Essays in Applied Game Theory

Abstract

This Thesis is a collection of three essays on applications of game theory to contexts such as licence and patents and, in general, to cultural products and cultural industries.

The first paper develops a model which tries to analyse incentives of corporate donations to open source. Opens source software (OSS) is developed by firms and individuals, and distributed for free. However, these contributions can hardly be explained by the usual considerations, such as the well known warm glow.

In the paper we develop the idea that companies, instead, may use open source software (OSS) as a strategic variable, in a market in which hardware and software are complements. Hardware firms may be willing to develop OSS in order to decrease the market power of the software producer, in order to charge a greater mark--up.

Moreover, due to the characteristics of information and public good of OSS, it is very interesting to study the welfare effects of strategic interactions and public intervention to support OSS.

Results are several, positive (private) contributions are possible; although, they are not socially optimal. OSS availability has a positive impact on hardware firms' profits and prices, and on social welfare. Software monopolist's profits and price decrease when OSS is available. The effect on the price of the hardware-closed source bundle depends on model parameters: when demand own-price elasticity is relatively high, it increases with respect to the case in which OSS is not developed.

In the second paper, we develop a similar topic by further consider the field of intellectual property. In our vision we think that incomplete information may affect strategic interactions in a system in which patent assessment is not perfectly reliable.

In this model we try to define patent complexity as the degree of difficulty in properly understanding the boundaries (breath) of a patent. Patent complexity determines the degree of spillovers of information released to the potential entrant. We build a Bayesian game and try to understand if firms can exploit asymmetric information and patent complexity to avoid entry and for other competitive behaviours.

Results are several. Entry deterrence is possible for certain values of parameters. There is an incentive in increasing the complexity, although, there exists an upper-bound which is inefficient, for the incumbent, to cross; this upper--bound is determined by the credibility of the strategic threat.

In the last paper we continue using a Bayesian approach to derive a game theoretic model. We investigate the selection of artists by a gallery with adverse selection and moral hazard and derive an optimal mechanism for cultural industries.

The model accounts for the possibility that artists' output is not homogeneous. Moreover, we think that being recognised as innovative by a system of gate-keepers could affect the price as well. These two characteristics create a market power, which can be exploited by galleries.

We study the relationship between innovation and productivity/creativity in the artist job market, as well as for the effect of gate--keepers in the art market. In a Bayesian-Nash equilibrium, the choice of the Gallery will depend on the artists' characteristics, as well on the gallery's market power. Furthermore, we find that a segmented market with gate-keeping, where some artists have no opportunity to bid to join a top gallery, has a negative impact on innovation.