DP11447 Protocol Invariance and the Timing of Decisions in Dynamic Games

Author(s): Ulrich Doraszelski, Juan Escobar
Publication Date: August 2016
Keyword(s): Dynamic games, Markov perfect equilibrium, Protocol of moves
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11447

The timing of decisions is an essential ingredient in modelling any strategic situation. Yet, determining the most realistic and appropriate protocol of moves can be challenging. We introduce a class of dynamic stochastic games that we call separable dynamic games with noisy transitions and establish that they are protocol invariant provided that periods are sufficiently short. Protocol invariance means that the set of Markov perfect equilibria is nearly the same irrespective of the order in which players are assumed to move within a period. We also show that the equilibria have a remarkably simple structure.