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on Microeconomics |
| By: | Rohan Dutta; David K Levine; Salvatore Modica |
| Date: | 2016–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000001288&r=mic |
| By: | Tamer Boyaci (ESMT European School of Management and Technology); Yalçin Akçay (College of Administrative Sciences and Economics, Koç University) |
| Abstract: | We study the optimal pricing problem of a firm facing customers with limited attention and capability to process information about the value (quality) of the offered products. We model customer choice based on the theory of rational inattention in the economics literature, which enables us to capture not only the impact of true qualities and prices, but also the intricate effects of customer’s prior beliefs and cost of information acquisition and processing. We formulate the firm’s price optimization problem and characterize the pricing and revenue implications of customer’s limited attention. We test the robustness of our results under various modelling generalizations such as prices signaling quality and customer heterogeneity, and study extensions such as multiple products, competition, and joint inventory and pricing decisions. We also show that using alternative pricing policies that ignore the limited attention of customers or their ability to allocate this attention judiciously can potentially lead to significant profit losses for the firm. We discuss the managerial implications of our key findings and prescribe insights regarding information provision and product positioning. |
| Keywords: | Pricing, choice behavior, rational inattention, information acquisition, signaling game |
| Date: | 2016–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-16-01&r=mic |
| By: | Ismail M.S. (GSBE) |
| Abstract: | We show that there are games and decision situations in which it is not possible for the decision maker to be rational a la von Neumann-Morgenstern in both situations simultaneously, which is the source of the paradox presented in this note. We provide an assumption which is the necessary and sufficient condition for a decision maker to be rational in both situations. |
| Keywords: | Information, Knowledge, and Uncertainty: General; |
| JEL: | D80 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2015041&r=mic |
| By: | Christoph Kuzmics (University of Graz); Jan-Henrik Steg (Bielefeld University) |
| Abstract: | Consider a mechanism for the binary public good provision problem that is dominant strategy incentive compatible (DSIC), ex-post individually rational (EPIR), and ex-post budget balanced (EPBB). Suppose this mechanism has the additional property that the utility from participating in the mechanism to the lowest types is zero for all agents. Such a mechanism must be of a threshold form, in which there is a fixed threshold for each agent such that the public good is not provided if there is an agent with a value below her threshold and is provided if all agents' values exceed their respective threshold. There are mechanism that are DSIC, EPIR, and EPBB that are not of the threshold form. Mechanisms that maximize welfare subject to DSIC, EPIR, and EPBB must again have the threshold form. Finally, mechanisms that are DSIC, EPIR, EPBB and that furthermore satisfy the condition that there is at least one type profile in which all agents can block the provision of the public good, also must be of the threshold form. As we allow individuals' values for the public good to be negative and positive, our results cover examples including bilateral trade, bilateral wage negotiations, a seller selling to a group of individuals (who then have joint ownership rights), and rezoning the use of land. |
| Keywords: | Public good provision; asymmetric information; dominant strategy |
| JEL: | C72 D82 H41 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2016-03&r=mic |
| By: | Erik Eyster; Andrea Galeotti; Navin Kartik; Matthew Rabin |
| Abstract: | We study observational learning in environments with congestion costs: an agent’s payoff from choosing an action decreases as more predecessors choose that action. Herds cannot occur if congestion on every action can get so large that an agent prefers a different action regardless of his beliefs about the state. To the extent that switching away from the more popular action reveals private information, it improves learning. The absence of herding does not guarantee complete (asymptotic) learning, however, as information cascades can occur through perpetual but uninformative switching between actions. We provide conditions on congestion costs that guarantee complete learning and conditions that guarantee bounded learning. Learning can be virtually complete even if each agent has only an infinitesimal effect on congestion costs. We apply our results to markets where congestion costs arise through responsive pricing and to queuing problems where agents dislike waiting for service. |
| Keywords: | congestion; information aggregation; queueing; social learning |
| JEL: | J1 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58748&r=mic |
| By: | DREZE, J. (Université catholique de Louvain, CORE, Belgium) |
| Abstract: | Under state-dependent preferences, probabilities and units of scale of statedependent utilities are not separately identified, in standard models: only their products matter to decisions. Separate identification has been studied under implicit actions (Drèze 1987) or under explicit actions and observations (Karni 2011). This paper complements both approaches and relates them. |
| Keywords: | expected utility, state-dependent preferences, subjective probability |
| JEL: | D81 |
| Date: | 2015–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2015044&r=mic |
| By: | Anne-Christine Barthel (Department of Economics, Ripon College); Tarun Sabarwal (Department of Economics, University of Kansas) |
| Abstract: | Many questions of interest in economics can be stated in terms of monotone comparative statics: If a parameter of a constrained optimization problem increases, when does its solution increase as well. This paper characterizes monotone comparative statics in different directions in finitedimensional Euclidean space. These new characterizations are ordinal and retain the same flavor as their counterparts in the standard theory, showing new connections to the standard theory. The results are highlighted by several applications in consumer theory, producer theory and game theory. These applications |
| Keywords: | monotone comparative statics, directional single-crossing property, directional set order |
| JEL: | C61 C70 D00 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201601&r=mic |
| By: | LAM, W. (University of Liege) |
| Abstract: | In many markets, there are switching costs and network effects. Yet the literature gen- erally deals with these two concepts separately. This paper bridges the gap by analyzing their interaction effects (or “indirect bargain”) in a dynamic two-sided market. I show that in a symmetric equilibrium, the classic result that the first-period price is U-shape in switching costs does not emerge, but instead switching costs always intensify first-period price competition. Moreover, an increase in switching costs on one side decreases the first- period price on the other side. Thus policies that ignore these effects may underestimate the welfare-enhancing effects of switching costs. |
| Keywords: | switching costs, two-sided markets, network externality, myopia, loyalty |
| JEL: | D43 L13 L96 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2015024&r=mic |
| By: | Arnaud Dellis (University of Quebec in Montreal); Mandar Oak (School of Economics, University of Adelaide) |
| Abstract: | We develop a model of informational lobbying in which a policymaker must decide which issues to reform, but is uninformed about which issues he would be better off reforming. On each issue there is an informed interest group that always favors the adoption of reform, and which can lobby the policymaker by offering to provide verifiable information about the state of the world for its issue. A key feature of our model is that the policymaker faces time/resource constraints which may restrict both 1) his ability to grant access to and verify the information of all lobbying interest groups and 2) his ability to reform all issues. We show that when the policymaker can reform all issues, the act of lobbying by an interest group signals information only imperfectly. In particular, an interest group may want to lobby the policymaker even when it does not possess favorable information in the hope that the policymaker is unable to verify its information but still takes the act of lobbying as a signal that the state is favorable to reform. We call such lobbying behavior 'overlobbying'. We then show that a restriction on the number of issues on which reforms can be implemented, viz. an agenda constraint, can improve information transmission by eliminating overlobbying. Importantly, we identify circumstances in which an agenda constraint improves the ex ante welfare of the policymaker and of each interest group, leading to a Pareto improvement. |
| Keywords: | Lobbying; information; access; agenda constraint; Pareto improvement |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2016-05&r=mic |
| By: | Rhodes, Andrew; Wilson, Chris |
| Abstract: | There is widespread evidence that some firms use false advertising to overstate the value of their products. Using a model in which a policymaker is able to punish such false claims, we characterize a natural equilibrium in which false advertising actively influences rational buyers. We analyze the effects of policy under different welfare objectives and establish a set of demand and parameter conditions where policy optimally permits a positive level of false advertising. Further analysis considers some wider issues including the implications for product investment and industry self-regulation. |
| Keywords: | Misleading Advertising,Pass-through,Product Quality |
| JEL: | M37 L15 D83 |
| Date: | 2016–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:128476&r=mic |
| By: | Gwenaël Piaser |
| Date: | 2016–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-49&r=mic |
| By: | Lorenzo Bastianello; Alain Chateauneuf |
| Date: | 2016–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2013-30&r=mic |
| By: | R.A Dana; C. Le Van |
| Date: | 2016–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-61&r=mic |
| By: | Grüner, Hans Peter; Tröger, Thomas |
| Abstract: | How should a society choose between two social alternatives when valuations are private, monetary transfers are not feasible, and participation in the decision process is costly? We show that it is always socially optimal to use a linear voting rule: votes get alternative-dependent weights, and a default obtains if the weighted sum of votes stays below some threshold. A participation or approval quorum rule can be optimal only if one side of the electorate abstains. In the case of small participation costs, we characterize the equilibria of linear voting rules and solve for welfare-maximizing rules. Voluntary voting always dominates compulsory voting. If (and only if) the heterogeneity of preference intensities across the electorate is small, in the optimum essentially only one side of the electorate participates. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11127&r=mic |
| By: | G. Carlier; R.-A. Dana; R.-A. Dana |
| Date: | 2016–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-60&r=mic |