nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒05‒17
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information Provision in Procurement Auctions By Joaquin Coleff; Daniel Garcia
  2. Endogenous Information Acquisition and the Partial Announcement Policy By Hiroki Arato; Takeo Hori; Tomoya Nakamura
  3. Stereotypes By Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
  4. Crisp Fair Gambles By Eric André
  5. Meeting technologies and optimal trading mechanisms in competitive search markets By Lester, Benjamin; Visschers, Ludo; Wolthoff, Ronald
  6. Strategically Equivalent Contests By Roman M. Sheremeta; Subhasish M. Chowdhury
  7. Relative profit maximization and Bertrand equilibrium with quadratic cost functions By Satoh, Atsuhiro; Tanaka, Yasuhito
  8. Irrelevance of the choice of strategic variables in duopoly under relative profit maximization By Tanaka, Yasuhito
  9. Reserve Price in Search Models By Kuniavsky, Sergey
  10. Transitive Preferences in Multi-Member Households By Bart Smeulders; Laurens Cherchye; Bram De Rock; Frits Spieksma; Fabrice Talla Nobibon
  11. Does Cost Uncertainty in the Bertrand Model Soften Competition? By Johan N.M. Lagerlöf
  12. Auctions with Resale under State Uncertainty By Mehmet Oguz Karahan; Tolga Umut Kuzubas

  1. By: Joaquin Coleff; Daniel Garcia
    Abstract: Abstract: We analyze the optimal provision of information in a procurement auction with horizontally differentiated goods. The buyer has private information about her preferred location on the product space and has access to a costless communication device. A seller who pays the entry cost may submit a bid comprising a location and a minimum price. We characterize the optimal information structure and show that the buyer prefers to attract only two bids. Further, additional sellers are inefficient since they reduce total and consumer surplus, gross of entrycosts. We show that the buyer will not find it optimal to send public information to all sellers. On the other hand, she may prot from setting a minimum price and that a severe hold-up problem arises if she lacks commitment to set up the rules of the auction ex-ante.
    Date: 2013–09–02
  2. By: Hiroki Arato; Takeo Hori; Tomoya Nakamura
    Abstract: We consider implementability and the welfare effects of a partial announcement policy using a model of a beauty contest where agentsf actions are strategic complements and where their decisions on public information acquisition are endogenous. The following results are obtained: i) if the authorities sell public information at a constant price, multiple equilibria emerge and a partial announcement equilibrium is unstable; ii) here exist pricing rules that ensure the uniqueness and stability of mixed strategy equilibria, which indicates that a partial announcement policy can be implemented; iii) the optimal price of public information rises as its precision increases relative to private information; iv) the optimal price is independent of the degree of strategic complementarity.
    Keywords: Beauty contest games; Endogenous information acquisition; Transparency of information; Partial announcement policy
    Date: 2014–01
  3. By: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
    Abstract: We present a model of stereotypes in which a decision maker assessing a group recalls only that group’s most representative or distinctive types relative to other groups. Because stereotypes highlight differences between groups, and neglect likely common types, they are especially inaccurate when groups are similar. In this case, stereotypes consist of unlikely, extreme types. When stereotypes are inaccurate, they exhibit a form of base rate neglect. They also imply a form of confirmation bias in light of new information: beliefs over-react to information that confirms the stereotype and ignore information that contradicts it. However, stereotypes can change – or rather, be replaced – if new information changes the group’s most distinctive trait. Applied to gender stereotypes, the model provides a unified account of disparate evidence regarding the gender gap in education and in labor markets.
    JEL: D01 D03 D83 D84
    Date: 2014–05
  4. By: Eric André (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: Axiomatic models of decision under ambiguity with a non-unique prior allow for the existence of Crisp Fair Gambles: acts whose expected utility is nul whichever of the priors is used. But, in these models, the DM has to be indifferent to the addition of such acts. Their existence is then at odds with a preference taking into account the variance of the prospects. In this paper we study some geometrical and topological properties of the set of priors that would rule out the existence of Crisp Fair Gambles, properties which have consequences on what can be an unambiguous financial asset.
    Keywords: monotone mean-variance preferences; ambiguity; set of priors; crisp acts; unambiguous asset
    Date: 2014–03
  5. By: Lester, Benjamin (Federal Reserve Bank of Philadelphia); Visschers, Ludo (University of Edinburgh); Wolthoff, Ronald (University of Toronto)
    Abstract: In a market in which sellers compete by posting mechanisms, we allow for a general meeting technology and show that its properties crucially affect the mechanism that sellers select in equilibrium. In general, it is optimal for sellers to post an auction without a reserve price but with a fee, paid by all buyers who meet with the seller. However, we define a novel condition on meeting technologies, which we call invariance, and show that meeting fees are equal to zero if and only if this condition is satisfied. Finally, we discuss how invariance is related to other properties of meeting technologies identified in the literature.
    Keywords: Search frictions; Matching function; Meeting technology; Competing mechanisms;
    JEL: C78 D44 D83
    Date: 2014–04–23
  6. By: Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University); Subhasish M. Chowdhury (School of Economics, Centre for Behavioural and Experimental Social Science, and the ESRC Centre for Competition Policy, University of East Anglia)
    Abstract: Using a two-player Tullock-type contest we show that intuitively and structurally different contests can be strategically equivalent. Strategically equivalent contests generate the same best response functions and, as a result, the same equilibrium efforts. However, strategically equivalent contests may yield different equilibrium payoffs. We propose a simple two-step procedure to identify strategically equivalent contests. Using this procedure, we identify contests that are strategically equivalent to the original Tullock contest, and provide new examples of strategically equivalent contests. Finally, we discuss possible contest design applications and avenues for future theoretical and empirical research.
    Keywords: rent-seeking, contest, equivalence, contest design
    JEL: C72 D72 D74
    Date: 2014
  7. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We study the Bertrand equilibrium in duopoly in which two firms produce a homogeneous good under quadratic cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. We show that there exists a range of the equilibrium price in duopolistic equilibria. This range of equilibrium price is narrower and lower than the range of the equilibrium price in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium price. In this sense relative profit maximization by the firms is more aggressive than absolute profit maximization.
    Keywords: Bertrand equilibrium, quadratic cost function, relative profit maximization
    JEL: D43
    Date: 2014–05–11
  8. By: Tanaka, Yasuhito
    Abstract: We study the choice of strategic variables by firms in a duopoly in which two firms produce differentiated substitutable goods and each firm maximizes its relative profit that is the difference between its profit and the profit of the rival firm. We consider a two stage game such that in the first stage the firms choose their strategic variables and in the second stage they determine the values of their strategic variables. We show that when the firms maximize their relative profits, the choice of strategic variables is irrelevant to the outcome of the game in the sense that the equilibrium outputs, prices and profits of the firms are the same in all situations, and so any combination of strategy choice by the firms constitutes a sub-game perfect equilibrium in the two stage game. We assume that demand functions for the goods are symmetric and linear, the marginal costs of the firms are common and constant, and the fixed costs are zero.
    Keywords: duopoly, relative profit maximization, choice of strategic variables
    JEL: D43
    Date: 2014–05–11
  9. By: Kuniavsky, Sergey
    Abstract: Search models are used in a variety of fields. One of those is consumer search and in it the Stahl model is one of the most popular search models. The literature in search models concentrates mainly on equilibria with a consumer reserve price. This is a simplifying condition, which narrows down severely the freedom of the consumer. For example, once the model has a finite number of sellers who select different strategies a situation may arise where reserve price may not exist. This paper addresses the possibility of equilibria without reserve price, when sellers can use asymmetric strategies. Here a condition is given which ensures existence of reserve price in all equilibria. The condition involves prices where sellers set mass points, and undercutting those prices. The condition states that if a searcher is satisfied with such price, she should be satisfied also when a small discount is offered to that price. Assuming this, it is possible to concentrate only on equilibria with reserve price, and investigate also situations where the sellers are heterogeneous, or equilibria are not symmetric.
    JEL: D43 D83 L13
    Date: 2014–01–19
  10. By: Bart Smeulders; Laurens Cherchye; Bram De Rock; Frits Spieksma; Fabrice Talla Nobibon
    Keywords: weak axiom of revealed preferences; strong axiom of revealed preferences; multi-member households; transitivity
    JEL: D11 D12 D13 C14
    Date: 2014–04
  11. By: Johan N.M. Lagerlöf (Department of Economics, Copenhagen University)
    Abstract: The answer is no. Although naive intuition may suggest the opposite, uncertainty about costs in the homogeneous-good Bertrand model intensifies competition: it lowers price and raises total surplus (but also makes profits go up). For some economic environments, this is implied by Hansen’s (RAND, 1988) analysis of a procurement auction. However, several authors appear to have overlooked Hansen’s results. Moreover, his results are derived under two assumptions that, if relaxed, conceivably could reverse them. The contributions of the present paper are threefold. First, it clarifies the implications of Hansen’s results for the relationship between uncertainty and competition in the Bertrand model. Second, it shows that his results hold also if drastic innovations are possible. Finally, the paper assumes asymmetric cost distributions and shows, using numerical methods, that then uncertainty lowers price and raises total surplus even more than under symmetry. If the asymmetry is large enough, however, industry profits are lower under uncertainty. This is in contrast to the known results and reinforces the notion that uncertainty intensifies competition rather than softens it.
    Keywords: Bertrand competition, Hansen Spulber model, private information, information sharing, asymmetric firms, asymmetric auctions, boundary value method
    JEL: D43 D44 L13
    Date: 2013–12–16
  12. By: Mehmet Oguz Karahan; Tolga Umut Kuzubas
    Date: 2014–02

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