nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒10‒28
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Reputation and news suppression in the media industry By Ascensión Andina-Díaz; José A. García-Martínez
  2. Sender-receiver games with cooperation By Françoise Forges; Ulrich Horst
  3. Optimal Quality Certification By Andriy Zapechelnyuk
  4. Heuristic and Equilibrium Strategies in Premium Auctions By Dejan Trifunovic
  5. A Game of Hide and Seek in Networks By Bloch, Francis; Dutta, Bhaskar; Dziubinski, Marcin
  6. A low willingness to pay in a duopoly a la Hotelling: The role of the public firm By Stefano Quarta
  7. Overcoming Free-Riding in Bandit Games By Johannes H\"orner; Nicolas Klein; Sven Rady
  8. Limited consideration and limited data: revealed preference tests and observable restrictions By Yuta Inoue; Koji Shirai
  9. Per unit and ad valorem royalties in a patent licensing game By Montinaro, Marta; Scrimitore, Marcella
  10. Social Status Concerns and the Political Economy of Publicly Provided Private Goods By Jana Friedrichsen; Tobias König; Tobias Lausen
  11. Does Direct Connect Benefit Travelers? By Jorge Padilla; Salvatore Piccolo

  1. By: Ascensión Andina-Díaz (Department of Economics, University of Málaga); José A. García-Martínez (Department of Economics and Finance, University Miguel Hernández)
    Abstract: This paper proposes a new argument to explain why media firms silence information that may be relevant to consumers and why this behavior varies across firms. We build on the literature of career concerns and consider firms that seek to maximize their reputation for high quality. Crucial to our results is the idea that media firms can affect, with their reporting strategy, the probability that consumers learn the true state. Reputational concerns dictate that a monopoly firm suppresses scoops, even when evidence is strong. With competition, precise private information is published but weaker though informative signals are silenced. We obtain that silence is higher in media firms with high levels of initial reputation and/or great social influence. We draw predictions on a firm's optimal choice of an editorial standard, the persistence of news suppression when consumers believe one state to be more likely than another and the possibility that silence may be socially beneficial.
    Keywords: Reputation; news suppression; feedback power; competition; editorial standars; herding; efficiency
    JEL: C72 D82 D83
    Date: 2018–12
  2. By: Françoise Forges (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Ulrich Horst (Institut für Mathematik [Berlin] - TUB - Technische Universität Berlin, Université Humboldt de Berlin - Humboldt Universität zu Berlin)
    Abstract: We consider generalized sender–receiver games in which the sender also has an action to choose, but this action is payoff-relevant only to himself. We study "cooperate and talk" equilibria (CTE) in which, before sending his message, the sender can commit to delegate his decision to the receiver. CTE are beneficial to the receiver (with respect to no communication) and unlike the equilibria of the plain cheap talk game, preserve him from afterwards regret. While existence of CTE cannot be guaranteed in general, a sufficient condition is that the receiver has a "uniform punishment decision" against the sender.
    Keywords: Commitment,Cheap talk,Incentive compatibility,Information transmission,Perfect Bayesian equilibrium
    Date: 2018
  3. By: Andriy Zapechelnyuk (University of St Andrews)
    Abstract: Quality certification not only informs consumers, but also stimulates producers to supply better quality products. We study a problem of quality certification in a moral hazard setting. We show that, under standard assumptions, simple certification systems, such as quality assurance rule and pass-fail rule, are optimal. Our solution method involves interpreting the certification problem as a delegation problem.
    Keywords: Certification, Bayesian persuasion, information disclosure, information design, delegation, moral hazard, career concerns
    JEL: D82 D86 D45
    Date: 2019–10–21
  4. By: Dejan Trifunovic (Faculty of Economics, University of Belgrade)
    Abstract: Premium auctions are conducted in two stages. In the first stage bidders compete in English auction until two bidders remain. The two finalists enter the second stage where they compete in a first-price sealed bid auction (Amsterdam auction) or in another English auction (Antwerp auction). The winner and the runner up obtain the premium that is proportional to the difference between the runner up?s bid and the highest losing bid in the first stage. We compare the equilibrium bidding strategy of the two finalists with the three heuristic strategies when bidders have private values in Amsterdam auction. With the first heuristic strategy, each finalist believes that he will lose in the second stage and that his bid determines the amount of the premium. With the second heuristic strategy, each finalist is optimistic and has second-order belief that the other finalist is pessimistic. With the third heuristic strategy, both finalists are optimistic and have second-order belief that the other finalist is optimistic.The simulation analysis with symmetric bidders shows that the average increase of bid of the runner up relative to the equilibrium bid is the largest with the second heuristic strategy, followed by the third and the first, respectively. The premium with either heuristic strategy is larger than with the equilibrium strategy. The profit of the winner is larger than the equilibrium profit, while seller?s revenue is lower than in equilibrium. The same conclusions hold for strongly asymmetric bidders. The use of heuristic strategies could be considered as a form of tacit collusion between two finalists, and with symmetric bidders who use the first heuristic strategy, the tacit collusion is stable even in a one-shot game.
    Keywords: Hybrid auctions, Amsterdam auction, Antwerp auction, perfect Bayesian equilibrium, heuristic strategies
    JEL: D44
    Date: 2019–10
  5. By: Bloch, Francis (Universite Paris 1 and Paris School of Economics); Dutta, Bhaskar (University of Warwick and Ashoka University); Dziubinski, Marcin (Institute of Informatics, University of Warsaw)
    Abstract: We propose and study a strategic model of hiding in a network, where the network designer chooses the links and his position in the network facing the seeker who inspects and disrupts the network. We characterize optimal networks for the hider, as well as equilibrium hiding and seeking strategies on these networks. We show that optimal networks are either equivalent to cycles or variants of a core-periphery networks where every node in the periphery is connected to a single node in the core.
    Date: 2019
  6. By: Stefano Quarta
    Abstract: The purpose of this paper is to analyze the role of the public firm in a spatial duopoly model a la Hotelling in the case of a low willingness to pay. We find that the presence of a public firm has the well known regulatory function in a market with a relative high willingness to pay; it is irrelevant in a market with a medium level of the willingness to pay; the relevance is for a low willingness to pay, where it ensures the full market coverage (as a result of the standard welfare maximization); finally, if the willingness to pay is very low, the public firm ensures a higher, but not full, market coverage with respect to the pure private case. Finally, we find that, for a low willingness to pay, the presence of the public firm is not sufficient to guarantee the optimal market configuration, so that the efficient level of welfare.
    Keywords: Mixed duopoly, full market coverage, low willingness to pay, efficient welfare.
    JEL: L13 C72 D71
    Date: 2019–11–12
  7. By: Johannes H\"orner; Nicolas Klein; Sven Rady
    Abstract: This paper considers a class of experimentation games with L\'{e}vy bandits encompassing those of Bolton and Harris (1999) and Keller, Rady and Cripps (2005). Its main result is that efficient (perfect Bayesian) equilibria exist whenever players' payoffs have a diffusion component. Hence, the trade-offs emphasized in the literature do not rely on the intrinsic nature of bandit models but on the commonly adopted solution concept (MPE). This is not an artifact of continuous time: we prove that such equilibria arise as limits of equilibria in the discrete-time game. Furthermore, it suffices to relax the solution concept to strongly symmetric equilibrium.
    Date: 2019–10
  8. By: Yuta Inoue (Graduate School of Economics, Waseda University); Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: This paper develops revealed preference tests for choice models under limited consideration, allowing a partially observed data set. Leading theories in the literature such as the limited attention model, the rationalization model, the categorize-then-choose model, and the rational shortlisting models are covered. Given a tool for testing limited consideration models, we analyze the empirical aspects of them. Our revealed preference tests are applied to randomly generated data sets to compare the strength of observable restrictions across various models. In addition, we carried out an experiment to compare models in terms of Selten’s index, which is a measure for plausibility of a model in explaining a given data set. As a result, remarkable differences are seen both in observable restrictions and Selten’s indices across models.
    Keywords: Revealed preference; Limited consideration; Limited attention; Rational shortlisting; Bronars’ test; Selten’s index
    JEL: C6 D1 D8
    Date: 2018–03
  9. By: Montinaro, Marta; Scrimitore, Marcella
    Abstract: In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.
    Keywords: licensing, product innovation, bertrand vs. cournot, network effects
    JEL: D43 L13 L20
    Date: 2019–03–06
  10. By: Jana Friedrichsen; Tobias König; Tobias Lausen
    Abstract: We analyze the political economy of the public provision of private goods when individuals care about their social status. Status concerns motivate richer individuals to vote for the public provision of goods they themselves buy in markets: a higher provision level attracts more individuals to the public sector, enhancing the social exclusivity of market purchases. Majority voting may lead to a public provision that only a minority of citizens use. Users in the public sector may enjoy better provision than users in the private system. We characterize the coalitions that can prevail in a political equilibrium.
    Keywords: In-kind provision, Status preferences, Majority voting
    JEL: H42 D72
    Date: 2019
  11. By: Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)
    Abstract: Direct connect refers to a business practice that has become fashionable again in the travel industry after a period of irrelevance. Airlines provide direct access to their sales systems to travel retailers, who can thus avoid dealing with traditional indirect distribution intermediaries, such as GDS aggregators. Although this practice is often advertised as pro-competitive, we show that it may actually harm consumers, especially in very competitive environments.
    Keywords: Agency Model, Direct Connect, Distribution Channels, Travel Industry.
    JEL: L42 L50 L81
    Date: 2019–10–22

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