nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒11‒30
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Interpersonal comparisons and concerns for expertise By Ascensión Andina-Díaz; José A. García-Martínez
  2. Auctions with Signaling Concerns By Olivier Bos; Tom Truyts
  3. Imitation Perfection - a Simple Rule to Prevent Discrimination in Procurement By Nicolas Fugger; Vitali Gretschko; Helene Mass; Achim Wambach
  4. Manufacturer Cartels and Resale Price Maintenance By Hunold, Matthias
  5. Obviously Strategy-proof Implementation of Assignment Rules: A New Characterization By Mandal, Pinaki; Roy, Souvik
  6. Optimal Payment Contracts in Trade Relationships By Fischer, Christian
  7. Charges and Bets: A General Characterisation of Common Priors By Ziv Hellman; Miklós Pintér
  8. An example of non-existence of Riley equilibrium in markets with adverse selection By Azevedo, Eduardo M.; Gottlieb, Daniel
  9. The revelation principle fails when the format of each agent's strategy is an action By Wu, Haoyang

  1. By: Ascensión Andina-Díaz (University of Málaga); José A. García-Martínez (Universidad Miguel Hernández)
    Abstract: We study the effect of introducing interpersonal comparisons on the decisions made by career concerned experts. We consider a model with two experts, a stronger and a weaker, who face common uncertainty about the state of the world. We show that whereas full transmission of the experts' private information is an equilibrium when experts care about their absolute level of expertise, this is not necessarily the case when interpersonal comparisons matter and experts care about their relative level of expertise. In this case, we obtain that there is an equilibrium in which experts' decisions follow experts' signals only when the probability of feedback is sufficiently high. Otherwise, the stronger expert benefits from discarding her private information. In equilibrium, this expert may even completely contradict her signal and the other expert's decision. We discuss the implications of this result for reaching experts' consensus and dissent.
    Keywords: Interpersonal comparisons; career concerns; probability of feedback; consensus; dissent
    JEL: C72 D82 D83
    Date: 2020–11
  2. By: Olivier Bos; Tom Truyts
    Abstract: We study a symmetric private value auction with signaling, in which the auction outcome is used by an outside observer to infer the bidders’ types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in the second-price auction and the English auction. We establish there is no equivalence between these two auction designs, neither in bidding strategies nor in expected revenue. This is because the presence or absence of an increasing price clock, affects signaling incentives differently in both auction formats, and thereby also the bidders’ incentives to overbid their types. This leads to a strictly higher expected revenue in the second-price auction than in the English auction. Our analysis is completed by a comparison with other disclosure policies. Applications include art auctions and charity auctions.
    Keywords: costly signalling, D1 criterion, social status, art auctions, charity auctions
    JEL: D44 D82
    Date: 2020
  3. By: Nicolas Fugger; Vitali Gretschko; Helene Mass; Achim Wambach
    Abstract: Procurement regulation aimed at curbing discrimination requires equal treatment of sellers. However, Deb and Pai show that such regulation imposes virtually no restrictions on the ability to discriminate. We propose a simple rule - imitation perfection - that restricts discrimination significantly. It ensures that in every equilibrium bidders with the same valuation distribution and the same valuation earn the same expected utility. If all bidders are homogeneous, revenue and social surplus optimal auctions consistent with imitation perfection exist. For heterogeneous bidders, however, it is incompatible with revenue and social surplus optimization. Thus, a trade-off between non-discrimination and optimality exists.
    Keywords: Discrimination, symmetric auctions, procurement regulation
    JEL: D44 D73 D82 L13
    Date: 2020–11
  4. By: Hunold, Matthias
    Abstract: We provide a theory of how RPM facilitate upstream cartels absent any information asymmetries using a model with manufacturer and retailer competition. Because retailers have an effective outside option to each manufacturer's contract, the manufacturers can only ensure contract acceptance by leaving a sufficient margin to the retailers. This restricts the wholesale price level even when manufacturers collude. In this context, resale price maintenance may only be profitable for the manufacturers if they collude. We thus provide a novel theory of harm for resale price maintenance when manufacturers collude and illustrate the fit of this theory in various competition policy cases.
    Keywords: resale price maintenance,collusion,retailing
    JEL: L41 L42 L81
    Date: 2020
  5. By: Mandal, Pinaki; Roy, Souvik
    Abstract: We consider assignment problems where individuals are to be assigned at most one indivisible object and monetary transfers are not allowed. We provide a characterization of assignment rules that are Pareto efficient, non-bossy, and implementable in obviously strategy-proof (OSP) mechanisms. As corollaries of our result, we obtain a characterization of OSP-implementable fixed priority top trading cycles (FPTTC) rules, hierarchical exchange rules, and trading cycles rules. Troyan (2019) provides a characterization of OSP-implementable FPTTC rules when there are equal number of individuals and objects. Our result generalizes this for arbitrary values of those.
    Keywords: Assignment problem; Obvious strategy-proofness; Pareto efficiency; Non-bossiness; Indivisible goods
    JEL: C78 D82
    Date: 2020–11–09
  6. By: Fischer, Christian
    Abstract: We study a seller's trade credit provision decision in a situation of repeated contracting with incomplete information over the buyer's payment propensity when the enforceability of formal contracts is uncertain. The payment terms of a transaction are selected in an inter-temporal trade-off between improving the quality of information acquisition and mitigating relationship breakdown risks. When contract enforcement institutions are weak, the optimal within-relationship provision dynamics of trade credit can be uniquely determined and depend on the share of patient buyers in the destination market as well as their access to liquidity. We obtain empirical evidence showing that in developing countries the relevance of trade credit in buyers' payment schedules has risen over-proportionally in recent years.
    Keywords: Payment contracts,Trade credit,Trade dynamics,Relational contracts,Weak institutions
    JEL: L14
    Date: 2020
  7. By: Ziv Hellman (Bar-Ilan University); Miklós Pintér
    Abstract: The seminal no betting theorem on the equivalence of common priors and absence of agreeable bets obtains only over compact state spaces. We show here that this equivalence can be generalised to any infinite space if we expand the set of priors to include probability charges as priors. Going beyond the strict prior/no common prior dichotomy, we further uncover a fine-grained decomposition of the space of type spaces into continuum many subclasses in each of which an epistemic condition approximating common priors is equivalent to a behavioural condition limiting acceptable bets. Several additional concepts relating to approximations of common priors and type spaces admitting common priors are studied, elucidating more aspects of the structure of the class of type spaces.
    Keywords: Common prior, no betting, probability charge
    Date: 2020–06
  8. By: Azevedo, Eduardo M.; Gottlieb, Daniel
    Abstract: Rothschild and Stiglitz [1976] proposed a model of a competitive market with adverse selection and showed that a (pure strategy) Nash equilibrium may not exist. Among the solutions proposed to deal with this problem, a particularly influential one is the notion of Riley (or reactive) equilibrium [Riley, 1979]. We give an example that shows that a Riley equilibrium may not exist if consumers are not ordered.
    Keywords: adverse selection; equilibrium; insurance
    JEL: D86 D82
    Date: 2019–07–01
  9. By: Wu, Haoyang
    Abstract: In mechanism design theory, a designer would like to implement a social choice function which specifies her favorite outcome for each possible profile of agents' private types. The revelation principle asserts that if a social choice function can be implemented by a mechanism in equilibrium, then there exists a direct mechanism that can truthfully implement it. This paper aims to propose a failure of the revelation principle. At first we point out that in any game the format of each agent's strategy is either an abstract message or a real action. For any given social choice function, if the mechanism which implements it in Bayesian Nash equilibrium has action-format strategies, then ``honest and obedient'' will not be an equilibrium strategy in the corresponding direct mechanism. Consequently, the revelation principle fails.
    Keywords: Mechanism design; Revelation principle.
    JEL: D71
    Date: 2020–11–15

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