
on Microeconomics 
By:  Drew Fudenberg; Ying Gao; Harry Pei 
Abstract:  We analyze situations in which players build reputations for honesty rather than for playing particular actions. A patient player facing a sequence of shortrun opponents makes an announcement about their intended action after observing an idiosyncratic shock, and before players act. The patient player is either an honest type whose action coincides with their announcement, or an opportunistic type who can freely choose their actions. We show that the patient player can secure a high payoff by building a reputation for being honest when the shortrun players face uncertainty about which of the patient player's actions are currently feasible, but may receive a low payoff when there is no such uncertainty. 
Date:  2020–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2011.07159&r=all 
By:  Belleflamme, Paul (Université catholique de Louvain, LIDAM/CORE, Belgium); Peitz, Martin; Toulemonde, Eric 
Abstract:  We introduce asymmetries across platforms in the linear model of competing twosided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets. 
Keywords:  Twosided platforms, market share, market power, oligopoly, network effects, antitrust 
JEL:  D43 L13 L86 
Date:  2020–08–01 
URL:  http://d.repec.org/n?u=RePEc:cor:louvco:2020027&r=all 
By:  Sushil Bikhchandani (UCLA); Debasis Mishra (Indian Statistical Institute, Delhi) 
Abstract:  It is wellknown that optimal (i.e., revenuemaximizing) selling mechanisms in multidimensional type spaces may involve randomization. We study mechanisms for selling two identical, indivisible objects to a single buyer. We analyze two settings: (i) decreasing marginal values (DMV) and (ii) increasing marginal values (IMV). Thus, the two marginal values of the buyer are not independent. We obtain sucient conditions on the distribution of buyer values for the existence of an optimal mechanism that is deterministic. In the DMV model, we show that under a wellknown condition, it is optimal to sell the first unit deterministically. Under the same sucient condition, a bundling mechanism (which is deterministic) is optimal in the IMV model. Under a stronger sufficient condition, a deterministic mechanism is optimal in the DMV model. Our results apply to heterogenous objects when there is a specified sequence in which the two objects must be sold. 
Date:  2020–09 
URL:  http://d.repec.org/n?u=RePEc:alo:isipdp:2007&r=all 
By:  Komal Malik; Kolagani Paramahamsa 
Abstract:  A seller is selling a pair of complementary goods to an agent. The agent consumes the goods only in a certain ratio and freely disposes of excess in either of the goods. The value of the bundle and the ratio are private information of the agent. In this twodimensional type space model, we characterize the incentive constraints and show that the optimal (expected revenuemaximizing) mechanism is a ratiodependent posted price mechanism for a class of distributions; that is, it has a different posted price for each ratio report. We identify additional sufficient conditions on the joint distribution for a posted price to be an optimal mechanism. We also show that the optimal mechanism is a posted price mechanism when the value and the ratio types are independently distributed. 
Date:  2020–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2011.05840&r=all 
By:  Gregorio Curello; Ludvig Sinander 
Abstract:  An agent privately observes a technological breakthrough that expands utility possibilities, and must be incentivised to disclose it. The principal controls the agent's utility over time. Optimal mechanisms keep the agent only just willing to disclose promptly. In an important case, a deadline mechanism is optimal: absent disclosure, the agent enjoys an efficient utility before a deadline, and an inefficiently low utility afterwards. In general, optimal mechanisms feature a (possibly gradual) transition from the former to the latter. Even if monetary transfers are permitted, they may not be used. We apply our results to the design of unemployment insurance schemes. 
Date:  2020–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2011.10090&r=all 
By:  Sulagna Dasgupta (University of Chicago); Debasis Mishra (Indian Statistical Institute, Delhi) 
Abstract:  We explore the consequences of weakening the notion of incentive compatibility from strategyproofness to ordinal Bayesian incentive compatibility (OBIC) in the random assignment model. If the common prior of the agents is a uniform prior, then a large class of random mechanisms are OBIC with respect to this prior â€“ this includes the probabilistic serial mechanism. We then introduce a robust version of OBIC: a mechanism is locally robust OBIC if it is OBIC with respect all independent priors in some neighborhood of a given independent prior. We show that every locally robust OBIC mechanism satisfying a mild property called elementary monotonicity is strategyproof. This leads to a strengthening of the impossibility result in Bogomolnaia and Moulin (2001): if there are at least four agents, there is no locally robust OBIC and ordinally ecient mechanism satisfying equal treatment of equals. 
Keywords:  ordinal Bayesian incentive compatibility, random assignment, probabilistic serial mechanism 
JEL:  D47 D82 
Date:  2020–09 
URL:  http://d.repec.org/n?u=RePEc:alo:isipdp:2006&r=all 
By:  Thomas Favory (Economics Discipline, Business School, University of Western Australia) 
Abstract:  This paper proves the existence and uniqueness of BertrandNash equilibrium in oligopolies, where each firm may sell multiple substitutes of the same good. Bertrand competition emerges as a limit case when the number of products per firm increases if the consumers’ willingness to pay for products follow a sufficiently slimtailed distribution. In opposition, the double exponential distribution is not slim enough, and firms conserve monopolistic power even for an arbitrarily large number of products per firm. Moreover, the double exponential distribution provides closedform solutions that relate to discrete choice theory. First, a duality with representative consumers helps recover multinomial logit (MNL) demand functions and constant elasticity of substitution (CES) utility functions. Second, the game in which firms sequentially set the quality, then the price of their products, has a unique equilibrium. 
Keywords:  Multiproduct firms, Price competition, Oligopoly, Discrete choice, Product differentiation 
JEL:  D21 D43 L12 L13 
Date:  2020 
URL:  http://d.repec.org/n?u=RePEc:uwa:wpaper:2024&r=all 
By:  Marco Bertini; Stefan Buehler; Daniel Halbheer 
Abstract:  This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the lowcost and highcost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the highcost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint. 
Keywords:  conscientious consumption, cost transparency, operational transparency, pricing, referencedependent preferences 
JEL:  D42 L21 M20 M30 
Date:  2020 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_8675&r=all 
By:  Itai Arieli; Fedor Sandomirskiy; Rann Smorodinsky 
Abstract:  It is well understood that the structure of a social network is critical to whether or not agents can aggregate information correctly. In this paper, we study social networks that support information aggregation when rational agents act sequentially and irrevocably. Whether or not information is aggregated depends, inter alia, on the order in which agents decide. Thus, to decouple the order and the topology, our model studies a random arrival order. Unlike the case of a fixed arrival order, in our model, the decision of an agent is unlikely to be affected by those who are far from him in the network. This observation allows us to identify a local learning requirement, a natural condition on the agent's neighborhood that guarantees that this agent makes the correct decision (with high probability) no matter how well other agents perform. Roughly speaking, the agent should belong to a multitude of mutually exclusive social circles. We illustrate the power of the local learning requirement by constructing a family of social networks that guarantee information aggregation despite that no agent is a social hub (in other words, there are no opinion leaders). Although the common wisdom of the social learning literature suggests that information aggregation is very fragile, another application of the local learning requirement demonstrates the existence of networks where learning prevails even if a substantial fraction of the agents are not involved in the learning process. On a technical level, the networks we construct rely on the theory of expander graphs, i.e., highly connected sparse graphs with a wide range of applications from pure mathematics to errorcorrecting codes. 
Date:  2020–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2011.05255&r=all 
By:  Flavio Angelini; Katia Colaneri; Stefano Herzel; Marco Nicolosi 
Abstract:  We study the optimal asset allocation problem for a fund manager whose compensation depends on the performance of her portfolio with respect to a benchmark. The objective of the manager is to maximise the expected utility of her final wealth. The manager observes the prices but not the values of the market price of risk that drives the expected returns. The estimates of the market price of risk get more precise as more observations are available. We formulate the problem as an optimization under partial information. The particular structure of the incentives makes the objective function not concave. We solve the problem via the martingale method and, with a concavification procedure, we obtain the optimal wealth and the investment strategy. A numerical example shows the effect of learning on the optimal strategy. 
Date:  2020–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2011.07871&r=all 