nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒12‒18
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. On Competitive Nonlinear Pricing By Attar, Andrea; Mariotti, Thomas; Salanié, François
  2. Multiproduct Pricing Made Simple By Armstrong, Mark; Vickers, John
  3. Set them (almost) free. Discretion in electoral campaigns under asymmetric information By Vardan, Baghdasaryan; Elena, Manzoni;
  4. Vertical Mergers in Platform Markets By Pouyet, Jérôme; Trégouët, Thomas
  5. Alternative Objectives in an Oligopoly Model : An Aggregative Game Approach By Itaya, Jun-ichi; Cornes, Richard
  6. Speculative Trade under Ambiguity By Jan Werner
  7. An Evolutionary Model of Intervention and Peace By David K Levine; Salvatore Modica
  8. Populism and Institutional Capture By N. Chesterley; P. Roberti
  9. Profit with purpose? A theory of social enterprise By Timothy Besley; Maitreesh Ghatak
  10. A Note on Consumer Surplus and the Structure of Preferences By Paolo Bertoletti
  11. Undue charges and price discrimination By Gabriel Garber; Márcio Issao Nakane
  12. Asymmetric Social Norms By Gabriele Camera; Alessandro Gioffre
  13. Incomplete Contracts and Control By Hart, Oliver

  1. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: We study a discriminatory limit-order book in which uninformed market makers compete in nonlinear tariffs to serve an informed insider. Our model allows for general nonparametric specifications of preferences and for arbitrary discrete distributions for the insider's private information. We show that adverse selection severely restricts possible equilibrium outcomes: in any pure-strategy equilibrium, tariffs must be linear and at most one type may trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances. The Bertrandlike logic underlying these results markedly differs from Cournot-like analyses of the limit-order book that postulate a continuum of types. We argue that these contrasting outcomes can be reconciled when one considers "-equilibria of either the game with a large number of market makers or the game with a large number of insider types. Mixed-strategy equilibria, by contrast, lead to a new class of equilibrium predictions that calls for further analysis.
    Keywords: Adverse Selection, Competing Mechanisms, Limit-Order Book.
    JEL: D43 D82 D86
    Date: 2016–11
  2. By: Armstrong, Mark; Vickers, John
    Abstract: We study multiproduct firms in the contexts of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then discuss a tractable class of preferences that involve a generalized form of homotheticity. Profit-maximizing quantities are proportional to efficient quantities. We discuss optimal monopoly regulation when the firm has private information about its cost vector, and find situations where optimal regulation leaves relative price decisions to the firm.
    Keywords: cost passthrough; Cournot oligopoly; homothetic preferences; monopoly regulation; multidimensional screening; Multiproduct pricing; Ramsey pricing
    JEL: D42 D43 D82 L12 L13 L51
    Date: 2016–12
  3. By: Vardan, Baghdasaryan; Elena, Manzoni;
    Abstract: The paper analyses a model of electoral campaigning as a problem of competitive delegation. We model a situation in which there is uncertainty about what the optimal policy should be and about the extent of candidates' bias. While voters know whether the candidate is left or right wing, the bias measures the extremity of the candidate. In this environment discretion may benefit voters as it allows the elected politician to adjust his policies to the state of the world. The paper shows that the optimal set of promises must be a closed interval, whose size is decreasing in the expected bias of the candidate. An example where the set of types is finite shows that an increase in the variability of candidates' types may either increase or decrease the level of discretion granted to politicians.
    Keywords: Electoral campaigns, Ideological bias, Uncertainty
    JEL: D72 D82
    Date: 2016–12–13
  4. By: Pouyet, Jérôme; Trégouët, Thomas
    Abstract: We analyze the competitive impact of vertical integration between a platform and a manufacturer when platforms provide operating systems for devices sold by manufacturers to customers, and, customers care about the applications developed for the operating systems. Two-sided network effects between customers and developers create strategic substitutability between manufacturers' prices. When it brings efficiency gains, vertical integration increases consumer surplus, is not profitable when network effects are strong, and, benefits the non-integrated manufacturer. When developers bear a cost to make their applications available on a platform, manufacturers boost the participation of developers by affiliating with the same platform. This creates some market power for the integrated firm and vertical integration then harms consumers, is always profitable, and, leads to foreclosure. Introducing developer fees highlights that not only the level, but also the structure of indirect network effects matter for the competitive analysis.
    Keywords: foreclosure; network effects; Two-sided markets; vertical integration
    JEL: D43 L10 L40
    Date: 2016–12
  5. By: Itaya, Jun-ichi; Cornes, Richard
    Abstract: A rapidly growing literature analyzes models in which firms maximize objectives other than profit and enjoy market power. Examples include the labor-managed firm, mixed oligopoly, and delegation models. These models typically retain the aggregative structure of the conventional Cournot model of imperfect competition. We exploit this fact and apply the framework recently developed by Cornes and Hartley (2005, 2011) to analyze the properties of the equilibrium in such games. We show that existing treatments often make more restrictive assumptions than necessary to generate their results. Specifically, we identify conditions sufficient to ensure the existence of a unique equilibrium, and we explore the comparative static properties of these conditions.
    Keywords: Aggregative Game, Oligopoly, Hahn’s Condition, Non-profit Maximization, Share Function,
    Date: 2016–11–06
  6. By: Jan Werner (University of Minnesota)
    Abstract: Ambiguous beliefs may lead to speculative trade and speculative bubbles. We demonstrate this by showing that the classical Harrison and Kreps (1978) example of speculative trade among agents with heterogeneous beliefs can be replicated with agents having common but ambiguous beliefs. More precisely, we show that the same asset prices and pattern of trade can be obtained in equilibrium with agents' having recursive multiple-prior expected utilities with common set of probabilities. While learning about the true distribution of asset dividends makes speculative bubbles vanish in the long run under heterogeneous beliefs, it may not do so under common ambiguous beliefs. Ambiguity need not disappear with learning over time, and speculative bubbles may persist forever.
    Date: 2016
  7. By: David K Levine; Salvatore Modica
    Date: 2016–12–13
  8. By: N. Chesterley; P. Roberti
    Abstract: This paper considers electoral behavior and institutional capture when voters choose between a populist and non-populist politician. Populist politicians provide voters with a utility boom followed by a subsequent bust, as in Dornbusch and Edwards (The Macroeconomics of Populism in Latin America, University of Chicago Press, 1991). Non-populists provide a constant level of utility. Once in power, however, politicians of both types are able to seize control of institutions to ensure their re-election. We show that in equilibrium, populist politicians may capture institutions to avoid being replaced during the bust: non-populists do not. Voters rationally elect a populist if voters discount the future sufficiently or if it is too costly for the populist to seize control of institutions. Unfortunately, both types of politician may prefer weakened institutions, either to allow their capture or to discourage the election of the populist.
    JEL: D72 D73 D74
    Date: 2016–11
  9. By: Timothy Besley; Maitreesh Ghatak
    Abstract: When social benefits cannot be measured, an organization that selects managers based on pro-social motivation can be used to balance profits with a social purpose. This paper develops a model of social enterprise based on selection of citizen-managers to run firms with flexible missions. We analyze organizational choice between social enterprise, for-profits, and non-profits. The paper also develops the implications of matching between founders and managers based on their preferences for the mission.
    JEL: N0 J50
    Date: 2017
  10. By: Paolo Bertoletti (Department of Economics and Management, University of Pavia)
    Abstract: We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated multiproduct pricing. In particular, we discuss the role of substitutability "within group" and with the outside commodity, deriving a Slutsky-like decomposition of the price effect. We use our results to show that Ramsey prices are proportional to marginal costs only if preferences are fully homothetic, and that commodities with larger outside substitutability have smaller Lerner indexes.
    Keywords: Quasi-Linear Preferences; Homotheticity; Ramsey Pricing
    JEL: D11 D43 D61
    Date: 2016–12
  11. By: Gabriel Garber; Márcio Issao Nakane
    Abstract: In this paper, we draw attention to a type of price discrimination that seems to be widespread, but has gone unnoticed by the literature: one based on false mistakes and the heterogeneous cost of complaining. We focus on the example case of a bank manager that charges an undue fee from a client’s balance, and setup a model of price discrimination. We also devise a test for the detection of such behavior in a setting where the authorities have less information about the clients than the bank manager.
    Keywords: Complaint; price discrimination; price discrimination test
    JEL: C70 C10 C12 D82 D18
    Date: 2016–11–24
  12. By: Gabriele Camera (Chapman University and University of Basel); Alessandro Gioffre (Goethe University)
    Abstract: Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.
    Keywords: cooperation, repeated games, social dilemmas
    JEL: C6 C7
    Date: 2016
  13. By: Hart, Oliver (Harvard University)
    Abstract: Oliver Hart delivered his Prize Lecture on 8 December 2016 at the Aula Magna, Stockholm University.
    Keywords: Contract Theory;
    JEL: D86
    Date: 2016–12–08

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