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on Microeconomics |
| By: | Biglaiser, Gary; Crémer, Jacques; Veiga, André |
| Abstract: | We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive stochastic opportunities to migrate to an entrant. They can accept a migration opportunity or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. This provides an endogenous micro-foundation for incumbency advantage. We use our framework to identify environments where incumbency advantage is larger. |
| Keywords: | industry dynamics; migration; Platform; Standardization and Compatibility |
| JEL: | D85 L14 L15 L16 R23 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14496&r=all |
| By: | Andrew Caplin; Daniel J. Martin |
| Abstract: | Consumers often face an overwhelming amount of information when deciding between products, and one of the primary policymaking tools available to improve their informativeness is the framing of this information. We introduce a general theoretical approach that characterizes when one frame is revealed to provide robustly higher welfare than another. Because it is testable, adaptable, and both necessary and sufficient, our condition determines both whether frames are robustly welfare ranked in a particular data set and the overall proportion of data sets in which frames can be so ranked. |
| JEL: | D60 D83 D91 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27265&r=all |
| By: | David Dillenberger (University of Pennsylvania); Collin Raymond (Purdue University) |
| Abstract: | We introduce a new class of preferences — which we call additive-belief-based (ABB) — that captures a general yet tractable approach to belief-based utility, and that encompasses many popular models in the behavioral literature. We show that the general class of ABB preferences and two prominent special cases, which allow utility to depend on each period’s beliefs but not on changes in beliefs across periods, are fully characterized by suitable relaxations of the standard Independence Axiom. We identify the intersection of ABB preferences with the class of recursive preferences and characterize attitudes towards the timing of resolution of uncertainty for ABB preferences. Our approach helps to better understand existing models and leads to new models that can accommodate previously uncaptured behavioral patterns. |
| Keywords: | Anticipatory utility, Compound lotteries, Preferences over beliefs, Recursive preferences, Resolution of uncertainty |
| JEL: | D80 D81 D83 D91 |
| Date: | 2019–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-020&r=all |
| By: | Tristan Gagnon-Bartsch (Harvard University); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Antonio Rosato (University of Technology Sydney) |
| Abstract: | We explore how taste projection – the tendency to overestimate how similar others’ tastes are to one’s own – affects bidding in auctions. Taste-projecting bidders underestimate the dispersion in valuations and exaggerate the intensity of competition. Consequently, they overbid in firstprice auctions – irrespective of whether values are independent, correlated, or (a)symmetrically distributed – but not in second-price auctions. Hence, first-price auctions raise more revenue. Moreover, the optimal reserve price in first-price auctions is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others’ information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions. |
| Keywords: | Auctions; Projection Bias; False-Consensus Effect; Overbidding. |
| JEL: | D03 D44 D82 D83 |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:571&r=all |
| By: | David Dillenberger (University of Pennsylvania); R. Vijay Krishna (Florida State University); Philipp Sadowski (Duke University) |
| Abstract: | We propose a class of dynamic models that capture subjective (and hence unob-servable) constraints on the amount of information a decision maker can acquire, pay attention to, or absorb, via an Information Choice Process (icp). An icp specifies the information that can be acquired about the payo?-relevant state in the current period, and how this choice a?ects what can be learned in the future. In spite of their generality, wherein icps can accommodate any dependence of the information constraint on the history of information choices and state realizations, we show that the constraints imposed by them are identified up to a dynamic extension of Blackwell dominance. All the other parameters of the model are also uniquely identified. Behaviorally, the model is characterized by a novel recursive application of static properties. |
| Keywords: | Dynamic Preferences, Information Choice Process, Dynamic Blackwell Dominance, Rational Inattention, Subjective Markov Decision Process |
| JEL: | D80 D81 D90 |
| Date: | 2020–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-021&r=all |
| By: | Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen |
| Abstract: | Consider a market with many identical firms offering a homogeneous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The "price count" is the number of firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of complete information (firms know the price count exactly) and no information (firms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search. |
| Keywords: | "Law of One Price"; Bayes correlated equilibrium; Bertrand Competition; information structure; price competition; Price Count; Price Quote; search |
| JEL: | D41 D42 D43 D83 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14521&r=all |
| By: | Alex Suzdaltsev |
| Abstract: | An indivisible object may be sold to one of $n$ agents who know their valuations of the object. The seller would like to use a revenue-maximizing mechanism but her knowledge of the valuations' distribution is scarce: she knows only the means (which may be different) and an upper bound for valuations. Valuations may be correlated. Using a constructive approach based on duality, we prove that a mechanism that maximizes the worst-case expected revenue among all deterministic dominant-strategy incentive compatible, ex post individually rational mechanisms takes the following form: (1) the bidders submit bids $b_i$; (2) for each bidder, a linear score $s_i=\beta_ib_i-\alpha_i$ is calculated where $\alpha_i$, $\beta_i$ are fixed parameters; (3) the object is awarded to the agent with the highest score, provided it's nonnegative; (4) the winning bidder pays the minimal amount he would need to bid to still win in the auction. The set of optimal mechanisms includes other mechanisms but all those have to be close to the optimal linear score auction in a certain sense. When means are high, all optimal mechanisms share the linearity property. Second-price auction without a reserve is an optimal mechanism when the number of symmetric bidders is sufficiently high. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.05192&r=all |
| By: | Lin William Cong; Ye Li; Neng Wang |
| Abstract: | We develop a dynamic asset-pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cashflows as in standard valuation models. Endogenous platform adoption builds upon user network externality and exhibits an S-curve — it starts slow, becomes volatile, and eventually tapers off. Introducing tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The resulting intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility. |
| JEL: | E42 G12 L86 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27222&r=all |
| By: | Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie |
| Abstract: | We develop a two-stage oligopolistic network competition model where, first, firms simultaneously determine their prices and, then, users connected through a network determine their product's consumption. We show that denser networks (network topology) reduce prices and that a higher number of firms (market structure) reduces prices only when competition is weak. However, the price for the most influential users can increase with the number of firms when competition is very fierce and when there are enough network externalities. We also show that increasing competition always leads to a lower firm's profit while increasing network density leads to a clockwise rotation of the profit curve as a function of the number of firms. Finally, we study the effect of network topology and market structure on price dispersion and determine the optimal network structure from the perspective of both firms and users. |
| Keywords: | competitive pricing; Entry; market structure; optimal network structure |
| JEL: | D43 D85 L13 L14 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14495&r=all |
| By: | Miclo, Laurent; Weibull, Jörgen W.; Spiro, Daniel |
| Abstract: | How much and when should we limit economic and social activity to ensure that the health-care system is not overwhelmed during an epidemic? We study a setting where ICU resources are constrained and suppression is costly. Providing a fully analytical solution we show that the common wisdom of “flattening the curve”, where suppression measures are continuously taken to hold down the spread throughout the epidemic, is suboptimal. Instead, the optimal suppression is discontinuous. The epidemic should be left unregulated in a first phase and when the ICU constraint is approaching society should quickly lock down (a discontinuity). After the lockdown regulation should gradually be lifted, holding the rate of infected constant, thus respecting the ICU resources while not unnecessarily limiting economic activity. In a final phase, regulation is lifted. We call this strategy “filling the box”. |
| Keywords: | Epidemic; Optimal control; Health; Suppression;; Infection; Corona. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124367&r=all |
| By: | Ludivine Roussey (UPD5 - Université Paris Descartes - Paris 5); Raphaël Soubeyran (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | We develop a double-sided moral hazard model in which the production of justice depends on two tasks (jurisdictional and administrative). The jurisdictional task can be provided only by a judge (the agent) while the administrative task can be provided either by the government (the principal) and/or by the judge. However, the judge performs the administrative task at a higher unit cost. First, we show that the rst-best situation is such that the judge exerts no effort to provide the administrative task. Second, we show that two forms of (second-best) optimal contract can emerge when neither the government's effort nor the judge's effort is contractible: either the incentives are shared between the government and the judge and the judge exerts no effort to provide the administrative task, or the judge faces high-powered incentives which induce her to exert effort to provide both tasks. Our model proposes a rationale for judges work overload observed in many countries. |
| Keywords: | double-sided moral hazard,task misallocation,judicial organization,production of judicial services |
| Date: | 2020–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02791013&r=all |
| By: | Luc Bridet; Peter Schwardmann |
| Abstract: | We propose a simple model of borrower optimism in competitive lending markets with asymmetric information. Borrowers in our model engage in self-deception to arrive at a belief that optimally trades off the anticipatory utility benefits and material costs of optimism. Lenders’ contract design shapes these benefits and costs. The model yields three key results. First, the borrower’s motivated cognition increases her material welfare, regardless of whether or not she ends up being optimistic in equilibrium. Our model thus helps explain why wishful thinking is not driven out of markets. Second, in line with empirical evidence, a low cost of lending and a booming economy lead to optimism and the widespread collateralization of loans. Third, equilibrium collateral requirements may be inefficiently high. |
| Keywords: | optimal expectations, motivated cognition, wishful thinking, financial crisis, lending markets, screening |
| JEL: | D86 D82 G33 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8271&r=all |
| By: | Fatma Aslan (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM]); Jean Lainé (Department of Economics, Bilgi University - Istanbul Bilgi University) |
| Abstract: | We investigate the existence and properties of competitive equilibrium in Shapley-Scarf markets involving an exogenous partition of individuals into couples. The presence of couples generates preference interdependencies which cause existence problems. For both cases of transferable and non-transferable income among partners, we establish properties for preferences that are sufficient for the existence of an equilibrium. Moreover, we show that these properties define a maximal preference domain. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-02613918&r=all |
| By: | Barton E. Lee (School of Economics, UNSW Sydney) |
| Abstract: | We consider a dynamic model of bargaining where alternatives to the status-quo arrive stochastically during the bargaining process, the proposer can bundle multiple alternatives into a single proposal, and a forward-looking voter elects the agendasetter. We show that the prevailing wisdom that policy bundling reduces gridlock — by facilitating compromise across different policy areas — is incomplete. Policy bundling can also increase gridlock: a player may veto or delay a bipartisan alternative, which is unanimously preferred to the status-quo, so that in the future they can bundle this same alternative with a divisive alternative that otherwise would not pass. Gridlock of this form is more likely to occur during periods of economic stability and suggests that traditional measures of legislator ideology will overstate polarization. From the voter’s perspective, we show that gridlock occurs at an inefficiently high frequency. This state of “excess gridlock” is driven by the voter being forward-looking and lacking commitment power to punish players that veto. |
| Keywords: | Gridlock, bargaining, policy bundling |
| JEL: | D72 D78 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2020-09&r=all |
| By: | Emilie Dargaud (Univ Lyon, Université Lumière Lyon 2, GATE, UMR 5824, F-69130 Ecully, France); Armel Jacques (CEMOI TEPP-CNRS (FR2042), Université de La Réunion, Faculté de Droit et d'Economie, 15, avenue René Cassin, 97715 Saint-Denis messag cedex 9) |
| Abstract: | When multi-product firms make simultaneous price-fixing agreements in different markets, the introduction of leniency programs may induce firms to compartmentalize their activities. Doing so results in slowdown antitrust investigations and decentralized ?rm can easily request leniency for a second cartel after the detection of an other. We study how variation of fine reduction may produce procompetitive but also procollusive effects. |
| Keywords: | Collusion, antitrust policy, leniency programs, multimarket contact, organizational form |
| JEL: | K42 L22 L41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2017&r=all |
| By: | Jean-François Laslier (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | I comment on the claim by John Roemer that \in games of pure coordination, Kantians drive Nashers to extinction". Using an explicit dynamic model of evolution, I notice that in these games, Kantian optimizers do not always drive sel sh optimizers to extinction. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02652020&r=all |
| By: | Prateik Dalmia; Allan Drazen; Erkut Y. Ozbay |
| Abstract: | We study how reelection concerns affect reciprocity by elected leaders to the voters who elected them. If showing kindness to past voters reduces the chances of reelection, will an elected leader reduce or eliminate such intrinsic reciprocity? We present a signalling model of candidate behavior, where we show that candidates may limit intrinsic reciprocity to past voters to signal congruence with voters important for reelection, and selfish candidates may mimic reciprocal behavior for instrumental purposes. We then present an experiment that tests these ideas in the laboratory and finds support for the model. Both candidates and voters behave as the signalling model predicts. Our key finding is that the desire to be reelected may limit intrinsic reciprocity of an elected leader to the voters who put her in office, but does not eliminate it entirely. |
| JEL: | C91 D72 D78 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27301&r=all |
| By: | Elizabeth Baldwin; Paul Klemperer; Alex Teytelboym; Omer Edhan Ravi Jagadeesan |
| Abstract: | Abstract We show that, with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents’ substitution effects, not their income effects. Our Equilibrium Existence Duality allows us to transport results on the existence of competitive equilibrium from settings with transferable utility to settings with income effects. One consequence is that net substitutability—which is a strictly weaker condition than gross substitutability—is sufficient for the existence of competitive equilibrium. We also extend the “demand types†classification of valuations to settings with income effects and give necessary and sufficient conditions for a pattern of substitution effects to guarantee the existence of competitive equilibrium. |
| JEL: | C62 D11 D44 |
| Date: | 2020–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:912&r=all |
| By: | Bergemann, Dirk; Bonatti, Alessandro; Gan, Tan |
| Abstract: | A data intermediary pays consumers for information about their preferences and sells the information so acquired to firms that use it to tailor their products and prices. The social dimension of the individual data---whereby an individual's data are predictive of the behavior of others---generates a data externality that reduces the intermediary's cost of acquiring information. We derive the intermediary's optimal data policy and show that it preserves the privacy of the consumers' identities while providing precise information about market demand to the firms. This enables the intermediary to capture the entire value of information as the number of consumers grows large. |
| Keywords: | consumer privacy; data externality; data flow; data intermediaries; data policy; data rights; personal information; privacy paradox; social data |
| JEL: | D44 D82 D83 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14466&r=all |
| By: | Dupuy, Arnaud (University of Luxembourg); Galichon, Alfred (New York University); Jaffe, Sonia (University of Chicago); Kominers, Scott Duke (Harvard University) |
| Abstract: | We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss. |
| Keywords: | matching, taxation |
| JEL: | C78 D3 H2 J3 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13328&r=all |