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on Microeconomics |
| By: | Kfir Eliaz; Ariel Rubinstein |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000620&r=mic |
| By: | Laurens Cherchye; Thomas Demuynck; Bram De Rock |
| Abstract: | We present necessary and sufficient revealed preference conditions to verify whether a finite data seton nonlinear budget sets is consistent with the maximization of a quasi–concave utility function. Ourresults can be used to test for convexity of the underlying preference relation. We also show that in manysettings, our conditions are easy to use in practical applications. |
| Keywords: | quasi-concavity; convex preferences; nonlinear budget sets; revealed preference conditions |
| JEL: | C14 D11 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/133538&r=mic |
| By: | Francesca Busetto; Giulio Codognato; Sayantan Ghosal |
| Abstract: | In this paper, in an exchange economy with atoms and an atomless part, we analyze the relationship between the set of the Cournot-Nash equilibrium allocations of a strategic market game and the set of the Walras equilibrium allocations of the exchange economy with which it is associated. In an example, we show that, even when atoms are countably infinite, Cournot-Nash equilibria yield different allocations from the Walras equilibrium allocations of the underlying exchange economy. We partially replicate the exchange economy by increasing the number of atoms without affecting the atomless part while ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market game associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy. |
| Keywords: | Cournot-Nash equilibrium, strategic market games, limit theorem |
| JEL: | C72 D51 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2012-49&r=mic |
| By: | Sergiu Hart; Philip J. Reny |
| Abstract: | Consider the problem of maximizing the revenue from selling a number of goods to a single buyer. We show that, unlike the case of one good, when the buyer's values for the goods increase the seller's maximal revenue may well decrease. We also provide a characterization of revenue-maximizing mechanisms (more generally, of "seller-favorable" mechanisms) that circumvents nondifferentiability issues. Finally, through simple and transparent examples, we clarify the need for and the use of randomization when maximizing revenue in the multiple-goods versus the one-good case. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp630&r=mic |
| By: | Pierpaolo Battigalli; Simone Cerreia-Vioglio; Fabio Maccheroni; Massimo Marinacci |
| Abstract: | Recent work of us (Battigalli, Cerreia-Vioglio, Maccheroni and Marinacci, 2011) emphasizes the importance of information feedback in situations of recurrent decisions and strategic interaction, showing how it affects the uncertainty that underlies selfconfirming equilibrium. Here we discuss in some detail the properties of such a key feature of recurrent interaction. This allows us to elucidate our notion of Waldean selfconfirming equilibrium and compare it with an equilibrium concept due to Lehrer (2012).Keywords: Selfconfirming equilibrium, conjectural equilibrium, information feedback, partially specified probabilities JEL classification: C72, D80. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:459&r=mic |
| By: | Gabriele Camera (Economic Science Institute, Chapman University and University of Basel); Jaehong Kim (Purdue University and University of Basel) |
| Abstract: | We study a decentralized trading model as in Peters (1984), where heterogeneous market participants face a trade-o between price and trade probability. We present a novel proof of existence of a unique demand vector in Nash equilibrium, based on a recursive approach that exploits the monotonicity of matching functions. |
| Keywords: | Nash equilibrium, recursive methods, existence, heterogeneity, matching |
| JEL: | C70 D39 D49 E39 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-28&r=mic |
| By: | Rene van den Brink (VU University Amsterdam); Chris Dietz (VU University Amsterdam) |
| Abstract: | It is known that peer group games are a special class of games with a permission structure. However, peer group games are also a special class of (weighted) digraph games. To be specific, they are digraph games in which the digraph is the transitive closure of a rooted tree. In this paper we first argue that some known results on solutions for peer group games hold more general for digraph games. Second, we generalize both digraph games as well as games with a permission structure into a model called games with a local permission structure, where every player needs permission from its predecessors only in order to generate worth, but does not need its predecessors in order to give permission to its own successors. We introduce and axiomatize a Shapley value type solution for these games, generalizing the conjunctive permission value for games with a permission structure and the beta-measure for weighted digraphs. |
| Keywords: | Cooperative TU-game; peer group game; digraph game; game with a permission structure; local permission structure |
| JEL: | C71 |
| Date: | 2012–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120126&r=mic |
| By: | Ciarreta Antuñano, Aitor; García Enríquez, Javier; Gutiérrez Hita, Carlos |
| Abstract: | In a two-stage delegation game model with Nash bargaining between a manager and an owner, an equivalence result is found between this game and Fershtman and Judd's strategic delegation game (Fershtman and Judd, 1987). Interestingly, although both games are equivalent in terms of profits under certain conditions, managers obtain greater rewards in the bargaining game. This results in a redistribution of profits between owners and managers. |
| Keywords: | strategic delegation, bargaining, product substitutability, price |
| JEL: | C72 L13 M54 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:9151&r=mic |
| By: | L. Elisa Celis; Gregory Lewis; Markus M. Mobius; Hamid Nazerzadeh |
| Abstract: | Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction. |
| JEL: | D4 D44 D82 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18590&r=mic |
| By: | Bhirombhakdi, Kornpob; Potipiti, Tanapong |
| Abstract: | This study theoretically presents a new auction design called "take-or-give auction." The auction solves the free-rider problem in the case of two symmetric and risk-neutral bidders competing for a good with countervailing positive externalities. The auction makes efficient allocation. Moreover, the extension of the auction by addition some rules maximizes the seller's expected revenue. |
| Keywords: | Auction design; positive externalities; countervailing |
| JEL: | C79 D44 |
| Date: | 2012–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42911&r=mic |
| By: | Arthur Fishman (Bar-Ilan University) |
| Abstract: | This paper shows that prices may be sticky when buyers must search to determine the current market price and there is uncertainty about the expected duration of cost changes. Speci cally, during periods when costs, and hence prices are high, low valuation consumers optimally stop searching and consequently are uninformed about price changes. Then, when costs go down, sellers must advertise to inform those consumers about price cuts. If advertising is costly, relative to single period profit, advertising is profitable only if the cost cut is likely to persist, but not if it is likely to be short lived. Thus, if sellers are initially uncertain about the expected longevity of a cost cut, they might adopt a ‘watch and wait’ strategy, delaying price reductions until better information becomes available. Importantly, it is shown that the same logic does not apply to cost increases. Thus the model is consistent with asymmetric price rigidity (e.g., Peltzman (2000) ). |
| Keywords: | search, advertising, asymmetric price adjustment, sticky prices, absentee consumers |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2012-01&r=mic |
| By: | Paul Castãneda Dower (New Economic School); Andrei Bremzen (New Economic School) |
| Abstract: | Economists use relational or reputational concerns to explain the implicit enforcement of contracts. Both mechanisms require special assumptions concerning contracting parties' identities; in particular, these assumptions would not hold in one-period settings in which outcomes cannot affect reputation. In such a setting, this paper shows how a signaling mechanism can support the implicit enforcement of contracts that Pareto improve upon the null contract. Furthermore, this mechanism is independent of the discount factor and can outperform the relational contract in a range of cases. We find empirical support for our theory using contracts from nancing alliances in the biotech industry. |
| Keywords: | Implicit contracts, biotech alliances, identity |
| JEL: | D29 L24 O31 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0187&r=mic |
| By: | Gilles Saint-Paul (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, TSE - Toulouse School of Economics - Toulouse School of Economics, New York University Abu Dhabi - New York University Abu Dhabi) |
| Abstract: | When policymakers and private agents use models, the economists who design the model have an incentive to alter it in order infuence outcomes in a fashion consistent with their own preferences. I discuss some consequences of the existence of such ideological bias. In particular, I analyze the role of measurement infrastructures such as national statisticall institutes, the extent to which intellectual competition between di¤erent schools of thought may lead to polarization of views over some parameters and at the same time to consensus over other parameters, and .nally how the attempt to preserve in.uence can lead to degenerative research programs. |
| Keywords: | Ideology ; Macroeconomic Modelling ; Self-con.rming equilibria ; Polarization ; Autocoherent Models ; Intellectual Competition ; Degenerative Research Programs ; Identification |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00759057&r=mic |
| By: | Zhu Wang; Julian Wright |
| Abstract: | This paper investigates a puzzle and possible policy concern: Why do platforms such as eBay and Visa that enable the trade of goods of different unobserved costs and values rely predominantly on linear ad-valorem fees, that is, fees that increase in proportion to the sale price of the trades that they enable? Under a broad class of demand functions, we show that a linear ad-valorem fee schedule enables a platform to maximize its profit as if it could actually observe the costs and values of the goods traded and set a different optimal fee for each good. Surprisingly, we find for this class of demands, allowing the platform to set ad-valorem fees (i.e. price discriminate) increases social welfare, both when the platform is regulated to recover costs and when the platform is unregulated. |
| Keywords: | Financial markets ; Payment systems |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:12-08&r=mic |
| By: | Iñarra García, María Elena; Larrea Jaurrieta, María Concepción; Saracho de la Torre, Ana Isabel |
| Abstract: | We analyze the von Neumann and Morgenstern stable sets for the mixed extension of 2 2 games when only single profitable deviations are allowed. We show that the games without a strict Nash equilibrium have a unique vN&M stable set and otherwise they have infinite sets. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:9148&r=mic |
| By: | Huseynov, T.; Talman, A.J.J. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: A new solution is presented for transferable utility games with graph communication where the cooperation possibilities are represented by a graph. Players are only able to cooperate and obtain some worth in a coalition if they form a connected set in the given graph. To determine the payoff for each player, a single-valued solution, the communication tree value, is proposed for this class of games. The idea is that to form the grand coalition of all players a player can join a set of players only if this player is connected in the graph to at least one of the players in the set. To a set of players, starting with an arbitrary single player, from each maximally connected subset of remaining players one player joins who is connected to one or more of the players in that set. In this way a (rooted) tree on the set of players is obtained, called a communication tree. For a given game each communication tree of the graph induces a marginal contribution vector, in which any player receives a payoff equal to what he contributes in worth when he joins his subordinates in the tree. The average payoff over all communication trees of the graph determines the value. In case the underlying graph is cycle-complete the value coincides with the average tree solution. When there is complete communication between all players, which is the special case of cycle-completeness, players join one by one, yielding the Shapley value. A weak form of convexity is introduced, under which the value is guaranteed to be an element of the core. For games with complete graph communication the condition coincides with convexity and in case the underlying graph is cycle-free it is weaker than super-additivity. |
| Keywords: | Cooperative game;communication structure;Myerson value;core stability;convexity;rooted tree. |
| JEL: | C71 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012095&r=mic |
| By: | Platz, Trine Tornøe (Department of Business and Economics); Hamers, Herbert (Department of Econometrics & OR and CentER); Quant, Marieke (Department of Econometrics & OR and CentER) |
| Abstract: | The core cover of a TU-game is a superset of the core and equals the convex hull of its larginal vectors. A larginal vector corresponds to an ordering of the players and describes the efficient payoff vector giving the first players in the ordering their utopia demand as long as it is still possible to assign the remaining players at least their minimum right. A game is called compromise stable if the core is equal to the core cover, i.e. the core is the convex hull of the larginal vectors. This paper analyzes the structure of orderings corresponding to larginal vectors of the core cover and conditions ensuring equality between core cover and core. We introduce compromise complete (or c-complete) sets that satisfy the condition that if every larginal vector corresponding to an ordering of the set is a core element, then the game is compromise stable. We use combinatorial arguments to give a complete characterization of these sets. More specifically, we find c-complete sets of minimum cardinality and a closed formula for the minimum number of orderings in c-complete sets. |
| Keywords: | Core; core cover; larginal vectors |
| JEL: | C71 |
| Date: | 2012–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2012_025&r=mic |
| By: | Kleppe, J.; Borm, P.E.M.; Hendrickx, R.L.P. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Proper equilbrium plays an importent role in the literature on non-cooperative games. The underlying thought experiment is, however, unsatisfying, as it gives no justification for its fundamental idea that severe mistakes are made with a significantly smaller probability than innocuous ones. In this paper we provide a justification for this idea based on strategic choices of the players. In this way we provide a strategic foundation for proper equilibrium. |
| Keywords: | proper equilibrium;fall back proper equilibrium. |
| JEL: | C72 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012093&r=mic |
| By: | Marcel Nutz; Jianfeng Zhang |
| Abstract: | We study the existence of optimal actions in a zero-sum game $\inf_\tau \sup_P E^P[X_\tau]$ between a stopper and a controller choosing a probability measure. In particular, we consider the optimal stopping problem $\inf_\tau \mathcal{E}(X_\tau)$ for a class of sublinear expectations $\mathcal{E}(\cdot)$ including the $G$-expectation. We show that the game has a value. Moreover, exploiting the theory of sublinear expectations, we define a nonlinear Snell envelope $Y$ and prove that the first hitting time $\inf{t:\, Y_t=X_t}$ is an optimal stopping time. The existence of a saddle point is shown under a compactness condition. Finally, the results are applied to the subhedging of American options under volatility uncertainty. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1212.2140&r=mic |
| By: | Charles J. Thomas (Economic Science Institute & Argyros School of Business and Economics) |
| Abstract: | I develop an infinite-horizon alternating-offers model of multilateral negotiations, a common means of exchange whose strategic complexity has hindered previous modeling efforts. Multilateral negotiations occur in numerous settings in which one party wishes to trade with one of several others, but for concreteness I consider a buyer facing multiple sellers offering potentially different amounts of surplus to be split. The basic model provides surprising insights about introducing competition to an initially bilateral setting, while straightforward extensions provide empirical predictions about how the buyer’s choice of conducting procurement via multilateral negotiations or auctions is affected by factors including the number of sellers, uncertainty when making the choice, and costs of participating in the procurement process. More generally the model provides a tractable foundation for analyzing strategic problems in settings featuring multilateral negotiations. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-31&r=mic |
| By: | A. Mitchell Polinsky; Steven Shavell |
| Abstract: | A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages. |
| JEL: | K13 K41 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18594&r=mic |
| By: | James McAndrews; Zhu Wang |
| Abstract: | This paper provides a new theory for two-sided payment card markets. Adopting payment cards requires consumers and merchants to pay a fixed cost, but yields a lower marginal cost of making payments. Analyzing adoption and usage externalities among heterogeneous consumers and merchants, our theory derives the equilibrium card adoption and usage pattern consistent with empirical evidence. Our analysis also helps explain the card pricing puzzles, particularly the high and rising merchant (interchange) fees. Based on the theoretical framework, we discuss socially desirable payment card fees as well as the interchange fee cap regulation. |
| Keywords: | Financial markets ; Payment systems |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:12-06&r=mic |
| By: | Flavio Menezes (School of Economics, The University of Queensland); Magnus Söderberg; Miguel Santolino |
| Abstract: | This paper investigates the review processes when customers have complained about conditions proposed by a monopolistic firm. This is accomplished by first developing a theoretical model that considers two possible types of regulators: one who only cares about her career and one who cares about both her career and consumer surplus. When the regulator is only concerned with her career, it is predicted that, under certain conditions, a larger number of decisions will be overturned by the appellate court in more complex cases than in less complex cases. The model also predicts that when the regulator cares about both her career and consumer surplus, less complex cases will be associated with more appeals by regulated firms, but fewer decisions will be overturned and prices will be lower. As the complexity of cases increases, the model predicts a switch to more appeals by consumers, more decisions being overturned and higher prices on average. Our empirical analysis based on 409 customer complaints from the Swedish electricity market largely confirms these theory predictions. As an empirical innovation we suggest that the level of bureaucratic effort is measured as the positive disturbance term in a stochastic frontier model. |
| Date: | 2012–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:472&r=mic |
| By: | Berliant, Marcus; Tabuchi, Takatoshi |
| Abstract: | We consider information aggregation in national and local elections when voters are mobile and might sort themselves into local districts. Using a standard model of private information for voters in elections in combination with a New Economic Geography model, agglomeration occurs for economic reasons whereas voter stratification occurs due to political preferences. We compare a national election, where full information equivalence is attained, with local elections in a three-district model. We show that full information equivalence holds at a stable equilibrium in only one of the three districts when transportation cost is low. The important comparative static is that full information equivalence is a casualty of free trade. When trade is more costly, people tend to agglomerate for economic reasons, resulting in full information equivalence in the political sector. Under free trade, people sort themselves into districts, most of which are polarized, resulting in no full information equivalence in these districts. We examine the implications of the model using data on corruption in the legislature of the state of Alabama and in the Japanese Diet. |
| Keywords: | information aggregation in elections; informative voting; new economic geography; local politics |
| JEL: | D82 D72 R12 |
| Date: | 2012–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43086&r=mic |