Competing mechanisms in games played through agents: Theory and experiment

This paper proposes Competing Mechanism Games Played Through Agents (CMGPTA), an extension of GPTA (Prat and Rustichini, 2003), where competing principals can offer arbitrary mechanisms that specify a transfer schedule for each agent conditional on all agents’ messages. We identify the set of equilibrium allocations using deviator-reporting mechanisms (DRMs) on the path and single transfer schedules off the path. We design a lab experiment implementing DRMs. A majority of the time, agents tell the truth on the identity of a deviating principal, despite potential gains from (tacit) collusion on false reports. As the game progresses, coordination on both truthful and false reports improves. The average predicted probability of collusion on false reports across groups increased from about 9% at the beginning of the experiment to just under 20% by the end. However, group heterogeneity is significant.