nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒12‒18
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Persuasion with Correlation Neglect: Media Power via Correlation of News Content By Inés Moreno de Barreda; Gilat Levy; Ronny Razin
  2. On Monotone Strategy Equilibria in Simultaneous Auctions for Complementary Goods By Gentry, Matthew; Komarova, Tatiana; Schiraldi, Pasquale; Shin, Wiroy
  3. Aggregation in Networks By Nizar Allouch
  4. The degree measure as utility function over positions in networks By René Van den Brink; Agnieszka Rusinowska
  5. Robust Voting under Uncertainty By NAKADA, Satoshi; NITZAN, Shmuel; UI, Takashi
  6. The Strategic Industry Supply Curve By Flavio M. Menezes; John Quiggin
  7. Prize allocation and incentives in team contests By Crutzen, Benoît SY; Flamand, Sabine; Sahuguet, Nicolas
  8. Platform competition : who benefits from multihoming? By Belleflamme, Paul; Peitz, Martin
  9. Matching with Frictions and Entry with Poisson Distributed Buyers and Sellers. By Peter Norman
  10. The Multiplier Effect in Two-Sided Markets with Bilateral Investments By Deniz Dizdar; Benny Moldovanu; Nora Szech
  11. Sequential Lottery Contests with Multiple Participants By Nava Kahana; Doron Klunover
  12. Echo Chambers: Voter-to-Voter Communication and Political Competition By Monica Anna Giovanniello
  13. A Random Attention Model By Matias D. Cattaneo; Xinwei Ma; Yusufcan Masatlioglu; Elchin Suleymanov
  14. Confirmation bias and signaling in Downsian elections By Antony Millner; Hélène Ollivier; Leo Simon
  15. A Model of State Aggregation By Burkovskaya, Anastasia
  16. On the Optimal Majority Rule By Compte, Olivier; Jehiel, Philippe
  17. Organizational Concealment: An Incentive of Reducing the Responsibility By Tajika, Tomoya
  18. Escalation in Dynamic Conflict: On Beliefs and Selection By Kai A. Konrad; Florian Morath

  1. By: Inés Moreno de Barreda; Gilat Levy; Ronny Razin
    Abstract: Abstract We model the power of media owners to bias readers’ opinions. In particular we consider readers that have “correlation neglect†, i.e., fail to understand that content across news outlets might be correlated. We study how a media owner who controls several outlets can take advantage of the readers’ neglect. Specifically, we show that the owner can manipulate readers’ beliefs even when readers understand the informativeness of news outlet by outlet. The optimal strategy of the owner is to negatively correlate good news and positively correlate bad news. The owner’s power is increasing in the number of outlets she owns but is constrained by the limited attention of readers. Importantly, our analysis suggests several new insights about welfare in media markets. First, measures of media bias have to take into account the correlation between news outlets. Second, media-market competition curbs the ability of owners to bias readers’ beliefs. In particular, we show that readers always benefit from breaking conglomerates, even when all the new media owners share the same bias. Finally, we highlight a potential cost of media diversity. When readers have correlation neglect, diversity in the interests of owners might lower the informativeness of news content.
    Date: 2017–09–25
  2. By: Gentry, Matthew; Komarova, Tatiana; Schiraldi, Pasquale; Shin, Wiroy
    Abstract: We explore existence and properties of equilibrium when N>1 bidders compete for L>1 objects via simultaneous but separate auctions. Bidders have private combinatorial valuations over all sets of objects they could win, and objects are complements in the sense that these valuations are supermodular in the set of objects won. We provide a novel partial order on types under which best replies are monotone, and demonstrate that Bayesian Nash equilibria which are monotone with respect to this partial order exist on any finite bid lattice. We apply this result to show existence of monotone Bayesian Nash equilibria in continuous bid spaces when a single global bidder competes for L objects against many local bidders who bid for single objects only, highlighting the step in this extension which fails with multiple global bidders. We therefore instead consider an alternative equilibrium with endogenous tie-breaking building on Jackson, Simon, Swinkels and Zame (2002), and demonstrate that this exists in general. Finally, we explore efficiency in simultaneous auctions with symmetric bidders, establishing novel sufficient conditions under which inefficiency in expectation approaches zero as the number of bidders increases.
    Keywords: simultaneous auctions; complementarities; synergies; equilibria existence; efficiency; multi-object auctions; monotone strategies
    JEL: C72 D44
    Date: 2017–12
  3. By: Nizar Allouch
    Abstract: In this paper, we show that a concept of aggregation can hold in network games. Breaking up large networks into smaller pieces, which can be replaced by representative players, leads to a coarse-grained description of strategic interactions. This method of summarizing complex strategic interactions by simple ones can be applied to compute Nash equilibria. We also provide an application to public goods in networks to show the usefulness of our results. In particular, we highlight network architectures that cannot prevent free-riding in public good network games. Finally, we show that aggregation enhances the stability of a Nash equilibrium.
    Keywords: aggregation; modular decomposition; network games; public goods; stability
    JEL: C72 D31 D85 H41
    Date: 2017–12
  4. By: René Van den Brink (Department of Econometrics and Tinbergen Institute - VU University); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: In this paper, we connect the social network theory on centrality measures to the economic theory of preferences and utility. Using the fact that networks form a special class of cooperative TU-games, we provide a foundation for the degree measure as a von Neumann-Morgenstern expected utility function reflecting preferences over being in different positions in different networks. The famous degree measure assigns to every position in a weighted network the sum of the weights of all links with its neighbours. A crucial property of a preference relation over network positions is neutrality to ordinary risk. If an expected utility function over network positions satisfies this property and some regularity properties, then it must be represented by a utility function that is a multiple of the degree centrality measure. We show this in three steps. First, we characterize the degree measure as a centrality measure for weighted networks using four natural axioms. Second, we relate these network centrality axioms to properties of preference relations over positions in networks. Third, we show that the expected utility function is equal to a multiple of the degree measure if and only if it represents a regular preference relation that is neutral to ordinary risk. Similarly, we characterize a class of affine combinations of the outdegree and indegree measure in weighted directed networks and deliver its interpretation as a von Neumann-Morgenstern expected utility function.
    Abstract: Dans cet article, nous associons la théorie des réseaux sociaux sur les mesures de centralité à la théorie économique des préférences et de l'utilité. En utilisant le fait que les réseaux forment une classe spéciale de jeux TU coopératifs, nous fournissons une base pour la mesure de degré en tant que fonction d'utilité attendue de von Neumann-Morgenstern reflétant les préférences en ce qui concerne les positions différentes dans différents réseaux. La célèbre mesure de degré attribue à chaque position d'un réseau pondéré la somme des poids de tous les liens avec ses voisins. Une propriété cruciale d'une relation de préférence sur les positions du réseau est la neutralité face au risque ordinaire. Si une fonction d'utilité attendue sur les positions du réseau satisfait cette propriété et certaines propriétés de régularité, elle doit être représentée par une fonction d'utilité qui est un multiple de la mesure de centralité de degré. Nous montrons cela en trois étapes. Tout d'abord, nous caractérisons la mesure du degré en tant que mesure de centralité pour les réseaux pondérés utilisant quatre axiomes naturels. Deuxièmement, nous rapportons ces axiomes de centralité de réseau aux propriétés des relations de préférence par rapport aux positions dans les réseaux. Troisièmement, nous montrons que la fonction d'utilité attendue est égale à un multiple de la mesure de degré si et seulement si elle représente une relation de préférence régulière qui est neutre au risque ordinaire. De même, nous caractérisons une classe de combinaisons affines de la mesure impartiale et indépendante dans les réseaux pondérés orientés et fournissons son interprétation en tant que fonction d'utilité attendue de von Neumann-Morgenstern.
    Keywords: Weighted network, network centrality, utility function, degree centrality,von Neumann-Morgenstern expected utility function, cooperative TU-game, weighted directed network,Réseau pondéré,centralité,fonction d'utilité,centralité de degré,fonction d'utilité attendue de von Neumann-Morgenstern,jeu coopératif,réseau pondéré orienté
    Date: 2017–07
  5. By: NAKADA, Satoshi; NITZAN, Shmuel; UI, Takashi
    Abstract: This paper proposes normative consequentialist criteria for voting rules under Knightian uncertainty about individual preferences to characterize a weighted majority rule (WMR). The criteria stress the significance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. A voting rule is said to be robust if, for any probability distribution of preferences, responsiveness of at least one individual is greater than one-half. Our main result establishes that a voting rule is robust if and only if it is a WMR without ties. This characterization of a WMR avoiding the worst possible outcomes complements the well-known characterization of a WMR achieving the optimal outcomes, i.e., efficiency regarding responsiveness.
    Keywords: majority rule, weighted majority rule, responsiveness, Knightian uncertainty
    JEL: D71 D81
    Date: 2017–12
  6. By: Flavio M. Menezes (School of Economics, The University of Queensland); John Quiggin (School of Economics, The University of Queensland)
    Abstract: In this paper we develop the concept of the strategic industry supply curve, representing the locus of Nash equilibrium outputs and prices arising from additive shocks to demand. We show that the standard analysis of partial equilibrium under perfect competition, including the graphical representa- tion of supply and demand due to Marshall, can be extended to encompass imperfectly competitive markets. Special cases include monopoly, Cournot and Bertrand oligopoly and competition in linear supply schedules. Our approach permits a unified treatment of monopoly, oligopoly and competi- tion, and that it satisfies the five principles of incidence set out by Weyl and Fabinger (2013).
    Keywords: industry supply, cost pass-through, oligopoly
    JEL: D4 L1
    Date: 2017–12–14
  7. By: Crutzen, Benoît SY; Flamand, Sabine; Sahuguet, Nicolas
    Abstract: We study a contest between teams that compete for multiple indivisible prizes. Team output is a CES function of all the team members' efforts. We use a generalized Tullock contest success function to allocate prizes between teams. We study how different intra-team prize allocation rules impact team output. We consider an egalitarian rule that gives all members the same chance of receiving a prize, and a list rule that sets ex-ante the order in which members receive a prize. The convexity of the cost of effort function and the complementarity of individual efforts determine which rule maximizes team output and success. Our results speak to many real world situations, such as elections, contests for the allocation of local public goods and the internal organization of firms.
    Date: 2017–12
  8. By: Belleflamme, Paul; Peitz, Martin
    Abstract: Competition between two-sided platforms is shaped by the possibility of multihoming. If users on both sides singlehome, each platform provides users on either side exclusive access to its users on the other side. In contrast, if users on one side can multihome, platforms exert monopoly power on that side and compete on the singlehoming side. This paper explores the allocative effects of such a change from single- to multihoming. Our results challenge the conventional wisdom, according to which the possibility of multihoming hurts the side that can multihome, while benefiting the other side. This is not always true: the opposite may happen or both sides may benefit.
    Keywords: Network effects , two-sided markets , platform competition , competitive bottle- neck , multihoming
    JEL: D43 L13 L86
    Date: 2017
  9. By: Peter Norman (University of North Carolina Chapel Hill)
    Abstract: I consider a directed search model with population uncertainty. Buyers and sellers are randomly drawn from independent Poisson distributions. This provides a simple justification for the usual equilibrium selection where only symmetric randomizations by buyers are considered, because any equilibrium is payoff equivalent to the symmetric continuation equilibrium. The Poisson assumption also makes the model more tractable, making it possible to handle entry, which is difficult with a fixed finite set of sellers. I also demonstrate that the Poisson model belongs to a more general class of models in which prices are strategic complements and equilibria are unique.
    Date: 2017
  10. By: Deniz Dizdar (University of Montreal); Benny Moldovanu (University of Bonn); Nora Szech (Karlsruher Institut für Technologie)
    Abstract: Agents in a finite two-sided market make costly investments and are then matched assortatively on the basis of these investments. Besides signaling complementary, privately known types, investments also generate benefits for partners. Our analysis sheds light on quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their rank within their own market side and on their uncertainty about the types and investments of potential partners. Nevertheless, some key features of the effect are independent of the type distributions. We quantify how the strength of the multiplier effect depends on market size, and we study how it interacts with other important factors of the environment such as the costs and benefits of investment and the signaling incentives induced by the competition for more desirable partners. We use our results to characterize equilibrium utilities in large markets for cases in which investments are either partially wasteful or correspond to TU transfers, and also to provide bounds on the hold-up problem in small markets with productive investments.
    Keywords: matching, signaling, Investment, multiplier effect
    JEL: C78 D44 D82
    Date: 2017–11
  11. By: Nava Kahana; Doron Klunover
    Abstract: The literature on aggregative games, which has been applied in the study of contests, has focused on simultaneous games. We apply aggregative games techniques in a novel fashion in the analysis of sequential lottery contests with n players. It is shown that: (1) there exists a unique subgame perfect equilibrium in pure strategies, and (2) unlike in the case of a small contest, aggregate expenditure in a large contest is lower than in the corresponding simultaneous contest.
    Keywords: Aggregative games, Sequential Contests, Subgame Perfect Equilibrium
    JEL: C72 D43 L13
    Date: 2017–04
  12. By: Monica Anna Giovanniello
    Abstract: I investigate, in a model of informative campaign advertising, how the ability of voters to strategically communicate with each other shapes the advertising strategies of two competing parties. Two main results are put forward. First, information does not travel among voters biased toward different parties even if they are ideologically close â âecho chambersâ arise endogenously. Second, whenever the probability of interaction among like-minded voters is low (low homophily), parties tailor their advertising on their opponentâs supporters rather than on swing or core states voters.
    JEL: D72 D83 M37 P16
    Date: 2017–11–21
  13. By: Matias D. Cattaneo; Xinwei Ma; Yusufcan Masatlioglu; Elchin Suleymanov
    Abstract: We introduce a Random Attention Model (RAM) allowing for a large class of stochastic consideration maps in the context of an otherwise canonical limited attention model for decision theory. The model relies on a new restriction on the unobserved, possibly stochastic consideration map, termed \textit{Monotonic Attention}, which is intuitive and nests many recent contributions in the literature on limited attention. We develop revealed preference theory within RAM and obtain precise testable implications for observable choice probabilities. Using these results, we show that a set (possibly a singleton) of strict preference orderings compatible with RAM is identifiable from the decision maker's choice probabilities, and establish a representation of this identified set of unobserved preferences as a collection of inequality constrains on her choice probabilities. Given this nonparametric identification result, we develop uniformly valid inference methods for the (partially) identifiable preferences. We showcase the performance of our proposed econometric methods using simulations, and provide general-purpose software implementation of our estimation and inference results in the \texttt{R} software package \texttt{ramchoice}. Our proposed econometric methods are computationally very fast to implement.
    Date: 2017–12
  14. By: Antony Millner (LSE - London School of Economics and Political Science); Hélène Ollivier (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Leo Simon (University of California [Berkeley])
    Abstract: How do voters' behavioural biases affect political outcomes? We study this question in a model of Downsian electoral competition in which office-motivated candidates have private information about the benefits of policies, and voters may infer candidates' information from their electoral platforms. If voters are Bayesian, candidates have strategic incentives to `anti-pander' { they choose platforms that are more extreme than is justified by their private beliefs. However, anti-pandering incentives are ameliorated if voters'inferences are subject to confirmation bias. Voter confirmation bias can thus counteract distortions due to the strategic interaction between candidates, potentially leading to welfare improvements. Indeed, we show that all observers, whether biased or Bayesian, would like the representative voter in our model to exhibit more confirmation bias than they do themselves.
    Keywords: JEL Codes: D72,signaling,electoral competition,pandering,D91 Keywords: Confirmation bias
    Date: 2017–11–09
  15. By: Burkovskaya, Anastasia
    Abstract: Optimizing over all of the states of the world together might be difficult even for a machine. This paper adds to the behavioral literature by introducing a model, in which the agent aggregates the states together, even though she is aware of the entire state space. As a result of the state aggregation, the person solves several problems with fewer variables instead of the initial problem with the entire state space. When the person is SEU-maximizer, the decisions are not affected by the way the states get aggregated. In our model people still have subjective priors over states and events, however, they lump some states together in a non-linear way, which leads to different choices. The paper provides axioms for a state aggregation model, discusses identification of the state aggregation from choices in a complete market setting, discusses comparative statics due to changes in the state aggregation and demonstrates how the model explains a number of ambiguity paradoxes.
    Date: 2017–12
  16. By: Compte, Olivier; Jehiel, Philippe
    Abstract: We develop a simple model that rationalizes why less stringent majority rules are preferable to unanimity in large committees. Proposals are randomly generated and the running proposal is adopted whenever it is approved by a sufficiently large share of voters. Unanimity induces excessive delays while too weak majority requirements induce the adoption of suboptimal proposals. The optimal majority rule balances these two inefficiencies: it requires the approval by a share equal to the probability (assumed to be constant across proposals) that a given member gets more than the average welfare associated with the running proposal. Various extensions are considered.
    Date: 2017–12
  17. By: Tajika, Tomoya
    Abstract: We studyworkers’ incentives of reporting problems within an OLG organization consisting of a subordinate and a manager. The subordinate is responsible for reporting a problem, and the manager is responsible for solving the reported problem. The subordinate has an incentive to conceal a detected problem since if he reports it but the manager is too lazy to solve the problem, the responsibility is transferred to the subordinate since he becomes a manager in the next period. We show that concealment is more likely either if subordinates are farsighted or the problem’s growth rate increases over time.
    Keywords: Concealment, overlapping generations, promotion, reducing the responsibility
    JEL: D23 D82 M51
    Date: 2017–11
  18. By: Kai A. Konrad; Florian Morath
    Abstract: We study a dynamic multi-stage contest that resolves in each stage only with a given probability. Assuming that there is unobservable heterogeneity in intrinsic motivations we derive properties of the equilibrium efforts across the different stages. Whereas in the corresponding complete information benchmark equilibrium efforts are stable across the stages, uncertainty about the type distribution of possible opponents generates learning. We identify reasons for dynamic adjustments of efforts caused by belief formation and updating and by selection of certain types into continuing conflict. A corresponding experimental setup provides evidence for escalation of efforts in later stages, for type heterogeneity, for belief formation and belief updating, and for selfselection. Overall, our results suggest the importance of an appropriate benchmark model when testing predictions on behavior in conflict or related strategic interactions.
    Keywords: Dynamic conflict, lottery contest, heterogeneity, incomplete information, uncertainty, escalation, beliefs, selection, learning, experiment
    JEL: C90 D72 D74 D83
    Date: 2017–08

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