nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒03‒14
ten papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Delayed-Response Strategies in Repeated Games with Observation Lags By Drew Fudenberg; Yuhta Ishii; Scott Duke Kominers
  2. Multiproduct search By Zhou, Jidong
  3. To Err is Human: Implementation in Quantal Response Equilibria By Norovsambuu Tumennasan
  4. Entropic selection of Nash equilibrium By Alioğulları, Zeynel Harun; Barlo, Mehmet
  5. Randomization in contracts with endogenous information By Stefan Terstiege
  6. Strategic Announcements of Reference Points in Disputes and Litigations By Andrea Gallice
  7. Rock-Paper-Scissors and Cycle-Based Games By Eric Bahel
  8. Social interactions and complex networks By Opolot, Daniel
  9. Essays in auction theory. By Maasland, E.
  10. Coarse Correlated Equilibria and Sunspots By Indrajit Ray; Sonali Sen Gupta

  1. By: Drew Fudenberg; Yuhta Ishii; Scott Duke Kominers
    Date: 2012–03–02
  2. By: Zhou, Jidong
    Abstract: This paper presents a sequential search model where consumers look for several products among competitive multiproduct …rms. In a multiproduct search mar- ket, both consumer behavior and …rm behavior exhibit di¤erent features from the single-product case: a consumer often returns to previously visited …rms before running out of options; and prices can decrease with search costs and increase with the number of …rms. The framework is then extended in two directions. First, by introducing both single-product and multiproduct searchers, the model can explain the phenomenon of countercyclical pricing, i.e., prices of many retail products decline during peak-demand periods. Second, by allowing …rms to use bundling strategies, the model sheds new light on how bundling a¤ects market performance. In a search environment, bundling tends to reduce consumer search intensity, which can soften competition and reverse the usual welfare assessment of competitive bundling in a perfect information setting.
    Keywords: consumer search; oligopoly; multiproduct pricing; countercyclical pricing; bundling
    JEL: D11 L13 D83 D43
    Date: 2011–12–01
  3. By: Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: We study the classical implementation problem when players are prone to make mis- takes. To capture the idea of mistakes, Logit Quantal Response Equilibrium (LQRE) is used, and we consider a case in which players are almost rational, i.e., the sophisti- cation level of players, delta, approaches infinity. We show that quasimonotonicity, a small variation of Maskin Monotonicity, and no worst alternative conditions are necessary for restricted Limiting LQRE (LLQRE) implementation. Moreover, these conditions are sufficient for both restricted and unrestricted LLQRE implementations if there are at least three players and each player's worst alternative set is constant over all states.
    Keywords: implementation, mechanisms, bounded rationalitym, quantal response equilibria
    JEL: C72 D70 D78
    Date: 2011–09–12
  4. By: Alioğulları, Zeynel Harun; Barlo, Mehmet
    Abstract: This study argues that Nash equilibria with less variations in players' best responses are more appealing. To that regard, a notion measuring such variations, the entropic selection of Nash equilibrium, is presented: For any given Nash equilibrium, we consider the cardinality of the support of a player's best response against others' strategies that are sufficiently close to the behavior specified. These cardinalities across players are then aggregated with a real-valued function on whose form we impose no restrictions apart from the natural limitation to nondecreasingness in order to obtain equilibria with less variations. We prove that the entropic selection of Nash equilibrium is non-empty and admit desirable properties. Some well-known games, each of which display important insights about virtues / problems of various equilibrium notions, are considered; and, in all of these games our notion displays none of the criticisms associated with these examples. These examples also show that our notion does not have any containment relations with other associated and well-known refinements, perfection, properness and persistence.
    Keywords: Entropic Selection of Nash Equilibrium; Refinements of Nash Equilibrium
    JEL: C72
    Date: 2012–02–29
  5. By: Stefan Terstiege
    Abstract: I consider a situation, where the agent can acquire payoff-relevant information either before or after the contract is signed. To raise efficiency, the principal might solicit information; to retain all surplus, however, she must prevent precontractual information gathering. The following class of stochastic contracts may solve this trade-off optimally: before signing, information acquisition is not solicited, and afterwards randomly. The key insight is that randomization makes precontractual information costlier for the agent.
    Keywords: Information acquisition, Principal-agent, Mechanism design, Randomization
    JEL: D82 D83
    Date: 2011–06
  6. By: Andrea Gallice (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This note shows how the frequent occurrence of seeing exceedingly high claims in disputes and litigations can be rationalized by a model in which claimants display reference dependent preferences, expect the judge to use a generalized social welfare function, and strategically announce their reference points.
    Keywords: reference points, claims, litigations
    JEL: D03 D63 K41
    Date: 2012–03
  7. By: Eric Bahel
    Abstract: The present work characterizes the unique Nash equilibrium for games that are based on a cyclic preference relation. In the Nash equilibrium of these games, each player randomizes between three specific actions. In particular, an alternative way of deriving the unique Nash equilibrium of the Rock-Paper-Scissors game is proposed.
    Keywords: cycle, Nash equilibrium, prudent strategy
    Date: 2011
  8. By: Opolot, Daniel (UNU-MERIT, University of Maastricht,)
    Abstract: This paper studies the impact of interaction topologies on individual and aggregate behavior in environments with social interactions. We study social interaction games of an infnitely large population with local and global externalities. Local externalities are limited within agents' ego-networks while the global externality is derived from aggregate distribution in a feedback manner. We consider two forms of heterogeneity, that due to individual intrinsic tastes and that due to ego-networks. The agents know the potential number of other agents they will interact with but do not posses complete information about their neighbors' types and strategies so they base their decisions on expectations and beliefs. We characterize the existence, uniqueness and multiplicity of equilibrium distribution of strategies. By considering arbitrary interaction topologies, we show that the interaction structure greatly determines the uniqueness and multiplicity of equilibrium outcomes, as well as the equilibrium aggregate distribution of strategies as measured by the mean strategy.
    Keywords: Complex networks, Partial information, Local externality, Global externality, Adoption
    JEL: C72 D82 D84
    Date: 2012
  9. By: Maasland, E. (Tilburg University)
    Abstract: Auction theory is a branch of game theory that considers human behavior in auction markets and the ensuing market outcomes. It is also successfully used as a tool to design real-life auctions. This thesis contains five essays addressing a variety of topics within the realm of auction theory. The first essay gives an easily accessible overview of the most important insights of auction theory. The second essay, motivated by the UMTS-auctions that took place in Europe, studies auctions in which, in contrast to standard auction theory, losing bidders benefit from a high price paid by the winner(s). Under this assumption, the first-price sealed-bid auction and the second-price sealed-bid auction are no longer revenue equivalent. The third essay analyzes how well different kinds of auctions are able to raise money for charity. It turns out that standard winner-pay auctions are inept fund-raising mechanisms because of the positive externality bidders forgo if they top another’s high bid. As this problem does not occur in all-pay auctions, where bidders pay irrespective of whether they win or lose, all-pay auctions are more effective in raising money. The fourth essay studies a particular auction type, a so-called simultaneous pooled auction with multiple bids and preference lists, that has been used for example in the Netherlands and Ireland to auction available spectrum. The results in this essay show that this type of auction does not satisfy elementary desirable properties such as the existence of an efficient equilibrium. The fifth essay argues that inefficient auction outcomes due to strong negative (informational) externalities (created by post-auction interactions) can be avoided by asking bidders prior to the auction to submit any publicly observable payment they would like to make.
    Date: 2012
  10. By: Indrajit Ray; Sonali Sen Gupta
    Abstract: For duopoly models, we analyse the concept of coarse correlated equilibrium using simple symmetric devices that the players choose to commit to in equilibrium. In a linear duopoly game, we provice that Nash-centric devices, involving a sunspot structure, are simple symmetric coarse correlated equilibria. Any small unilaterial perturbation from such a structure fails to be equilibrium.
    Keywords: Duopoly, Coarse correlation, Simple devices, Sunspots
    JEL: C72
    Date: 2012–02

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