A War of Attrition with Experimenting Players

24 Pages Posted: 24 Oct 2017

See all articles by Chia-Hui Chen

Chia-Hui Chen

Institute of Economic Research, Kyoto University

Junichiro Ishida

Osaka University - Institute of Social and Economic Research

Date Written: October 20, 2017

Abstract

A standard incomplete-information war of attrition is extended to incorporate experimentation and private learning. We obtain a characterization of all equilibria in this extended setup and use this setup to illuminate a tradeoff between short-run and long-run gains of experimentation. The extension yields qualitative impacts on the strategic nature of the problem. The option value of experimentation serves as a credible commitment device to stay in the game, which is instrumental in inducing the other player to concede earlier. As a direct consequence, there may be an equilibrium in which the strictly less efficient player can get the better end of the deal, implying that slow learning can be a blessing in this type of competition. Our analysis gives insight into why an apparently inferior technology often survives in many standards competitions and more broadly offers implications for technology adoption and industry dynamics. We also show that there is a non-degenerate set of parameters that can support the Pareto-efficient allocation as an equilibrium outcome whereas it is never possible in the standard setup.

Keywords: war of attrition, bandit problem, experimentation, standards competitions, private learning

JEL Classification: D82, D83

Suggested Citation

Chen, Chia-Hui and Ishida, Junichiro, A War of Attrition with Experimenting Players (October 20, 2017). ISER Discussion Paper No. 1014, Available at SSRN: https://ssrn.com/abstract=3057869 or http://dx.doi.org/10.2139/ssrn.3057869

Chia-Hui Chen

Institute of Economic Research, Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku
Kyoto, 606-8501
Japan

Junichiro Ishida (Contact Author)

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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