nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒02‒04
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Competing Mechanisms in Markets for Lemons By Sarah Auster; Piero Gottardi
  2. How Fast Do Equilibrium Payoff Sets Converge in Repeated Games? By Johannes Horner; Satoru Takahashi
  3. Commercial Platforms With Heterogeneous Participants By Gabriel Garber; Márcio Issao Nakane
  4. Information Acquisition in Vertical Relations By Pio Baake; Andreas Harasser; Friederike Heiny
  5. Cognitive Empathy in Conflict Situations By Florian Gauer; Christoph Kuzmics
  6. Should a non-rival public good always be provided centrally? By GRAVEL, Nicolas; POITEVIN, Michel
  7. Inequity-averse preferences in general equilibrium By Rodrigo A. Velez
  8. Designing a Strategy-Proof Spot Market Mechanism with Many Traders : Twenty-Two Steps to Walrasian Equilibrium By Hammond, Peter J.
  9. Toward a Theory of Monopolistic Competition By Mathieu Parenti; Philip Ushchev; Jacques-Francois Thisse

  1. By: Sarah Auster; Piero Gottardi
    Abstract: We study the competitive equilibria in a market with adverse selection and search frictions. Uninformed buyers post general direct mechanisms and informed sellers choose where to direct their search. We demonstrate that there exists a unique equilibrium allocation and characterize its properties: all buyers post the same mechanism and a low quality object is traded whenever such object is present in a meeting. Sellers are thus pooled at the search stage and screened at the mechanism stage. If adverse selection is sufficiently severe, this equilibrium is constrained inefficient. Furthermore, the properties of the equilibrium differ starkly from the case where meetings are restricted to be bilateral, in which case in equilibrium sellers sort themselves at the search stage across different mechanisms. Compared to such sorting equilibria, our equilibriumyields a higher surplus for most, but not all, parameter specifications.
    Date: 2016
  2. By: Johannes Horner (Cowles Foundation, Yale University); Satoru Takahashi (National University of Singapore)
    Abstract: We provide tight bounds on the rate of convergence of the equilibrium payoff sets for repeated games under both perfect and imperfect public monitoring. The distance between the equilibrium payoff set and its limit vanishes at rate (1 - delta)^{1/2} under perfect monitoring, and at rate (1 - delta)^{1/4} under imperfect monitoring. For strictly individually rational payoff vectors, these rates improve to 0 (i.e., all strictly individually rational payoff vectors are exactly achieved as equilibrium payoffs for delta high enough) and (1 - delta)^{1/2}, respectively.
    Keywords: Repeated games, Rates of convergence
    JEL: C72 C73
  3. By: Gabriel Garber; Márcio Issao Nakane
    Abstract: We study two-sided markets where there are buyers and sellers, with heterogeneous participants on each side. Buyers care about the quality of the good purchased, but sellers care only about the price they get. When there is informational asymmetry about types between the sides, the role of a platform as a certifier that guarantees a minimum quality becomes central to the transactions. We analyze first-best (perfect information) and pooling equilibria without platforms and a monopolist platform that coexists with an external pooling. We also show there is no equilibrium in a simultaneous game with two platforms
    Date: 2016–01
  4. By: Pio Baake; Andreas Harasser; Friederike Heiny
    Abstract: We analyze a simple supply chain with one supplier, one retailer and uncertainty about market demand. Focusing on the incentives of the supplier and the retailer to enhance their private information about the actual market conditions, we show that choices on information acquisition are strategic complements. While the retailer's incentives are mainly driven by the information rent that he can earn, the supplier will choose to acquire information only if the retailer is rather well informed, even though the information is free of charge.
    Keywords: Asymmetric information, information acquisition, vertical relations
    JEL: D82 D83 D86
    Date: 2016
  5. By: Florian Gauer (Bielefeld University); Christoph Kuzmics (University of Graz)
    Abstract: Two individuals are involved in a conflict situation in which preferences are ex ante uncertain. While they eventually learn their own preferences, they have to pay a small cost if they want to learn their opponent’s preferences. We show that, for sufficiently small positive costs of information acquisition, in any Bayesian Nash equilibrium of the resulting game of incomplete information the probability of getting informed about the opponent’s preferences is bounded away from zero and one.
    Keywords: Incomplete Information; Information Acquisition; Theory of Mind; Conflict; Imperfect Empathy
    JEL: C72 C73 D03 D74 D82 D83
    Date: 2016–01
  6. By: GRAVEL, Nicolas; POITEVIN, Michel
    Abstract: This paper discusses the problem of optimal design of a jurisdiction structure from the view point of a utilitarian social planner when individuals with identical utility functions for a non-rival public good and private consumption have private information about their contributive capacities. It shows that the superiority of a centralized provision of a non-rival public good over a federal one does not always hold. Specifically, when differences in individuals’ contributive capacities are large, it is better to provide the public good in several distinct jurisdictions rather than to pool these jurisdictions into a single one. In the specific situation where individuals have logarithmic utilities, the paper provides a complete characterization of the optimal jurisdiction structure in the two-type case.
    Keywords: Federalism; Jurisdictions; Asymmetric information; Equalization; Second best; Public goods, City mergers
    JEL: D6 H2 H7
    Date: 2015
  7. By: Rodrigo A. Velez (Texas A&M University, Department of Economics)
    Abstract: We study the stability with respect to the introduction of opportunity-based inequity aversion a la Dufwenberg et. al (2011) of three welfare properties satisfied by competitive equilibria in self-regarding economies: (i) Pareto efficiency may not be a stable property; (ii) undomination with respect to income redistribution is a stable property whenever the marginal indirect utility of income has no extreme variations; and (iii) generically (endowment-wise) market-constrained efficiency is a stable property.
    Keywords: inequity aversion, general equilibrium
    JEL: D63 C72
    Date: 2016–01–11
  8. By: Hammond, Peter J. (Department of Economics and CAGE (Centre for Competitive Advantage in the Global Economy) University of Warwick)
    Abstract: To prove their Walrasian equilibrium existence theorem, Arrow and Debreu (1954) devised an abstract economy that Shapley and Shubik (1977) cricitized as a market game because, especially with untrustworthy traders, it fails to determine a credible outcome away from equilibrium. All this earlier work also postulated a Walrasian auctioneer with complete information about traders' preferences and endowments. To ensure credible outcomes, even in disequilibrium, warehousing is introduced into a multi-stage market game. To achieve Walrasian outcomes in a large economy with incomplete information, even about traders' endowments, a strategy-proof demand revelation mechanism is considered, and then extended to include warehousing.
    Keywords: market design ; demand revelation ; strategyproofness ; hidden endowments ; warehousing
    JEL: C72 D41 D51
    Date: 2016
  9. By: Mathieu Parenti (National Research University Higher School of Economics); Philip Ushchev (National Research University Higher School of Economics); Jacques-Francois Thisse (National Research University Higher School of Economics)
    Abstract: We propose a general model of monopolistic competition which encompasses existing models while being exible enough to take into account new demand and competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shock are characterized through necessary and sucient conditions. Furthermore, we show that the attention to the constant elasticity of substitution (CES) based on its normative implications was misguided: constant mark-ups, additivity and homotheticity are neither necessary nor sucient for the market to deliver the optimum outcome. Our approach can cope with heterogeneous rms once it is recognized that the elasticity of substitution is rm-specic. Finally, we show how our set-up can be extended to cope with multiple sectors.
    Keywords: monopolistic competition, general equilibrium, additive preferences, homothetic preferences.
    JEL: D43 L11 L13
    Date: 2016

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