nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒06‒24
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Uncertainty, Overconfidence, and War By Maxime Menuet; Petros Sekeris
  2. On individual incentives to bundle in oligopoly By Federico Innocenti; Domenico Menicucci
  3. On the optimal entry fee and reserve price for auctions with selective entry: A comment on Gentry, Li, Lu (2017) By Nicola Doni; Domenico Menicucci
  4. Social power as a solution to the Bertrand Paradox By Soeiro, Renato; Adrego Pinto, Alberto
  5. Games on Multi-Layer Networks By Walsh, A. M.
  6. Expressiveness and robustness of first-price position auctions By Dütting, Paul; Fischer, Felix; Parkes, David C.
  7. First-Price Auctions with Budget Constraints By Kotowski, Maciej
  8. Savage's theorem with atoms By Ha-Huy, Thai
  9. Strategic Thinking in Contests By David Bruner; Caleb Cox; David M. McEvoy; Brock Stoddard

  1. By: Maxime Menuet (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Petros Sekeris (Montpellier Business School - Montpellier Business School)
    Abstract: The present paper studies the causes and duration of wars by building a war of attrition game, and explores the effect of overconfidence in such settings. During the fight, each player infers his opponent's inclination in surrendering given two psychological biases jointly capturing overconfidence: illusory superiority (overestimation), and over-self-confidence (overprecision). We demonstrate that overconfidence is neither necessary, nor suffcient to have war. Yet, overconfident decision-makers are nevertheless more likely to initiate war, and to remain active longer in a conflict. Moreover, we show that the effect of overestimation on war duration may be non-monotonic, with the duration of wars increasing in overconfidence for lowly overconfident players, and decreasing for highly overconfident ones. We argue that this simple model helps understanding a host of real-world conflictive situations.
    Keywords: Overconfidence,Imperfect information,War of attrition,Illusory superiority
    Date: 2019–06–13
  2. By: Federico Innocenti; Domenico Menicucci
    Abstract: This paper examines competition in an oligopoly with multiproduct firms when some firms bundle but other firms sell their products separately, whereas the existing literature on competitive bundling focuses on the extreme cases of competition among bundles or among individual products. Our analysis reveals each firm’s individual incentive to bundle, and allows to study a two-stage game in which first each firm chooses its pricing strategy (bundling or independent pricing), then price competition occurs given the price regime each firm has selected at stage one. When firms are ex ante symmetric, we find that bundling is weakly dominated by independent pricing. In a setting in which a firm’s products have higher quality than its rivals’ products, individual incentives to bundle emerge (eventually for all firms) if the quality difference is large.
    Keywords: Oligopoly, Pure bundling, Independent Pricing, Competitive bundling
    JEL: D43 L13
    Date: 2019
  3. By: Nicola Doni; Domenico Menicucci
    Abstract: Gentry, Li, Lu (2017) (GLL henceforth) study an auction model with endogenous entry in which, before the entry decision, each bidder observes a private signal; a higher signal implies a better distribution for the bidder's valuation. GLL claim that the optimal reserve price is greater than the seller's value for the object on sale and that the optimal entry fee is positive. We prove that these claims are incorrect: The seller may want to subsidize entry to stimulate competition in the auction (through a negative entry fee or through a reserve price below the seller's value), or to provide appropriate entry incentives if a suitable reserve price is effective at maximizing total surplus and at extracting bidders' rents. We provide conditions under which the claims in GLL hold true.
    Keywords: Auctions; Endogenous Entry; Reserve price; Entry fee.
    JEL: D44 D82
    Date: 2019
  4. By: Soeiro, Renato; Adrego Pinto, Alberto
    Abstract: We show that in a duopoly with homogeneous consumers, if these are negatively influenceable by each other behavior (e.g. congestion/ snob/ Veblen/ network effects), a pure price equilibrium with positive profits for both firms exists. Furthermore, even in the case products are undifferentiated, an equilibrium where firms charge different (positive) prices and have different profits exists. Thus, when firms engage in uniform price competition, heterogeneity, and in particular non-atomicity in the distribution of preferences, is neither a necessary condition to ensure existence, nor to achieve asymmetries. We further show that in the case products are differentiated, social differentiation overcomes the effect of standard differentiation in creating price asymmetries.
    Keywords: Social influence; Bertrand duopoly; Bertrand competition; network effects; product differentiation; homogeneous products; pure price equilibrium; linear demand.
    JEL: C72 D00 D01 D03 D40 D43 L00 L13
    Date: 2019–06–02
  5. By: Walsh, A. M.
    Abstract: A set of agents is connected by two distinct networks, with each network describing access to a different local public good. Agents choose which networks to invest in, and neighbouring agents' investments in the same good are strategic substitutes, as are an agent's two investment choices. There are always equilibria where any investing agent bears all local investment costs and others free-ride. When investment in one good reduces marginal benefit from investment in the other, agents free-riding in one good may invest more profitably in the other, and equilibrium payoffs are more evenly distributed. This need not reduce aggregate payoff.
    Keywords: Multi-layer networks, network games, public goods
    JEL: D85 C72 H41
    Date: 2019–06–19
  6. By: Dütting, Paul; Fischer, Felix; Parkes, David C.
    Abstract: Ideally, the properties of an economic mechanism should hold in a robust way across multiple equilibria and under varying assumptions regarding the information available to participants. Focusing on the design of robust position auctions, we seek mechanisms that possess an efficient equilibrium and guarantee high revenue in every efficient equilibrium, under complete and incomplete information. A generalized first-price auction that is expressive in the sense of allowing multidimensional bids turns out to be the only standard design able to achieve this goal, even when valuations are one dimensional. The equilibria under complete information are obtained via Bernheim and Whinston’s profit target strategies, those under incomplete information via an appropriate generalization thereof. Particularly interesting from a technical perspective is the incomplete information case, where the standard technique for establishing equilibrium existence due to Myerson is generalized to a setting in which the bid space has higher dimension than the valuation space.
    Keywords: simplicity-expressiveness tradeoffs; generalized first-price auction; profit-target strategies
    JEL: J1
    Date: 2019–02–01
  7. By: Kotowski, Maciej (Harvard Kennedy School)
    Abstract: Consider a first-price, sealed-bid auction with interdependent valuations and private budget constraints. Private budget constraints introduce subtle strategic tradeoffs with first-order consequences for equilibrium bidding. In a pure-strategy, symmetric equilibrium, agents may adopt discontinuous bidding strategies resulting in a stratification of competition along the budget dimension. In an asymmetric setting, equilibria in “nondecreasing†strategies exist, albeit in a qualified sense. Private budgets introduce significant confounds for the interpretation of bidding data due to their interaction with risk preferences and their countervailing strategic implications.
    JEL: D44
    Date: 2019–06
  8. By: Ha-Huy, Thai
    Abstract: The famous theorem of Savage is based on the richness of the states space, by assuming a \textit{continuum} nature for this set. In order to fill the gap, this article considers Savage's theorem with discrete state space. The article points out the importance the existence of pair event in the existence of utility function and the subjective probability. Under the discrete states space, this can be ensured by the intuitive \textit{atom swarming} condition. Applications for the establishment of an inter-temporal evaluation \emph{\`a la } Koopman \cite{K60}, \cite{K72}, and for the configuration under \textit{unlikely atoms} of Mackenzie \cite{Mackenzie2018} are provided.
    Keywords: Savage theorem, Koopman representation, expected utility function, atom swarming.
    JEL: C00 D10 D90
    Date: 2019–06–16
  9. By: David Bruner; Caleb Cox; David M. McEvoy; Brock Stoddard
    Abstract: We examine motives for over-bidding in contests using both individual and team contests. In team contests, subject pairs send suggested bids and messages to their teammates. Content analysis of the messages provides insight into an individual’s bidding motives. In addition, we elicit measures of preferences, beliefs, and impulsiveness. We ?nd that beliefs about others’ bids and messages that emphasize winning (i.e., utility of winning) are the most robust predictors of over-bidding. Our results suggest that analyzing communication provides a rich window into an individual’s thought process when making decisions, and can complement insights from elicited values from common decision tasks. Key Words: Tullock contest, lottery contest, winner-take-all, two-headed contest, team contest, strategic thinking, communication, overbidding
    JEL: C92
    Date: 2019

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