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on Microeconomics |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is characterized and shown to be equivalent to the set of a version of incomplete information correlated equilibria which we dub Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures -- which we call individual sufficiency -- under which more information shrinks the set of Bayes correlated equilibria. We discuss the relation of the solution concept to alternative definitions of correlated equilibrium in incomplete information games and of the partial order on information structures to others, including Blackwell's for the single player case. |
| Keywords: | Correlated equilibrium, Incomplete information, Robust predictions, Information structure, Sufficiency, Blackwell ordering |
| JEL: | C72 D82 D83 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1909r&r=mic |
| By: | Juan I. Beccuti |
| Abstract: | This paper studies the optimal mechanism for a seller (she) that sells, in a sequence of periods, an indivisible object per period to the same buyer (he). Buyer's willingness to pay remains constant along time and is his private information. The seller can commit to the current period mechanism but not to future ones. Our main result is that a seller cannot do better than posting a price in every period. We give a complete characterization of the optimal mechanism and equilibrium payoffs for every prior. Also, we show that, when agents are arbitrarily patient, the seller does not learn about buyer's type except in extreme cases, posting a price equal to the minimum buyer's willingness to pay in every period. This result is a reminiscence of the Coase's conjecture, where a monopolist cannot exert her monopoly power due to the lack of long-term commitment. |
| Keywords: | asymmetric information; dynamics; optimal mechanism; imperfect commitment |
| JEL: | D82 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1402&r=mic |
| By: | Juan I. Beccuti |
| Abstract: | This paper studies the optimal mechanisms for a seller (she) who puts up for sale one individual unit per period to a single buyer (he) in a two-period game. The buyer's willingness to pay remains constant over time and is his private information. The seller can commit to the mechanism for the first period but not to the second one. In this setting, she cannot achieve greater payoffs than those obtained by posting a price in each period. However, price posting is not optimal if he is sufficiently impatient relative to her. It is also proved that a mechanism à la Goethe (see Moldovanu and Tieztel 1998) is almost optimal. |
| Keywords: | asymmetric information; imperfect commitment; dynamics; mechanism design; non-optimality of posting prices |
| JEL: | D82 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1401&r=mic |
| By: | Theodore L. Turocy (University of East Anglia); Lucas Rentschler (Universidad Francisco Marroquin) |
| Abstract: | We analyze symmetric, two-player all-pay auctions with interdependent valuations and general discrete signal structures. We extend the previous literature by being able to analyze auctions in which an increase in a bidder's posterior expected value for winning the auction is likely to be accompanied by a corresponding increase for the other bidder. Such environments are `highly competitive' in the sense that the bidder's higher valuation also signals that the other bidder has an incentive to bid aggressively. We present a construction which computes all symmetric equilibria, and show how, in highly competitive environments, the search problem this construction faces can be complex. In equilibrium, randomization can take place over disjoint ranges of bids, with equilibrium supports having a potentially rich structure. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:uea:aepppr:2012_63&r=mic |
| By: | Berger A.; Müller R.J.; Naeemi S.H. (GSBE) |
| Abstract: | We study characterizations of implementable allocation rules when types are multi-dimensional, monetary transfers are allowed, and agents have quasi-linear preferences over outcomes and transfers. Every outcome is associated with a continuous valuation function that maps an agents type to his value for this outcome.Sets of types are assumed to be convex. Our main characterization theorem implies that allocation rules are implementable if and only if they are implementable on any two-dimensional convex subset of the type set. For finite sets of outcomes, they are implementable if and only if they are implementable on every one-dimensional subset of the type set.Our results complement and extend significantly a characterization result by Saks and Yu, as well as follow-up results thereof. Contrary to our model, this stream of literature identifies types with valuation vectors. In such models, convexity of the set of valuation vectors allows for a similar characterization as ours.Furthermore, implementability on one-dimensional subsets of valuation vectors is equivalent to monotonicity.We show by example that the latter does not hold anymore in our more general setting.Our proofs demonstrate that the linear programming approach to mechanism design, pioneered in Gui et al. and Vohra, can be extended from models with linear valuation functions to arbitrary continuous valuation functions. This provides a deeper understanding of the role of monotonicity and local implementation.In particular, we provide a new, simple proof of the Saks and Yu theorem, and generalizations thereof.Modeling multi-dimensional mechanism design the way we propose it here is of relevance whenever types are given by few parameters, while the set of possible outcomes is large, and when values for outcomes are non-linear functions in types. |
| Keywords: | Asymmetric and Private Information; Mechanism Design; |
| JEL: | D82 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2014021&r=mic |
| By: | Charles Z. Zheng (University of Western Ontario) |
| Abstract: | Existence of a monotone pure-strategy perfect Bayesian equilibrium is proved for a multistage game of first-price auctions with interbidder resale, with any finite number of ex ante different bidders. Endogenous gains at resale complicate the winner’s curse and upset previous fixed-point methods to prove existence of monotone equilibria. This paper restructures the fixed-point approach with respect to comparative statics of the resale mechanisms strategically chosen after the auction. Despite speculation possibilities and the discontinuity-inducing uniform tie-breaking rule, at our equilibrium any bid that stands a chance to win is strictly increasing in the bidder’s use value. |
| Keywords: | none available |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20141&r=mic |
| By: | Francesco Giovannoni; Miltiadis Makris |
| Abstract: | We consider auctions where bidders care about the reputational effects of their bidding and argue that the amount of information that is disclosed at the end of the auction will influence bidding. Our analysis focuses on several bid disclosure rules that capture all of the realistic cases. We show that bidders distort their bidding in a way that conforms to stylized facts about takeovers/licence auctions. Also, we rank the disclosure rules in terms of the expected revenues they generate and find that, under certain conditions, full disclosure will not be optimal. |
| Keywords: | Auctions, signaling, disclosure. |
| JEL: | D44 D82 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:14/641&r=mic |
| By: | Sonja Brangewitz (University of Paderborn); Claus-Jochen Haake (University of Paderborn) |
| Abstract: | In this paper, we analyze a model in which two divisions negotiate over an intrafirm transfer price for an intermediate product. Formally, we consider bargaining problems under incomplete information, since the upstream division’s (seller's) costs and downstream division's (buyer's) revenues are supposed to be private information. Assuming two possible types for buyer and seller each, we first establish that the bargaining problem is regular, regardless whether incentive and/or efficiency constraints are imposed. This allows us to apply the generalized Nash bargaining solution to determine transfer payments and transfer probabilities. Furthermore, we derive general properties of this solution for the transfer pricing problem and compare the model developed here with the existing literature for negotiated transfer pricing under incomplete information. In particular, we focus on the models presented in Wagenhofer (1994). |
| Keywords: | Transfer Pricing, Negotiation, Generalized Nash Bargaining Solution, Incomplete Information |
| JEL: | C78 D82 M41 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:ciepap:64&r=mic |
| By: | Eric Bahel |
| Abstract: | The notion of veto player was originally introduced in simple games [see Nakamura (1979)], for which every coalition has a value of 0 or 1. In this paper we extend it to monotonic cooperative games with transferable utility: a player has veto power if all coalitions not containing her are worthless. We examine and characterize the core for each one of these "veto games". Moreover, we show the equivalence of the core and the bargaining set. Our work extends the clan games and big-boss games introduced respectively by Potters et al. (1989) and Muto et al. (1988). |
| Keywords: | TU game, veto power, core, objection, bargaining set. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:vpi:wpaper:e07-48&r=mic |
| By: | Ning Sun; Zaifu Yang |
| Abstract: | This article proposes an efficient and incentive compatible dynamic auction for selling multiple complementary goods to finitely many bidders. The goods are traded in discrete quantities. The seller has a reserve price for every bundle of goods and determines which bundles to sell based on prevailing prices. The auctioneer announces a current price for every bundle of goods and a supply set of goods, every bidder subsequently responds with a set of goods demanded at these prices, and then the auctioneer adjusts prices. We prove that even when bidders can exercise their market power strategically, this dynamic auction always induces them to bid truthfully as price-takers, resulting in an efficient allocation, its supporting Walrasian equilibrium price for every bundle of goods, and a generalized Vickrey-Clarke-Groves payment for every bidder. |
| Keywords: | Dynamic auction, complements, incomplete information, incentive, efficiency, ex post perfect equilibrium, indivisibility. |
| JEL: | D44 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/06&r=mic |
| By: | Nick Vikander (Department of Economics, Copenhagen University) |
| Abstract: | This paper examines how a firm can strategically use sellouts to influence beliefs about its good's popularity. A monopolist faces a market of conformist consumers, whose willingness to pay is increasing in their beliefs about aggregate demand. Consumers are broadly rational but have limited strategic reasoning about the firm's incentives. I show that in a dynamic setting, the firm can use current sellouts to mislead consumers about future demand and increase future profits. Sellouts tend to occur when demand is low, they are accompanied by introductory pricing, and certain consumers benefit from others being misled. |
| Keywords: | sellouts, conformity, bounded rationality, obfuscation |
| JEL: | D03 D42 D83 |
| Date: | 2014–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1415&r=mic |
| By: | Azomahou T.T.; Opolot D. (UNU-MERIT) |
| Abstract: | We study the dynamics of individual beliefs and information aggregation when agents communicate via a social network. We provide a general framework of social learning that captures the interactive effects of three main factors on the structure of individual beliefs resulting from such a dynamic process; that is historical factorsprior beliefs, learning mechanismsrational and bounded rational learning, and the topology of communication structure governing information exchange. More specifically, we provide conditions under which heterogeneity and consensus prevail. We then establish conditions on the structures of the communication network, prior beliefs and private information for public beliefs to correctly aggregate decentralized information. The speed of learning is also established, but most importantly, its implications on efficient information aggregation. Keywords Learning, social networks, public beliefs, speed of learning, information aggregation. |
| Keywords: | Game Theory and Bargaining Theory: General; Search; Learning; Information and Knowledge; Communication; Belief; Network Formation and Analysis: Theory; |
| JEL: | C70 D83 D85 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2014034&r=mic |
| By: | Carmen Arguedas; Esther Blanco |
| Abstract: | We analyze the strategic decision of firms to voluntarily certify corporate social responsibility (CSR) practices in a context where other firms can falsely pretend to be socially responsible. Equilibrium outcomes are crucially determined by consumers' beliefs about the credibility of firms' CSR claims, which depend in turn on the (expected) fines for fraud. First, we show that an increase in such fines extends the likelihood of firms investing in CSR, at the expense of a reduced likelihood of certification. Second, fraud only arises when the fines for fraud are at intermediate levels and some CSR firms do not certify their practices. Third, the presence of fraud comes at a cost for firms by inducing lower equilibrium prices than in settings with honest marketing. Forth, the coexistence of fraud and certification induces differentiation price premia below marginal production costs and certification price premia above marginal certification costs. Lastly, social welfare rises as fines for fraud increase. |
| Keywords: | corporate social responsibility, credence goods, certification, fraud |
| JEL: | C72 D43 H23 Q58 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2014-18&r=mic |
| By: | Fabrizio Adriani (School of Economics, University of Leicester); Silvia Sonderegger (Department of Economics, University of Nottingham) |
| Abstract: | We study Nature's trade-off when endowing people with the cognitive ability to distinguish between different time periods or different prizes. Our key premise is that cognitive ability is a scarce resource, to be deployed only where and when it really matters. We show that this simple insight can explain a number of observed anomalies: (i) time preference reversal, (ii) magnitude effects, (iii) cycles, (iv) interval length effects. An implication of our analysis is that, from an evolutionary perspective, people may be suffering from too much tendency to postpone (rather than to anticipate) consumption, turning upside-down existing interpretations of preference reversal. |
| Keywords: | Foundations of preferences, intertemporal choice, similarity judgments |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2014-06&r=mic |