nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒06‒17
nineteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Competing Mechanisms and Folk Theorems: Two Examples By Andrea Attar; Eloisa Campioni; Thomas Mariotti; Gwenael Piaser
  2. Boom-Bust Cycles of Learning, Investment and Disagreement By Osnat Zohar
  3. Price Disclosure by Two-sided Platforms By Paul Belleflamme; Martin Peitz
  4. On the Informed Principal Model with Common Values * By Anastasios Dosis
  5. Optimal Stopping under Model Ambiguity: a Time-Consistent Equilibrium Approach By Yu-Jui Huang; Xiang Yu
  6. Conventions and Coalitions in Repeated Games By S. Nageeb Ali; Ce Liu
  7. Platform Competition With Cash-back Rebates Under No Surcharge Rules By Marius Schwartz; Daniel R. Vincent
  8. Double Implementation in Dominant Strategy Equilibria and Ex Post Equilibria with Private Values By Makoto Hagiwara
  9. The Social Costs of Side Trading By Attar, Andrea; Mariotti, Thomas; Salanié, François
  10. Information Aggregation with Runoff Voting By Nikolas Tsakas; Dimitrios Xefteris
  11. Note on the Excess Entry Theorem in the Presence of Network Externalities By Tsuyoshi Toshimitsu
  12. Legitimacy and Incentives in a Labour Relationship. By Emilien Prost
  13. Optimal Trading for an Informed Seller By Anastasios Dosis
  14. On the value of persuasion by experts By Alonso, Ricardo; Câmara, Odilon
  15. The Theory of Weak Revealed Preference By Victor H. Aguiar; Per Hjertstrand; Roberto Serrano
  16. Injunctions against false advertising By Baumann, Florian; Rasch, Alexander
  17. Production in advance versus production to order: Equilibrium and social surplus By Tasnádi, Attila
  18. Which kind of ability bolsters legitimacy? By Emilien Prost
  19. Optimal Non-Linear Pricing Scheme when Consumers are Habit Forming By Eleftheria Triviza

  1. By: Andrea Attar (CEIS & DEF University of Rome "Tor Vergata"); Eloisa Campioni (CEIS & DEF University of Rome "Tor Vergata"); Thomas Mariotti (Toulouse School of Economics, CNRS); Gwenael Piaser (IPAG Business School, Paris)
    Abstract: We study competing-mechanism games under exclusive competition: principals first simultaneously post mechanisms, then agents simultaneously choose to participate and communicate with at most one principal. In this setting, which is common to competing-auction and competitive-search applications, we develop two examples that question the relevance of the folk theorems for competing-mechanism games documented in the literature. The first example shows that there can exist pure-strategy equilibria in which some principal obtains a payoff below her min-max payoff, computed over all principals' decisions. Thus folk-theorem results may have to involve a bound on principals' payoffs that depends on the spaces of messages available to the agents, and not only on the players' available actions. The second example shows that even this nonintrinsic approach is misleading when agents' participation decisions are strategic: there can exist incentive-feasible allocations in which principals obtain payoffs above their min-max payoffs, computed over arbitrary spaces of mechanisms, but which cannot be supported in equilibrium.
    Keywords: Competing Mechanisms, Folk Theorems, Exclusive Competition
    JEL: D82
    Date: 2019–06–06
  2. By: Osnat Zohar (Bank of Israel)
    Abstract: Real activity as well as expectations often exhibit asymmetric dynamics, namely, they increase gradually with occasional large downturns. Such dynamics emerge in a model with strong feedback between activity and information. In the model, active investment reveals private information about the state of the world. An agent (Follower) only learns about another agent's (Loner's) signals from his actions. Equilibrium in the model generates asymmetric cycles: Entry to the market is gradual; exits tend to be abrupt and are followed by slow recoveries. The asymmetry in the cycle is magnified when information is public. If Follower observes Loner's payoffs and not just his actions, he is more likely to defer his entry compared to the benchmark model. Finally, model simulations show a positive correlation between investment and dispersion of beliefs which is largely attributed to the learning mechanism in the model.​
    Keywords: dynamic learning, asymmetric cycles, slow recovery, private information
    JEL: C73 D82 D83 E32
    Date: 2019–05
  3. By: Paul Belleflamme; Martin Peitz
    Abstract: We consider two-sided platforms with the feature that some users on one or both sides of the market lack information about the price charged to participants on the other side of the market. With positive cross-group external effects, such lack of price information makes demand less elastic. A monopoly platform does not benefit from opaqueness and optimally reveals price information. contrast, in a two-sided singlehoming duopoly, platforms benefit from opaqueness and, thus, do not have an incentive to disclose price information. In competitive bottleneck markets, results are more nuanced: if one side is fully informed (for exogenous reasons), platforms may decide to inform users on the other side either fully, partially or not at all, depending on the strength of cross-group external effects and the degree of horizontal differentiation.
    Keywords: price transparency; two-sided markets; competitive bottleneck; platform competition; price information; strategic disclosure
    JEL: D43 L12 L13
    Date: 2019–06
  4. By: Anastasios Dosis (ESSEC Business School - Essec Business School)
    Abstract: This paper reconsiders the general informed principal model with unilateral private information and common values. First, it identifies some fundamental properties of the Rothschild-Stiglitz-Wilson (RSW) allocation (i.e., the undominated for the principal allocation within the set of incentive compatible and individually rational for the agent type by type allocations). Based on these properties: (i) it constructs a more robust, and perhaps simpler, proof of the "if part" of Theorem 1 (i.e., the main result) of Maskin and Tirole (1992), and, (ii) it establishes that if the principal is restricted to offering mechanisms in which only she makes announcements (e.g., direct revelation mechanisms), then the conclusion of that theorem holds even in environments in which the RSW allocation is not interim efficient relative to any non-degenerate beliefs. Second, it provides a sufficient condition that allows for the complete charac-terisation of the set of equilibrium allocations even in environments in which single-crossing is not satisfied.
    Keywords: Mechanism design,Informed principal,Rothschild-Stiglitz-Wilson allocation,Perfect Bayesian equilibrium
    Date: 2019–04–05
  5. By: Yu-Jui Huang; Xiang Yu
    Abstract: An unconventional approach for optimal stopping under model ambiguity is introduced. Besides ambiguity itself, we take into account how ambiguity-averse an agent is. This inclusion of ambiguity attitude, via an $\alpha$-maxmin nonlinear expectation, renders the stopping problem time-inconsistent. We look for subgame perfect equilibrium stopping policies, formulated as fixed points of an operator. For a one-dimensional diffusion with drift and volatility uncertainty, we show that every equilibrium can be obtained through a fixed-point iteration. This allows us to capture much more diverse behavior, depending on an agent's ambiguity attitude, beyond the standard worst-case (or best-case) analysis. In a concrete example of real options valuation under volatility uncertainty, all equilibrium stopping policies, as well as the best one among them, are fully characterized. It demonstrates explicitly the effect of ambiguity attitude on decision making: the more ambiguity-averse, the more eager to stop---so as to withdraw from the uncertain environment. The main result hinges on a delicate analysis of continuous sample paths in the canonical space and the capacity theory. To resolve measurability issues, a generalized measurable projection theorem, new to the literature, is also established.
    Date: 2019–06
  6. By: S. Nageeb Ali; Ce Liu
    Abstract: We develop a theory of repeated interaction for coalitional behavior. We consider stage games where both individuals and coalitions may deviate. However, coalition members cannot commit to long-run behavior (on and off the path), and anticipate that today's actions influence tomorrow's behavior. We evaluate the degree to which history-dependence can ward off coalitional deviations. If monitoring is perfect, every feasible and strictly individually rational payoff can be supported by history-dependent conventions. By contrast, if players can make secret side-payments to each other, every coalition achieves a coalitional minmax value, reducing the set of supportable payoffs to the core of the stage game.
    Date: 2019–06
  7. By: Marius Schwartz (Department of Economics, Georgetown University); Daniel R. Vincent (Department of Economics, University of Maryland)
    Abstract: We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival’s spread. This incentive yields non-existence of pure strategy equilibrium in many natural environments. In some circumstances, there is a mixed strategy equilibrium where platforms choose fee structures that induce the merchant to accept only one platform with equal probability, a form of monopolistic market allocation.
    Keywords: Platform price competition; rebates; no surcharge; payment networks; credit cards.
    JEL: L13 L41 L42 D43
    Date: 2019–06–11
  8. By: Makoto Hagiwara (PhD Student, Department of Industrial Engineering and Economics, Tokyo Institute of Technology, JAPAN)
    Abstract: We consider the implementation problem under incomplete information and private values. We investigate double implementability of (single-valued) mappings in dominant strategy equilibria and ex post equilibria. We call a mapping a "rule". We show that the notion of an ex post equilibrium is weaker than the notion of a dominant strategy equilibrium. Then, this double implementability notion is not trivial even under private values. We define a new strategic axiom that is stronger than "strategy-proofness", but weaker than "secure strategy-proofness". We call it "weak secure-strategy-proofness". We show that a rule is doubly implementable if and only if it is weakly securely-strategy-proof.
    Keywords: Double Implementation; Dominant Strategy Equilibrium; Ex Post Equilibrium; Weak Secure-strategy-proofness; Private Values
    JEL: C72 D71 D78
    Date: 2019–06
  9. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.
    Keywords: Adverse Selection; Side Trading; Second-Best Allocations.
    JEL: D43 D82 D86
    Date: 2019–06
  10. By: Nikolas Tsakas; Dimitrios Xefteris
    Abstract: A majority of independent voters wants to choose the alternative that better matches the state of the world, but may disagree on its identity due to private information. When we have an arbitrary number of alternatives and also sophisticated partisan voters exist in the electorate, the election of the correct alternative is a real challenge. Building upon McLennan (1998) and Barelli et al. (2017) we show that runoff voting -one of the most intuitive electoral systems- achieves asymptotically full information equivalence. That is, when the society is large, it can lead to the election of the correct alternative under fairly general assumptions regarding the information structure and partisans' preferences.
    Keywords: runoff voting; information aggregation; partisan voters; Condorcet jury theorem
    JEL: D71 D72
    Date: 2019–05
  11. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We reconsider the excess entry theorem in the presence of network externalities under Cournot oligopoly. We demonstrate that if the strength of a network externality is larger (smaller) than a half, the number of firms under free entry is socially too small (too large), based on the second-best criteria.
    Keywords: Cournot oligopoly; free entry; excess entry theorem; network externality; a fulfilled equilibrium; passive expectations; responsive expectations
    JEL: D21 D43 D62 L15
    Date: 2019–06
  12. By: Emilien Prost
    Abstract: We design a two-stage model where the winner of a tournament becomes the executive of his former opponent. We call procedural legitimacy, the legitimacy an executive obtains if he is promoted through a competition with no unfair treatment. The aim of this paper is to study how effort may paradoxically bolster or undermine this type of legitimacy with respect to technological assumptions. Besides we show that, in bayesian terms, winning the competition reinforces the belief of having been advantaged but it also reinforces the belief that the looser will be disadvantaged in the future and thus be less productive. This will tend to make winning the competition by being advantaged much less profitable. To incentivize more effort during the competition, the firm has to design a procedure where opponents are not evaluated by their peers but by neutral and external people. Thus the competition will not bring information on a potential inequality of treatment in the future. We argue civil servant examination in public administration and human resources departments are designed partially for this reason..
    Keywords: Legitimacy, leadership, tournament, contract theory, moral hazard, personnel economics.
    JEL: D00 D86 J50 M50 M51
    Date: 2019
  13. By: Anastasios Dosis (ESSEC Business School - Essec Business School)
    Abstract: A seller with perfect monopoly power trades an indivisible object with a buyer. Both the seller's and the buyer's valuations for the object depend on its quality, which is privately known by the seller. Moreover, the seller has perfect information about the buyer's valuation for each quality. Even though posting a fixed price is ex ante optimal, it might not be interim individually rational and hence not necessarily implementable. The set of interim optimal allocations is charac-terised by solving a parametric linear maximisation program. These allocations might differ from simple price-posting. If the seller offers a menu of contracts, then allocations that are not interim optimal can be supported as equilibrium allocations. However, this sub-optimality result seems not to be robust if there are at least two buyers who can counter-offer menus of contracts after the seller's offer. In that case, an allocation is an equilibrium allocation if and only if it is interim optimal.
    Keywords: Informed seller,Common values,Interim optimal trading
    Date: 2019–03–09
  14. By: Alonso, Ricardo; Câmara, Odilon
    Abstract: We consider a persuasion model in which a sender influences the actions of a receiver by selecting an experiment (public signal) from a set of feasible experiments. We ask: does the sender benefit from becoming an expert — observing a private signal prior to her selection? We provide necessary and sufficient conditions for a sender to never gain by becoming informed. Our key condition (sequential redundancy) shows that the informativeness of public experiments can substitute for the sender's expertise. We then provide conditions for private information to strictly benefit or strictly hurt the sender. Expertise is beneficial when the sender values the ability to change her experimental choice according to her private information. When the sender does not gain from expertise, she is strictly hurt when different types cannot pool on an optimal experiment.
    Keywords: information design; Bayesian persuasion; experts
    JEL: D83
    Date: 2018–03–01
  15. By: Victor H. Aguiar; Per Hjertstrand; Roberto Serrano
    Abstract: We offer a rationalization of the weak generalized axiom of revealed preference (WGARP) for both finite and infinite data sets of consumer choice. We call it maximin rationalization, in which each pairwise choice is associated with a "local" utility function. We develop its associated weak revealed-preference theory. We show that preference recoverability and welfare analysis \`a la Varian (1982) may not be informative enough, when the weak axiom holds, but when consumers are not utility maximizers. We clarify the reasons for this failure and provide new informative bounds for the consumer's true preferences.
    Date: 2019–06
  16. By: Baumann, Florian; Rasch, Alexander
    Abstract: Rules of consumer protection or fair competition can be publicly or privately enforced. We consider the possibility of false advertising by a firm in duopolistic competition where consumers can be distinguished according to whether or not they form rational beliefs about the trustworthiness of advertising claims. We compare private and public law enforcement in the form of the demand for injunctions against false advertising. From a welfare perspective, we show that it can be optimal either to have the private entity (the competitor/a consumer protection agency) or the government agency as plaintiff, where the optimal regime depends on the share of naive consumers and the level of trial costs in a non-trivial way.
    Keywords: injunction suits,false advertising,law enforcement,naive consumers,product differentiation
    JEL: K41 K42 L13 L15
    Date: 2019
  17. By: Tasnádi, Attila
    Abstract: We determine a symmetric mixed-strategy equilibrium of the production-in-advance type symmetric capacity-constrained Bertrand-Edgeworth duopoly game for the most challenging case of intermediate capacities, which was unknown so far. Based on the obtained equilibrium we show that economic surplus within the production-to-order type environment is higher than in the respective production-in-advance type one, and therefore production-to-order should be preferred to production-in-advance if the mode of production can be influenced by the government.
    Keywords: Price-quantity games, Bertrand-Edgeworth competition
    JEL: D43 L13
    Date: 2019–06–10
  18. By: Emilien Prost
    Abstract: The aim of this paper is to study in a theoretical perspective how the choice of the ability on which an executive is evaluated to be promoted may be a crucial stake. We show that a procedure where an executive is selected on a managerial ability will allow to increase his own wage, compared to a procedure where he needs to demonstrate ability on the same task than his employee. The intuition is that it would neutralize the issue of rivalry with the employee by preserving the self confidence of the employee in spite he has failed at being promoted, making him easier to incentivize. The consequence is that selecting leaders on their ability to outperform their employee will tend to favor the emergence of a leadership culture of humility during the promotion process in a sense that opponents will strategically reduce their performance to preserve the self-confidence of their employee and then make him less costly to incentivize. On the contrary, selecting leaders on managerial ability will favor the emergence of a leadership culture of demonstration of strength.
    Keywords: Legitimacy, leadership, tournament, contract theory, moral hazard, personnel economics.
    JEL: D00 D86 J50 M50 M51
    Date: 2019
  19. By: Eleftheria Triviza
    Abstract: This article analyses how consumers' habit formation affects firms' pricing policies. We consider both sophisticated consumers, who realize that their current consumption will affect future consumption, and naive consumers, who do not. The optimal contract for sophisticated consumers is a two-part tariff. The main result is that under naive habit formation, the optimal pricing pattern is a three-part tariff; namely a fixed fee, with some units priced below cost --- and after their end --- pricing above marginal cost. This holds both under symmetric and asymmetric information.
    Keywords: three-part tariff, nonlinear pricing, naivete, habit formation
    JEL: L11 D11 D42 D82
    Date: 2019–06

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