nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒10‒08
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. I Don't Know By Matthew Backus; Andrew Little
  2. Blocking in a timing game with asymmetric players By Smirnov, Vladimir; Wait, Andrew
  3. Regulating Cancellation Rights with Consumer Experimentation By Florian Hoffmann; Roman Inderst; Sergey Turlo
  4. Trade Associations: Why Not Cartels? By David K Levine; Andrea Mattozzi; Salvatore Modica
  5. Mergers and Investments in New Products By Jullien, Bruno; Lefouili, Yassine
  6. Strategic Voting when Participation is Costly By Dimitrios Xefteris
  7. Decision Under Normative Uncertainty By Franz Dietrich; Brian Jabarian
  8. Contests with a Non-Convex Strategy Space By Doron Klunover; John Morgan
  9. Standard Risk Aversion and Efficient Risk Sharing By Suen, Richard M. H.
  10. Nash equilibrium in asymmetric multi-players zero-sum game with two strategic variables and only one alien By Satoh, Atsuhiro; Tanaka, Yasuhito
  11. Sion's mini-max theorem and Nash equilibrium in a multi-players game with two groups which is zero-sum and symmetric in each group By Satoh, Atsuhiro; Tanaka, Yasuhito
  12. On zero-sum game formulation of non zero-sum game By Satoh, Atsuhiro; Tanaka, Yasuhito
  13. A Modelling of the Role of Social Networks in Market Mechanism - Social Ties as Screening Tools in Price Discrimination By Karoly Miklos Kiss; Kinga Edocs
  14. Towards a Unified Aggregation Framework for Preferences and Judgements By Luigi Marengo; Simona Settepanella; Yan X. Zhang
  15. Crowdfunding in a duopoly under asymmetric information By Miglo, Anton

  1. By: Matthew Backus; Andrew Little
    Abstract: Experts with reputational concerns, even good ones, are averse to admitting what they don’t know. This diminishes our trust in experts and, in turn, the role of science in society. We model the strategic communication of uncertainty, allowing for the salient reality that some questions are ill-posed or unanswerable. Combined with a new use of Markov sequential equilibrium, our model sheds new light on old results about the challenge of getting experts to admit uncertainty – even when it is possible to check predictive success. Moreover, we identify a novel solution: checking features of the problem itself that only good experts will infer – in particular, whether the problem is answerable – allows for equilibria where uninformed experts do say “I Don’t Know.”
    JEL: D8 D83 L22
    Date: 2018–09
  2. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: We examine innovation as a market-entry timing game with complete information and observable actions. We allow for heterogenous payoffs between players, and for a leader's payoff functions to be multi-peaked and non-monotonic. Assuming that the follower's payoff is non-increasing with the time of the leader's entry, we characterize all pure-strategy subgame perfect equilibria for the two-player asymmetric model, showing that there are at most two equilibria. Firm heterogeneity allows for equilibria with different characteristics than previously examined in the literature. For example, a fi rm may wish to enter earlier blocking its rival's entry, so as to avoid an anticipated lower future payoff if it waited. A notable feature of this blocking equilibrium is that rents need not be equalized between the leader and follower. We also show that if the followers' payoffs are non-monotonic, the iterative incentives to block each other's product launch may lead to starkly inefficient early entry in a continuous version of the centipede game.
    Keywords: timing games; blocking entry; innovation.
    Date: 2018–09
  3. By: Florian Hoffmann; Roman Inderst; Sergey Turlo
    Abstract: Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too little returns or cancellations, as they do not internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers learn longer by imposing a commonly observed statutory minimum cancellation or refund period is socially efficient only when firms appropriate much of the market surplus, while it backfires otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the unregulated outcome firms grant particularly generous rights when competition is neither too low nor too high. The overarching theme of our analysis is that both the individual benefits and the welfare consequences of (consumer) experimentation depend crucially on the consumer's reservation value, which is endogenous in a market environment.
    Keywords: Consumer experimentation, cancellation rights, market equilibrium, externality, regulation, consumer protection
    JEL: D82 D86 L51
    Date: 2018–10
  4. By: David K Levine; Andrea Mattozzi; Salvatore Modica
    Date: 2018–10–01
  5. By: Jullien, Bruno; Lefouili, Yassine
    Abstract: We investigate the impact of a horizontal merger between two competitors on their incentives to develop new products. We show that a merger raises the incentives to innovate if and only if the merged entity's incremental gain from a second innovation is larger than the individual profit of an innovator when both firms innovate in the no-merger scenario. Applying this result to the Hotelling model, we find that a merger spurs innovation and can be beneficial to consumers if the degree of product differentiation is positive but not too high.
    Keywords: Merger Policy; Product Innovation; R&D Investments
    JEL: K21 L13 L40
    Date: 2018–08
  6. By: Dimitrios Xefteris
    Abstract: We study a general multiparty model of plurality rule elections with costly participation, and prove that strategic voting -that is, situations in which some voters abandon their most preferred alternative and vote strategically for the serious contender they like most- may emerge in equilibrium; just like when participation is costless/compulsory (Palfrey, 1988). This is contrary to recent claims that strategic voting cannot occur when participation is costly (e.g. Arzumanyan and Polborn, 2017) and establishes that the Duverger’s psychological effect is present in a much larger set of cases than currently believed.
    Keywords: Multiparty elections; plurality rule; costly voting; Duverger’s law; strategic voting
    JEL: D71 D72
    Date: 2018–09
  7. By: Franz Dietrich (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Brian Jabarian (PSE - Paris School of Economics, Université Paris 1 Panthéon Sorbonne)
    Date: 2018–09
  8. By: Doron Klunover; John Morgan
    Abstract: We characterize the Nash equilibria of a class of two-player contests with a non-convex strategy space under the usual concavity assumptions. The analysis sheds light on behavior in international conflicts. For instance, it may explain why some attempts to resolve international conflicts have been successful while others have not.
    Date: 2018–09
  9. By: Suen, Richard M. H.
    Abstract: This paper analyzes the risk attitude and investment behavior of a group of heterogeneous consumers who face an uninsurable background risk. It is shown that standard risk aversion at the individual level does not imply standard risk aversion at the group level under efficient risk sharing. This points to a potential divergence between individual and collective investment choices in the presence of background risk. We show that if the members' absolute risk tolerance is increasing and satisfies a strong form of concavity, then the group has standard risk aversion.
    Keywords: Standard risk aversion; Efficient risk sharing; Background risk; Portfolio choice.
    JEL: D70 D81 G11
    Date: 2018–09–06
  10. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We consider a partially asymmetric multi-players zero-sum game with two strategic variables. All but one players have the same payoff functions, and one player (Player $n$) does not. Two strategic variables are t_i's and s_i's for each player i. Mainly we will show the following results. 1) The equilibrium when all players choose t_i's is equivalent to the equilibrium when all but one players choose t_i's and Player n chooses s_n as their strategic variables. 2) The equilibrium when all players choose s_i's is equivalent to the equilibrium when all but one players choose s_i's and Player n chooses t_n as their strategic variables. The equilibrium when all players choose t_i's and the equilibrium when all players choose s_i's are not equivalent although they are equivalent in a symmetric game in which all players have the same payoff functions.
    Keywords: partially asymmetric multi-players zero-sum game, Nash equilibrium, two strategic variables
    JEL: C72
    Date: 2018–09–13
  11. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We consider the relation between Sion's minimax theorem for a continuous function and Nash equilibrium in a multi-players game with two groups which is zero-sum and symmetric in each group. We will show the following results. 1. The existence of Nash equilibrium which is symmetric in each group implies a modified version of Sion's minimax theorem with the coincidence of the maximin strategy and the minimax strategy for players in each group. %given the values of the strategic variables. 2. A modified version of Sion's minimax theorem with the coincidence of the maximin strategy and the minimax strategy for players in each group implies the existence of Nash equilibrium which is symmetric in each group. Thus, they are equivalent. An example of such a game is a relative profit maximization game in each group under oligopoly with two groups such that firms in each group have the same cost functions and maximize their relative profits in each group, and the demand functions are symmetric for the firms in each group.
    Keywords: multi-players zero-sum game, two groups, Nash equilibrium, Sion's minimax theorem
    JEL: C72
    Date: 2018–09–13
  12. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We consider a formulation of a non zero-sum n players game by an n+1 players zero-sum game. We suppose the existence of the n+1-th player in addition to n players in the main game, and virtual subsidies to the n players which is provided by the n+1-th player. Its strategic variable affects only the subsidies, and does not affect choice of strategies by the n players in the main game. His objective function is the opposite of the sum of the payoffs of the n players. We will show 1) The minimax theorem by Sion (Sion(1958)) implies the existence of Nash equilibrium in the n players non zero-sum game. 2) The maximin strategy of each player in {1, 2, ..., n} with the minimax strategy of the n+1-th player is equivalent to the Nash equilibrium strategy of the n players non zero-sum game. 3) The existence of Nash equilibrium in the n players non zero-sum game implies Sion's minimax theorem for pairs of each of the n players and the n+1-th player.
    Keywords: zero-sum game, non zero-sum game, minimax theorem, virtual subsidy
    JEL: C72
    Date: 2018–09–13
  13. By: Karoly Miklos Kiss (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and University of Pannonia, Veszprem); Kinga Edocs (University of Pannonia, Veszprem)
    Abstract: One of the most relevant and exciting issues in the latest decades in economics had been the asymmetric information and uncertainty, and their effects on market processes and efficiency. Some studies show that markets where information problems or/and uncertainty arise tend to be “networked”, and some studies propose that use of social networks can mitigate adverse selection and moral hazard problems, but this area is still under-developed. Price discrimination is a representative situation where asymmetric information vigorously appears. The firms rarely have precise information about the types of individual customers (their important features, preferences or willingness-to-pay), but can use incentive tools and screening mechanisms. Use of signaling and screening can reduce the cost of incentive under asymmetric information. We develop a model to show that social embeddedness of buyers and some relevant features of their social network can be used for screening to mitigate the information problem in pricing decisions.
    Keywords: asymmetric information, nonlinear pricing, incentive contracts, social network, social embeddedness
    JEL: D8 L11 Z13
    Date: 2018–09
  14. By: Luigi Marengo; Simona Settepanella; Yan X. Zhang
    Abstract: The "doctrinal paradox", also called "discursive dilemma", shows that the aggregation of judgements held by different individuals is problematic and can lead to group-level inconsistencies, although each individual is consistent. This aggregation problem has intuitive similarities with the Condorcet paradox in the aggregation of preferences. Indeed, List and Pettit (2002) proved an im- possibility theorem in the framework of judgement aggregation, analogous to Arrow's Theorem from the framework of preference aggregation. However, List and Pettit (2004) claim that the judgement aggregation framework is "more ex-pressive" than the classical social choice framework, in the sense that while the framework of preference aggregation can be mapped into the framework of judgement aggregation, there exists no obvious reverse mapping. In this paper we show instead that the social choice framework has enough power to express the judgement aggregation framework. To do so, we present a graph-theoretic version of the social choice framework and show that it is sufficient to embed the judgement aggregation framework. As an application of this framework, we show that the doctrinal paradox and Condorcet's paradox (both under the majority aggregation rule) arise for essentially the same reason.
    Date: 2018–09–28
  15. By: Miglo, Anton
    Abstract: Traditionally crowdfunding has been used for funding very innovative projects. Recently, however, companies have begun using crowdfunding to finance more traditional products where they compete against other sellers of similar products. One of the major platforms Indiegogo launched several projects consistent with this trend. This paper offers a model of a duopoly where firms can use crowdfunding prior to direct sales. The model is based on asymmetric information between competitors regarding the demand for the product. It provides several implications that have not yet been tested. For example we find that high-demand firms can use crowdfunding to signal their quality.
    Keywords: crowdfunding, asymmetric information, reward-based crowdfunding, duopoly, signalling
    JEL: D43 D82 G32 L11 L13 L26 M13
    Date: 2018

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