nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒06‒11
twenty-one papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Resale in Second-Price Auctions with Costly Participation By Gorkem Celik; Okan Yilankaya
  2. Cheap Talk with Strategic Substitutability By Venkatesh, Raghul S
  3. Strategyproof choice of acts: beyond dictatorship By BAHEL, Eric; SPRUMONT, Yves
  4. Mechanism design without quasilinearity By Tomoya Kazumura; Debasis Mishra; Shigehiro Serizawa
  5. Which good to sell first in a sequential auction? By GUNAY, Hikmet; MENG, Xin
  6. Duopolistic competition in markets where consumers have switching costs By Guillem Roig
  7. Targeted Advertising and Costly Consumer Search By Roberto Burguet; Vaiva Petrikaite
  8. Moral hazard in welfare economics: on the advantage of Planner's advices to manage employees' actions By Thibaut Mastrolia
  9. No-arbitrage and Equilibrium in Finite Dimension: A General Result By Thai Ha-Huy; Cuong Le Van; Frank Page; Myrna Wooders
  10. Robust Comparative Statics in Contests By David Michael Rietzke; Adriana Gama
  11. Equilibria in Second-Price Auctions with Private Participation Costs By Xiaoyong Cao; Guofu Tan; Guoqiang Tian; Okan Yilankaya
  12. Discriminatory Information Disclosure By Hao Li; Xianwen Shi
  13. Input-Output Linkages and Optimal Product Diversity By Sergey Kichko
  14. The Design and Price of Information By Dirk Bergemann; Alessandro Bonatti; Alex Smolin
  15. Dynamic Pricing with Search Frictions By Daniel Garcia
  16. A Game of Nontransitive Dice By Artem Hulko; Mark Whitmeyer
  17. Innovation and product market concentration: Schumpeter, Arrow and the inverted-U shape curve By F. Delbono; L. Lambertini
  18. Relational knowledge transfers By Luis Garicano; Luis Rayo
  19. Symmetric Consequence Relations and Strategy-Proof Judgment Aggregation By Stefano Vannucci
  20. How to choose a non-manipulable delegation? By Burak Can; Peter Csoka; Emre Ergin
  21. Activism, Costly Participation, and Polarization By Venkatesh, Raghul S

  1. By: Gorkem Celik (ESSEC Business School and THEMA Research Center, France); Okan Yilankaya
    Abstract: We study sealed-bid second-price auctions with costly participation and resale. Each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff. If resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function, the symmetric equilibrium (where all bidders use the same cutoff) is less efficient than a class of two-cutoff asymmetric equilibria. Existence of these equilibria without resale is sufficient for existence of similarly constructed two-cutoff equilibria with resale. Moreover, the equilibria with resale are more asymmetric and (under a sufficient condition) more efficient than the corresponding equilibria without resale.
    Keywords: second price auctions, resale, participation cost, endogenous entry, endogenous valuations
    JEL: C72 D44 D82
    Date: 2016–11
  2. By: Venkatesh, Raghul S (Department of Economics, University of Warwick)
    Abstract: In the classic Crawford-Sobel (CS) model of strategic communication between an informed Sender and uninformed Receiver, perfect information transmission is never achieved as an equilibrium outcome. I present a modified version of the CS cheap talk game with the following two innovations : (i) both players take actions, and (ii) actions are strategic substitutes. In contrast to the CS setup, the modified game can facilitate perfect information revelation. I characterize the conditions under which a full information revelation equilibrium exists. When these conditions are violated, only partial revelation equilibria exist. Under partial revelation, the Sender reveals information up to a threshold state and pools beyond this threshold, resulting in some loss of information. Welfare analysis suggests that partial revelation equilibria with a higher threshold pareto dominate those with lower thresholds. Crucially, a higher threshold equilibrium is also interim efficient – every Sender type at least weakly prefers this over a lower threshold equilibrium.
    Keywords: Cheap talk ; interdependent action games ; full information revelation
    Date: 2017
  3. By: BAHEL, Eric; SPRUMONT, Yves
    Abstract: We model social choices as acts mapping states of nature to (public) outcomes. A social choice function (or SCF) assigns an act to every profile of subjective expected utility preferences over acts. A SCF is strategyproof if no agent ever has an incentive to misrepresent her beliefs about the states of nature or her valuation of the outcomes; it is ex-post efficient if the act selected at any given preference profile picks a Pareto-efficient outcome in every state of nature. We offer a complete characterization of all strategyproof and ex-post efficient SCFs. The chosen act must pick the most preferred outcome of some (possibly different) agent in every state of nature. The set of states in which an agent's top outcome is selected may vary with the reported belief profile; it is the union of all the states assigned to her by a collection of bilaterally dictatorial and bilaterally consensual assignment rules.
    Keywords: Social choice under uncertainty; strategyproofness; subjective expected utility; dictatorship; consensuality; bilaterality
    JEL: D71
    Date: 2017
  4. By: Tomoya Kazumura; Debasis Mishra; Shigehiro Serizawa
    Abstract: This paper studies a model of mechanism design with transfers where agents' preferences need not be quasilinear. In such a model, (1) we characterize dominant strategy incentive compatible mechanisms using a monotonicity property; (2) we establish a revenue uniqueness result: for every dominant strategy implementable allocation rule, there is a unique payment rule that can implement it; and (3) we show that every dominant strategy incentive compatible, individually rational, and revenue-maximizing mechanism must charge zero transfer for the worst alternative (outside option). These results are applicable in a wide variety of problems (single object auction, multiple object auction, public good provision etc.) under suitable richness of type space. In particular, our results can be applied to models where preferences of agents are arbitrarily small perturbations of quasilinear preferences and illustrate the (non)-robustness of some of the classic results in mechanism design with quasilinearity. We show various applications of our results.
    Date: 2017–06
  5. By: GUNAY, Hikmet; MENG, Xin
    Abstract: In a sequential auction, we analyze whether selling a stochastically more valuable good in the first or second auction generates more revenue and welfare. One of the buyers is a global bidder who enjoys synergy if she wins both goods. The others are local bidders interested in one specific good. After deriving the equilibrium, we show that there are cases in which selling the less valuable good in the first auction generates higher revenue and/or welfare. We also show the impact of inefficient allocations on revenue.
    Keywords: Sequential Auctions, Inefficiencies, Multi-dimensional values, Simulations
    JEL: D44 D82
    Date: 2017–05
  6. By: Guillem Roig
    Abstract: In a dynamic competition model where firms initially share half of the market and consumers have switching costs, consumers' sophistication, lifespan and concentration impact the possibility to set collusive prices. I first show that with strategic long-run consumers, collusion is harder to implement than when consumers are not strategic: with sophisticated consumers, a deviating fi rm can cash-in the rents that a buyer obtains after switching. I then study the consequences of relaxing buyers concentration and show that collusion is then easier to maintain than with non-strategic consumers: with strategic consumers a firm must offer a low price at the moment of deviation as consumers can bene t from increased competition, emerging from an asymmetric market structure, without having to pay switching costs. The paper suggests simple policy recommendations: it does not suffice to educate consumers about the competitive effects of their current purchasing decisions, but central purchasing agencies also need to be promoted.
    Keywords: Switching cost, Price collusion; Strategic consumers
    JEL: D43 L13 L12
    Date: 2017–05–25
  7. By: Roberto Burguet; Vaiva Petrikaite
    Abstract: We study a market with horizontally differentiated products and sequential consumer search. Firms send adverts to consumers to inform about their existence. Advertising may be either random or targeted. Targeting increases search intensity, which intensifies competition. However, targeted consumers draw higher valuations on average, which creates incentives to raise prices. The first effect dominates when search costs are sufficiently low, but the second may prevail when search costs are high. As a result, with high search costs, targeting results in higher prices and lower consumer surplus, while the opposite holds true when search costs are low. A larger advertising cost helps firms segment the market if they can target adverts.
    Keywords: random advertising, targeted advertising, horizontal differentiation, sequential search
    JEL: L13 D83
    Date: 2017–06
  8. By: Thibaut Mastrolia
    Abstract: In this paper, we study moral hazard problems in contract theory by adding an exogenous Planner to manage the actions of Agents hired by a Principal. We provide conditions ensuring that Pareto optima exist for the Agents using the scalarization method associated with the multi-objective optimization problem and we solve the problem of the Principal by finding optimal remunerations given to the Agents. We illustrate our study with a linear-quadratic model by comparing the results obtained when we add a Planner in the Principal/multi-Agents problem with the results obtained in the classical second-best case. More particularly in this example, we give necessary and sufficient conditions ensuring that Pareto optima are Nash equilibria and we prove that the Principal takes the benefit of the action of the Planner in some cases
    Date: 2017–06
  9. By: Thai Ha-Huy (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne); Cuong Le Van (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IPAG Business School - IPAG BUSINESS SCHOOL PARIS); Frank Page (Department of Economics, Indiana University - Indiana University [Bloomington]); Myrna Wooders (Vanderbilt University - Department of Economics)
    Abstract: We consider an exchange economy with a finite number of assets and a finite number of agents. The utility functions of the agents are concave, strictly increasing and their suprema equal infity. We use weak no-arbitrage prices a la Dana and Le Van [5]. Our main result is: an equilibrium exists if, and only if, their exists a weak no-arbitrage price common to all the agents.
    Keywords: asset market equilibrium,individually rational attainable allocations,individually rational utility set,no-arbitrage prices,weak no-arbitrage prices,no-arbitrage condition
    Date: 2017–05
  10. By: David Michael Rietzke; Adriana Gama
    Abstract: We drive several robust comparative statics results in a contest under minimal restrictions on the primitives. Some of our findings generalize existing results, while others clarify the relevance of structure commonly imposed in the literature. Contrasting prior results, we show, via an example, that equilibrium payoffs may be (strictly) decreasing in the value of the prize. We also obtain a condition under which equilibrium aggregate activity decreases in the number of players. Finally, we shed light on equilibrium existence and uniqueness. Differentiating this study from past work is our reliance on lattice-theoretic techniques, which allows for a more general approach.
    Keywords: Contests, Supermodularity, Entry, Comparative Statics
    JEL: C61 C72 D72
    Date: 2017
  11. By: Xiaoyong Cao (Department of Economics, University of International Business andEconomics, Beijing, China); Guofu Tan (Department of Economics, University of Southern California, Los Angeles); Guoqiang Tian (Department of Economics, Texas AM University, College Station); Okan Yilankaya
    Abstract: We study equilibria in second-price auctions where bidders are independently and pri- vately informed about both their values and participation costs, and where the joint dis- tributions of these values and costs across bidders are not necessarily identical. We show that there always exists an equilibrium in this general setting with two dimensional types of ex ante heterogeneous bidders. When bidders are ex ante homogeneous, there is a unique symmetric equilibrium, but asymmetric equilibria may also exist. We provide conditions under which the equilibrium is unique (not only among symmetric ones). We find that the marginal density of participation costs and the concentration of values matter for the uniqueness. The presence of private information on participation costs tends to reduce multiplicity of participation equilibria, although multiplicity still persists.
    Keywords: two-dimensional types, private participation costs, second-price auctions, existence and uniqueness of equilibrium
    JEL: C62 C72 D44 D61 D82
    Date: 2016–12
  12. By: Hao Li; Xianwen Shi
    Abstract: A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realization. In both discrete-type and continuous-type settings, we show that discriminatory disclosure - releasing different amounts of additional information to different buyer types - dominates full disclosure in terms of seller revenue. An implication is that the orthogonal decomposition technique, while an important tool in dynamic mechanism design, is generally invalid when information disclosure is part of the design.
    Keywords: Sequential Screening, Information Disclosure, Dynamic Mechanism Design, Orthogonal Decomposition
    JEL: D82 D42 C73
    Date: 2017–05–29
  13. By: Sergey Kichko (National Research University Higher School of Economics)
    Abstract: We derive a simple necessary and sufficient condition on preferences for the market outcome to be socially optimal under monopolistic competition with input-output (IO) linkages. Preferences that satisfy this condition are typically non-CES and display pro-competitive effects, although they converge to the CES when IO linkages become negligibly weak. We show that the equilibrium with pro-competitive effects may deliver both excessive and insufficient entry of firms in equilibrium
    Keywords: input-output linkages; optimum product diversity; monopolistic competition; pro-competitive effects
    JEL: D4 D6 L1
    Date: 2017
  14. By: Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Alex Smolin (Dept. of Economics, Yale University)
    Abstract: A data buyer faces a decision problem under uncertainty. He can augment his initial private information with supplemental data from a data seller. His willingness to pay for supplemental data is determined by the quality of his initial private information. The data seller optimally offers a menu of statistical experiments. We establish the properties that any revenue-maximizing menu of experiments must satisfy. Every experiment is a non-dispersed stochastic matrix, and every menu contains a fully informative experiment. In the cases of binary states and actions, or binary types, we provide an explicit construction of the optimal menu of experiments.
    Keywords: Information design, Price of information, Statistical experiments, Mechanism design, Price discrimination, Hypothesis testing
    JEL: D42 D82 D83
    Date: 2017–06
  15. By: Daniel Garcia
    Abstract: This paper studies dynamic pricing in markets with search frictions. Sellers have a single unit of a good and post prices in every trading period. Buyers have to incur a search cost to match with a new seller and upon matching they observe the price and the realization of some idiosyncratic match value. There is no discounting but trade ends at an exogenously given deadline. We show that equilibrium involves trading in nitely many trading periods and the volume of trade increases over time. Under mild conditions on the buyerto- seller ratio and the distribution of valuations, prices decrease at increasing rates as the deadline approaches. We derive the gains from trade in equilibrium and their distribution between buyers and sellers. For the case in which the measures of buyers and sellers coincide, we provide a full characterization of the (unique) equilibrium for a class of distribution functions. We nally discuss implications for market design, including the use of platform fees and cancellation policies.
    JEL: D11 D83 L13
    Date: 2017–05
  16. By: Artem Hulko; Mark Whitmeyer
    Abstract: We consider a two player simultaneous-move game where the two players each select any permissible $n$-sided die for a fixed integer $n$. A player wins if the outcome of his roll is greater than that of his opponent. Remarkably, for $n>3$, there is a unique Nash Equilibrium in pure strategies. The unique Nash Equilibrium is for each player to throw the Standard $n$-sided die, where each side has a different number. Our proof of uniqueness is constructive. We introduce an algorithm with which, for any nonstandard die, we may generate another die that beats it.
    Date: 2017–06
  17. By: F. Delbono; L. Lambertini
    Abstract: We investigate the relationship between market concentration and industry innovative effort within a familiar two-stage model of R&D race in which fi rms compete à la Cournot in the product market. With the help of numerical simulations, we show that such a setting is rich enough to generate Arrovian, Schumpeterian and inverted-U curves. We interpret these different patterns on the basis of the relative strength of the technological incentive and the strategic incentive.
    JEL: L13 O31
    Date: 2017–06
  18. By: Luis Garicano; Luis Rayo
    Abstract: We study how relational contracts mitigate Becker's classic problem of providing general (non-firm-specific) human capital when training contracts are incomplete. The firms profit-maximizing agreement is a multi-period "apprenticeship" in which the novice is trained gradually over time and eventually receives all knowledge. The firm adopts a "1/e rule" whereby at the beginning of the relationship the novice is trained, for free, just enough to produce a fraction 1/e of the efficient output. After that, the novice earns all additional knowledge with labor. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions.
    JEL: N0 R14 J01
    Date: 2017
  19. By: Stefano Vannucci
    Abstract: It is shown that the posets of both substructural and classical symmetric consequence relations ordered by set-inclusion are (non-boolean) completely distributive complete lattices. Therefore, those two basic versions of symmetric consequence relations are amenable to anonymous neutral and idempotent strategy- proof aggregation by majority polynomial rules on single-peaked domains. In particular, the majority rule is characterized as the only aggregation rule for odd profiles of symmetric consequence relations that is anonymous, bi-idempotent and strategy-proof on arbitrary rich locally unimodal domains.
    JEL: D71
    Date: 2017–05
  20. By: Burak Can (Maastricht University, School of Business and Economics); Peter Csoka (“Momentum” Game Theory Research Group, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest); Emre Ergin (PhD, Maastricht University, School of Business and Economics)
    Abstract: This paper analyzes how to choose a delegation, a committee to represent a society such as in a peace conference. We propose normative conditions and seek optimal, consistent, neutral, and non-manipulable ways to choose a delegation. We show that a class of threshold rules are characterized by these criteria. The rules do not choose a fixed number of delegates, but instead require different sizes of delegations, depending on the heterogeneity in society. Therefore the resulting delegations are very inclusive, and with t delegates the ratio of individuals whose opinions are not included is always below (0:5)t, following the well-known Zeno's dichotomy. For instance a delegation of size 2 should have at least 75% support from the society and therefore only less than 25% of the opinion pool can be neglected.
    Keywords: Aggregation Rules, Committee Selection, Conflict Management, Kemeny Distance, Strategy-proofness
    JEL: C70 D71
    Date: 2017–05
  21. By: Venkatesh, Raghul S (Department of Economics, University of Warwick)
    Abstract: I develop a model of activism and polarization in the context of electoral competition. Two candidates simultaneously announce policy platforms and seek the support of ideologically inclined activists. Activists compete to influence electoral outcomes by expending costly support for their respective candidates. The presence of activists always moderates the platform choice of candidates, compared to the case of no activism. The main finding is to provide conditions under which as activists’ ideological partisanship increases (decreases), polarization of candidate platforms reduces (widens) - meaning candidates may compromise even though their supporters become more extreme. I precisely characterize the conditions under which the presence of activism and increasing partisanship among activists are both welfare-improving for voters. Finally, I identify a novel crowding out effect of big money on the demand for activism. My analysis suggests public funding of elections as an important institutional reform that could mitigate the pernicious effects of high polarization.
    Keywords: activism ; electoral participation ; downsian competition ; influence seeking ; public funding
    Date: 2017

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