Theoretical Economics 13 (2018), 307–340
Collusion constrained equilibrium
Rohan Dutta, David K. Levine, Salvatore Modica
We study collusion within groups in non-cooperative games. The primitives are the preferences of the players, their assignment to non-overlapping groups and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibria that meet this requirement need not exist. We instead introduce the weaker notion of collusion constrained equilibrium. This allows groups to put positive probability on alternatives that are suboptimal for the group in certain razor's edge cases where the set of incentive compatible plans changes discontinuously. These collusion constrained equilibria exist and are a subset of the correlated equilibria of the underlying game. We examine four perturbations of the underlying game. In each case we show that equilibria in which groups choose the best alternative exist and that limits of these equilibria lead to collusion constrained equilibria. We also show that for a sufficiently broad class of perturbations every collusion constrained equilibrium arises as such a limit. We give an application to a voter participation game showing how collusion constraints may be socially costly.
Keywords: Collusion, group
JEL classification: C72, D70
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