Learning and Information

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This grant supports the continuation of several research projects. One project studies new issues in monopoly and oligopoly pricing that arise as firms come to have more information about the purchasing habits of consumers. Previous work by the PI studied the use of `upgrade discounts` by monopoly sellers of software, and `buybacks` of old goods by sellers who want to prop up the price of a new Improved version. The proposed work would study attempts by firms to `poach` the current customers of their competitors by offering them special discounts or other inducements to switch. The project will analyze equilibrium poaching both with short term contracts and when long term contracts are practical; one question will be the overall impact of this sort of price discrimination on consumer welfare. A second project has developed equilibrium concepts for extensive form games, based on the idea that players may persistently make mistaken forecasts of how opponents would respond to actions that have never been tried. Previous work studied the case where players have no information about their opponents' payoff functions, and so are unable to make deductions about how the opponents would respond to untried actions. The proposed work will study the way that prior information about opponents' payoffs can restrict the set of equilibrium outcomes. A key issue in this development is what sort of prior information about payoffs should be considered.