of newly designed and implemented computer application. The participants in experimental sessions were all students at the University of Helsinki. The contribution of the thesis is threefold. Firstly, we develop further the idea of tailored trustworthiness aggregates. Secondly, we introduce a novel extensive form game to model trust decisions with endogenous payoff formation. This game design unites the ordinary Trust Game with auctions. Thirdly, based on the unique data from the experiment, we tackle the motivation behind the individual’s trust decision. The experimental results in this study demonstrate that, in an economic exchange, the economic agent behaves simultaneously both fairly and selfishly. Furthermore, the expression of mixed motives appears to be sensitive to the variations in the flow of information. The data collected for this study clearly indicate that the augmentation of information improves the economic efficiency of endogenously organized marketplaces. Market efficiency does not require a large number of participants, complete information or full economic understanding, but incentives to trust each other.