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on Microeconomics |
| By: | Chirantan Ganguly; Indrajit Ray |
| Abstract: | We consider a Battle of the Sexes game with two types, High and Low, for each player and allow cheap talk regarding players' types before the game. We prove that the unique fully revealing symmetric cheap talk equilibrium exists for a low range of prior probability of the High-Type. This equilibrium has a desirable type-coordination property: it fully coordinates on the ex-post efficient pure Nash equilbrium when the players' types are different. Type-coordination is also obtained in a partially revealing equilibrium in which only the High-type is not truthful, for a medium range of prior probability of the High-type. |
| Keywords: | Battle of the Sexes, Private Information, Cheap Talk, Coordination, Full Revelation |
| JEL: | C72 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:13-01r&r=mic |
| By: | Sergiu Hart; Andreu Mas-Colell |
| Abstract: | Inspired by the existing work on correlated equilibria and regret-based dynamics in games, we carry out a first exploration of the links between the leading equilibrium concept for (exchange) economies, Walrasian equilibrium, and the dynamics, specifically regret-matching dynamics, of trading games that fit the economic structure and have the property that their pure Nash equilibria implement the Walrasian outcomes. Interestingly, in the case of quasilinear utilities (or "transferable utility"), all the concepts essentially coincide, and we get simple deterministic dynamics converging to Walrasian outcomes. Connections to sunspot equilibria are also studied. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp648&r=mic |
| By: | Frédéric Loss (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CNAM Paris - Conservatoire National des Arts et Métiers - Conservatoire National des Arts et Métiers (CNAM)); Gwanaël Piaser (IPAG - Business School) |
| Abstract: | We consider a competitive insurance market in which agents can privately enter into multicontractual insurance relationships and undertake hidden actions. We study the existence of linear equilibria when insurance companies do not have any restriction on their pricing rules. We provide conditions under which a linear equilibrium exists. We show that two different types of linear equilibria could exist: A first one in which insurance companies make zero expected profits, and a second one in which they make strictly positive expected profits. We also analyze the welfare properties of the linear equilibria. We show that they are not always second best Pareto optimal. |
| Keywords: | Common Agency, Insurance, Moral Hazard, Perfect Competition, Linear Prices Equilibria |
| Date: | 2013–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00870113&r=mic |
| By: | Nicollier, Luciana A (Department of Economics, University of Warwick) |
| Abstract: | Empirical evidence suggests that online reviews are an important source of consumers information and a relevant determinant of the rms revenues. Little is known, however, about how prices and reviews a ect each other. This paper proposes a dynamic game to investigate this relationship. A long-lived monopoly faces a sequence of short-lived consumers whose only information about the value of an experience good is the one contained in the reviews completed by previous buyers. Neither the monopoly nor the consumers have private information about the value of the good. After buying the good, the consumers observe a quality realisation that is correlated with the actual value of the good and decide whether to complete reviews. The consumers complete reviews according to a social rule that maximises the present value of current and future consumers utility. It is shown that a necessary condition for the existence of reviews is that the firm cannot fully appropriate the surplus generated by this increased information. Furthermore, the reviews induce a mean preserving spread on the posterior beliefs about the value of the good which, combined with the convexity with respect to the prior of the indirect utility and profit functions, implies that reviews are valuable for both the consumers and the firm. Hence, both parties are willing to face some cost in order to increase the information available in the market. The main result of the paper is that, from the firm's perspective, this cost takes the form of a discount in the price o ered to current consumers. JEL classification: Customer Reviews ; Monopoly ; Information Transmission JEL codes: L12 ; L15; D42 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1029&r=mic |
| By: | Roberto Burguet; Ramon Caminal; Matthew Ellman |
| Abstract: | In a micro-founded model, we derive novel incentives for a monopoly search engine to distort its organic and its sponsored results on searches for online content and offline products. Distorting organic results towards content publishers with less effective display advertising and/or distorting sponsored results towards higher margin merchants (by underweighting consumer relevance in search auctions) increase per capita revenues but lower participation. The interplay of these incentives determines search bias and welfare. We also characterize how the welfare consequences of integration into display advertising, as intermediary or publisher, depend on asymmetries, monopolization and targeting. |
| Keywords: | search engine bias, internet economics, vertical integration, two-sided markets, antitrust |
| JEL: | L13 L41 L82 L86 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:717&r=mic |
| By: | Timo Hiller; Timo Hiller |
| Abstract: | This paper presents a simple model of strategic network formation with local complementarities in effort levels and positive local externalities for a general class of payoff functions. Results are obtained for one-sided and two-sided link creation. In both cases (pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. The relevance of the convexity of the value function (gross payoffs as a function of neighbours' effort levels when best responding) in obtaining nested split graphs is highlighted. Under additional assumptions on payoffs, we show that the only efficient networks are the complete and the empty network. Furthermore, there exists a range of linking cost such that any (pairwise) Nash equilibrium is inefficient and for a strict subset of this range any (pairwise) Nash equilibrium network structure is different from the efficient network. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of rms. |
| Keywords: | Strategic network formation, peer effects, strategic complements, positive externalities. |
| JEL: | D62 D85 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stitep:/2013/564&r=mic |
| By: | Larry G. Epstein (Department of Economics, Boston University); Kyoungwon Seo |
| Abstract: | We generalize de Finetti’s exchangeable Bayesian model to accommodate ambiguity. As a central motivating example, we consider a policy maker facing a cross-section of markets in which …rms play an entry game. Her theory is Nash equilibrium and it is incomplete because there are multiple equilibria and she does not understand how equilibria are selected. This leads to partial identi…cation of parameters when drawing inferences from realized outcomes in some markets and to ambiguity when considering (policy) decisions for other markets. We model both her inference and choice. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2013-001&r=mic |
| By: | Sergiu Hart; Noam Nisan |
| Abstract: | We consider the complexity of finding a Correlated Equilibrium in an n-player game in a model that allows the algorithm to make queries for players' utilities at pure strategy profiles. Many randomized regret-matching dynamics are known to yield an approximate correlated equilibrium quickly: in time that is polynomial in the number of players, n, the number of strategies of each player, m, and the approximation error, 1/?. Here we show that both randomization and approximation are necessary: no efficient deterministic algorithm can reach even an approximate equilibrium and no efficient randomized algorithm can reach an exact equilibrium. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp647&r=mic |
| By: | Einy, E; Haimanko, O; Moreno, D; Sela, A; Shitovitz, B |
| Abstract: | Under standard assumptions about players’ cost functions, we show that a Tullock contest with asymmetric information has a pure strategy equilibrium. Moreover, when players have a common value and a common state independent linear cost function, a two player Tullock contest in which one player has an information advantage has a unique equilibrium. In this equilibrium both players exert the same expected effort, although the player with information advantage has a greater payoff and wins the prize less frequently than his opponent. When there are more than two players in the contest, an information advantage leads to higher payoffs, but the other properties of equilibrium no longer hold. |
| JEL: | C72 D44 D82 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:econdp:2013-11&r=mic |
| By: | José De Sousa (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, ADIS - Analyse des Dynamiques Industrielles et Sociales - Département d'Economie - Université Paris XI - Paris Sud); Xavier Fairise (TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV), GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - Université du Maine) |
| Abstract: | Does formal contracting foster cooperation in a buyer-supplier relationship? In line with the literature, we find that a renegotiable contract with relationshipspecific joint investments does not make it possible to reach the first-best. However, we show that a renegotiable contract may induce more cooperation than an informal arrangement can. This result may help to understand how cooperation emerges in Japanese procurement practices, which typically involve relationshipspecific joint investments and renegotiable contracts. |
| Keywords: | incomplete contracts ; relationship-specific investments ; cooperation |
| Date: | 2013–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00870060&r=mic |