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Advanced Microeconomic Theory

Fall 2013

Koc University, Alp Atakan

Summary and Objectives. This class covers topics that fall under the heading ofdynamic

game theory. Although we will also study dynamic games with complete information, there

will be disproportionate weight placed on dynamic games with asymmetric information and

problems in which learning is paramount.

More specifically, we will study topics in bargaining, dynamic bargaining and search, re-

peated games, games with reputation concerns, experimentation and information aggregation.

Readings and lectures are organized around a twofold goal:

- an in-depth study of the papers that are considered central to each topic.

- a description of the frontier of each topic with a focus on open questions.

We will also cover some earlier topics which are well understood because (i) they belongto the standard intellectual tool kit of an economic theorist, (ii) more importantly, they pave

the way for the later topics.

Grading and Lecture Style. Lectures will cover the basic foundations of the models

followed by the discussion of many theoretical and applied papers written in that area.

Depending on enrollment, each student will be required to present two or three papers during

the semester, and each presentation will be an hour long. I will be presenting about one half

of the total number of lectures. There will be no problem sets or exams, and grades will be

based on the presentations, contribution during the class discussions, and a short paper due

during the finals week of the semester.

Topics, readings, and papers

1.1. Bargaining. Please read, Bargaining and Markets, Osborne and Rubinstein (1990),

Chapters 2 - 7 and Game Theory: Analysis of Conflict,Myerson(1991), Chapter 8.

i. Axiomatic bargaining and Nashs Solution:

(1) The Bargaining Problem,Nash(1950)*

(2) Two-person cooperative games,Nash(1953)

ii. Alternating-offers bargaining

(1) Perfect equilibrium in a bargaining model,Rubinstein(1982)*

(2) Involuntary unemployment as a perfect equilibrium in a bargaining model,

Shaked and Sutton(1984)

(3) Compromise is Key to Repeated Bargaining,Dutta and Takahashi(2013) *

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iii. Bargaining under incomplete information and reputations

(1) Bargaining and ReputationAbreu and Gul(2000)*

(2) On the role of outside options in bargaining with obstinate parties,Compte and Jehiel

(2002)iv. Bargaining in markets with random or directed search

(1) Equilibrium in a market with sequential bargaining,Rubinstein and Wolinsky

(1985)*

(2) Bargaining and Reputation in Search Markets,Atakan and Ekmekci(forthcoming)*

(3) Pricing and Matching with Frictions,Burdett et al. (2001)*

(4) Search-Theoretic Models of the Labor Market: A Survey,Rogerson et al.(2005)

1.2. Repeated games and reputations. Please read Repeated games and reputations:

long-run relationships,Mailath and Samuelson(2006), Part IV, Chapters 15-18.

i. The chair-store paradox and reputation in finitely repeated games

ii. Reputation in infinitely repeated games under perfect monitoring

(1) Reputation and equilibrium selection in games with a patient player,Fudenberg and Le

(1989)

(2) Public trust and government betrayal,Phelan(2006)

(3) Reputation Acquisition in Debt Markets,Diamond(1989)

iii. Imperfect monitoring, the product-choice game, and reputation

(1) Maintaining a reputation when strategies are imperfectly observed,Fudenberg and Lev

(1992)

(2) Imperfect monitoring and impermanent reputations,Gossner et al. (2011)

iv. Reputation in the long run

(1) Imperfect monitoring and impermanent reputations,Cripps et al. (2004)

(2) Reputation in Long-run Relationships,Atakan and Ekmekci(2012)

(3) A two-sided reputation result with long-run playersAtakan and Ekmekci(2013)

(4) Bargaining, Reputation, and Equilibrium Selection in Repeated Games with Con-

tracts,Abreu and Pearce(2007)

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1.3. Value of information, experimentation, and information aggregation.

i. Basics

(1) Equivalent Comparisons of Experiments,Blackwell(1953)

ii. Information aggregation in auctions

(1) The losers curse and information aggregation in common value auctions,Pesendorfer an

(1997)

(2) Efficiency and information aggregation in auctions, Pesendorfer and Swinkels

(2000)

(3) Auction, Actions, and the Failure of Information Aggregation,Atakan and Ekmekci

(Forthcoming)

iii. Information aggregation in elections

(1) Voting Behavior and Information Aggregation in Elections With Private Infor-mation,Feddersen and Pesendorfer(1997)

(2) The Swing Voters Curse,Feddersen and Pesendorfer(1996)

References

Abreu, D. and F. Gul (2000): Bargaining and Reputation, Econometrica, 68, 85117.

Abreu, D. and D. Pearce(2007): Bargaining, Reputation, and Equilibrium Selection in Repeated Games

with Contracts, Econometrica, 75, 653710.

Atakan, A. and M. Ekmekci (2012): Reputation in Long-run Relationships,Review of Economic Studies,

79, 451480.

(2013): A two-sided reputation result with long-run players, Journal of Economic Theory, 148,

376392.

(Forthcoming): Auction, Actions, and the Failure of Information Aggregation, American Economic

Review.

(forthcoming): Bargaining and Reputation in Search Markets, Review of Economic Studies.

Blackwell, D.(1953): Equivalent Comparisons of Experiments, The Annals of Mathematical Statistics,

24, pp. 265272.

Burdett, K., S. Shi, and R. Wright (2001): Pricing and Matching with Frictions,Journal of Political

Economy, 109, 10601085.

Compte, O. and P. Jehiel (2002): On the role of outside options in bargaining with obstinate parties,

Econometrica, 70, 14771517.

Cripps, M., G. Mailath, and L. Samuelson (2004): Imperfect monitoring and impermanent reputa-

tions, Econometrica, 72, 407432.

Diamond, D. (1989): Reputation Acquisition in Debt Markets, The Journal of Political Economy, 97,

828862.

Dutta, P. K. and S. Takahashi (2013): Compromise is Key to Repeated Bargaining, .

Feddersen, T. and W. Pesendorfer (1997): Voting Behavior and Information Aggregation in Elections

With Private Information, Econometrica, 65, 10291058.

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