nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒05‒24
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Equilibrium Delay and Non-existence of Equilibrium in Unanimity Bargaining Games By Volker Britz; P. Jean-Jacques Herings; Arkadi Predtetchinski
  2. Bounded Computational Capacity Equilibrium By Eilon Solan; Penélope Hernández
  3. Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Markets By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  4. Seller - paid Ratings By Sergei Kovbasyuk
  5. Competing with Asking Prices By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  6. A Spatial Model of Perfect Competition By Dimitrios Xefteris; Nicholas Ziros
  7. Randomization and Dynamic Consistency By Jürgen Eichberger; Simon Grant; David Kelsey
  8. Bertrand Competition under Network Externalities By Masaki Aoyagi
  9. An elimination contest with non-sunk bids By Chiappinelli, Olga
  10. The Social Value of Public Information with Convex Costs of Information Acquisition By Ui, Takashi
  11. Nesting Vertical and Horizontal Differentiation in Two-Sided Markets By Vitor Miguel Ribeiro; João Correia-da-Silva; Joana Resende
  12. Dynamic farsighted networks with endogenous opportunities of link formation By James Lake
  13. Inter-Firm Price Coordination in a Two-Sided Market. By Kind, Hans Jarle; Nilssen, Tore; Sørgard, Lars
  14. Strategic delegation in two-sided markets By Vitor Miguel Ribeiro
  15. A Hybrid Game with Conditional and Unconditional Veto Power By Güth, Werner; Levati, Vittoria; Montinari, Natalia; Nardi, Chiara
  16. On Stable Equilibria in Discrete-Space Social Interaction Models By Akamatsu, Takashi; Fujishima, Shota; Takayama, Yuki
  17. Coasean Bargaining in the Presence of Pigouvian Taxation: Revisiting the Buchanan-Stubblebine-Turvey Theorem By Ian A. MacKenzie; Markus Ohndorf

  1. By: Volker Britz (ETH Zurich, Switzerland); P. Jean-Jacques Herings (Maastricht University, Netherlands); Arkadi Predtetchinski (Maastricht University, Netherlands)
    Abstract: We consider a class of perfect information bargaining games with unanimity acceptance rule. The proposer and the order of responding players are determined by the state that evolves stochastically over time. The probability distribution of the state in the next period is determined jointly by the current state and the identity of the player who rejected the current proposal. This protocol encompasses a vast number of special cases studied in the literature. We show that subgame perfect equilibria in pure stationary strategies need not exist. When such equilibria do exist, they may exhibit delay. Limit equilibria (as the players become infinitely patient) need not be unique.
    Keywords: Strategic Bargaining; Subgame Perfect Equilibrium; Stationary Strategies; Nash Bargaining Solution.
    JEL: C72 C78
    Date: 2014–05
  2. By: Eilon Solan (Tel Aviv University); Penélope Hernández (ERI-CES)
    Abstract: A celebrated result of Abreu and Rubinstein [1] states that in repeated games, when the players are restricted to playing strategies that can be im- plemented by fnite automata and they have lexicographic preferences, the set of equilibrium payoffs is a strict subset of the set of feasible and individually rational payoffs. In this paper we explore the limitations of this result. We prove that if memory size is costly and players can use mixed automata, then a folk theorem obtains and the set of equilibrium payo is once again the set of feasible and individually rational payoffs. Our result emphasizes the role of memory cost and of mixing when players have bounded computational power
    Keywords: Bounded rationality, automata, complexity, infnitely repeated games, equilibrium.
    Date: 2014–05
  3. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    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: 2014–01
  4. By: Sergei Kovbasyuk (EIEF)
    Abstract: We study the interaction between the seller of a product, the buyers who are uncertain about the product quality and a rating agency who observes the quality and send signals about it. Assuming the seller-pays model of rating agency, we analyze the cases in which payment to the rater is publicly disclosed and fixed, publicly disclosed and rating-contingent, private and rating-contingent. First, we characterize all possible equilibrium partitions of the underlying quality range into ratings in these three cases. We then characterize the seller's optimal ratings in the three cases. Finally, we perform welfare analysis and discuss regulation.
    Date: 2013
  5. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers’ revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Keywords: Asking Prices, Directed Search, Inspection Costs, Efficiency
    JEL: C78 D44 D82 D83 L11 R31 R32
    Date: 2014–05
  6. By: Dimitrios Xefteris; Nicholas Ziros
    Abstract: This paper employs the theory of strategic market games (enhanced with a spatial dimension) in order to study the issue of market location in a perfectly competitive setup. In this framework, each player decides strategically where and what quantities she wishes to trade and, hence, the market structure (or simply the distribution of the active trading posts and prices) emerges endogenously. We conduct a comprehensive analysis for a class of simple games with a continuum of traders and we show that (i) not all market structures can support a Nash equilibrium, (ii) at least some multi-market structures can support a Nash equilibrium and (iii) prices in a multi-market Nash equilibrium, generically, diverge.
    Keywords: Spatial model; Market locations; Strategic market games; Perfect competition.
    Date: 2014–05
  7. By: Jürgen Eichberger (Alfred Weber Institut, Heidelberg University.); Simon Grant (School of Economics, University of Queensland.); David Kelsey (Department of Economics, University of Exeter)
    Abstract: Raiffa (1961) has suggested that ambiguity aversion will cause a strict preference for randomization. We show that dynamic consistency implies that individuals will be indifferent to ex ante randomizations. On the other hand, it is possible for a dynamically-consistent ambiguity averse preference relation to exhibit a strict preference for some ex post randomizations. We argue that our analysis throws some light on the recent debate about paradoxes for the smooth model of ambiguity. We show that these rest on whether the randomizations implicit in the set-up are viewed as being resolved before or after the (ambiguous) uncertainty.
    Keywords: ambiguity, ex ante and ex post randomization, dynamic consistency, smooth ambiguity.
    JEL: D81
    Date: 2014
  8. By: Masaki Aoyagi
    Abstract: Two sellers engage in price competition to attract buyers located on a network. The value of the good of either seller to any buyer depends on the number of neighbors on the network who consume the same good. For a generic specification of consumption externalities, we show that an equilibrium price equals the marginal cost if and only if the buyer network is complete or cyclic. When the externalities are approximately linear in the size of consumption, we identify the classes of networks in which one of the sellers monopolizes the market, or the two sellers segment the market.
    Date: 2013–09
  9. By: Chiappinelli, Olga
    Abstract: In this paper we study a multi-stage elimination contest with non-sunk bids: differently from existing literature, we realize that when players are budget-constrained, they do not regard past bids as strategically irrelevant in their decision of how much to bid in following stages. This happens because they face a basic trade-off when allocating scarce resources over stages. We believe that although non-sunk bids make the analysis more complex, they allow to improve the quality of the modelization for many real scenarios, like R&D contests and sport tournaments. In our simple two-stage framework with complete information and asymmetric players, we find that: (i) there is a unique SPNE where in the first stage only the strongest player bids positive, while forcing the others to bid zero; in the second stage shortlisted bidders play mixed strategies, and the strongest player wins the game on average; (ii) relative ex-ante strengths of players are relatively more important, in determining the outcome of the game, than their relative abilities of allocating limited resources over the stages; (iii) the two-stage contest yields a lower expected revenue than the one-stage one, due to the fact that the first stage yields basically no revenue and that shortlisting to the second stage is inefficient. On the basis of these results, our elimination contest does not seem to be a very advantageous allocation mechanism for the contest sponsor.
    Keywords: All-pay auctions, Elimination contests, Non-sunk bids.
    JEL: C72 C73 D44 D72
    Date: 2014–03
  10. By: Ui, Takashi
    Abstract: In a beauty contest framework, welfare can decrease with public information if the precision of private information is exogenous, whereas welfare necessarily increases with public information if the precision is endogenous with linear costs of information acquisition. The purpose of this paper is to reconcile these results by considering nonlinear costs of information acquisition. The main result of this paper is a necessary and sufficient condition for welfare to increase with public information. Using it, we show that costs of information acquisition are linear if and only if welfare necessarily increases with public information. Thus, welfare can decrease with public information for any strictly convex costs. This is because convex costs mitigate the so-called crowding-out effect of public information on private information, thereby making the social value of public information with endogenous precision closer to that with exogenous precision.
    Keywords: public information, private information, crowding-out effect, linear quadratic Gaussian game
    JEL: C72 D82 E10
    Date: 2014–05
  11. By: Vitor Miguel Ribeiro (CEF.UP and Faculdade de Economia do Porto); João Correia-da-Silva (CEF.UP and Faculdade de Economia do Porto); Joana Resende (CEF.UP and Faculdade de Economia do Porto)
    Abstract: We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal dierentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with dierent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indifferent consumer being closer to the high-quality platform. The difference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible dierence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.
    Keywords: Two-sided markets, Horizontal differentiation, Vertical differentiation
    JEL: D42 D43 L13
    Date: 2014–05
  12. By: James Lake (Southern Methodist University)
    Abstract: I present a three player dynamic network theoretic model where players are farsighted and asymmetric. Unlike the previous literature that imposes an exogenous protocol governing the order of negotiations, I allow the identity of the players who form a link in a given period to depend endogenously on player characteristics. Importantly, I show how this can give different predictions regarding attainment of the complete network relative to models with an exogenous protocol. Regardless of whether the complete network is efficient, a key dynamic trade off drives whether the complete network is attained in my model. A pair of players (insiders) may form a link with each other but, even though link formation is always myopically beneficial, each insider then refuses subsequent link formation with the third player (outsider) because the eventual attainment of the complete network makes each insider worse off relative to the insider-outsider network.
    Keywords: networks, dynamic, farsighted, efficiency
    JEL: C70 C71 C73
    Date: 2014–05
  13. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Nilssen, Tore (University of Oslo); Sørgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: In many two-sided markets we observe that there is a common distributor on one side of the market. One example is the TV industry, where TV channels choose advertising prices to maximize own profi…t and typically delegate determination of viewer prices to independent distributors. We show that in such a market structure the stronger the competition between the TV channels, the greater will joint profits in the TV industry be. We also show that joint pro…ts might be higher if the wholesale contract between each TV channel and the distributor consists of a simple fixed fee rather than a two-part tariff.
    Keywords: Vertical relations; advertising; media economics.
    JEL: L11 L82 M31 M37
    Date: 2014–05–22
  14. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor)
    Abstract: In a two-sided market duopoly, we investigate the effects of delegating long run restrictive and unrestrictive decisions to managers by the platforms' owners, the effects of the platforms' ownership establishing long run decisions without managers and the impacts of asymmetric regimes between platforms in terms of profitability, consumer surplus and total welfare. The fact that our analysis is focused on platforms introduces inter-group externalities. We find that for sufficiently low intensity of the inter-group externality, the owners of symmetric platforms should take the long run decisions by themselves. However, for an intermediate level of the inter-group externality, the owners of symmetric platforms should delegate the long run decision to their managers. Finally, for sufficiently high level of the inter-group externality, only tipping equilibria occur. Under an asymmetric environment, that is, one platform owner establishes long run decisions and the other owner delegate's long run decisions to their manager the long run decisions should be taken by the platform's owners.
    Keywords: Two-sided markets, tipping, spatial competition, strategic delegation, managerial incentives.
    JEL: D43 L11 L13 R12
    Date: 2014–05
  15. By: Güth, Werner (Max Planck Institute of Economics); Levati, Vittoria (University of Verona); Montinari, Natalia (Department of Economics, Lund University); Nardi, Chiara (University of Verona)
    Abstract: In the hybrid game, one proposer confronts two responders with veto power: one responder can condition his decisions on his own offer but the other cannot. We vary what the informed responder knows about the offers as well as the uninformed responder's conflict payoff. Neither variation affects behavior: proposers always favor informed responders, who frequently accept minimal offers.
    Keywords: Ultimatum; Yes/No game
    JEL: C72 C92
    Date: 2014–05–19
  16. By: Akamatsu, Takashi; Fujishima, Shota; Takayama, Yuki
    Abstract: We investigate the differences and connections between discrete-space and continuous-space social interaction models. Although our class of continuous-space model has a unique equilibrium, we find that discretized models can have multiple equilibria for any degree of discretization, which necessitates a stability analysis of equilibria. We present a general framework for characterizations of equilibria and their stability under a broad class of evolutionary dynamics by using the properties of a potential game. Although the equilibrium population distribution in the continuous space is uniquely given by a symmetric unimodal distribution, we find that such a distribution is not always stable in a discrete space. On the other hand, we also show that any sequence of a discrete-space model's equilibria converges with the continuous-space model's unique equilibrium as the discretization is refined.
    Keywords: Social interaction; Agglomeration; Discrete space; Potential game; Stability; Evolutionary game theory
    JEL: C62 C72 C73 D62 R12
    Date: 2014–05–08
  17. By: Ian A. MacKenzie (School of Economics, The University of Queensland); Markus Ohndorf (Institute for Environmental Decisions, ETH Zürich)
    Abstract: Coasean arguments against the Pigouvian perspective are well established. A central tenet in this criticism argues that a Pigouvian tax may be a source of inefficiency: if parties were to bargain in the presence of a Pigouvian tax, (allocative) inefficiencies would occur-the so-called Buchanan-Stubblebine-Turvey Theorem. By analyzing a Coasean environment where the appropriation of property rights is costly, we show-in contrast to the Buchanan-Stubblebine-Turvey Theorem-that Coasean bargaining in the presence of a pre-existing (Pigouvian) tax is Pareto improving. This has implications for policy where dual regulatory environments exist, such as regulation at the state and federal level, as well as environmental liability and litigation.
    Date: 2014–05–01

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