nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒03‒02
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Quality and Price Personalization under Customer Recognition: a Dynamic Monopoly Model with Contrasting Equilibria By Laussel, Didier; Long, Ngo Van; Resende, Joana
  2. Uniform Pricing Versus Third-Degree Price Discrimination By Dirk Bergemann; Francisco Castro; Gabriel Weintraub
  3. Rationalizable Implementation in Finite Mechanisms By Chen, Yi-Chun; Kunimoto, Takashi; Sun, Yifei; Xiong, Siyang
  4. Rationalizable Incentives: Interim Implementation of Sets in Rationalizable Strategies By Kunimoto, Takashi; Serrano, Roberto
  5. Bargaining and Conflict with Up-Front Investments: How Power Asymmetries Matter By Zachary Schaller; Stergios Skaperdas
  6. Solidarity for public goods under single-peaked preferences: characterizing target set correspondences By Bettina Klaus; Panos Protopapas
  7. Mixed Bundling in Oligopoly Markets By Zhou, Jidong
  8. The Social Costs of Side Trading By Andrea Attar; Thomas Mariotti; François Salanié
  9. "Recurrent Preemption Games" By Hitoshi Matsushima
  10. The Multiplayer Colonel Blotto Game By Enric Boix-Adser\`a; Benjamin L. Edelman; Siddhartha Jayanti

  1. By: Laussel, Didier; Long, Ngo Van; Resende, Joana
    Abstract: We present a model of market hyper-segmentation, where a monopolist acquires within a short time all information about the preferences of consumers who purchase its vertically differentiated products. The firm offers a new price/quality schedule after each commitment period. Lower consumer types may have an incentive to delay their purchases until next period to obtain a better introductory offer. The monopolist counters this incentive by offering higher informational rents. Considering the dynamic game played by the monopolist and its customers, we find that there is always a Markov perfect equilibrium (MPE) in which the firm immediately sells the good to all customers, offering the Mussa-Rosen static equilibrium schedule to first time customers (and getting full commitment profits). However, if the commitment period between two offers is long enough, there is another MPE with gradual market expansion. Contrary to the Coasian result for a durable-good monopoly, we find that in both equilibria the profit of the monopolist increases (and the aggregate consumers surplus decreases) as the interval of commitment shrinks.The model yields policy implications for regulations on collection and storage of customers information.
    Keywords: monopoly, product quality, customer information, intertemporal price discrimination
    JEL: L12 L15
    Date: 2020–02
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University)
    Abstract: We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly proï¬ ts. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.
    Keywords: First Degree Price Discrimination, Third Degree Price Discrimination, Uniform Price, Approximation, Concave Demand Function, Market Segmentation
    JEL: C72 D82 D83
    Date: 2019–12
  3. By: Chen, Yi-Chun (National University of Singapore); Kunimoto, Takashi (School of Economics, Singapore Management University); Sun, Yifei (University of International Business and Economics); Xiong, Siyang (University of California, Riverside)
    Abstract: We prove that the Maskin monotonicity condition (by Bergemann, Morris, and Tercieux (2011)) fully characterizes exact rationalizable implementation in an environ-ment with lotteries and transfers. Different from previous papers, our approach possesses many appealing features simultaneously, e.g., infinite mechanisms with no integer game or modulo game are used; no transfer is imposed on any rationalizable profile;the message space is small; the implementation is robust to information perturbationsand continuous in the sense of Oury and Tercieux (2012).
    Keywords: Complete information; continuous implementation; implementation; infor-mation perturbations; Maskin monotonicity; rationalizability; social choice function
    JEL: C72 D78 D82
    Date: 2020–02–11
  4. By: Kunimoto, Takashi (School of Economics, Singapore Management University); Serrano, Roberto (Brown University)
    Abstract: This paper investigates rationalizable implementation of social choice sets (SCSs) in incomplete information environments. We identify rationalizable incentive compatibility (RIC) as its key condition, argue by means of example that RIC is strictly weaker than the standard Bayesian incentive compatibility (BIC), and show that RIC reduces to BIC when we only consider single-valued SCSs (i.e., social choice functions or SCFs). We next identify additional necessary conditions and, essentially closing the gap be-tween necessity and sufficiency, obtain a sufficiency result for rationalizable implementation in general environments. We also characterize a well-studied class of economic environments in which RIC is essentially the only condition needed for rationalizable implementation. Considering SCFs, we show that interim rationalizable monotonicity, found in the literature, is not necessary for rationalizable implementation, as had been previously claimed.
    Keywords: Rationalizable incentive compatibility; Bayesian incentive com-patibility; uniform Bayesian monotonicity; interim rationalizable monotonic-ity; implementation; rationalizability
    Date: 2020–01–01
  5. By: Zachary Schaller; Stergios Skaperdas
    Abstract: We examine settings - such as litigation, labor relations, or arming and war - in which players first make non-contractible up-front investments to improve their bargaining position and gain advantage for possible future conflict. Bargaining is efficient ex post, but we show that a player may prefer Conflict ex ante if there are sufficient asymmetries in strength. There are two sources of this finding. First, up-front investments are more dissimilar between players under Conflict, and they are lower than under Bargaining when one player is much stronger than the other. Second, the probability of the stronger player winning in Conflict is higher than the share received under Nash bargaining. We thus provide a rationale for conflict to occur under complete information that does not depend on long-term commitment problems. Greater balance in institutional support for different sides is more likely to maintain peace and settlements.
    Keywords: power asymmetries, war, litigation, contests
    JEL: C70 D74 J53 K41
    Date: 2019
  6. By: Bettina Klaus; Panos Protopapas
    Abstract: We consider the problem of choosing a set of locations of a public good on the real line R when agents have single-peaked preferences over points. We ordinally extend preferences over compact subsets of R, and extend the results of Ching and Thomson (1996), Vohra (1999), and Klaus (2001) to choice correspondences. We show that eciency and replacement-dominance characterize the class of target point functions (Corollary 2) while eciency and population-monotonicity characterize the class of target set correspondences (Theorem 1).
    Keywords: single-peaked preferences; population-monotonicity; replacement-dominance; target point functions, target set correspondences
    JEL: C71 D63 D78 H41
    Date: 2020–02
  7. By: Zhou, Jidong
    Abstract: This paper provides a framework for studying competitive mixed bundling with an arbitrary number of firms. We examine both a firm's incentive to introduce mixed bundling and equilibrium tariffs when all firms adopt the mixed-bundling strategy. We develop a method to derive the equilibrium prices, and also offer a simple approximation of the equilibrium prices when the number of firms is large. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, profit and consumer surplus. While with many firms mixed bundling lowers all prices, harms firms and benefits consumers under a mild condition.
    Keywords: bundling, multiproduct pricing, oligopoly
    JEL: D43 L13 L15
    Date: 2019–11
  8. By: Andrea Attar; Thomas Mariotti; François Salanié
    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 effciency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists only one 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.
    Date: 2019
  9. By: Hitoshi Matsushima (Faculty of Economics, The University of Tokyo)
    Abstract: I consider a new model of an infinitely repeated preemption game with random matching, termed the recurrent preemption game, wherein each player's discount factor depends on whether she wins the current game. This model describes sequential strategic technology adoptions in which a company becomes outdated by failing to maintain a position at the forefront of innovation. Assuming incomplete information about the presence of a rival, I clarify how the prominence of the innovator’s dilemma influences the degree of excessive competition in preemption. I also reveal interesting properties demonstrated by the unique symmetric Nash equilibrium of the recurrent preemption game.
  10. By: Enric Boix-Adser\`a; Benjamin L. Edelman; Siddhartha Jayanti
    Abstract: We initiate the study of the natural multiplayer generalization of the classic continuous Colonel Blotto game. The two-player Blotto game, introduced by Borel as a model of resource competition across $n$ simultaneous fronts, has been studied extensively for a century and seen numerous applications throughout the social sciences. Our work defines the multiplayer Colonel Blotto game and derives Nash equilibria for various settings of $k$ (number of players) and $n$. We also introduce a "Boolean" version of Blotto that becomes interesting in the multiplayer setting. The main technical difficulty of our work, as in the two-player theoretical literature, is the challenge of coupling various marginal distributions into a joint distribution satisfying a strict sum constraint. In contrast to previous works in the continuous setting, we derive our couplings algorithmically in the form of efficient sampling algorithms.
    Date: 2020–02

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