nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒09‒29
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Optimal Sales Contracts with Withdrawal Rights By Daniel Krähmer; Roland Strausz; Melanie;
  2. Pareto efficiency in the dynamic one-dimensional bargaining model By Tasos Kalandrakis
  3. Ex post information rents in sequential screening By Daniel Krähmer; Roland Strausz; Melanie;
  4. Non-Laplacian Beliefs in a Global Game with Noisy Signaling By Chris Edmond
  5. Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price By Kircher, Philipp; Kim, Kyungmin
  6. Signalling quality with posted prices By Peyman Khezr; Abhijit Sengupta
  7. Auctions with prestige motives By Olivier BOS; Tom TRUYTS
  8. Limited Attention in Case-Based Belief Formation By Joerg Bleile
  9. On the Characterization of Incentive Compatible Mechanisms in General Quasi-linear Environments By Yu Chen
  10. Nash Equilibrium in Discontinuous Games By Philip J. Reny
  11. Unanimity in Attribute-Based Preference Domains By Sidartha Gordon
  12. The Optimal Sequence of Costly Mechanisms By Hanzhe Zhang
  13. One-Leader and Multiple-Follower Stackelberg Games with Private Information By Tomoya Nakamura
  14. A Model of Quality Uncertainty with a Continuum of Quality Levels By Christopher Gertz
  15. Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem µa la Cournot By Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
  16. Correlated equilibria in homogenous good Bertrand competition By Ole Jann; Christoph Schottmüller
  17. Statistical utilitarianism By Marcus Pivato
  18. Certification and Market Transparency By Konrad Stahl; Roland Strausz; ;
  19. Manipulating decision making of typical agents By V. I. Yukalov; D. Sornette
  20. Aggregative Oligopoly Games with Entry By Simon P. Anderson, Nisvan Erkal and

  1. By: Daniel Krähmer; Roland Strausz; Melanie;
    Abstract: We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agent’s ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling.
    Keywords: Sequential screening, dynamic mechanism design, participation constraints, Mirrlees approach
    JEL: D82 H57
    Date: 2014–09
  2. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: Pareto dominated agreements are shown to prevail with positive probability in an open set of status quo in a Markov perfect equilibrium of a one-dimensional dynamic bargaining game with endogeneous status-quo. This equilibrium is continuous, symmetric, with dynamic preerences that satisfy the single-plateau proerty. It is also shown that there does not exist a symmetric equilibrium with single-peaked preferences.
    Date: 2014–08
  3. By: Daniel Krähmer; Roland Strausz; Melanie;
    Abstract: We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agent’s ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling.
    Keywords: information rents, sequential screening, information disclosure
    JEL: D82 H57
    Date: 2014–09
  4. By: Chris Edmond
    Abstract: In standard global games, individual behavior is optimal if it constitutes a best response to agnostic - Laplacian - beliefs about the aggregate behavior of other agents. This paper considers a standard binary action global game augmented with noisy signaling by an informed policy-maker and shows that in this game, equilibrium beliefs depart in quite stark ways from the Laplacian benchmark. In the limit as signals become arbitrarily precise, so that all fundamental uncertainty is removed (leaving only strategic uncertainty), the equilibrium beliefs of the marginal individual concerning the aggregate action collapse to a discrete binomial distribution, giving probability mass only to the polar extreme outcomes. By contrast in the underlying standard global game the marginal individual believes the aggregate action has a continuous uniform distribution, giving equal likelihood to all possible outcomes.
    Keywords: coordination;signaling;bias;strategic uncertainty;noise
    JEL: C7 D7 D8
    Date: 2013
  5. By: Kircher, Philipp; Kim, Kyungmin
    Abstract: We consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.
    Keywords: Directed search, competitive search, commitment, cheap talk,
    Date: 2013
  6. By: Peyman Khezr (School of Economics, The University of Queensland); Abhijit Sengupta (School of Economics, University of Sydney)
    Abstract: We study a game in which the seller of an indivisible object wants to sell her object to a finite number of potential buyers with a posted price. The environment is such that the seller has some private information about the quality of the object that cannot be communicated with buyers at zero cost. We focus on the separating equilibrium of this game in which the seller signals her actual type via the posted price. The conditions of the existence and the uniqueness of this equilibrium are studied. In an example, we calculate the seller’s expected payoff at this equilibrium and further discuss some comparative statistics.
    Date: 2014–09–02
  7. By: Olivier BOS; Tom TRUYTS
    Abstract: Social status, or prestige, is an important motive for buying art or collectibles and for participation in charity auctions. We study a symmetric private value auction with prestige motives, in which the auction outcome is used by an outside observer to infer the bidders’ types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in four auction formats: first-price, second-price, all-pay and the English auction. We obtain a strict ranking in terms of expected revenues: the first-price and all-pay auctions are dominating the English auction but are dominated by the second-price auction. Expected revenue equivalence is restored asymptotically for the number of bidders going to infinity.
    Date: 2014–07
  8. By: Joerg Bleile (Center for Mathematical Economics, Bielefeld University)
    Abstract: An agent wants to derive her belief over outcomes based on past observations collected in her database (memory). There is well establish evidence in the psychology and marketing literature that agents consistently fail (or choose not) to process all available information. An agent might be constraint to pay attention (recall) and consider only parts of her potentially available information due to unawareness, cognitive or psychological limitations or intentionally for effort-efficiency. Based on this insight, we axiomatize a two-stage belief formation process in which in a first step agents filter ((un)intentionally) the available information. In a second step individuals employ the remaining observations to express a belief. We impose cognitively and normatively desirable properties on the filtering process. The axioms on the belief formation stage describe the relationship between databases and their induced beliefs. The axiomatized belief induced by a filtered databases is representable by a similarity weighted average of the estimations induced by each past attentiongrabbing observation. An appealing application is a satisficing filter that induces a filtered belief that relies only on past experiences that are sufficiently relevant for a current problem. For the specific situation that agents (are able to) always pay attention to all available information, our axiomatization coincides with the axiomatization of a belief formation in Billot et al.(Econometrica (2005)).
    Keywords: Belief formation, prior, case-based reasoning, relative frequencies, similarity, limited attention, consideration set, heuristics, satisficing, multicriteria choice, rationalization
    JEL: D01 D03 D11 D81 D83
    Date: 2014–06
  9. By: Yu Chen (Nanjing University)
    Keywords: Bayesian incentive compatible mechanism, ex post incentive compatible mechanism, quasi-linear environment
    JEL: C72 D82 D86
    Date: 2014–02
  10. By: Philip J. Reny (University of Chicago)
    Abstract: We provide several generalizations of the various equilibrium existence results in Reny (1999), Barelli and Meneghel (2013), and McLennan, Monteiro, and Tourky (2011). We also provide an example demonstrating that a natural additional generalization is not possible. All of the theorems yielding existence of pure strategy Nash equilibria here are stated in terms of the players' preference relations over joint strategies. Hence, in contrast to virtually all of the previous work in the area the present results for pure strategy equilibria are entirely ordinal, as they should be.
    Keywords: discontinuous games, Nash equilibrium, pure strategies, ordinal
    JEL: C60
    Date: 2013
  11. By: Sidartha Gordon (Département d'économie)
    Abstract: We provide several characterizations of unanimity decision rules, in a public choice model where preferences are constrained by attributes possessed by the alternatives (Nehring and Puppe, 2007a,b). Solidarity conditions require that when some parameters of the economy change, the agents whose parameters are kept fixed either all weakly lose or they all weakly win. Population-monotonicity (Thomson, 1983a,b) applies to the arrival and departure of agents, while replacement-domination (Moulin,1987) applies to changes in preferences. We show that either solidarity property is compatible with voter-sovereignty and strategy-proofness if and only if the attribute space is quasi-median (Nehring, 2004), and with Pareto-efficiency if and only if the attribute space is a tree. Each of these combinations characterizes unanimity.
    Keywords: Solidarity, Population-monotonicity, Replacement-domination, Unanimity, Strategy-proofness, Attribute-based Domains, Generalized Single-Peaked Domains.
    Date: 2014–09
  12. By: Hanzhe Zhang (Department of Economics, University of Chicago)
    Abstract: An impatient, risk-neutral monopolist must sell one unit of an indivisible good within a fixed number of periods and privately informed myopic buyers with independent values enter the market over time. In each period, the seller can either run a reserve price auction incurring a cost or post a price without the cost. We characterize the optimal sequence of mechanisms that maximizes the seller's expected profits. When there is an infinite number of periods, repeatedly running auctions with the same reserve price or posting a constant price is optimal. When there is a finite number of periods, the optimal sequence is a sequence of declining prices, a sequence of auctions with declining reserve prices converging to the static optimal monopoly reserve price, or the combination of the two. Most interestingly, a sequence of auctions before a sequence of posted prices is never optimal. The mechanism sequence of posted prices followed by auctions remains optimal under various extensions of the basic setting and resembles a Buy-It-Now option.
    Date: 2013
  13. By: Tomoya Nakamura
    Abstract: This study analyzes one-leader and multiple-follower Stackelberg games with demand uncertainty. We demonstrate that the weight on public information regarding a follower's estimation of demand uncertainty determines the strategic relationship between the leader and each follower. When the relationship is strategic complement, the leader can exit from a market. The threshold is determined by the intensity of Cournot competition among the followers.
    Date: 2014–07
  14. By: Christopher Gertz (Center for Mathematical Economics, Bielefeld University)
    Abstract: This work takes a closer look on the predominant assumption in usual lemon market models of having finitely many or even only two different levels of quality. We model a situation which is close to the classical monopolistic setting but admits an interval of possible quality values. Additionally, to make the model interesting, the consumer receives a signal which is correlated to the quality level and is her private information. We introduce a new concept for the consumer reaction to the received information, encompassing rationality but also allowing for a certain degree of imperfection. We find that there is always a strictly positive price-quality relation in equilibrium but the classical adverse selection effects are not observed. In contrast, low quality levels do not make any sales. After applying a refinement to these equilibria, we show that when the additional signal is very precise, more low quality levels are excluded from the market. In the limit of perfect information, the market breaks down, a behavior completely opposed to the original perfect information case. These different and quite extreme results compared to the classical lemon market case should serve as a warning to have a closer look at the assumption of having finitely many quality levels.
    Keywords: Quality uncertainty, Price signaling, Adverse selection, Two-sided incomplete information
    JEL: C72 D42 D82
    Date: 2014–09
  15. By: Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
    Abstract: In this paper, we consider an exchange economy µa la Shitovitz (1973), with atoms and an atomless set. We associate with it a strategic market game of the kind first proposed by Lloyd S. Shapley and known as the Shapley window model. We analyze the relationship between the set of the Cournot-Nash equilibrium allocations of the strategic market game and the Walras equilibrium allocations of the exchange economy with which it is associated. We show, with an example, that even when atoms are countably in¯nite, any Cournot-Nash equilibrium allocation of the game is not a Walras equilibrium of the underlying exchange economy. Accordingly, in the original spirit of Cournot (1838), we par- tially replicate the mixed exchange economy by increasing the number of atoms, without a®ecting the atomless part, and ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market games associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy.
    Date: 2014
  16. By: Ole Jann (Department of Economics, Copenhagen University); Christoph Schottmüller (Department of Economics, Copenhagen University)
    Abstract: We show that there is a unique correlated equilibrium, identical to the unique Nash equilibrium, in the classic Bertrand oligopoly model with homogenous goods. This provides a theoretical underpinning for the so-called "Bertrand paradox" and also generalizes earlier results on mixed-strategy Nash equilibria. Our proof generalizes to asymmetric marginal costs and arbitrarily many players.
    Keywords: Bertrand paradox, correlated equilibrium, price competition
    JEL: C72 D43 L13
    Date: 2014–06–30
  17. By: Marcus Pivato (Université de Cergy-Pontoise, THEMA and Department of Mathematics, Trent University, Canada)
    Abstract: Given a sufficiently large population satisfying certain statistical regularities, we show that it is often possible to accurately estimate the utilitarian social welfare func- tion and identify the welfare-maximizing social alternative, even if we only have very noisy data about individual utility functions and interpersonal utility comparisons, and even if the individuals can be strategically dishonest.
    Keywords: utilitarian; interpersonal comparisons; Groves-Clarke pivotal mecha- nism.
    JEL: D63 D71
    Date: 2014
  18. By: Konrad Stahl; Roland Strausz; ;
    Abstract: We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certifiers further limit transparency, but because seller-certification yields larger profits, active regulation concerning the mode of certification is not needed. These findings are robust and widely applicable to, for instance, patents, automotive parts, and financial products.
    Keywords: Market Transparency; Certification; Information and Product Quality; Asymmetric Information
    JEL: D82 G24 L15
    Date: 2014–09
  19. By: V. I. Yukalov; D. Sornette
    Abstract: We investigate how the choice of decision makers can be varied under the presence of risk and uncertainty. Our analysis is based on the approach we have previously applied to individual decision makers, which we now generalize to the case of decision makers that are members of a society. The approach employs the mathematical techniques that are common in quantum theory, justifying our naming as Quantum Decision Theory. However, we do not assume that decision makers are quantum objects. The techniques of quantum theory are needed only for defining the prospect probabilities taking into account such hidden variables as behavioral biases and other subconscious feelings. The approach describes an agent's choice as a probabilistic event occurring with a probability that is the sum of a utility factor and of an attraction factor. The attraction factor embodies subjective and unconscious dimensions in the mind of the decision maker. We show that the typical aggregate amplitude of the attraction factor is $1/4$, and it can be either positive or negative depending on the relative attraction of the competing choices. The most efficient way of varying the decision makers choice is realized by influencing the attraction factor. This can be done in two ways. One method is to arrange in a special manner the payoff weights, which induces the required changes of the values of attraction factors. We show that a slight variation of the payoff weights can invert the sign of the attraction factors and reverse the decision preferences, even when the prospect utilities remain unchanged. The second method of influencing the decision makers choice is by providing information to decision makers. The methods of influencing decision making are illustrated by several experiments, whose outcomes are compared quantitatively with the predictions of our approach.
    Date: 2014–09
  20. By: Simon P. Anderson, Nisvan Erkal and
    Abstract: We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We fi?rst 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 ?rooms 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? pro?ts fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus.
    Keywords: Aggregative games; oligopoly theory; entry; strategic substitutes and
    JEL: D43 L13
    Date: 2009

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