nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒04‒27
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Two-sided Strategic Information Transmission By Saori Chiba; Kazumi Hori
  2. Instability of Defection in the Prisoner’s Dilemma: Best Experienced Payoff Dynamics Analysis By Arigapudi, Srinivas; Heller, Yuval; Milchtaich, Igal
  3. A small volume reduction that melts down the market: Auctions with endogenous rationing By Ehrhart, Karl-Martin; Hanke, Ann-Katrin; Ott, Marion
  4. Trading Networks with Frictions By Tamas Fleiner; Ravi Jagadeesan; Zsuzsanna Janko; Alexander Teytelboym
  5. The Social Costs of Side Trading By Andrea Attar; Thomas Mariotti; François Salanié
  6. Market for Information and Selling Mechanisms By David Bounies; Antoine Dubus; Patrick Waelbroeck
  7. The speed of innovation diffusion in social networks By Arieli, Itai; Babichenko, Yakov; Peretz, Ron; Young, H. Peyton
  8. Act Now or Forever Hold Your Peace: Slowing Contagion with Unknown Spreaders, Constrained Cleaning Capacities and Costless Measures By Harpedanne de Belleville, Louis-Marie
  9. Profit-enhancing entries in mixed oligopolies By Haraguchi, Junichi; Matsumura, Toshihiro
  10. The stable marriage problem with ties and restricted edges By Agnes Cseh; Klaus Heeger

  1. By: Saori Chiba (Kyoto University, Graduate School of Economics); Kazumi Hori (Kyoto University, Graduate School of Economics)
    Abstract: We study a cheap talk model in which a decision maker and an expert are both privately informed. Both players observe independent signals that jointly determine ideal actions for the players. Furthermore, in our model, the decision maker can send a cheap talk message to the expert, which is followed by the expert’s cheap talk and then the decision maker’s decision making. We show that the informed decision maker can informatively reveal her private information to the expert but her talk does not affect the quality of the expert’s information transmission in models in which optimal actions are only additively or multiplicatively separable in the two players’ information, and their preferences are represented by quadratic loss functions. We also apply our finding to a decision maker’s information acquisition problem.
    Keywords: Cheap Talk, Two-Sided Asymmetric Information, Two-Way Communication
    JEL: D82 D83
    Date: 2020–04
  2. By: Arigapudi, Srinivas; Heller, Yuval; Milchtaich, Igal
    Abstract: We study population dynamics under which each revising agent tests each strategy k times, with each trial being against a newly drawn opponent, and chooses the strategy whose mean payoff was highest. When k = 1, defection is globally stable in the prisoner’s dilemma. By contrast, when k > 1 we show that there exists a globally stable state in which agents cooperate with probability between 28% and 50%. Next, we characterize stability of strict equilibria in general games. Our results demonstrate that the empirically-plausible case of k > 1 can yield qualitatively different predictions than the case of k = 1 that is commonly studied in the literature.
    Keywords: learning, cooperation, best experienced payoff dynamics, sampling equilibrium, evolutionary stability
    JEL: C72 C73
    Date: 2020–04–11
  3. By: Ehrhart, Karl-Martin; Hanke, Ann-Katrin; Ott, Marion
    Abstract: Auctions with endogenous rationing have been introduced to stimulate competition. Such (procurement) auctions reduce the volume put out to tender when competition is low. This paper finds a strong negative effect of endogenous rationing on participation when bid-preparation is costly, counteracting the aim to stimulate competition. For multiple auctioneer's objectives mentioned in directives, we derive optimal mechanisms, which differ due to different evaluation of the tradeoff between participation and bid-preparation costs. Thus, the auctioneer needs to decide on an objective. However, reducing bid-preparation costs improves the optimal values of multiple objective functions.
    Keywords: auction,participation,market design,optimal mechanism,renewable energy support
    JEL: D82 Q48 D47 D44
    Date: 2020
  4. By: Tamas Fleiner (Centre for Economic and Regional Studies, Institute of Economics); Ravi Jagadeesan (Harvard Business School, and Department of Economics, Harvard University); Zsuzsanna Janko (Department of Mathematics, University of Hamburg); Alexander Teytelboym (Department of Economics, Institutefor New Economics Thinking, and St.-Catherine's College, University of Oxford)
    Abstract: We show how frictions and continuous transfers jointly affect equilibria in a model of matching in trading networks. Our model incorporates distortionary frictions such as transaction taxes, bargaining costs, and incomplete markets. When contracts are fully substitutable for firms, competitive equilibria exist and coincide with outcomes that satisfy a cooperative stability property called trail stabity. In the presence of frictions, competitive equilibria might be neither stable nor (constrained) Pareto-efficient. In the absence of frictions, on the other hand, competitive equilibria are stable and in the core, even if utility is imperfectly transferable.
    Keywords: Trading networks; frictions; competitive equilibrium; matching withcontracts; trail stabity; transaction taxes; commission
    JEL: C62 C78 D47 D51 D52 L14
    Date: 2020–02
  5. By: Andrea Attar (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole); Thomas Mariotti (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole); François Salanié (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole)
    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 efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique 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.
    Keywords: Adverse Selection,Side Trading,Second-Best Allocations.
    Date: 2020–04–09
  6. By: David Bounies; Antoine Dubus; Patrick Waelbroeck
    Abstract: We investigate the strategies of a data intermediary selling consumer information to firms for price discrimination purpose. We analyze how the mechanism through which the data intermediary sells information influences how much consumer information she will collect and sell to firms, and how it impacts consumer surplus. We consider three selling mechanisms tailored to sell consumer information: take it or leave it, sequential bargaining, and auctions. We show that the more information the intermediary collects, the lower consumer surplus. Consumer information collection is minimized, and consumer surplus maximized under the take it or leave it mechanism, which is the least profitable mechanism for the intermediary. We discuss two regulatory tools { a data minimization principle and a price cap { that can be used by data protection agencies and competition authorities to limit consumer information collection, increase consumer surplus, and ensure a fair access to information to firms.
    Date: 2020–04
  7. By: Arieli, Itai; Babichenko, Yakov; Peretz, Ron; Young, H. Peyton
    Abstract: New ways of doing things often get started through the actions of a few innovators, then diffuse rapidly as more and more people come into contact with prior adopters in their social network. Much of the literature focuses on the speed of diffusion as a function of the network topology. In practice, the topology may not be known with any precision, and it is constantly in flux as links are formed and severed. Here, we establish an upper bound on the expected waiting time until a given proportion of the population has adopted that holds independently of the network structure. Kreindler and Young (2014) demonstrated such a bound for regular networks when agents choose between two options: the innovation and the status quo. Our bound holds for directed and undirected networks of arbitrary size and degree distribution, and for multiple competing innovations with different payoffs.
    Keywords: Innovation diffusion; social networks; speed of equilibrium convergence
    JEL: J1
    Date: 2020–03–01
  8. By: Harpedanne de Belleville, Louis-Marie
    Abstract: What can be done to slow contagion when unidentified healthy carriers are contagious, total isolation is impossible, cleaning capacities are constrained, contamination parameters and even contamination channels are uncertain? Short answer: reduce variance. I study mathematical properties of contagion when people may be contaminated by using successively devices, such as restrooms, which have been identified as a potential contamination channel for COVID19. The expected number of exposures (at least one previous user was already contaminated and is thus a “spreader”) and new contaminations (which may increase with the number of spreaders among previous users and may also decrease with time) are always convex functions of the number n of users. As a direct application of Jensen inequality, contamination can be reduced at no cost by limiting the variance of n. The gains from optimal use and cleaning of the devices can be substantial in this baseline framework: with a 1% proportion of (unknown) contaminated people, cleaning one device after 5 uses and the other after 15 uses increases contamination by 26 % with respect to the optimal organization, which is cleaning each device after 10 uses. The relative gains decrease when the proportion of spreaders increases. Thus, optimal organization is more beneficial at the beginning of an epidemic, providing additional reason for early action during an epidemic (the traditional reason, which is first-order, is that contamination is approximately exponential over the expansion phase of an epidemic). These convexity results extend only partially to simultaneous use situations, since the exposure function becomes concave above a threshold which decreases with the proportion of spreaders: once again, this calls for early action. Simultaneous use is the framework most often analyzed in the network literature, which may explain why the above convexity results have been overlooked. When multiple spreaders increase the probability of contamination, the degree of convexity depend on the precise effects of each additional spreader. With linear probabilities, the expected contamination curves are semi-parabolas, both for successive and simultaneous use. For other inverse link functions, convexity is always ensured in the successive use case but must be determined case by case for simultaneous use.
    Keywords: Epidemic, Coronavirus, contagion, spreader, silent spreader, healthy carrier, successive use, directed network, asymptomatic transmission, airborne transmission, fomite, half-contamination function, geometric distribution, binomial distribution, convexity, Jensen inequality
    JEL: I12 I18 L23 M50
    Date: 2020–04–20
  9. By: Haraguchi, Junichi; Matsumura, Toshihiro
    Abstract: Mixed oligopolies are characterized by private and public enterprises. Entry into these markets was restrictive, but has now been relaxed by deregulations; as a result, private firms have entered mixed oligopolies. An increase in the number of private firms increases competition among private firms and reduces the profit of incumbent private firms, given the privatization policy remains unchanged. However, an increase in the number of private firms may in turn affect privatization policy, and thus, indirectly affect private firms' profits. Therefore, the overall effect on private firms' profit is ambiguous. In this study, we thus investigate how the number of private firms affects the profit of each private firm in mixed oligopolies. For this end, we use a linear-quadratic production cost function, which covers two popular model formulations in the mixed oligopoly literature. We show that, if the degree of privatization is exogenous, the profit of each private firm is decreasing in the number of private firms. However, if the degree of privatization is endogenous, the relationship between the number of private firms and profit takes an inverted-U shape under a plausible range of cost parameters. Our results imply that there can exist multiple equilibria in free-entry markets with different degrees of privatization.
    Keywords: optimal degree of privatization, profit-enhancing entry, multiple long-run stable equilibria
    JEL: D43 H44 L33
    Date: 2020–04–17
  10. By: Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Klaus Heeger (Technische Universität Berlin, Faculty IV Electrical Engineering and Computer Science, Institute of Software Engineering and Theoretical Computer Science, Chair of Algorithmics and Computational Complexity)
    Abstract: In the stable marriage problem, a set of men and a set of women are given, each of whom has a strictly ordered preference list over the acceptable agents in the opposite class. A matching is called stable if it is not blocked by any pair of agents, who mutually prefer each other to their respective partner. Ties in the preferences allow for three different definitions for a stable matching: weak, strong and super-stability. Besides this, acceptable pairs in the instance can be restricted in their ability of blocking a matching or being part of it, which again generates three categories of restrictions on acceptable pairs. Forced pairs must be in a stable matching, forbidden pairs must not appear in it, and lastly, free pairs cannot block any matching.Our computational complexity study targetsthe existence of a stable solution for each of the three stability definitions, in the presence of each of the three types of restricted pairs. We solve all cases that were still open. As a byproduct, we also derive that the maximum size weakly stable matching problem is hard even in very dense graphs, which may be of independent interest.
    Keywords: stable matchings, restricted edges,complexity
    JEL: C63 C78
    Date: 2020–01

This nep-mic issue is ©2020 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.