nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒09‒24
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Bayes Correlated Equilibrium and the Comparison of Information Structures By Dirk Bergemann; Stephen Morris
  2. On the Convergence to the Nash bargaining solution for action-dependent bargaining protocols By BRITZ, Volker; HERINGS, Jean-Jacques; PREDTETCHINSKI, Arkadi
  3. The Supermodular Stochastic Ordering By Meyer, Margaret A; Strulovici, Bruno
  4. Competing for Consumer Inattention By de Clippel, Geoffroy; Eliaz, Kfir; Rozen, Kareen
  5. A New Perspective on Rational Expectations By Luciano I. de Castro; Marialaura Pesce; Nicholas C. Yannelis
  6. Dynamic Countervailing Power under Public and Private Monitoring By Bhaskar, Venkataraman
  7. Collective risk aversion. By Jouini, Elyès; Napp, Clotilde; Nocetti, Diego
  8. (Ir)rational Exuberance: Optimism, Ambiguity, and Risk By Anat Bracha; Donald Brown
  9. Keynesian Utilities: Bulls and Bears By Anat Bracha; Donald Brown
  10. Assignment Games with Externalities By Gudmundsson, Jens; Habis, Helga
  11. Aggregate Oligopoly Games with Entry By Anderson, Simon P; Erkal, Nisvan; Piccinin, Daniel
  12. Network Neutrality, Access to Content and Online Advertising By Anna D’Annunzio; Antonio Russo
  13. General equilibrium dynamics with naive and sophisticated hyperbolic consumers in an overlapping generations economy By Takeshi Ojima
  14. Bidding Markets with Financial Constraints By Beker, Pablo; Hernando-Veciana, Angel
  15. Pooling Promises with Moral Hazard By Goulão, Catarina; Panaccione, Luca

  1. By: Dirk Bergemann; Stephen Morris
    Date: 2013–09–19
  2. By: BRITZ, Volker (ETH Zürich, Switzerland); HERINGS, Jean-Jacques (Maastricht University, The Netherlands; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium.); PREDTETCHINSKI, Arkadi (Maastricht University, The Netherlands)
    Abstract: We consider a non–cooperative multilateral bargaining game and study an action–dependent bargaining protocol, that is, the probability with which a player becomes the proposer in a round of bargaining depends on the identity of the player who previously rejected. An important example is the frequently studied rejector–becomes–proposer protocol. We focus on subgame perfect equilibria in stationary strategies which are shown to exist and to be efficient. Equilibrium proposals do not depend on the probability to propose conditional on the rejection by another player, though equilibrium acceptance sets do depend on these probabilities. Next we consider the limit, as the bargaining friction vanishes. In case no player has a positive probability to propose conditional on his rejection, each player receives his utopia payoff conditional on being recognized and equilibrium payoffs are in general Pareto inefficient. Otherwise, equilibrium proposals of all players converge to a weighted Nash Bargaining Solution, where the weights are determined by the probability to propose conditional on a rejection.
    Keywords: strategic bargaining, subgame perfect equilibrium, stationary strategies, Nash bargaining solution
    JEL: C78
    Date: 2013–09–11
  3. By: Meyer, Margaret A; Strulovici, Bruno
    Abstract: In many economic applications involving comparisons of multivariate distributions, supermodularity of an objective function is a natural property for capturing a preference for greater interdependence. One multivariate distribution dominates another according to the `supermodular stochastic ordering' if it yields a higher expectation than the other for all supermodular objective functions. We prove that this ordering is equivalent to one distribution being derivable from another by a sequence of elementary, bivariate, interdependence-increasing transformations, and develop methods for determining whether such a sequence exists. For random vectors resulting from common and idiosyncratic shocks, we provide non-parametric sufficient conditions for supermodular dominance. Moreover, we characterize the orderings corresponding to supermodular objective functions that are also increasing or symmetric. We use the symmetric supermodular ordering to compare distributions generated by heterogeneous lotteries. Applications to welfare economics, committee decision-making, insurance, finance, and parameter estimation are discussed.
    Keywords: Concordance; Copula; Correlation; Interdependence; Majorization; Mixture; Supermodular; Tournament
    JEL: D63 D81 G11 G22
    Date: 2013–05
  4. By: de Clippel, Geoffroy; Eliaz, Kfir; Rozen, Kareen
    Abstract: Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm's price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best offer in each market; but the enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers' radar.
    Keywords: Limited attention
    JEL: C72 D43
    Date: 2013–07
  5. By: Luciano I. de Castro; Marialaura Pesce; Nicholas C. Yannelis
    Date: 2013
  6. By: Bhaskar, Venkataraman
    Abstract: We examine buyer strategic power in the model of dynamic Bertrand-Edgeworth competition. Two sellers with a limited inventory sell to a single buyer, who has a consumption opportunity in each period. The market power of the sellers is offset by the strategic power of the buyer. By not consuming in any period, the buyer can destroy a unit of demand, thereby intensifying future price competition. If transactions are publicly observed, we find that that a strategic buyer can do significantly better than non-strategic buyers; strategic power may also give rise to inefficiencies. However, if an agent only perfectly observes those transactions in which he is directly involved, and imperfectly observes other transactions, the strategic power of the buyer is reduced, and in some cases, may be completely eliminated. This highlights the sharp discontinuity between the equilibrium outcomes between perfect and imperfect monitoring.
    Keywords: Bertrand-Edgeworth competition; dynamic games; imperfect monitoring; strategic buyer
    JEL: D43 D92
    Date: 2013–06
  7. By: Jouini, Elyès; Napp, Clotilde; Nocetti, Diego
    Abstract: In this paper we analyse the risk attitude of a group of heterogenous agents and we develop a theory of comparative collective risk tolerance. In particular, we characterize how shifts in the distribution of individual levels of risk tolerance affect the representative agent's degree of risk tolerance. In the model with efficient risk – sharing and two agents (e.g. a household) with isoelastic preferences we show that an increase of the level of risk tolerance of one of the agents might have an ambiguous impact on the aggregate level of risk tolerance; the latter increases for some levels of aggregate wealth while it decreases for other levels of aggregate wealth. Specifically, there are two possible shapes for aggregate risk tolerance as a function of the risk tolerance level of one of the agents: increasing curve or increasing then decreasing curve. For more general populations we characterize the effect of first order like shifts (individual levels of risk tolerance more concentrated on high values) and second order like shifts (more dispersion on individual levels of risk tolerance) on the collective level of risk tolerance. We also evaluate how shifts in the distribution of individual levels of risk tolerance impact the collective level of risk tolerance in a framework with exogenous egalitarian sharing rules. Our results permit to better characterize differences in risk taking behavior between groups and individuals and among groups with different distribution of risk preferences.
    Keywords: collective risk; heterogenous agents; risk tolerance; isoelastic preferences; aggregate wealth; risk preferences;
    JEL: D1 D81
    Date: 2013
  8. By: Anat Bracha; Donald Brown
    Date: 2013–09–19
  9. By: Anat Bracha; Donald Brown
    Date: 2013–09–19
  10. By: Gudmundsson, Jens (Department of Economics, Lund University); Habis, Helga (Department of Economics, Lund University)
    Abstract: We introduce externalities into a two-sided, one-to-one assignment game by letting the values generated by pairs depend on the behavior of the other agents. Extending the notion of blocking to this setup is not straightforward; a pair has to take into account the possible reaction of the residual agents to be able to assess the value it could achieve. We define blocking in a rather general way that allows for many behavioral considerations or beliefs. The main result of the paper is that a stable outcome in an assignment game with externalities always exists if and only if all pairs are pessimistic regarding the others' reaction following a deviation. The relationship of stability and optimality is also discussed, as is the structure of the set of stable outcomes.
    Keywords: Two-sided matching; assignment game; externalities; stability
    JEL: C71 C78 D62
    Date: 2013–08–27
  11. By: Anderson, Simon P; Erkal, Nisvan; Piccinin, Daniel
    Abstract: We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We first compile an IO toolkit for aggregative games. We show strong neutrality properties across market structures. The aggregator stays the same, despite changes in the number of firms and their actions. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregator alone, and that the Bertrand pricing game is aggregative. We link together the following results: merging parties' profits fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus.
    Keywords: aggregative games; contests; Cournot; entry; IIA property; leadership; Logit/CES; mergers; monopolistic competition; oligopoly theory; R&D; strategic substitutes and complements
    JEL: D43 L13
    Date: 2013–06
  12. By: Anna D’Annunzio; Antonio Russo
    Abstract: We investigate possible effects of network neutrality regulation on the distribution of content in the Internet. We model a two-sided market, where consumers and advertisers interact through Content Providers (CPs), and CPs and consumers through Internet Service Providers (ISPs). Multiple impressions of an ad on a consumer are partially wasteful. Thus, equilibrium ad rates decrease with the number of CPs consumers can browse. Under network neutrality, CPs can connect to any ISP for free, while in the unregulated regime they have to pay a (non-discriminatory) access fee set by the ISP.We show that universal distribution of content is always an equilibrium with net neutrality regulation. Instead, in the unregulated regime, ISPs can use access fees to rule out universal distribution when it is not profitable, i.e. when repeated impressions of an ad rapidly lose value and consumers care for content availability to a small extent. We also find that the unregulated regime is never superior to net neutrality from a welfare point of view. Consumer and advertiser surplus are weakly higher under net neutrality. ISPs are unambiguously better off in the unregulated regime, while CPs are unambiguously worse off.
    Keywords: Network neutrality, two-sided markets, Internet, advertising, fragmentation
    JEL: L1 D43 L13 L51
    Date: 2013–07
  13. By: Takeshi Ojima
    Abstract: Using an overlapping generations model, this paper describes interactions between naive and sophisticated hyperbolic discounters in general equilibrium. The naifs, who overestimate their future propensity to save and hence over-forecast the future equilibrium asset prices, are exploited through capital transactions by sophisticates, who correctly forecast the future asset prices by incorporating the naifsf mis-forecasts. Due to the capital losses, the naifs fall into bankruptcy when they are highly present-biased, highly patient, and having a low population density. Under generous conditions, the equilibrium is shown to be globally stable and Pareto inefficient in the ex-post sense.
    Date: 2013–09
  14. By: Beker, Pablo (Department of Economics, University of Warwick); Hernando-Veciana, Angel (Universidad Carlos III de Madrid)
    Abstract: We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on di?erences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks. JEL classification: bidding markets ; ?nancial constraints ; markups ; money left on the table ; market shares ; industry dynamics JEL codes: L13 ; D43 ; D44
    Date: 2013
  15. By: Goulão, Catarina (TSE (Gremaq, Inra)); Panaccione, Luca ((DEDI and CEIS))
    Date: 2013–08–29

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