nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒01‒15
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Platform Competition: Who Benefits from Multihoming? By Belleflamme, Paul; Peitz, Martin
  2. Vertical Foreclosure and Multi-Segment Competition By Jullien, Bruno; Reisinger, Markus; Rey, Patrick
  3. Linear voting rules By Grüner, Hans Peter; Tröger, Thomas
  4. The social value of information and the competition motive: Price vs. quantity games By Camille Cornand; Rodolphe Dos Santos Ferreira
  5. Matching with myopic and farsighted players By HERINGS P. Jean-Jacques; MAULEON Ana; VANNETELBOSCH Vincent
  6. Regulating False Disclosure By Janssen, Maarten; Roy, Santanu
  7. Dynamic coordination with timing frictions: theory and applications By Guimaraes, Bernardo; Machado, Caio; Pereira, Ana Elisa
  8. Constitutions and groups By MAULEON Ana; ROEHL Nils; VANNETELBOSCH Vincent
  9. Strategic Effects of Investment and Private Information: The Incumbent’s Curse By Luigi Brighi; Marcello D'Amato
  10. Competition for leadership in teams By MAULEON Ana; SCHOPOHL Simon; VANNETELBOSCH Vincent
  11. Input price discrimination with secret linear contracting By Ioannis N. Pinopoulos
  12. Regulation and Altruism By Izabela Jelovac; Samuel Kembou Nzale
  13. Player-Compatible Equilibrium By Drew Fudenberg; Kevin He
  14. Screening procrastinators with automatiic-renewal contracts By JOHNEN Johannes
  15. Dynamic Pricing with Search Frictions By Daniel Garcia
  16. Competitive Differential Pricing By Yongmin Chen; Jianpei Li; Marius Schwartz
  17. Competition in Public Service Provision: The Role of Not-for-profit Providers By Timothy Besley; James Malcomson
  18. Voluntary Bankruptcy as Preemptive Persuasion By Dinev, Nikolay

  1. 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: competitive bottleneck; multihoming; network effects; platform competition; Two-sided markets
    JEL: D43 L13 L86
    Date: 2017–11
  2. By: Jullien, Bruno; Reisinger, Markus; Rey, Patrick
    Abstract: This paper analyzes a supplier's incentives to foreclose downstream entry when entrants have stronger positions in different market segments, thus bringing added value as well as competition. We first consider the case where wholesale contracts take the form of linear tariffs, and characterize the conditions under which the competition-intensifying effect dominates, thereby leading to foreclosure. We then show that foreclosure can still occur with non-linear tari¤s, even coupled with additional provisions such as resale price maintenance.
    Keywords: Foreclosure; Vertical Contracting; Customer Segments; Downstream Competition
    JEL: D43 K21 L12 L42
    Date: 2017–12–15
  3. By: Grüner, Hans Peter; Tröger, Thomas
    Abstract: How should a society choose between two social alternatives if participation in the decision process is voluntary and costly and monetary transfers are not feasible? Considering symmetric voters with private valuations, we show that it is utilitarian-optimal to use a linear voting rule: votes get alternativedependent weights, and a default obtains if the weighted sum of votes stays below some threshold. Standard quorum rules are not optimal. We develop a perturbation method to characterize equilibria in the case of small participation costs and show that leaving participation voluntary increases welfare for linear rules that are optimal under compulsory participation.
    Keywords: Mechanisms design , optimal voting rules , costly voting , compulsory voting , quorum rules
    JEL: D71 D72 D82
    Date: 2018
  4. By: Camille Cornand (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique); Rodolphe Dos Santos Ferreira (BETA - Bureau d'Economie Théorique et Appliquée - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose a unified framework bridging the gap between team and competition issues, in order to reconsider the social value of private and public information in price and quantity games under imperfect and dispersed information, and to compare the corresponding outcomes in terms of equilibrium and social welfare. The informational distortion associated with the competition motive may lead to a negative social value of private information and reverse the perfect information result in favor of strategic substitutability as the source of higher profit and social welfare. Abstract We propose a unified framework bridging the gap between team and competition issues, in order to reconsider the social value of private and public information in price and quantity games under imperfect and dispersed information, and to compare the corresponding outcomes in terms of equilibrium and social welfare. The informational distortion associated with the competition motive may lead to a negative social value of private information and reverse the perfect information result in favor of strategic substitutability as the source of higher profit and social welfare.
    Keywords: public information,dispersed information,quantity game,strategic substitutability,price game,anti-coordination,strategic complementarity,coordination,competition,beauty contest
    Date: 2017
  5. By: HERINGS P. Jean-Jacques (Universiteit Maastricht); MAULEON Ana (Université Saint-Louis, Bruxelles and CORE, UCL); VANNETELBOSCH Vincent (Université catholique de Louvain, CORE, Belgium)
    Abstract: We study stable sets for marriage problems under the assumption that players can be both myopic and farsighted. We introduce the new notion of the myopic-farsighted stable set, which is based on the notion of a myopic-farsighted improving path. A myopic-farsighted stable set is the set of match-ings such that there is no myopic-farsighted improving path from any match-ing in the set to another matching in the set (internal stability) and there is a myopic-farsighted improving path from any matching outside the set to some matching in the set (external stability). For the special cases where all players are myopic and where all players are farsighted, our concept pre-dicts the set of matchings in the core. When all men are myopic and the top choice of each man is a farsighted woman, we show that the singleton consist-ing of the woman-optimal stable matching is a myopic-farsighted stable set. The same result holds when all women are farsighted. We present examples where this is the unique myopic-farsighted stable set as well as examples of myopic-farsighted stable sets consisting of a core element di erent from the woman-optimal matching or even of a non-core element.
    Keywords: Marriage problems, stable sets, myopic and farsighted players.
    JEL: C70 C78
    Date: 2017–04–21
  6. By: Janssen, Maarten; Roy, Santanu
    Abstract: Firms communicate private information about product quality through a combination of pricing and disclosure where disclosure may be deliberately false. In a competitive setting, we examine the effect of regulation penalizing false disclosure. Stronger regulation reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it often creates incentives for excessive disclosure. Regulation is suboptimal unless disclosure itself is inexpensive and even in the latter case, only strong regulation is welfare improving. Weak regulation is always worse than no regulation. Even high quality firms suffer due to regulation.
    Keywords: Regulation; Asymmetric Information; Disclosure; Lying; Signaling; Product Quality; Price Competition
    JEL: D43 D82 L13 L15
    Date: 2017–11
  7. By: Guimaraes, Bernardo; Machado, Caio; Pereira, Ana Elisa
    Abstract: We start by presenting the general model of dynamic coordination with timing frictions and some key theoretical results. We prove the model features a unique rationalizable equilibrium, present a method to solve the social planner problem and derive expressions for the equilibrium threshold in limiting cases. With this toolkit in hand, we get analytical results for a case with linear preferences and present several applications, ranging from network externalities to statistical discrimination and to macroeconomics. Besides generating insights for specific questions, the applications illustrate the potential of the model to accommodate a large set of economic problems. Last, we show extensions of the framework that allow for endogenous hazard rates, preemption motives and ex-ante heterogeneous agents.
    JEL: J1
    Date: 2017–08–01
  8. By: MAULEON Ana (Université Saint-Louis Bruxelles and CORE); ROEHL Nils (University of Paderborn); VANNETELBOSCH Vincent (CORE, Université catholique de Louvain)
    Abstract: We develop a general theoretical framework that allows us to study the group structures that are going to emerge at equilibrium when individuals are allowed to engage in several groups at the same time. We introduce the notion of constitution in order to
    Keywords: overlapping coalitions, group structures, constitutions, stability, many-to-many matchings
    JEL: C72 C78 D85
    Date: 2017–08–31
  9. By: Luigi Brighi; Marcello D'Amato
    Abstract: We study a two-period entry model where the incumbent, privately informed about his cost of production, makes a long run investment choice along with a pricing decision. Investment is costreducing and its effects are assumed to differ across incumbent’s types, as a result investment plays a double role as a commitment variable and, along with price, as a signal. We ask whether and how investment decisions allow the incumbent to limit entry into the market. We find that the incumbent will never undertake strategic investment to deter profitable entry, because when incumbent’s costs are private information the signaling role of investment cancels out its value of commitment.
    Keywords: Entry deterrence, commitment, limit pricing, multiple signaling
    JEL: D58 L51
    Date: 2017–12
  10. By: MAULEON Ana (Université Saint-Louis Bruxelles and CORE); SCHOPOHL Simon (CORE, Université catholique de Louvain); VANNETELBOSCH Vincent (CORE, Université catholique de Louvain)
    Abstract: We analyze a model of information centralization in teams where players can only exchange information through an endogenous network. Over several periods each player can either pass or not pass her information to her neighbors. Once one player has central
    Keywords: communication network; dynamic network game; information transmission; leadership; pairwise; team project
    JEL: C72 C73 D83 D85
    Date: 2017–11–27
  11. By: Ioannis N. Pinopoulos (Department of Economics, University of Macedonia)
    Abstract: We study the welfare effects of input price discrimination when an unconstrained upstream supplier uses linear contracts that are unobservable by downstream firms. With homogeneous final goods, we show that banning input price discrimination decreases welfare. This finding is in contrast to that in the existing literature that considers observable linear contracts. When final goods are sufficiently differentiated, it is shown that banning input price discrimination increases welfare. This result is in contrast to that in the existing literature that considers unobservable two-part tariff contracts..
    Keywords: Input price discrimination; linear contracts; welfare.
    JEL: D43 L11 L42
    Date: 2018–01
  12. By: Izabela Jelovac (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Samuel Kembou Nzale (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)
    Abstract: We study optimal contracts in a regulator-agent setting with joint production, altruistic and selfish agents, and uneasy outcome measurement. Such a setting represents sectors of activities such as education and health care provision. The agents and the regulator jointly produce an outcome for which they all care to some extent that is varying from agent to agent. Some agents, the altruistic ones, care more than the regulator does while others, the selfish agents, care less. Moral hazard is present due to the agent’s effort that is not contractible. Adverse selection is present too since the regulator cannot a priori distinguish between altruistic and selfish agents. Contracts consist of a simple transfer from the regulator to the agents together with the regulator’s input in the joint production. We show that a screening contract is not optimal when we face both moral hazard and adverse selection.
    Keywords: altruism,moral hazard,adverse selection,regulator-agent joint production
    Date: 2017–10
  13. By: Drew Fudenberg; Kevin He
    Abstract: We define Player-Compatible Equilibrium or "PCE," which imposes cross-player restrictions on magnitudes of the players' "trembles" onto different actions. These restrictions are inspired by the idea that trembles correspond to deliberate experiments by inexperienced agents who are unsure of the prevailing distribution of strategies in opponent populations. We show that PCE selects the "intuitive" equilibria in a number of examples where trembling-hand perfect equilibrium (Selten, 1975) and proper equilibrium (Myerson, 1978) have no bite. We also provide a learning-based microfoundation for PCE in some easy-to-analyze classes of games. Finally, we conduct a lab experiment based on one of our examples and verify PCE leads to better predictions than other equilibrium concepts.
    Date: 2017–12
  14. By: JOHNEN Johannes (CORE, Université catholique de Louvain)
    Abstract: Automatic contract renewals are a common feature in consumer markets and a frequent concern among policy makers. They can be used to exploit consumer inertia when consumers forgo benefits from switching to better alternatives. I consider two sources for th
    Keywords: Limited Attention, Automatic Contract Renewal, Price Discrimination, Present Bias, Naiveté
    JEL: D03 D18 D41 D42 D82
    Date: 2017–11–09
  15. By: Daniel Garcia
    Abstract: We study markets for perishable goods with search frictions. Sellers have a single unit of a good and post prices in every period. Buyers engage in costly search to observe prices and match values. In equilibrium trade starts endogenously and the volume of trade increases over time. Under mild conditions, prices decrease at increasing rates over time. We derive the gains from trade in equilibrium as well as their distribution, and fully characterize the equilibrium for a class of demand functions in markets with evenly matched buyers and sellers. We finally discuss implications for market design, including cancellation policies.
    Keywords: consumer search, dynamic pricing, sharing economy
    JEL: D11 D83 L13
    Date: 2017
  16. By: Yongmin Chen (Department of Economics, University of Colorado at Boulder); Jianpei Li; Marius Schwartz (Department of Economics, Georgetown University)
    Abstract: This paper analyzes differential versus uniform pricing across oligopoly markets that differ in costs of service. We provide necessary and sufficient conditions on general properties of demand for differential pricing to raise or lower profit, consumer surplus, and total welfare, explain why differential pricing is generally beneficial but there are exceptions, and compare the findings to oligopoly third-degree price discrimination. Our conditions nest those for monopoly differential pricing, and are derived by evaluating when each of the welfare measures is convex in marginal cost. Our results help elucidate the welfare effects of prevalent constraints on cost-based differential pricing.
    Keywords: differential pricing, price discrimination, demand curvature, cross-price elasticity, pass-through, oligopoly
    JEL: D4 L1
    Date: 2017–12–28
  17. By: Timothy Besley; James Malcomson
    Abstract: With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores whether entry by for-profit providers is good for consumers despite the problem of unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.
    Keywords: public services, competition, not-for-profit providers
    JEL: H11 H44 L21 L31
    Date: 2017
  18. By: Dinev, Nikolay (Vienna Graduate School of Finance (VGSF))
    Abstract: This paper examines the phenomenon of management-initiated, court-supervised reorganization of companies in U.S. bankruptcy court. The proposed in-court persuasion mechanism reconciles excessive reorganizations of non-viable companies (and subsequent repeat failures) with management-initiated filings and a judge who aims to always take appropriate action. In the model, management makes a preemptive voluntary filing to retain control of the process, and thereby engage in a game of Bayesian Persuasion with asymmetric information vis-à-vis the judge. This mechanism endogenously results in the reorganization of some non-viable companies, and exclusively management-initiated (i.e., voluntary) bankruptcy filings. This paper, therefore, explains why non-viable companies could be permitted to reorganize and why there are repeat offender firms that enter bankruptcy multiple times.
    Keywords: Bayesian Persuasion, Bankruptcy, Chapter 11, Asymmetric Information
    JEL: C72 D21 D72 D82 D83 G33 K20 K40
    Date: 2017–12

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