nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒11‒25
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Price disclosure by two-sided platforms By BELLEFLAMME Paul,; PEITZ Martin,
  2. Superstars in two-sided markets: exclusives or not? By Leonardo Madio; Carroni, Elias; Shekhar, Shiva
  3. Optimal certification policy, entry, and investment in the presence of public signals By Choi, Jay Pil; Mukherjee, Arijit
  4. A solution to the two-person implementation problem By Jean-François Laslier; Matias Nunez; M Remzi Sanver
  5. Conventions and Coalitions in Repeated Games By Liu, Ce; Ali, S. Nageeb
  6. Investment without Coordination Failures By Brian C. Albrecht
  7. Communication, Distortion, and Randomness in Metric Voting By David Kempe
  8. Incentives of Low-Quality Sellers to Disclose Negative Information By Dmitry Shapiro; Seung Huh
  9. Rules without Commitment: Reputation and Incentives By Alessandro Dovis; Rishabh Kirpalani
  10. Dynamic Many-to-One Matching By Ahmet Altinok
  11. A Class of N-player Colonel Blotto games with multidimensional private information By Christian Ewerhart; Dan Kovenock
  12. Costly Information Acquisition By Liu, Ce; Chambers, Christopher; Rehbeck, John
  13. Strongly Budget Balanced Auctions for Multi-Sided Markets By Rica Gonen; Erel Segal-Halevi
  14. Dispute Settlement with Second-Order Uncertainty By Mostafa Beshkar; Jee-Hyeong Park

  1. By: BELLEFLAMME Paul, (CORE, UCLouvain); PEITZ Martin, (Universität Mannheim)
    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 pricie information makes demand less elastic. A monopoly platform does not benefit from opaqueness and optimality reveals price information. By 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), plaltforms 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 hte degree of horizontal differentiation.
    Keywords: price transparency, two-sided markets, competitive bottleneck, platform competition, price information, strategic disclosure
    Date: 2019–06–18
  2. By: Leonardo Madio; Carroni, Elias; Shekhar, Shiva
    Abstract: This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar exclusivity. This mechanism is self-reinforcing as firms follow consumer decisions and some join the favored platform only. Exclusivity always benefits firms and might eventually benefit consumers. A vertical merger (platform-Superstar) makes non-exclusivity more likely than if the Superstar was independent. The analysis provides novel insights for managers and policymakers and it is robust to several variations and extensions.
    JEL: L13 L22 L86 K21
    Date: 2019–10–10
  3. By: Choi, Jay Pil (Michigan State University, Department of Economics); Mukherjee, Arijit (Michigan State University, Department of Economics)
    Abstract: We explore the optimal disclosure policy of a certification intermediary in an environment where (i) the seller's decision on entry and investment in product quality are endogenous and (ii) the buyers observe an additional public signal on quality. The intermediary mutes the seller's entry incentives but enhances investment incentives following entry, and the optimal policy maximizes rent extraction from the seller in the face of this trade-off. We identify conditions under which full, partial or no disclosure can be optimal. The intermediary's report becomes noisier as the public signal gets more precise, but if the public signal becomes too precise, the intermediary resorts to full disclosure. In the presence of an intermediary, a more precise public signal may also lead to lower social welfare.
    Keywords: Certification intermediaries; optimal disclosure policy; investment and entry incentives; public signal
    JEL: D04 L12 L40 L43 L51 L52
    Date: 2019–08–26
  4. By: Jean-François Laslier (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Matias Nunez (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]); M Remzi Sanver (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose a solution to the classical problem of Hurwicz and Schmeidler [1978] and Maskin [1999] according to which, in two-person societies, no Pareto efficient rule is Nash-implementable. To this end, we consider implementation through mechanisms that are deterministic-in-equilibrium while lotteries are allowed off-equilibrium. For strict preferences over alternatives and under a very weak condition for extending preferences over lotteries, we build simple veto mechanisms that Nash implement a class of Pareto efficient social choice rules called Pareto-and-veto rules. Moreover, under mild richness conditions on the domain of preferences over lotteries, any Pareto efficient Nashimplementable rule is a Pareto-and-veto rule and hence is implementable through one of our simple veto mechanisms.
    Date: 2019–11
  5. By: Liu, Ce (Michigan State University, Department of Economics); Ali, S. Nageeb (Pennsylvania State University)
    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.
    Keywords: cooperative games; core; repeated games; secrecy
    JEL: C71 C72 C73 D71
    Date: 2019–06–02
  6. By: Brian C. Albrecht
    Abstract: I study games in which agents must sink their investments before they can match into partnerships that generate value. I focus on competitive matching markets where there is a public price to join any match. Despite the First Welfare Theorem for competitive markets, inefficiencies can still arise that can be interpreted as coordination failures. Armen does not invest because Bengt does not invest, and vice versa. Multiple equilibria can exist, with both efficient investment and not. The standard, Nash solution concept in these games does not help in determining if they are equally robust or stable. I argue we should replace the Nash solution concept in this context with a mild, common refinement: trembling-hand perfection. The main theorem of the paper proves that in a general class of models with general heterogeneity of types, cost of investment, and matching surplus, every perfect equilibrium is efficient and coordination failures do not exist in equilibrium. That means that in the context of competitive markets, coordination failures are not robust; the possibility of small mistakes rules out coordination failures. Even when markets are incomplete, every robust equilibrium in competitive markets is efficient.
    JEL: D52 C78 D41
    Date: 2019–10–07
  7. By: David Kempe
    Abstract: In distortion-based analysis of social choice rules over metric spaces, one assumes that all voters and candidates are jointly embedded in a common metric space. Voters rank candidates by non-decreasing distance. The mechanism, receiving only this ordinal (comparison) information, should select a candidate approximately minimizing the sum of distances from all voters. It is known that while the Copeland rule and related rules guarantee distortion at most 5, many other standard voting rules, such as Plurality, Veto, or $k$-approval, have distortion growing unboundedly in the number $n$ of candidates. Plurality, Veto, or $k$-approval with small $k$ require less communication from the voters than all deterministic social choice rules known to achieve constant distortion. This motivates our study of the tradeoff between the distortion and the amount of communication in deterministic social choice rules. We show that any one-round deterministic voting mechanism in which each voter communicates only the candidates she ranks in a given set of $k$ positions must have distortion at least $\frac{2n-k}{k}$; we give a mechanism achieving an upper bound of $O(n/k)$, which matches the lower bound up to a constant. For more general communication-bounded voting mechanisms, in which each voter communicates $b$ bits of information about her ranking, we show a slightly weaker lower bound of $\Omega(n/b)$ on the distortion. For randomized mechanisms, it is known that Random Dictatorship achieves expected distortion strictly smaller than 3, almost matching a lower bound of $3-\frac{2}{n}$ for any randomized mechanism that only receives each voter's top choice. We close this gap, by giving a simple randomized social choice rule which only uses each voter's first choice, and achieves expected distortion $3-\frac{2}{n}$.
    Date: 2019–11
  8. By: Dmitry Shapiro; Seung Huh
    Abstract: The paper studies incentives of low-quality sellers to disclose negative information about their product. We develop a model where one¡¯s quality can be communicated via cheap-talk messages only. This setting limits ability of high-quality sellers to separate as any communication strategy they pursue can be costlessly imitated by low-quality sellers. Two factors that can incentivize low-quality sellers to communicate their quality are buyers¡¯ risk-attitude and competition. Quality disclosure reduces buyers¡¯ risk thereby increasing their willingness to pay. It also introduces product differentiation softening the competition. We show that equilibria where low-quality sellers separate exist under monopoly and duopoly. Even though low-quality sellers can costlessly imitate high-quality sellers, equilibria where high-quality sellers separate can also exist but under duopoly only.
    Keywords: Negative information; product di?erentiation; cheap talk; lemon markets
    JEL: D21 L15
    Date: 2019–03
  9. By: Alessandro Dovis; Rishabh Kirpalani
    Abstract: This paper studies the optimal design of rules in a dynamic model when there is a time inconsistency problem and uncertainty about whether the policy maker can commit to follow the rule ex post. The policy maker can either be a commitment type, which can always commit to follow rules, or an optimizing type, which sequentially decides whether to follow rules or not. This type is unobservable to private agents, who learn about it through the actions of the policy maker. Higher beliefs that the policy maker is the commitment type (the policy maker's reputation) help promote good behavior by private agents. We show that in a large class of economies, preserving uncertainty about the policy maker's type is preferable from an ex-ante perspective. If the initial reputation is not too high, the optimal rule is the strictest one that is incentive compatible for the optimizing type. We show that reputational considerations imply that the optimal rule is more lenient than the one that would arise in a static environment. Moreover, opaque rules are preferable to transparent ones if reputation is high enough.
    JEL: E6
    Date: 2019–11
  10. By: Ahmet Altinok
    Abstract: We study many-to-one matching markets in a dynamic framework with the followingfeatures: Matching is irreversible, participants exogenously join the market over time, eachagent is restricted by a quota, and agents are perfectly patient. A form of strategic behaviorin such markets emerges: The side with many slots can manipulate the subsequent matchingmarket in their favor via earlier matchings. In such a setting, a natural question arises: Canwe analyze a dynamic many-to-one matching market as if it were either a static many-to-oneor a dynamic one-to-one market? First, we provide sufficient conditions under which theanswer is yes. Second, we show that if these conditions are not met, then the early matchingsare âinferiorâ to the subsequent matchings. Lastly, we extend the model to allow agents onone side to endogenously decide when to join the market. Using this extension, we provide arationale for the small amount of unraveling observed in the US medical residency matchingmarket compared to the US college-admissions system.
    JEL: C71 C78 D47
    Date: 2019–10–31
  11. By: Christian Ewerhart; Dan Kovenock
    Abstract: We consider a class of incomplete-information Colonel Blotto games in which N ≥ 2 agents are engaged in (N + 1) battlefields. An agent's vector of battlefield valuations is drawn from a generalized sphere in Lp-space. We identify a Bayes-Nash equilibrium in which any agent's resource allocation to a given battlefield is strictly monotone in the agent's valuation of that battlefield. In contrast to the single-unit case, however, agents never enjoy any information rent. We also outline an extension to networks of Blotto games.
    Keywords: Colonel Blotto games, private information, Bayes-Nash equilibrium, information rents, networks
    JEL: C72 D72 D82
    Date: 2019–11
  12. By: Liu, Ce (Michigan State University, Department of Economics); Chambers, Christopher (Georgetown University); Rehbeck, John (Ohio State University)
    Abstract: We provide revealed preference characterizations for choices made under various forms of costly information acquisition. We examine nonseparable, multiplicative, and constrained costly information acquisition. In particular, this allows the possibility of unknown time delay for acquiring information. The techniques we use parallel the duality properties in the standard consumer problem.
    Keywords: costly information acquisition; rational inattention
    JEL: C00 C90 D81 D91
    Date: 2019–05–15
  13. By: Rica Gonen; Erel Segal-Halevi
    Abstract: In two-sided markets, Myerson and Satterthwaite's impossibility theorem states that one can not maximize the gain-from-trade while also satisfying truthfulness, individual-rationality and no deficit. Attempts have been made to circumvent Myerson and Satterthwaite's result by attaining approximately-maximum gain-from-trade: the double-sided auctions of McAfee (1992) is truthful and has no deficit, and the one by Segal-Halevi et al. (2016) additionally has no surplus --- it is strongly-budget-balanced. They consider two categories of agents --- buyers and sellers, where each trade set is composed of a single buyer and a single seller. The practical complexity of applications such as supply chain require one to look beyond two-sided markets. Common requirements are for: buyers trading with multiple sellers of different or identical items, buyers trading with sellers through transporters and mediators, and sellers trading with multiple buyers. We attempt to address these settings. We generalize Segal-Halevi et al. (2016)'s strongly-budget-balanced double-sided auction setting to a multilateral market where each trade set is composed of any number of agent categories. Our generalization refines the notion of competition in multi-sided auctions by introducing the concepts of external competition and trade reduction. We also show an obviously-truthful implementation of our auction using multiple ascending prices.
    Date: 2019–11
  14. By: Mostafa Beshkar; Jee-Hyeong Park
    Abstract: The literature on pretrial dispute settlement has studied the effect of first- order uncertainty on pre-trial settlement bargaining while assuming common knowledge about higher-order beliefs. We study the effect of uncertainty regarding higher-order beliefs and show that ignorance about higher-order beliefs improves the ef?ciency of settlement bargaining. We introduce uncertainty about higher-order beliefs by assuming that one player receives a private and noisy signal of another player ¡¯s private type. We show that such signals could improve the efficiency of settlement bargaining only if they are privately observed: the informational value associated with the signal com- pletely disappears if it is publicly observable.
    Date: 2017–12

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