nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒04‒12
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Competitive Nonlinear Pricing under Adverse Selection By Attar, Andrea; Mariotti, Thomas; Salanié, François
  2. Efficient Effort Equilibrium in Cooperation with Pairwise Cost Reduction By García-Martínez, Jose A.; Mayor-Serra, Antonio J.; Meca, Ana
  3. Cloturing Deliberation By Vincent Anesi; Mikhail Safronov
  4. Cursed yet Satisfied Agents By Yiling Chen; Alon Eden; Juntao Wang
  5. Per-unit versus ad-valorem royalty licensing in a Stackelberg market By Antelo, Manel; Bru, Lluís
  6. Treating Symmetric Buyers Asymmetrically By Banerjee, Shraman
  7. Loss Aversion, Moral Hazard, and Stochastic Contracts By Ho, Hoa
  8. Direct-to-Consumer Sales by Manufacturers and Bargaining By Donna, Javier D.; Pereira, Pedro; Trindade, Andre; Yoshida, Renan C.
  9. Collusion between two-sided platforms By Yassine Lefouili; Joana Pinho
  10. The Wisdom of the Crowd and Higher-Order Beliefs By Yi-Chun Chen; Manuel Mueller-Frank; Mallesh M Pai
  11. Optimal Vaccine Policies: Spillovers and Incentives By Nikhil Vellodi; Joshua Weiss
  12. Robust double auction mechanisms By Kiho Yoon
  13. Imperfect Competition with Costly Disposal By Severin Lenhard
  14. Market Concentration, Privatization Policies, and Heterogeneity among Private Firms in Mixed Oligopolies By Haraguchi, Junichi; Matsumura, Toshihiro
  15. Games on Endogenous Networks By Benjamin Golub; Evan Sadler
  16. Rationality and Emotions: A Model of Inner Games and Ego Identity By Liu, Fen
  17. Negative results in science: Blessing or (winner’s) curse By Bobtcheff, Catherine; Mariotti, Thomas; Levy, Raphaël

  1. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: This article surveys recent attempts at characterizing competitive allocations under adverse selection when each informed agent can privately trade with several uninformed parties: that is, trade is nonexclusive. We rst show that requiring market outcomes to be robust to entry selects a unique candidate allocation, which involves cross-subsidies. We then study how to implement this allocation as the equilibrium outcome of a game in which the uninformed parties, acting as principals, compete by making oers to the informed agents. We show that equilibria typically fail to exist in competitive- screening games, in which these oers are simultaneous. We nally explore alternative extensive forms, and show that the candidate allocation can be implemented through a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.
    Keywords: Adverse Selection; Entry-Proofness; Discriminatory Pricing; Nonexclusive; Markets; Ascending Auctions
    JEL: D43 D82 D86
    Date: 2021–04
  2. By: García-Martínez, Jose A.; Mayor-Serra, Antonio J.; Meca, Ana
    Abstract: There are multiple situations in which bilateral interaction between agents results in considerable cost reductions. Such interaction can occur in settings where agents are interested in sharing resources, knowledge or infrastructures. Their common purpose is to obtain individual advantages, e.g. by reducing their respective individual costs. Achieving this pairwise cooperation often requires the agents involved to make some level of effort. It is natural to think that the amount by which one agent could reduce the costs of the other may depend on how much effort the latter exerts. In the first stage, agents decide how much effort they are to exert, which has a direct impact on their pairwise cost reductions. We model this first stage as a non-cooperative game, in which agents determine the level of pairwise effort to reduce the cost of their partners. In the second stage, agents engage in a bilateral interaction between independent partners. We study this bilateral cooperation as a cooperative game in which agents reduce each other's costs as a result of cooperation, so that the total reduction in the cost of each agent in a coalition is the sum of the reductions generated by the rest of the members of that coalition. In the non-cooperative game that precedes cooperation with pairwise cost reduction, the agents anticipate the cost allocation that results from the cooperative game in the second stage by incorporating the effect of the effort exerted into their cost functions. Based on this model, we explore the costs, benefits, and challenges associated with setting up a pairwise effort network. We identify a family of cost allocations with weighted pairwise reduction which are always feasible in the cooperative game and contain the Shapley value. We show that there are always cost allocations with weighted pairwise reductions that generate an optimal level of efficient effort and provide a procedure for finding the efficient effort equilibrium.
    Keywords: Allocation, Cost models, Efficiency, Game Theory
    JEL: C71 C72
    Date: 2020–12–15
  3. By: Vincent Anesi (Department of Economics and Management, Université du Luxembourg); Mikhail Safronov (University of Cambridge, UK)
    Abstract: We study how the institutional arrangements for ending deliberation - the “cloture Rules” - interact with collective learning to affect the outcomes of decision making in committees. In contrast to much of the previous literature on deliberative commit- tees, this paper makes a distinction between the final votes over policy proposals and the cloture votes that bring them about. Using this approach, we explore how clo- ture rules influence the course of deliberation, the likelihood of inefficient deliberative outcomes, the circumstances surrounding failures to bring proposals to a final vote, and the distribution of power among committee members in the deliberative process. We also use our simple model to examine the issue of the stability of cloture rules, characterizing the rules that no coalition of committee members is able or willing to overturn. We show in particular that all cloture rules are dynamically stable.
    Keywords: Cloture, deliberation, obstruction, pivots, political failure, stability, voting.
    JEL: D02 D71 D72 D83
    Date: 2021
  4. By: Yiling Chen; Alon Eden; Juntao Wang
    Abstract: In real life auctions, a widely observed phenomenon is the winner's curse -- the winner's high bid implies that the winner often over-estimates the value of the good for sale, resulting in an incurred negative utility. The seminal work of Eyster and Rabin [Econometrica'05] introduced a behavioral model aimed to explain this observed anomaly. We term agents who display this bias "cursed agents". We adopt their model in the interdependent value setting, and aim to devise mechanisms that prevent the cursed agents from obtaining negative utility. We design mechanisms that are cursed ex-post IC, that is, incentivize agents to bid their true signal even though they are cursed, while ensuring that the outcome is individually rational -- the price the agents pay is no more than the agents' true value. Since the agents might over-estimate the good's value, such mechanisms might require the seller to make positive transfers to the agents to prevent agents from over-paying. For revenue maximization, we give the optimal deterministic and anonymous mechanism. For welfare maximization, we require ex-post budget balance (EPBB), as positive transfers might lead to negative revenue. We propose a masking operation that takes any deterministic mechanism, and imposes that the seller would not make positive transfers, enforcing EPBB. We show that in typical settings, EPBB implies that the mechanism cannot make any positive transfers, implying that applying the masking operation on the fully efficient mechanism results in a socially optimal EPBB mechanism. This further implies that if the valuation function is the maximum of agents' signals, the optimal EPBB mechanism obtains zero welfare. In contrast, we show that for sum-concave valuations, which include weighted-sum valuations and l_p-norms, the welfare optimal EPBB mechanism obtains half of the optimal welfare as the number of agents grows large.
    Date: 2021–04
  5. By: Antelo, Manel; Bru, Lluís
    Abstract: We consider licensing of a non-drastic innovation by a patentholder who interacts with a potential licensee in a Stackelberg duopoly. We compare per-unit and ad-valorem royalty contracts, showing why and when each licensing deal should be observed. We find that ad-valorem royalty is preferred by a licensor that plays as the leader, but per-unit royalty is more profitable if the licensor is the follower. We also find that only innovations that do not hurt consumers are socially beneficial. Finally, licensor’s leadership or followership and innovation size determine licensing impact on the incentive to disseminate an innovation.
    Keywords: Licensing, leader and follower, welfare
    JEL: D43 D45
    Date: 2020–12
  6. By: Banerjee, Shraman
    Abstract: We investigate a finite-horizon dynamic pricing problem of a seller under limited commitment. Even when the buyers are ex-ante symmetric to the seller, the seller can charge different prices to different buyers. We show that under the class of posted-price mechanisms this asymmetric treatment of symmetric buyers strictly revenue-dominates symmetric treatment. The seller im- plements this by using a priority-based deterministic tie-breaking rule instead of using a random tie-breaking rule. The effect of asymmetric treatment on revenue increment increases monotonically as we increase the time horizon of the game.
    Keywords: Dynamic Pricing, Asymmetric Mechanism, Non-Anonymity
    JEL: C70 D42 D44 D82
    Date: 2021–01–11
  7. By: Ho, Hoa
    Abstract: I examine whether stochastic contracts benefit the principal in the setting of moral hazard and loss aversion. Incorporating that the agent is expectation-based loss averse and allowing the principal to add noise to performance signals, I find that stochastic contracts reduce the principal's implementation cost in comparison with deterministic contracts. Surprisingly, if performance signals are highly informative about the agent's action, stochastic contracts strictly dominate the optimal deterministic contract for almost any degree of loss aversion. The optimal stochastic contract pays a high wage whenever the principal observes good performance signals, while upon observing bad performance signals it adds a lottery that gives either the high wage or a low wage that serves as a harsh penalty to the agent. In the general case when the agent is both risk and loss averse, I show that if a penalty wage (i.e., a wage level at which the agent feels a substantial disutility) exists, the first best can be approximated closely but not attained. The findings have an important implication for designing contracts for loss-averse agents: the principal should insure the agent against wage uncertainty by employing stochastic contracts that increase the probability of a high wage.
    Keywords: loss aversion; moral hazard; stochastic contracts; reference-dependent preferences
    Date: 2021–03–15
  8. By: Donna, Javier D.; Pereira, Pedro; Trindade, Andre; Yoshida, Renan C.
    Abstract: Cutting out the intermediary and selling directly to consumers is an increasingly common strategy by manufacturers in many industries. We develop a structural model of vertical relations where manufacturers both bargain with retailers over wholesale prices and sell their products directly to consumers. We show that direct sales by manufacturers generate two effects that have opposing impact on welfare. First, direct sales generate potential welfare gains to consumers downstream due to additional competition and product variety. Second, in the upstream, there is an increase in the bargaining leverage of the manufacturers selling directly to consumers. Negotiated wholesale prices increase, thus increasing final prices to consumers and decreasing consumer welfare. We show how our model can be used to quantify the bargaining leverage and welfare effects of direct sales. We estimate our model using data from the outdoor advertising industry and use the estimated model to simulate counterfactual scenarios to isolate these effects. We conclude by discussing the relevance of the bargaining leverage effect for vertical merger evaluation.
    Keywords: Direct-to-consumer sales, bargaining, vertical mergers, advertising
    JEL: D43 L13 L42 L51 L81 M37
    Date: 2020–02–05
  9. By: Yassine Lefouili (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); Joana Pinho (Universidade Católica Portuguesa)
    Abstract: We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions.
    Keywords: Cross-group externalities,Collusion,Two-sided markets
    Date: 2020–09
  10. By: Yi-Chun Chen; Manuel Mueller-Frank; Mallesh M Pai
    Abstract: The classic wisdom-of-the-crowd problem asks how a principal can "aggregate" information about the unknown state of the world from agents without understanding the information structure among them. We propose a new simple procedure "\emph{population mean based aggregation}" to achieve this goal. It only requires eliciting agents' beliefs about the state, and also eliciting some agents' expectations of the average belief in the population. We show that this procedure fully aggregates information: in an infinite population, it always infers the true state of the world. The procedure can accommodate correlation in agents' information, misspecified beliefs, any finite number of possible states of the world, and only requires very weak assumptions on the information structure.
    Date: 2021–02
  11. By: Nikhil Vellodi; Joshua Weiss
    Abstract: We offer a novel theoretical framework to study optimal vaccination policies. The key features of the model are that agents: 1) differ both in their potential exposure (x) to others and vulnerability (y​) to severe illness, 2) exert negative externalities through interaction, and 3) can take voluntary preventative measures, for instance self-isolation. Our main result is a complete characterization of the second-best policy. Three striking features emerge. First, it is non-monotone – people with intermediate y are vaccinated more than those with either low or high y. Second, it exhibits an exposure premium among those who do not self-isolate – people with higher x require lower overall risk, xy, to be vaccinated. Third, for those who voluntarily self-isolate, it is invariant to y, depending only upon x. Numerical results demonstrate that policies vaccinating only the most vulnerable perform significantly worse than other simple heuristics, especially when supplies are limited.
    Date: 2021–03–24
  12. By: Kiho Yoon
    Abstract: We study the robust double auction mechanisms, that is, the double auction mechanisms that satisfy dominant strategy incentive compatibility, ex-post individual rationality, ex-post budget balance and feasibility. We first establish that the price in any deterministic robust mechanism does not depend on the valuations of the trading players. We next establish that, with the non-bossiness assumption, the price in any deterministic robust mechanism does not depend on players' valuations at all, whether trading or non-trading, i.e., the price is posted in advance. Our main result is a characterization result that, with the non-bossiness assumption along with other assumptions on the properties of the mechanism, the posted price mechanism with an exogenous rationing rule is the only deterministic robust double auction mechanism. We also show that, even without the non-bossiness assumption, it is quite difficult to find a reasonable robust double auction mechanism other than the posted price mechanism with rationing.
    Date: 2021–02
  13. By: Severin Lenhard
    Abstract: This paper studies the disposal costs’ effect on consumer surplus and firms’ profits. The costlier disposal, the less is disposed of, firms’ competition for market shares increases, thereby benefiting consumers. Yet firms decrease their produc- tion to mitigate costs, affecting consumer surplus negatively. We present a model with ex ante homogeneous firms producing inventories either early at low cost and with little information about demand, or later with more information yet at higher costs. Unsold products are disposed of. In equilibrium, firms may be asymmetric. Disposal goes down with costs but so do inventories. In our set-up, the negative effect on the trade volume dominates decreasing consumer surplus and firms’ profits. We show, however, that low disposal costs substitute infor- mation about demand. Increasing disposal costs improve a firm’s information advantage and may increase its profits.
    Keywords: Disposal, Inventory, Uncertain Demand, Market Structure
    JEL: D43 L11 L13 L50
    Date: 2021–04
  14. By: Haraguchi, Junichi; Matsumura, Toshihiro
    Abstract: Mixed oligopolies are characterized by the coexistence of private and public enterprises. The literature on mixed oligopolies indicates that, assuming all private firms are identical, the optimal degree of privatization increases with the number of private firms. In other words, the more concentrated the market is, the more the government should privatize public firms. We revisit this problem by introducing cost-heterogeneity among private firms. We show that under the assumption of constant marginal costs, a new entry by a private firm will not reduce the optimal degree of privatization, regardless of the cost differences among private firms. However, under the assumption of increasing marginal costs, we show that a new entry will reduce the optimal degree of privatization when the new entrant is significantly less efficient than the private firms already present. Our results imply that the relationship between competition and privatization policies are more complicated than the literature suggests, and they depend on the cost structure of private firms.
    Keywords: privatization and competition policies, market concentration index, partial privatization, new entry, production substitution
    JEL: D43 H44 L33
    Date: 2021–04–03
  15. By: Benjamin Golub; Evan Sadler
    Abstract: We study network games in which players both create spillovers for one another and choose with whom to associate. The endogenous outcomes include both the strategic actions (e.g., effort levels) and the network in which spillovers occur. We introduce a framework and two solution concepts that extend standard approaches -- Nash equilibrium in actions and pairwise (Nash) stability in links. Our main results show that under suitable monotonicity assumptions on incentives, stable networks take simple forms. Our central conditions concern whether actions and links are strategic complements or substitutes, as well as whether links create positive or negative payoff spillovers. We apply our model to understand the consequences of competition for status, to microfound matching models that assume clique formation, and to interpret empirical findings that highlight unintended consequences of group design.
    Date: 2021–02
  16. By: Liu, Fen
    Abstract: This paper develops a framework of Inner Games with Ego Identity to discuss an individual’s rationality and emotions in decision making. Following previous efforts of taking psychological insights into economics, this paper dives into the multi-faceted human psychology and proposes a new framework of the decision maker’s Inner Games with Ego Identity in the context of a relationship, and integrates the components of beliefs about oneself and the other one in a relationship into the structure. Moreover, I assume that individuals are motivated mainly by their Ego Identity other than by direct pleasure from consumption, and the utility is derived from the inner state at the moment of decision making. As an application, I define and understand emotions in the framework, such as anger, guilt, and disappointment. For example, I distinguish five types of anger, such as healthy anger to protect one’s personal boundary, and anger to threaten others for some purpose. I end with a discussion of several directions for future research.
    Keywords: Bounded Rationality; Full Rationality; Psychological Game; Emotion
    JEL: C79 D03
    Date: 2021–01–05
  17. By: Bobtcheff, Catherine; Mariotti, Thomas; Levy, Raphaël
    Abstract: Two players receiving independent signals on a risky project with common value compete to be the rst to innovate. We characterize the equilibrium of this preemption game as the publicity of signals varies. Private signals create a winner's curse: investing rst implies that the rival has abstained from investing, possibly because he has privately received adverse information about the project. Since players want to gather more evidence in support of the project as a compensation, they invest later when signals are more likely to be private. Because of preemption, the NPV of investment is zero at equilibrium regardless of the publicity of signals. However, for a conservative planner who cares about avoiding unprotable investments, this implies that investment arises too early at equilibrium, and such a planner then prefers signals to be private. This provides a rationale against the mandatory disclosure of negative results in science, notably when competition is severe. Our results suggest that policy interventions should primarily tackle winner-takes-all competition, and regulate transparency only once competition is suciently mild.
    Date: 2021–04

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