nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒06‒04
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Monotone equilibria in signalling games By Shuo Liu; Harry Pei
  2. Belief-Free Rationalizability and Informational Robustness By Dirk Bergemann; Tibor Heumann; Stephen Morris
  3. Cost Shifting in Civil Litigation: A General Theory By Ben Chen; José A. Rodrigues-Neto
  4. The Impact of Multi-homing in a Ride-Hailing Market By Qihong Liu; Oksana Loginova; X. Henry Wang
  5. Winner-Take-All Tournaments By Drugov, Mikhail; Ryvkin, Dmitry
  6. Nash equilibria in all-pay auctions with discrete strategy space By Li, Zheng
  7. Journal Competition and the Quality of Published Research: Simultaneous versus Sequential Screening By Gehrig, Thomas; Stenbacka, Rune
  8. Resale Price Maintenance with Strategic Customers By Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
  9. Matching through institutions By Francis Bloch; David Cantala; Damián Gibaja
  10. Integration and Segregation By Goyal, S.; Hernández, P.; Martínez-Cánovasz, G.; Moisan, F.; Muñoz-Herrera, M.; Sánchez, A.
  11. Contingent judicial deference: theory and application to usury laws By Guimarães, Bernardo; Salama, Bruno Meyerhof
  12. Patent Licensing, Entry and the Incentive to Innovate By Yair Tauman; Chang Zhao
  13. Bargaining in Patent Licensing with Inefficient Outcomes By Yair Tauman; Yoram Weiss; Chang Zhao

  1. By: Shuo Liu; Harry Pei
    Abstract: We study the monotonicity of sender’s equilibrium strategy with respect to her type in signalling games. We use counterexamples to show that when the sender’s payoff is non-separable, the Spence-Mirrlees condition cannot rule out equilibria in which the sender uses non-monotone strategies. These equilibria can survive standard refinements as incentives are strict and the sender plays every action with positive probability. We provide sufficient conditions under which the sender’s strategy is monotone in every Nash equilibrium. Our conditions require the sender’s payoff to have strictly increasing differences between the state and the action profile and monotone with respect to each player’s action. We also identify and fully characterize a novel property on the sender’s payoff that we call increasing absolute differences over distributions, under which every pair of distributions over the receiver’s actions can be ranked endogenously. Our sufficient conditions fit into a number of applications, including advertising, warranty provision, education and job assignment, etc.
    Keywords: Signalling game, monotone equilibrium, Spence-Mirrlees condition, monotonesupermodular payoff, quasi-concavity preserving, increasing absolute differences over distributions
    JEL: C72 D82
    Date: 2017–05
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Dept. of Economics, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We study a linear interaction model with asymmetric information. We first characterize the linear Bayes Nash equilibrium for a class of one dimensional signals. It is then shown that this class of one dimensional signals provide a comprehensive description of the first and second moments of the distribution of outcomes for any Bayes Nash equilibrium and any information structure. We use our results in a variety of applications: (i) we study the connections between incomplete information and strategic interaction, (ii) we explain to what extent payoff environment and information structure of a economy are distinguishable through the equilibrium outcomes of the economy, and (iii) we analyze how equilibrium outcomes can be decomposed to understand the sources of individual and aggregate volatility.
    Keywords: Networks, Incomplete Information, Bayes Correlated Equilibrium, Volatility, Moments Restrictions, Linear Best Responses, Quadratic Payoffs
    JEL: C72 C73 D43 D83
    Date: 2017–05
  3. By: Ben Chen; José A. Rodrigues-Neto
    Abstract: We model civil litigation as a contest between a plaintiff and a defendant. A success function describes the litigants’ respective posterior probabilities of success based on their simultaneously-chosen efforts and an exogenous prior reflecting their relative advantages. The present success function satisfies general assumptions which capture frequently-used functional forms. These assumptions represent natural intuitions regarding the properties of reasonable success functions, and enable the results arising from the present model to reach a great degree of generality. Another generalization is the use of an exogenous proportion to characterize a cost-shifting rule that allows the winner to recover that proportion of her litigation costs from the loser. There exists a unique Nash equilibrium with positive efforts. In equilibrium, more cost shifting makes the outcome of the case more predictable, but may increase the litigants’ collective expenditure and decrease their collective welfare.
    Keywords: cost shifting, legal predictability, litigation costs, legal accuracy, contest theory.
    JEL: C72 K41
    Date: 2017–05
  4. By: Qihong Liu (Department of Economics, University of Oklahoma); Oksana Loginova (Department of Economics, University of Missouri); X. Henry Wang (
    Abstract: Platforms such as Uber, Lyft and Airbnb serve two-sided markets with drivers (property owners) on one side and riders (renters) on the other side. Some agents multi-home. In the case of ride-hailing, a driver may drive for both Uber and Lyft, and a rider may use both apps and request a ride from the company that has a driver close by. In this paper, we are interested in welfare implications of multi-homing in such a market. Our model abstracts away from entry/exit by drivers and riders as well as pricing by platforms. Both drivers' and riders' surpluses are determined by the average time between a request and the actual pickup. The benchmark setting is a monopoly platform and the direct comparison is a single-homing duopoly. The former is more efficient since it has a thicker market. Next, we consider two multi-homing settings, multi-homing on the rider side and multi-homing on the driver side respectively. Relative to single-homing duopoly, we find that multi-homing on either side improves the overall welfare. However, multi-homing drivers potentially benefit themselves at the cost of single-homing drivers. In contrast, multi-homing riders benefit themselves as well as single-homing riders, representing a more equitable distribution of gains from multi-homing.
    Keywords: Ride-hailing platform, two-sided markets, network externalities, multi-homing
    JEL: D85 L12 L13
    Date: 2017–05–15
  5. By: Drugov, Mikhail; Ryvkin, Dmitry
    Abstract: This paper provides new general results for winner-take-all rank-order tournaments with additive and multiplicative noise. We show that the comparative statics of the individual equilibrium effort with respect to the number of players follow the shape of the density the noise distribution. For aggregate effort, a similar relation holds for the failure (hazard) rate of the noise distribution. The equilibrium effort decreases as noise becomes more dispersed, in the sense of the dispersive order or appropriately defined entropy. These results are then extended to the case of a stochastic number of players, and new results on the effects of population uncertainty are obtained. All relevant results for the Tullock contest follow as a special case.
    Keywords: dispersive order; entropy; failure rate; log-supermodularity; stochastic number of players; tournament; Tullock contest; unimodality
    JEL: C72 D72 D82
    Date: 2017–05
  6. By: Li, Zheng
    Abstract: Using two-player all-pay auctions, the author fully characterizes the Nash equilibrium under a discrete bidding strategy space. In particular, he shows that under the random tiebreaking rule, the cardinality of the set of Nash equilibrium depends on the parity of the reward size and a continuum of Nash equilibria exists. Additionally, when a simple favorone-sided tie-breaking rule is used, the equilibrium solution becomes independent of the reward size.
    Keywords: asymmetric Nash equilibrium,all-pay auction
    JEL: D44 D72
    Date: 2017
  7. By: Gehrig, Thomas; Stenbacka, Rune
    Abstract: We explore how the nature of the screening technology and the organization of the submission system affect the screening incentives of competing journals. Total screening in a duopolistic journal industry exceeds that of a monopoly. Exclusivity requirements for submissions induce more screening than systems with parallel submission. Interestingly, in the sequential screening model established journal rankings tend to reduce screening incentives. The screening technology determines whether the high-ranked or low-ranked journal have stronger screening incentives, which has implications for the long-run stability of established rankings.
    Keywords: assessment of research quality; competition between journals; Information Acquisition; simultaneous versus sequential screening
    JEL: D80 L10 L13
    Date: 2017–05
  8. By: Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
    Abstract: We consider a decentralized supply chain (DSC) under resale price maintenance (RPM)selling a limited-lifetime product to forward-looking customers with heterogeneous valuations. When customers do not know the inventory level, double marginalization in DSC leads to a higher profit and lower aggregate welfare than in centralized supply chain (CSC). When customers know the inventory, DSC coincides with CSC. Thus, overestimation of customer awareness may lead to overcentralization of supply chains with profit loss comparable with the loss from strategic customers. The case with unknown inventory is extended to an arbitrary number of retailers with inventory-independent and inventory-dependent demand. In both cases, the manufacturer, by setting a higher wholesale price, mitigates the inventory-increasing effect of competition and reaches the same profit as with a single retailer. The high viability of RPM as a strategic-behavior-mitigating tool may serve as another explanation of why manufacturers may prefer DSC with RPM to a vertically integrated firm.
    Keywords: limited-lifetime product, strategic customers, limited information, aggregate welfare, oligopoly
    JEL: D9 L13 L42
    Date: 2017–05–27
  9. By: Francis Bloch (Université Paris 1 and Paris School of Economics); David Cantala (El Colegio de México); Damián Gibaja (Universidad Popular Autónoma del Estado de Puebla)
    Abstract: We model a matching market with institutions -inspired by the assignment of social housing in Paris- as a three-sided market. Institutions own objects and have agents attached to them. Agents have preferences over objects. Objects have priorities over institutions. We show that fair assignments satisfying distributional constraints may fail to exist, and propose a sufficient condition -the over-demand condition- under which we prove existence. Existence derives from the construction of a new algorithm, the Nested Deferred Acceptance (NDA) algorithm, which combines a one-to-one matching between agents and objects and a one-to-many matching between objects and institutions. If interrupters are eliminated from the preference list, as in Kesten (2010), the NDA algorithm produces an assignment which is fair, Pareto optimal among fair assignments and strategy-proof for agents.
    Keywords: matching, institutions, deferred acceptance algorithm, social housing
    JEL: C78 D47
    Date: 2017–02
  10. By: Goyal, S.; Hernández, P.; Martínez-Cánovasz, G.; Moisan, F.; Muñoz-Herrera, M.; Sánchez, A.
    Abstract: Individuals prefer to coordinate with others, but they differ on the preferred action. In theory, this can give rise to an integrated society with everyone conforming to the same action or a segregated society with members of different groups choosing diverse actions. Social welfare is maximum when society is integrated and everyone conforms on the majority's action. In laboratory experiments, subjects with different preferences segregate into distinct groups and choose diverse actions. To understand the role of partner choice, we then consider an exogenous network of partners. Subjects in the experiment now choose to conform on the action preferred by the majority. Thus, there exists a tension between two deeply held values: social cohesion and freedom of association.
    Date: 2017–05–29
  11. By: Guimarães, Bernardo; Salama, Bruno Meyerhof
    Abstract: Legislation that seems unreasonable to courts is less likely to be followed. Building on this premise, we propose a model and obtain two main results. First, the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. In particular, the imposition of an interest rate ceiling can make it more likely that courts will validate contracts with interest rates below the legislated cap. Second, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of e§ects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model.
    Date: 2017–03–02
  12. By: Yair Tauman; Chang Zhao
    Date: 2017
  13. By: Yair Tauman; Yoram Weiss; Chang Zhao
    Date: 2017

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