Wednesday, February 2, 2011
The key variation in the experiment turned on the timing of the game or, equivalently, the disclosure policy of Pharma. When a game is sequential, there is a chance to influence the rival's move with your move. In a simultaneous game, this is not possible. While it is normally to your disadvantage to reveal private information, when that information is your action choice, disclosure can be advantageous owing to this strategic influence.
In these situations, disclosure can never be harmful---simply choose the same action as in the simultaneous game and the payoffs will be the same. Moreover, disclosure can be positively helpful. In the lobbying game, Pharma can increase its bid over the simultaneous equilibrium levels and get its rival to lower its bid. The improvements in the chance of winning more than compensate pharma for the increased expense.
More broadly, timing and disclosure decisions are often under the control of a firm. Game theory provides tools to study how these tools can be incorporated into a firm's strategy to secure additional advantage.
View the results of the experiment here.