nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒04‒20
twenty papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Improving Nash by Coarse Correlation By Herve Moulin; Indrajit Ray; Sonali Sen Gupta
  2. Optimal Mechanism Design without Money By Alex Gershkov; Benny Moldovanu; Xianwen Shi
  3. Groupthink: Collective Delusions in Organizations and Markets By Benabou, Roland
  4. Ambiguity revealed By Ralph Bayer; Subir Bose; Matthew Polisson; Ludovic Renou
  5. Nash Implementation in Private Good Economies with Single-Plateaued Preferences By Ahmed Doghmiab; Abderrahmane Ziad
  6. The Impact of Resale on Entry in Second Price Auctions By Che, XiaoGang; Lee, Peter; Yang, Yibai
  7. Multi-profile intertemporal social choice: a survey By Bossert, Walter; Suzumura, Kotaro
  9. Information Processing and Limited Liability By Bartosz Mackowiak
  10. Networks and Favor Exchange Norms under Stochastic Costs By Seungmoon Choi; Virginie Masson; Angus Moore; Mandar Oak
  11. Search Advertising By Alexandre de Cornière
  12. Integration and Search Engine Bias By Alexandre de Cornière; Greg Taylor
  13. News Aggregators and Competition Among Newspapers in the Internet By Esfahani, Nikrooz; Jeon, Doh-Shin
  14. Markets for Data By Alessandro Bonatti; Dirk Bergemann
  15. Competition and dynamics of takeover contests By Riccardo Calcagno; Sonia Falconieri
  16. A General Coalition Structure: Some Equivalence Results By Bimonte, Giovanna
  17. Household Formation and Markets By Hans Haller; Hans Gersbach; Hideo Konishi
  18. Bargaining Delegation in Monopoly By Ishita Chatterjee; Bibhas Saha
  19. Cheap talk about the detection probability By Baumann, Florian; Friehe, Tim
  20. Job market signaling with human capital investment: two quality types By Gea M. Lee; Seung Han Yoo

  1. By: Herve Moulin; Indrajit Ray; Sonali Sen Gupta
    Abstract: We consider a class of symmetric two-person quadratic games where coarse correlated equilibria - CCE - (Moulin and Vial 1978) can strictly improve upon the Nash equilibrium payoffs, while correlated equilibrium - CE - (Aumann 1974, 1987) cannot, because these games are potential games. We compute the largest feasible total utility in any CCE in those games, and show that it is achieved by a CCE involving only two pure strategy profiles. Applications include the Cournot duopoly and the game of public good provision, where the improvement over and above the Nash equilibrium payoff can be substantial.
    Keywords: Coarse correlated equilibrium, Quadratic games, Duopoly models, Public good
    JEL: C72
    Date: 2013–03
  2. By: Alex Gershkov; Benny Moldovanu; Xianwen Shi
    Abstract: We consider the standard mechanism design environment with linear utility but without monetary transfers. We first establish an equivalence between deterministic, dominant strategy incentive compatible mechanisms and generalized median voter schemes. We then use this equivalence to construct the constrained-efficient optimal mechanism for an utilitarian planner.
    Keywords: Mechanism Design, Dominant Strategy Implementation, Median Voter Schemes, Social Choice
    JEL: D82 D71
    Date: 2013–04–10
  3. By: Benabou, Roland (Princeton University)
    Abstract: This paper investigates collective denial and willful blindness in groups, organizations and markets. Agents with anticipatory preferences, linked through an interaction structure, choose how to interpret and recall public signals about future prospects. Wishful thinking (denial of bad news) is shown to be contagious when it is harmful to others, and self-limiting when it is beneficial. Similarly, with Kreps-Porteus preferences, willful blindness (information avoidance) spreads when it increases the risks borne by others. This general mechanism can generate multiple social cognitions of reality, and in hierarchies it implies that realism and delusion will trickle down from the leaders. The welfare analysis differentiates group morale from groupthink and identifies a fundamental tension in organizations' attitudes toward dissent. Contagious exuberance can also seize asset markets, generating investment frenzies and crashes.
    Keywords: cognitive dissonance, wishful thinking, toxic assets, financial crises, market crashes, manias speculative bubbles, market exuberance, morale, optimism, overconfidence, organizational culture, groupthink, cognitive biases anticipatory feelings, resolution of uncertainty, psychology
    JEL: D03 D23 D53 D83 D84 E32 G01 G14 Z1
    Date: 2013–03
  4. By: Ralph Bayer; Subir Bose; Matthew Polisson (Institute for Fiscal Studies and University of Leicester); Ludovic Renou
    Abstract: We derive necessary and sufficient conditions for data sets composed of state-contingent prices and consumption to be consistent with two prominent models of decision making under uncertainty: variational preferences and smooth ambiguity. The revealed preference conditions for subjective expected utility, maxmin expected utility, and multiplier preferences are characterised as special cases. We implement our tests on data from a portfolio choice experiment.
    Keywords: ambiguity, expected utility, maxmin, revealed preference, smooth, uncertainty, variational
    JEL: D1 D8
    Date: 2013–03
  5. By: Ahmed Doghmiab (National Institute of Statistics and Applied Economics of Rabat, Morocco); Abderrahmane Ziad (Normandie University, Caen, Faculty of Economics and Business Administration - CREM CNRS UMR6211, France)
    Abstract: In this paper we explore the problem of Nash implementation providing new sucient conditions called I-monotonicity and I-weak no-veto power. Firstly, we show that these conditions together with unanimity are sucient for the implementation of social choice correspondences (SCCs) in Nash equilibria. Secondly, we prove that, in the domain of the private good economies with single-plateaued preferences, a solution of the problem of fair division is Nash implementable if and only if it satises Maskin monotonicity. We provide examples of SCCs satisfying or not Maskin monotonicity.
    Keywords: Nash implementation; Private good economies; Single-plateaued preferences
    JEL: C72 D71
    Date: 2013–04
  6. By: Che, XiaoGang; Lee, Peter; Yang, Yibai
    Abstract: This paper investigates the effect of resale allowance on entry strategies in a second price auction with two bidders whose entries are sequential and costly. We first characterize the perfect Bayesian equilibrium in cutoff strategies. We then show that there exists a unique threshold such that if the reseller's bargaining power is greater (less) than the threshold, resale allowance causes the leading bidder (the following bidder) to have a higher (lower) incentive on entry; i.e., the cutoff of entry becomes lower (higher). We also discuss asymmetric bidders and the original seller's expected revenue.
    Keywords: resale; sequential entry; costly participation; Second price auctions
    Date: 2013–04
  7. By: Bossert, Walter; Suzumura, Kotaro
    Abstract: We provide a brief survey of some literature on intertemporal social choice theory in a multi-profile setting. As is well-known, Arrow’s impossibility result hinges on the assumption that the population is finite. For infinite populations, there exist non-dictatorial social welfare functions satisfying Arrow’s axioms and they can be described by their corresponding collections of decisive coalitions. We review contributions that explore whether this possibility in the infinite-population context allows for a richer class of social welfare functions in an intergenerational model. Different notions of stationarity formulated for individual and for social preferences are examined.
    Keywords: Infinite-population social choice, multi-profile social choice, decisiveness, intergenerational choice
    JEL: D71
    Date: 2013–03
  8. By: Gabrielsen, Tommy Staahl (Department of Economics, University of Bergen); Johansen, Bjørn Olav (Department of Economics, University of Bergen)
    Abstract: We consider a setting where an upstream producer and a competitive fringe of producers of a substitute product may sell their products to two differentiated downstream retailers. We investigate two different contracting games; one with seller power and a second game with buyer power. In each game we characterize the minimum set of vertical restraints that make the vertically integrated profit sustainable as an equilibrium outcome, and we also characterize sufficient conditions for having interlocking relationships (i.e. no exclusion). In line with the recent literature, we focus on the performance of simple two-part tariffs, upfront payments and RPM as facilitating devices for reducing competition under both buyer and seller power. With seller power we show that minimum RPM, possibly coupled with a quantity roof, will allow the manufacturer to induce industry wide monopoly prices. With buyer power we show that monopoly prices may be induced if the retailers may use an upfront fee together with a two-part tariff and a minimum RPM.
    Keywords: resale price maintenance; seller power; buyer power; horsizontal control
    JEL: L42
    Date: 2013–04–11
  9. By: Bartosz Mackowiak (European Central Bank)
    Abstract: Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.
    Date: 2012
  10. By: Seungmoon Choi (School of Economics, University of Adelaide); Virginie Masson (School of Economics, University of Adelaide); Angus Moore; Mandar Oak (School of Economics, University of Adelaide)
    Abstract: We develop a model of favor exchange in a network setting where the cost of performing favors is stochastic. For any given favor exchange norm, we allow for the endogenous determination of the network structure via a link deletion game. We characterize the set of stable as well as equilibrium systems and show that these sets are identical. The most efficient network topology and favor exchange convention are generically shown to be not supported as equilibrium of the link deletion game. Our model provides a useful framework for understanding the topology of favor exchange networks. While the model exhibits positive externalities, its properties differ from the "information transmission" model à la Jackson and Wolinsky, as evidenced by the emergence of regular networks as opposed to star networks as stable and efficient network structures.
    JEL: D85 C78 L14 Z13
    Date: 2013–04
  11. By: Alexandre de Cornière
    Abstract: Search engines enable advertisers to target consumers based on the query they have entered.  In a framework with horizontal product differentiation, imperfect product information and in which consumers incur search costs, I study a game in which advertisers have to choose a price and a set of relevant keywords.  The targeting mechanism brings about three kinds of efficiency gains, namely lower search costs, better matching, and more intense product market price-competition.  A monopolistic search engine charges advertisers too high a price, and has incentives to provide a suboptimal matching quality.  Competition among search engines eliminates the latter distortion, but exacerbates the former.
    Keywords: Search engine, targeted advertising, consumer search
    JEL: D43 D83 L13 M37
    Date: 2013–03–20
  12. By: Alexandre de Cornière; Greg Taylor
    Abstract: Competition authorities all over the world worry that integration between search engines (mainly Google) and publishers could lead to abuses of dominant position.  In particular, one concern is that of own-content bias, meaning that Google would bias its rankings in favor of the publishers it owns or has an interest in, to the detriment of competitors and users.  In order to investigate this issue, we develop a theoretical framework in which the search engine (i) allocates users across publishers, and (ii) competes with publishers to attract advertisers.  We show that the search engine is biased against publishers that display many ads - even without integration.  Although integration may lead to own-content bias, it can also reduce bias by increasing the value of a marginal consumer to the search engine.  Integration also has a positive effect on users by reducing the nuisance costs due to excessive advertising.  Its net effect is therefore ambiguous in general, and we provide sufficient conditions for it to be desirable or not.
    Keywords: Search engine, integration, advertising
    JEL: L1 L4 L86
    Date: 2013–03–26
  13. By: Esfahani, Nikrooz (TSE); Jeon, Doh-Shin (TSE)
    Abstract: We study how the presence of a news aggregator affects quality choices of newspapers competing on the Internet. To provide a microfoundation for the role of the aggregator, we build a model of multiple issues where each newspaper chooses quality on each issue. This model captures the "business-stealing effect" and the "readership expansion effect" of the aggregator. We find that the presence of the aggregator leads newspapers to specialize in news coverage, changes quality choices from strategic substitutes to strategic complements and is likely to increase the quality of newspapers and social welfare, with an ambiguous effect on newspapers’ profits.
    Keywords: Newspapers, News Aggregator, Internet, Quality, Strategic Substitutes, Strategic Complements, Advertising, Business-stealing, Readership expansion, Opting Out.
    JEL: D21 D43 L13 L82
    Date: 2013–04–01
  14. By: Alessandro Bonatti (MIT); Dirk Bergemann (Yale University)
    Abstract: We develop a model of data provision and data pricing in an environment with strategically interacting firms. The demand for data is generated by firms which seek to tailor their product positioning, or price, to either the individual or the aggregate demand. In turn, the data provider determines the amount of information released to the individual firms and the price to access it. We derive the optimal information and pricing policy of the data provider, under either individual or aggregate tailoring by the firms. We show that frequently the optimal information policy is to provide only partial and noisy information to the competing firms. In addition, the revenue of the data provider is commonly maximized by asymmetric or even exclusive information policies.
    Date: 2012
  15. By: Riccardo Calcagno; Sonia Falconieri
    Abstract: This paper investigates the effect of potential competition on takeovers which we model as a bargaining game with alternating offers where calling an auction represents an outside option for each bidder at each stage of the game. The model aims to answer three main questions: who wins the takeover? when? and how? Our results are able to explain why the takeover premium resulting from a negotiated deal is not significantly different from that resulting from an auction, and why tender offers are rarely observed in reality. Furthermore, the model allows us to draw conclusions on how other dimensions of the takeover process, such as termination fees, target resistance and tender offer costs, affect its dynamics and outcome.
    Keywords: takeover negotiations, auctions, bargaining, outside option.
    JEL: G34 C78
    Date: 2013
  16. By: Bimonte, Giovanna
    Abstract: It is well known that in a differential information economy the free coalition formation may imply some theoretical difficulties. It does not suffice to say that a coalition can be formed by several agents. We define a set of all possible coalitions as the set of those coalitions that can be formed and joint by any agent. There exists, in this way, a rule imposed over coalition formation. We assume that only a subset $\mathcal{S}$ of $\Sigma$ is alowed to form. In such way, we fix over the set of agents an aggregation rule for which the coalitions can be formed only if they belong to this subset. We have restricted the set of coalitions that can be joined by traders. The main result is the equivalence between two private core concept: the classical one for a differential information economy and the private core restricted.
    Keywords: Differential information economy, restriction on coalition formation, private core.
    JEL: D11 D51 D82
    Date: 2013
  17. By: Hans Haller; Hans Gersbach; Hideo Konishi
    Abstract: We consider competitive markets for multiple commodities with endogenous formation of one- or two-person households. Within each two-person household, externalities from the partner’s commodity consumption and unpriced actions are allowed. Each individual has two types of traits: observable characteristics and unobservable taste characteristics. Each individual gets utility from his/her own private con- sumption, from discrete actions such as job-choice, from the partner’s observable characteristics such as appearance and hobbies, from some of the partner’s consumption vectors, and from the partner’s action choices. We investigate competitive market outcomes with an endoge- nous household structure in which no individual and no man/woman-pair can deviate profitably. We find a set of sufficient conditions under which a stable matching equilibrium exists. We further establish the first welfare theorem for this economy.
    Keywords: endogenous household formation of households, consumption externalities, stable matching equilibrium, efficiency
    Date: 2013
  18. By: Ishita Chatterjee (Business School, University of Western Australia); Bibhas Saha (University of East Anglia)
    Abstract: We study eciency and distributional implications of bargaining in a monopoly, where the shareholders and the workers delegate the task of bargaining to a manager and a union leader respectively. Bargaining delegation leads to underproduction caus- ing the organizational pie to contract severely rendering mutual gains from delegation impossible. With an increase in the union's bargaining power prot may rise and the union's utility may fall. This suggests that delegation can compensate for weaker bar- gaining power. Further, numerical examples conrm that if the shareholders and the workers had a choice over delegation, they would indeed choose to delegate, on some occasions giving rise to a Prisoners' Dilemma problem.
    Date: 2013
  19. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper analyzes whether the behavior of potential offenders can be guided by information on the actual detection probability transmitted by the policy maker. It is established that, when viewed as a cheap-talk game, the existence of equilibria with information transmission depends on the level of the sanction, the level of costs related to imposing the sanction, and the level of social harm resulting from the offense. In addition, we find that the policy maker (i.e., society as a whole) is not necessarily better off ex ante when more information is transmitted in equilibrium, but that potential offenders always are. --
    Keywords: crime,cheap talk,law enforcement,imperfect information
    JEL: K42 H23 C72
    Date: 2013
  20. By: Gea M. Lee (School of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903); Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea 136-701)
    Abstract: This paper extends the signaling model by Spence (1973) to a dynamic frame-work in which human capital and signaling have a causal relationship: human capital investment is necessary to lower the marginal cost of signaling. We provide two main results on the characterization of equilibria. First, a pooling equilibrium can induce more worker types to make a human capital investment, and second, even with a pooling inducing fewer worker types to make the investment, the pooling?s social welfare can be greater.
    Keywords: Education, Human capital, Signaling
    JEL: D63 I21 J24
    Date: 2013

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