Dynamic games of reputation and competition
This dissertation addresses several economic questions related to dynamic competition. In the first chapter, I consider repeated games with both moral hazard and adverse selection in which a continuum of agents compete. It is shown that equilibria with reputation--in which high effort is always exerted--may be sustained under imperfect information. The existence of such equilibria contrasts with the results obtained without competition. With competition, the question is not how good a firm's product is thought to be, but whether it is thought to be better than its rivals' product. Moreover, competition endogenously generates the appropriate beliefs about those rivals, such that incentives are conveyed and reputations are valued. The second chapter presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity over time. The state of competition--measuring the difference in the number of successful innovations introduced by the firms--evolves stochastically according to their respective effort level. The structure of Markov Perfect Equilibria is identified. It is not the case, in general, that competition is fiercest when firms are closest. Rather, firms invest heavily in two distinct circumstances: while sufficiently ahead, to finish off their rival and secure a durable leadership; while behind, to try to regain the lead and prevent the situation from worsening to the point where it is their rivals which try to finish them off. Particular attention is devoted to the particular cases in which high effort always results in innovative success, and in which low effort always results in failure. The third chapter analyzes the continuous-time version of the model of the second chapter. In the fourth chapter, co-authored by Nicolas Sahuguet, a dynamic all-pay auction is studied, in which two players can spread their bids over two periods. The first period bid is used to influence payoffs and beliefs of the opponent. The analysis reveals who is bluffing, creating an impression of strength that lures the opponent into unwarranted pessimism; and who is sandbagging, creating an impression of weakness that lures the opponent into unwarranted optimism.
|Year of publication:||
|Authors:||Horner, Johannes Adolphe|
|Type of publication:||Other|
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