nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒03‒23
seven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Whip and the Bible: Punishment Versus Internalization By Rohan Dutta; David K Levine; Salvatore Modica
  2. Behavior-Based Price Discrimination and Product Choice By Chongwoo Choe; Noriaki Matsushima
  3. Compromise, Don't Optimize: A Prior-Free Alternative to Perfect Bayesian Equilibrium By Karl Schlag; Andriy Zapechelnyuk
  4. Optimal Advertising for Information Products By Shuran Zheng; Yiling Chen
  5. Intertemporal Price Discrimination in Sequential Quantity-Price Games By James D. Dana Jr.; Kevin R. Williams
  6. Mechanism Design with Blockchain Enforcement By Hitoshi Matsushima; Shunya Noda
  7. Group targeting under networked synergies By Mohamed Belhaj; Frédéric Deroïan

  1. By: Rohan Dutta; David K Levine; Salvatore Modica
    Date: 2020–03–14
  2. By: Chongwoo Choe; Noriaki Matsushima
    Abstract: We study a two-period model of behavior-based price discrimination in Fudenberg and Tirole (2000) but allow firms to make product choice in the first period. We show that the only possible equilibrium involves maximal differentiation. This is in contrast to Choe et al. (2018) where equilibrium features less than maximal differentiation when competition is in personalized pricing. Thus, our result highlights an important interplay between the type of price competition and product choice.
  3. By: Karl Schlag; Andriy Zapechelnyuk
    Abstract: Perfect Bayesian equilibrium is the classic solution concept for games with incomplete information, where players optimize under given beliefs over states. We introduce a new concept called perfect compromise equilibrium, where players find compromise decisions that are good in all states. This solution concept is tractable even if states are high dimensional as it does not rely on priors, and it always exists. We demonstrate the power of our solution concept in prominent economic examples, including Cournot and Bertrand markets, Spence's signaling, and bilateral trade with common value.
    Date: 2020–03
  4. By: Shuran Zheng; Yiling Chen
    Abstract: When selling information, sometimes the seller can increase the revenue by giving away some partial information to change the buyer's belief about the information product, so the buyer may be more willing to purchase. This work studies the general problem of advertising information products by revealing some partial information. We consider a buyer who needs to make a decision, the outcome of which depends on the state of the world that is unknown to the buyer. There is an information seller who has access to information about the state of the world. The seller can advertise the information by revealing some partial information. We consider a seller who chooses an advertising strategy and then commits to it. The buyer decides whether to purchase the full information product after seeing the partial information. The seller's goal is to maximize the expected revenue. We prove that finding the optimal advertising strategy is hard, even in the simple case that the buyer type is known. Nevertheless, we show that when the buyer type is known, the problem is equivalent to finding the concave closure of a function. Based on this observation, we prove some properties of the optimal mechanism, which allow us to solve the optimal mechanism by a convex program (with exponential size in general, polynomial size for special cases). We also prove some interesting characterizations of the optimal mechanisms based on these properties. For the general problem when the seller only knows the type distribution of the buyer, it is NP-hard to find a constant factor approximation. We thus look at special cases and provide an approximation algorithm that finds an $\varepsilon$-suboptimal mechanism when it is not too hard to predict the possible type of buyer who will make the purchase.
    Date: 2020–02
  5. By: James D. Dana Jr.; Kevin R. Williams
    Abstract: This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show that when the elasticity of demand falls across periods, strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that competing firms can profitably use inventory controls. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
    JEL: D21 D43 L0 L13
    Date: 2020–02
  6. By: Hitoshi Matsushima (Department of Economics, University of Tokyo); Shunya Noda (Vancouver School of Economics, University of British Columbia)
    Abstract: We study the design of self-enforcing mechanisms that rely on neither a trusted third party (e.g., court, trusted mechanism designer) nor a long-term relationship. Instead, we use a smart contract written on blockchains as a commitment device. We design the digital court, a smart contract that identifies and punishes agents who reneged on the agreement. The digital court substitutes the role of legal enforcement in the traditional mechanism design paradigm. We show that, any agreement that is implementable with legal enforcement can also be implemented with enforcement by the digital court. To pursue a desirable design of the digital court, we study a way to leverage truthful reports made by a small fraction of behavioral agents. Our digital court has a unique equilibrium as long as there is a positive fraction of behavioral agents, and it gives correct judgment in the equilibrium if honest agents are more likely to exist than dishonest agents. The platform for smart contracts is already ready in 2020; thus, self-enforcing mechanisms proposed in this paper can be used practically, even now. As our digital court can be used for implementing general agreements, it does not leak the detailed information about the agreement even if it is deployed on a public blockchain (e.g., Ethereum) as a smart contract.
    Keywords: Implementation, Decentralized Mechanism, Smart Contract, Oracle Problem, Self-Judgment
    JEL: D47 D82 L86
    Date: 2020–03
  7. By: Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Frédéric Deroïan (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A principal targets agents organized in a network of local complementarities, in order to increase the sum of agents' effort. We consider bilateral public contracts à la Segal (1999). The paper shows that the synergies between contracting and non-contracting agents deeply impact optimal contracts: they can lead the principal to contract with a subset of the agents, and to refrain from contracting with central agents.
    Keywords: Synergies,Network,Optimal group targeting,Aggregate effort
    Date: 2019–11

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