nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒02‒22
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Matching Strategic Agents on a Two-Sided Platform By Masaki Aoyagi; Seung Han Yoo
  2. Competing Mechanisms and Folk Theorems: Two Examples By Andrea Attar; Eloisa Campioni; Thomas Mariotti; Gwenaël Piaser
  3. Full Collusion with Entry and Incomplete Information By Ramakanta Patra; Tadashi Sekiguchi
  4. Private and common value auctions with ambiguity over correlation By Laohakunakorn, Krittanai; Levy, Gilat; Razin, Ronny
  5. Learning from Shared News: When Abundant Information Leads to Belief Polarization By Renee Bowen; Danil Dmitriev; Simone Galperti
  6. Membership Mechanism By Seung Han Yoo
  7. Exclusive Data, Price Manipulation and Market Leadership By Yiquan Gu; Leonardo Madio; Carlo Reggiani
  8. Competition in Signaling By Vaccari, Federico
  9. On the political economy of income taxation By Berliant, Marcus; Gouveia, Miguel
  10. Selecting Matchings via Multiwinner Voting: How Structure Defeats a Large Candidate Space By Niclas Boehmer; Markus Brill; Ulrike Schmidt-Kraepelin
  11. Investment in early education and job market signaling By Luigi Brighi; Marcello D'Amato
  12. Data Brokers Co-Opetition By Yiquan Gu; Leonardo Madio; Carlo Reggiani
  13. A Theory of Choice Bracketing under Risk By Mu Zhang
  14. Static Pricing in Dynamic Sales By Martino Banchio; Frank Yang
  15. Optimal Disclosure of Information to a Privately Informed Receiver By Ozan Candogan; Philipp Strack
  16. Liberalism, rationality, and Pareto optimality By Shaun Hargreaves Heap; Mehmet S. Ismail
  17. Expected utility theory on mixture spaces without the completeness axiom By David McCarthy; Kalle Mikkola; Teruji Thomas

  1. By: Masaki Aoyagi; Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: A platform offers sellers and buyers trading opportunities by creating one-to-one matches between them. A matching mechanism consists of a menu of subscription plans for each side and specifies fees and the probabilities with which subscribers of each plan are matched with subscribers of different plans on the other side. We characterize optimal matching mechanisms which maximize the subscription revenue under the incentive compatibility conditions. When the agents are strategic in their interactions with their matched partners, we show that the optimal matching rule may not equal socially efficient positive assortative matching (PAM) but instead focus on the extraction of the agents’ informational rents. We then examine the efficiency of the optimal mechanism in two alternative scenarios in which the platform exercises stronger control over the interactions between the matched agents. When the subscription fee can be conditioned on the success of a transaction, we show that the optimal mechanism is efficient with PAM restored as the optimal matching rule. However, when the platform has full control over the allocation and price of the good, we show that the optimal mechanism employs PAM but may create efficiency distortions by blocking some efficient transactions.
    Keywords: assortative, screening, auction, subscription, revenue maximization
    JEL: D42 D47 D62 D82 L12
    Date: 2020
  2. By: Andrea Attar (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Eloisa Campioni (Unknown); Thomas Mariotti (Unknown); Gwenaël Piaser (Unknown)
    Abstract: We study competing-mechanism games under exclusive competition: principals first simultaneously post mechanisms, after which agents simultaneously choose to participate and communicate with at most one principal. In this setting, which is common to competing-auction and competitive-search applications, we develop two complete-information examples that question the relevance of the folk theorems for competing-mechanism games documented in the literature. The first example shows that there can exist pure-strategy equilibria in which some principal obtains a payoff below her min-max payoff, computed over all principals' decisions. Thus folk-theoremlike results may have to involve a bound on principals' payoffs that depends on the spaces of messages available to the agents, and not only on the players' actions. The second example shows that even this nonintrinsic approach is misleading when agents' participation decisions are strategic: there can exist incentive-feasible allocations in which principals obtain payoffs above their min-max payoffs, computed over arbitrary spaces of mechanisms, but which cannot be supported in equilibrium.
    Date: 2021
  3. By: Ramakanta Patra (Department of Accounting, Economics and Finance, Cardiff Metropolitan University); Tadashi Sekiguchi (Institute of Economic Research, Kyoto University)
    Abstract: This paper studies an infinitely repeated duopoly game with incomplete information and with costly entry decisions. Every period, each player learns her private type and decides whether to pay a cost in order for her to enter or not. If she enters, she plays a game belonging to a class that includes Bertrand duopoly and some auction games as special cases, either as a monopolist or as a duopolist. The players can communicate before they make their entry decisions. We study full collusion (joint profit maximization) in this environment which requires a higher-quality player to solely enter and to choose an action maximizing the stage payoff. We present a condition on the stage game which is both necessary and sufficient in order for full collusion to be an equilibrium outcome for sufficiently patient players. The condition is more likely to hold when the entry cost increases, which signifies that the entry cost is an important factor facilitating full collusion. We also show that under some parameter restrictions, asymmetric equilibria where only one player reveals her type every period sustain full collusion for a wider range of discount factors. These asymmetric equilibria reduce the total amount of communication, which makes it harder for antitrust authorities to detect collusion.
    Keywords: Bertrand Competition; Fixed Costs; Unknown Costs; Private Information; Infinitely Repeated Game; Pre-play Communication; One-sided Communication; Full Collusion
    JEL: C73 D43 K21 L0
    Date: 2021–02
  4. By: Laohakunakorn, Krittanai; Levy, Gilat; Razin, Ronny
    Abstract: We analyze auctions when individuals have ambiguity over the joint information structures generating the valuations and signals of players. We analyze how two standard auction effects interact with the ambiguity of bidders over correlation structures. First, a “competition effect” arises when different beliefs about the correlation between bidders' valuations imply different likelihoods of facing competitive bids. Second, a “winner's value effect” arises when different beliefs imply different inferences about the winner's value. In the private values case, only the first effect exists and this implies that the distribution of bids first order stochastically dominates the distribution of bids in the absence of ambiguity. In common value auctions both effects exist and we show that compared to the canonical model, both in the first-price and second-price auctions, these effects combine to imply that the seller's revenue decreases with ambiguity (in contrast with the private values case). We then characterise the optimal auction in both the private and common value cases. A novel feature that arises in the optimal mechanism in the common values case is that the seller only partially insures the high type against ambiguity.
    Keywords: Ambiguity over correlation; Optimal auctions; Private and common value auctions
    JEL: D44 D81
    Date: 2019–11–01
  5. By: Renee Bowen; Danil Dmitriev; Simone Galperti
    Abstract: We study learning via shared news. Each period agents receive the same quantity and quality of first-hand information and can share it with friends. Some friends (possibly few) share selectively, generating heterogeneous news diets across agents akin to echo chambers. Agents are aware of selective sharing and update beliefs by Bayes’ rule. Contrary to standard learning results, we show that beliefs can diverge in this environment leading to polarization. This requires that (i) agents hold misperceptions (even minor) about friends' sharing and (ii) information quality is sufficiently low. Polarization can worsen when agents' social connections expand. When the quantity of first-hand information becomes large, agents can hold opposite extreme beliefs resulting in severe polarization. Our results hold without media bias or fake news, so eliminating these is not sufficient to reduce polarization. When fake news is included, we show that it can lead to polarization but only through misperceived selective sharing. News aggregators can curb polarization caused by shared news.
    JEL: D82 D83 D90
    Date: 2021–02
  6. By: Seung Han Yoo (Department of Economics, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Republic of Korea, 02841)
    Abstract: This paper studies an environment in which a seller seeks to sell two different items to buyers. The seller designs a membership mechanism that assigns positive allocations to members only. With the member set and a membership fee, the seller finds a revenue-maximizing incentive compatible mechanism. We first establish the optimal allocation rule for this mechanism given a regularity condition for a modified valuation distribution that reflects the set, which results in the existence of membership and the simple optimal payment rule. The optimal allocation enables us to compare membership with separate participation of the two items, suggesting conditions under which membership dominates separate participation: interplay between the number of bidders and the degree of the stochastic dominance of valuation distributions. This allocation also provides a rationale for secret reserve prices, a long-standing puzzle in theory.
    Keywords: mechanism design, multidimensional types, auction
    JEL: D44 D82
    Date: 2020
  7. By: Yiquan Gu; Leonardo Madio; Carlo Reggiani
    Abstract: The unprecedented access of firms to consumer level data not only facilitates more precisely targeted individual pricing but also alters firms’ strategic incentives. We show that exclusive access to a list of consumers can provide incentives for a firm to endogenously assume the price leader’s role, and so to strategically manipulate its rival’s price. Prices and profits are non-monotonic in the length of the consumer list. For an intermediate size, price leadership entails an equilibrium outcome characterised by supra-competitive prices and low consumer surplus. In contrast, for short or long lists of consumers, exclusive data availability intensifies market competition.
    Keywords: Exclusive data, Personalised pricing, Price leadership, Strategic price manipulation
    JEL: D43 K21 L11 L13 L41 L86 M21 M31
    Date: 2021–01
  8. By: Vaccari, Federico
    Abstract: I study a multi-sender signaling game between an uninformed decision maker and two senders with common private information and opposed interests. Senders can misreport information at a cost that is tied to the size of the misrepresentation. The main results concern the amount of information that is transmitted in equilibrium and the language used by senders to convey such information. Fully revealing and pure strategy equilibria exist but are not plausible. I identify sufficient conditions under which equilibria always exist, are plausible, and essentially unique, and deliver a complete characterization of such equilibria. As an application, I study the informative value of different judicial procedures.
    Keywords: signaling, multi-sender, competition, misreporting, communication
    JEL: C72 D72 D82
    Date: 2021–02–12
  9. By: Berliant, Marcus; Gouveia, Miguel
    Abstract: The literatures dealing with voting, optimal income taxation, implementation, and pure public goods are integrated here to address the problem of voting over income taxes and public goods. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget. Even though the space of alternatives is infinite dimensional, conditions on primitives are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it.
    Keywords: Voting; Income taxation; Public good
    JEL: D72 D82 H21 H41
    Date: 2021–02–08
  10. By: Niclas Boehmer; Markus Brill; Ulrike Schmidt-Kraepelin
    Abstract: Given a set of agents with approval preferences over each other, we study the task of finding $k$ matchings fairly representing everyone's preferences. We model the problem as an approval-based multiwinner election where the set of candidates consists of all possible matchings and agents' preferences over each other are lifted to preferences over matchings. Due to the exponential number of candidates in such elections, standard algorithms for classical sequential voting rules (such as those proposed by Thiele and Phragm\'en) are rendered inefficient. We show that the computational tractability of these rules can be regained by exploiting the structure of the approval preferences. Moreover, we establish algorithmic results and axiomatic guarantees that go beyond those obtainable in the general multiwinner setting. Assuming that approvals are symmetric, we show that proportional approval voting (PAV), a well-established but computationally intractable voting rule, becomes polynomial-time computable, and its sequential variant (seq-PAV), which does not provide any proportionality guarantees in general, fulfills a rather strong guarantee known as extended justified representation. Some of our positive computational results extend to other types of compactly representable elections with an exponential candidate space.
    Date: 2021–02
  11. By: Luigi Brighi; Marcello D'Amato
    Abstract: We consider a signaling model of the job market in which workers, before choosing their level of education, have the opportunity to undertake an unobservable investment in activities aimed at saving on future education costs. Sufficiently high levels of investments allow a low productivity worker to cut the marginal costs of signaling below the high productivity worker’s. In contrast to standard results, we find that the equilibrium outcome will depend on the relative magnitude of workers’ average productivity. If average productivity exceeds a certain threshold the most plausible solution is a refined pooling equilibrium in which all workers attain the same level of over-education and are paid the same wage. Otherwise, the most plausible outcome is the standard least cost separating equilibrium in which only high ability workers are over-educated
    Keywords: : Signaling, Pooling Equilibrium, Single Crossing, Early Education
    JEL: C72 D82 J24
    Date: 2020–10
  12. By: Yiquan Gu; Leonardo Madio; Carlo Reggiani
    Abstract: Data brokers share consumer data with rivals and, at the same time, compete withthem for selling. We propose a “co-opetition” game of data brokers and characterisetheir optimal strategies. When data are “sub-additive” with the merged value netof the merging cost being lower than the sum of the values of individual datasets,data brokers are more likely to share their data and sell them jointly. When data are“super-additive”, with the merged value being greater than the sum of the individualdatasets, competition emerges more often. Finally, data sharing is more likely whendata brokers are more efficient at merging datasets than data buyers.
    Keywords: data brokers, consumer information, co-opetition, data sharing
    JEL: D43 L13 L86 M31
    Date: 2021–01
  13. By: Mu Zhang
    Abstract: Aggregating risks from multiple sources can be complex and demanding, and decision makers usually adopt heuristics to simplify the decision process. This paper axiomatizes two such heuristics, narrow bracketing and correlation neglect, by relaxing the standard independence axiom in the expected utility benchmark. Our representation theorem allows for either narrow bracketing, or correlation neglect, or both of them. The flexibility of our framework allows for applications in various setups. For example, we accommodate the experimental evidence in narrow bracketing and risk aversion over small gambles with background risk. In intertemporal choices, we show how our framework unifies three seemingly distinct models in the literature and introduce a new model that can satisfy many desirable normative properties in time preferences simultaneously, including indifference to temporal resolution of uncertainty, dynamic consistency and separation of time and risk preferences. One special class of the model shares the same predictions as Epstein and Zin (1989) in macroeconomics and finance applications, and is immune to the critique in Epstein, Farhi, and Strzalecki (2014).
    Date: 2021–02
  14. By: Martino Banchio; Frank Yang
    Abstract: A monopolist sells items repeatedly over time to a consumer with persistent private information. The seller has limited commitment: she cannot commit to a long-term contract but always has the option to commit to posted prices for unsold items. We show that a static price path is the unique equilibrium outcome; that is, the seller cannot do better than simply posting the monopoly price for each item. The ratchet effect eliminates price discrimination gains for any degree of persistence of the private information. The paper also shows how dynamic mechanism design can help derive new results in games with limited commitment.
    Date: 2021–02
  15. By: Ozan Candogan; Philipp Strack
    Abstract: We study information design problems where the designer controls information about a state and the receiver is privately informed about his preferences. The receiver's action set is general and his preferences depend linearly on the state. We show that to optimally screen the receiver, the designer can use a menu of "laminar partitional" signals. These signals partition the states such that the same message is sent in each partition element and the convex hulls of any two partition elements are either nested or have an empty intersection. Furthermore, each state is either perfectly revealed or lies in an interval in which at most $n+2$ different messages are sent, where $n$ is the number of receiver types. In the finite action case an optimal menu can be obtained by solving a finite-dimensional convex program. Along the way we shed light on the solutions of optimization problems over distributions subject to a mean-preserving contraction constraint and additional constraints which might be of independent interest.
    Date: 2021–01
  16. By: Shaun Hargreaves Heap; Mehmet S. Ismail
    Abstract: Rational players in game theory are neoliberal in the sense that they can choose any available action so as to maximize their payoffs. It is well known that this can result in Pareto inferior outcomes (e.g. the Prisoner's Dilemma). Classical liberalism, in contrast, argues that people should be constrained by a no-harm principle (NHP) when they act. We show, for the first time to the best of our knowledge, that rational players constrained by the NHP will produce Pareto efficient outcomes in n-person non-cooperative games. We also show that both rationality and the NHP are required for this result.
    Date: 2021–01
  17. By: David McCarthy; Kalle Mikkola; Teruji Thomas
    Abstract: A mixture preorder is a preorder on a mixture space (such as a convex set) that is compatible with the mixing operation. In decision theoretic terms, it satisfies the central expected utility axiom of strong independence. We consider when a mixture preorder has a multi-representation that consists of real-valued, mixture-preserving functions. If it does, it must satisfy the mixture continuity axiom of Herstein and Milnor (1953). Mixture continuity is sufficient for a mixture-preserving multi-representation when the dimension of the mixture space is countable, but not when it is uncountable. Our strongest positive result is that mixture continuity is sufficient in conjunction with a novel axiom we call countable domination, which constrains the order complexity of the mixture preorder in terms of its Archimedean structure. We also consider what happens when the mixture space is given its natural weak topology. Continuity (having closed upper and lower sets) and closedness (having a closed graph) are stronger than mixture continuity. We show that continuity is necessary but not sufficient for a mixture preorder to have a mixture-preserving multi-representation. Closedness is also necessary; we leave it as an open question whether it is sufficient. We end with results concerning the existence of mixture-preserving multi-representations that consist entirely of strictly increasing functions, and a uniqueness result.
    Date: 2021–02

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