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on Microeconomics |
| By: | Martimort, David; Stole, Lars |
| Abstract: | We present a set of necessary and sufficient conditions for a class of optimal control problems with pure state constraints for which the objective function is linear in the state variable but the objective function is only required to be upper semi-continuous in the control variable. We apply those conditions to a number of economic environments in contract theory where discontinuities in objectives prevail. Examples of applications include nonlinear pricing of digital goods, nonlinear pricing under competitive threat, and common agency models of regulation. |
| Keywords: | convex analysis; non-smooth optimization; Optimal Control; Principal-Agent Models; type-dependent participation constraints |
| JEL: | D82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15251&r= |
| By: | Guillouet, Louise; Martimort, David |
| Abstract: | The Precautionary Principle is a controversial policy instrument, often criticized for stifling innovation and growth. In this paper, we introduce a model of risky technology reflecting real-life situations where policymakers have called for and sometimes implemented the Precautionary Principle. We define this Principle as an institutional cap on actions that cannot be adjusted for a fixed period of time and ask whether it is valuable, and under which circumstances, to impose such cap. If he starts using the technology, a decision-maker faces the possibility of an irreversible catastrophe, an event that follows a non-homogeneous Poisson process with a rate that depends on the stock of past actions. Passed a tipping point, the rate increases. We describe optimal trajectories under different degrees of knowledge on the tipping point. When the mere fact of having passed the tipping point is immediately known, the optimal action plan is time-consistent, and the Precautionary Principle is irrelevant. When having passed the tipping point remains unknown, a scenario of deep uncertainty, a time-inconsistency problem arises. We characterize both the commitment solution and a Stock-Markov Equilibrium such that the decision-maker uses at any point in time a feedback rule that depends only on the existing stock of past actions. Imposing a Precautionary Principle at the beginning of the period can improve commitment. We prove that such a restriction is optimal when passing the tipping point is unlikely to happen early on, a scenario that would lead decision-makers to increase action levels too quickly. |
| Keywords: | Environmental risk; Functional and Differential Equations; Precautionary Principle; Regulation; Time Inconsistency; Tipping point; uncertainty |
| JEL: | D83 Q55 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15266&r= |
| By: | Chen, Zhuoqiong (Charlie); Stanton, Christopher T.; Thomas, Catherine |
| Abstract: | When experience goods compete, consuming one product can be informative about value for similar untried products. We study duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product-the potential switchers. Rather than competing intensely in the first period for all future profits, firms compete for the difference in profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling ex ante homogeneous products. |
| Keywords: | Behavior based price discrimination; Duopoly; Experience Goods; product differentiation |
| JEL: | D21 D43 D83 L11 L13 L15 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15255&r= |
| By: | Eilat, Ran; Eliaz, Kfir |
| Abstract: | We consider the problem faced by a group of players who need to collectively decide what public signal to acquire, and how to share its cost, before voting on whether to take some action, when each player is privately informed about his state-dependent payoffs from the action. We characterize the welfare maximizing mechanism for information acquisition taking into account the subsequent voting game. We identify novel distortions that arise from the information asymmetry and from the fact that after observing the signal realization, the players vote independently of their actions in the mechanism. |
| Keywords: | collective decision-making; Information-design; Mechanism-Design; Public Good Provision; rational inattention |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15324&r= |
| By: | Sela, Aner |
| Abstract: | We study two-sided matching contests with two sets, each of which includes two heterogeneous players with commonly known types. The agents in each set compete in all-pay contests where they simultaneously send their costly efforts, and then are either assortatively or disassortatively matched. We characterize the players' equilibrium efforts for a general value function that assigns values for both agents who are matched as a function of their types. We then analyze the cross-effects of the players' types on their expected payoffs as well as on their expected total effort. We show that although each player's value function increases (decreases) in the types of the players in the other set, his expected payoff does not necessarily increase (decrease) in these types. In addition, depending on the value function, each player's type might have either a positive or a negative marginal effect on the players' expected total effort. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15293&r= |
| By: | Gersbach, Hans; Mamageishvili, Akaki; Tejada, Oriol |
| Abstract: | A population of identical individuals must choose one of two alternatives under uncertainty about what the right alternative is. Individuals can gather information of increasing accuracy at an increasing convex utility cost. For such a setup, we analyze how vote delegation to a committee and suitable monetary transfers for its members can ensure that high or optimal levels of information are (jointly) acquired. Our main insight is that to maximize the probability of choosing the right alternative committee size must be small, no matter whether information acquisition costs are private or not. Our analysis and results cover two polar cases--information costs are either private or public--and unravel both the potential and the limitations of monetary transfers in committee design. |
| Keywords: | Voting - Committee - Cost sharing - Information acquisition - Reward scheme - Monetary transfers - Majority rule |
| JEL: | C72 D71 D8 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15311&r= |
| By: | Evan Piermont; Peio Zuazo-Garin |
| Abstract: | In dynamic settings each economic agent's choices can be revealing of her private information. This elicitation via the rationalization of observable behavior depends each agent's perception of which payoff-relevant contingencies other agents persistently deem as impossible. We formalize the potential heterogeneity of these perceptions as disagreements at higher-orders about the set of payoff states of a dynamic game. We find that apparently negligible disagreements greatly affect how agents interpret information and assess the optimality of subsequent behavior: When knowledge of the state space is only 'almost common', strategic uncertainty may be greater when choices are rationalized than when they are not--forward and backward induction predictions, respectively, and while backward induction predictions are robust to small disagreements about the state space, forward induction predictions are not. We also prove that forward induction predictions always admit unique selections a la Weinstein and Yildiz (2007) (also for spaces not satisfying richness) and backward induction predictions do not. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.06772&r= |
| By: | Esteban Peralta (University of Michigan); Fernando Tohmé (Universidad Nacional del Sur/CONICET) |
| Abstract: | This note explores the relationship between evidence and knowledge, when knowledge is described by a partition of a finite state space and evidence is represented by a collection of sets of messages that varies with knowledge. Fixing a partition, an event is said to be provable if there exists evidence for it in some evidence structure. We show that an event is provable if and only if it is self-evident—i.e., known at everyone of its states. We also find that knowledge is provable only if the partition of the state space is either the coarsest or the finest one. A relaxation of the conditions for provability, requiring only that some known events are provable, allows for other partitions as well. But this is only possible if we dispense with the property of monotonicity of provability. These results o?ers a novel foundation for knowledge and common knowledge, in which they emerge from the evidence held by the agents. |
| Keywords: | Knowledge Evidence Common Knowledge Implementation |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:27&r= |
| By: | Bierbrauer, Felix; Polborn, Mattias |
| Abstract: | Gerrymandering undermines representative democracy by creating many uncompetitive legislative districts, and generating the very real possibility that a party that wins a clear majority of the popular vote does not win a majority of districts. We present a new approach to the determination of electoral districts, taking a design perspective. Specifically, we develop a redistricting game between two parties who both seek an advantage in upcoming elections, and show that we can achieve two desirable properties: First, the overall election outcome corresponds to the popular vote. Second, most districts are competitive. |
| Keywords: | Gerrymandering; legislative elections; redistricting |
| JEL: | C72 D72 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15401&r= |
| By: | Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus |
| Abstract: | We analyze vertical contracting between a manufacturer and retailers who have correlated private information. The manufacturer chooses the number of retailers and secretly contracts with each of them. We highlight a new trade-off between limiting competition and reducing retailers' information rents that shapes the optimal size of the distribution network. We show how the manufacturer's technology and the characteristics of demand affect this distribution network. In contrast to previous literature, we show that the manufacturer may choose a number of retailers that exceeds the socially optimal one, and that vertical integration can raise consumer welfare. |
| Keywords: | asymmetric information; distribution network; opportunism; retail market structure; Vertical contracting |
| JEL: | D43 L11 L42 L81 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15472&r= |
| By: | Salvador Barberà (Universitat Autònoma de Barcelona. Barcelona GSE); Geoffroy De Cleppel (Brown University); Alejandro Neme (Universidad Nacional de San Luis. CONICET); Kareen Rozeen (Brown University.) |
| Abstract: | A decision maker (DM) may not perfectly maximize her preference over the feasible set. She may feel it is good enough to maximize her preference over a sufficiently large consideration set; or just require that her choice is sufficiently well-ranked (e.g., in the top quintile of options); or even endogenously determine a threshold for what is good enough, based on an initial sampling of the options. Heuristics such as these are all encompassed by a common theory of Order-k Rationality, which relaxes perfect optimization by only requiring choices from a set S to fall within the set’s top k(S) elements according to the DM’s preference ordering. Heuristics aside, this departure from rationality offers a natu- ral way, in the classic ‘as if’ tradition, to gradually accommodate more choice patterns as k increases. We characterize the empirical content of Order-k Rationality (and related theories), and provide a tractable testing method which is comparable to the method of checking SARP. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:4&r= |
| By: | Christina Luxen; Tobias Rachidi |
| Abstract: | This paper studies the design of committee search procedures. In each time period, a set of candidates of fixed size arrives, and committee members vote whether to accept a candidate out of this set or to continue costly search. We examine the implications of different sample sizes per period on acceptance standards and welfare, and we derive the welfare-maximizing number of candidates per period for small magnitudes of search costs. There is a trade-off between the expected value of a candidate conditional on stopping and the expected search costs. The resolution of this trade-off depends on the voting rule and the shape of the search cost function. In particular, we show that, for all cost functions and all qualified majority voting rules other than unanimity, welfare is increasing in the number of candidates per period if the magnitude of search costs is sufficiently small. This result stands in contrast to the classic finding for the single decision-maker case where the evaluation of multiple candidates per period does not improve welfare relative to reviewing one candidate at a time if there are no economies of scale in the simultaneous evaluation of multiple candidates. |
| Keywords: | Committee Search, Sequential Search, Multiple Options |
| JEL: | D71 D83 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_203v2&r= |
| By: | Dicks, David; Fulghieri, Paolo |
| Abstract: | We study a multidivisional firm where headquarters are exposed to moral hazard by division managers under uncertainty (or "ambiguity") aversion. We show the aggregation and linearity results of Holmström and Milgrom (1987) hold in an environment with IID ambiguity, as in Chen and Epstein (2002). While uncertainty creates endogenous disagreement that aggravates moral hazard, by hedging uncertainty headquarters can design incentive contracts that reduce disagreement, lower incentive provision costs, and promote effort. Because hedging uncertainty can conflict with hedging risk, optimal contracts differ from standard principal-agent models. Optimal contracts involve exposure to other divisions even when division cash flows are uncorrelated and, with sufficient uncertainty, involve equity-based pay, even when division cash-flows are positively correlated. Our model helps explain the prevalence of equity-based incentive contracts and the rarity of relative performance contracts. |
| Keywords: | Ambiguity; incentive contracting |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15378&r= |
| By: | Bar-Isaac, Heski; Shelegia, Sandro |
| Abstract: | In a model of consumer search, we trace through effects of changes in retail variety. Some consumers visit stores that offer many products that are imperfect substitutes, learn which product they like most, and then buy it elsewhere. These showroomers put upward pressure on prices elsewhere because they populate the market with consumers who know their preferences, in the style of the Diamond paradox (Diamond (1971)). Changes in retail variety affect search behaviour and all market outcomes. One change that we examine is the introduction of a shopping venue where prices are readily available but product information is not. |
| Keywords: | consumer search; Pricing; Retailer Variety; Showrooming |
| JEL: | D83 L11 L14 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15448&r= |
| By: | Takashi Ui (Hitotsubashi University) |
| Abstract: | In incomplete information games with ambiguous information, rational behavior depends on fundamental ambiguity (ambiguity about states) and strategic ambiguity (ambiguity about others’ actions). We study the impact of strategic ambiguity in global games, which is evident when one of the actions yields a constant payoff. Ambiguous-quality information makes more players choose this action, whereas (unambiguous) low-quality information makes more players choose an ex-ante best response to the uniform belief over the opponents’ actions. If the ex-ante best-response action yields a constant payoff, sufficiently ambiguous-quality information makes most players choose this action, thus inducing a unique equilibrium, whereas sufficiently low-quality information generates multiple equilibria. In applications to financial crises, we demonstrate that news of more ambiguous quality triggers a debt rollover crisis, whereas news of less ambiguous quality triggers a currency crisis. |
| JEL: | C72 D81 D82 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:032&r= |
| By: | Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas |
| Abstract: | We study oligopolistic competition by firms engaging in second-degree price discrimination. In line with the large empirical literature on demand estimation, our theory allows for comovements between consumers' taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce several testable comparative statics on pricing and quality provision, and show that more competitive markets (in the sense that consumers are less brand-loyal) may produce lower welfare. Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, our theory identifies a new rationale for price/quality dispersion; namely, the interplay between self-selection constraints and heterogeneity in brand loyalty. |
| Keywords: | asymmetric information; Competition; preference correlation; price discrimination; price dispersion |
| JEL: | D82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15253&r= |
| By: | Bowen, T. Renee; Hwang, Ilwoo; Krasa, Stefan |
| Abstract: | We study a dynamic bargaining model between a fixed agenda-setter and responder over successive issues. If the responder rejects the setter's proposal, the setter can attempt to assert her will to implement her ideal and will succeed with a probability that depends on her "personal power". The players learn about the setter's power as gridlock persists. Gridlock occurs when the setter's perceived power is either too high or too low, and the players reach compromise in an intermediate interval of beliefs. The presence of "difficult" issues can induce more compromise as the players have incentives to avoid learning. |
| Keywords: | Bargaining; Gridlock; learning; Power |
| JEL: | C78 D72 D74 D83 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15406&r= |
| By: | Massimo Motta; Sandro Shelegia |
| Abstract: | An incumbent monopolist may prevent a firm which currently sells a complementary product from developing a substitute, by copying its product. Imitation reduces the potential rival's current profits, making it less likely for it to obtain funding in the financial market. The anticipation of the incumbent's aggressive behaviour may also create an "ex ante" effect, by inducing the rival not to challenge the incumbent with a substitute (that is, not to enter the "kill zone") and develop another complement instead. Further, in this case the incumbent will have an incentive not to copy, since a new complement will raise its rents. The possibility of being acquired by the incumbent tends to push the rival towards developing a substitute rather than a complement. By choosing the former, potential gains from the acquisition are created (in the form of suppression of competition): as long as the rival has some bargaining power in the determination of the takeover price, it will then benefit from entering the "kill zone". |
| Keywords: | innovation, copying, Platforms |
| JEL: | L12 L41 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1780&r= |
| By: | Pycia, Marek; Ünver, M. Utku |
| Abstract: | In environments where heterogeneous indivisible resources are being allocated without monetary transfers and each agent has a unit demand, we show that an allocation mechanism is individually strategy-proof and Arrovian efficient, i.e., it always selects the best outcome with respect to some Arrovian social welfare function if, and only if, the mechanism is group strategy-proof and Pareto efficient. Re-interpreting Arrow's Independence of Irrelevant Alternatives in terms of auditability of the mechanism, we further show that these are precisely the mechanisms that are strategy-proof, Pareto efficient, and auditable. |
| JEL: | C78 D78 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15377&r= |
| By: | Ottaviani, Marco |
| Abstract: | The paper develops a foundational model of the decentralized allocation of subsidies through competitive grantmaking. Casting the problem in a simple supply and demand framework, we characterize the level of applications and acceptance standard that result in equilibrium. The equilibrium success rate (grants over applications) decreases in the budget, consistent with some recent evidence, if and only if the distribution of types has decreasing hazard rate. In all stable equilibria resulting when funds are allocated across fields proportionally to applications--as well as under apportionment rules in a general class characterized in the paper--an increase in noise in the evaluation in a field perversely raises applications in that field and reduces applications in all the other fields. We characterize how the design of allocation rules can be modified to improve welfare. |
| Keywords: | Applications; Evaluation across fields; Formula-based allocation; Grading on a curve; Grants; Payline; Proportional allocation; Signal noise; Unraveling |
| JEL: | D83 H81 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15389&r= |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Paul Duetting (Google Research); Renato Paes Leme (Google Research); Song Zuo (Google Research) |
| Abstract: | We analyze the optimal information design in a click-through auction with ï¬ xed valuations per click, but stochastic click-through rates. While the auctioneer takes as given the auction rule of the click-through auction, namely the generalized second-price auction, the auctioneer can design the information flow regarding the click-through rates among the bidders. A natural requirement in this context is to ask for the information structure to be calibrated in the learning sense. With this constraint, the auction needs to rank the ads by a product of the bid and an unbiased estimator of the click-through rates, and the task of designing an optimal information structure is thus reduced to the task of designing an optimal unbiased estimator. We show that in a symmetric setting with uncertainty about the click-through rates, the optimal information structure attains both social efficiency and surplus extraction. The optimal information structure requires private (rather than public) signals to the bidders. It also requires correlated (rather than independent) signals, even when the underlying uncertainty regarding the click-through rates is independent. Beyond symmetric settings, we show that the optimal information structure requires partial information disclosure. |
| Keywords: | Click-Through Rates, Information Design, Second-Price Auction, Calibration, Private Signals, Public Signals, Conflation |
| JEL: | D44 D47 D82 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2285&r= |
| By: | Michel de Lara (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - ENPC - École des Ponts ParisTech); Olivier Gossner (X - École polytechnique) |
| Abstract: | In decision problems under incomplete information, actions (identified to payoff vectors indexed by states of nature) and beliefs are naturally paired by bilinear duality. We exploit this duality to analyze the value of information, using concepts and tools from convex analysis. We define the value function as the support function of the set of available actions: the subdifferential at a belief is the set of optimal actions at this belief; the set of beliefs at which an action is optimal is the normal cone of the set of available actions at this point. Our main results are 1) a necessary and sufficient condition for positive value of information 2) global estimates of the value of information of any information structure from local properties of the value function and of the set of optimal actions taken at the prior belief only. We apply our results to the marginal value of information at the null, that is, when the agent is close to receiving no information at all, and we provide conditions under which the marginal value of information is infinite, null, or positive and finite. |
| Keywords: | AMS classification: 46N10,AMS classification: 91B06,value of information,payoffs-beliefs duality,convex analysis |
| Date: | 2020–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01941006&r= |
| By: | Renault, Jérôme; Forges, Françoise |
| Abstract: | We consider a sender-receiver game with an outside option for the sender. After the cheap talk phase, the receiver makes a proposal to the sender, which the latter can reject. We study situations in which the sender’s approval is crucial to the receiver. We show that a partitional, (perfect Bayesian Nash) equilibrium exists if the sender has only two types or if the receiver’s preferences over decisions do not depend on the type of the sender as long as the latter participates. The result does not extend: we construct a counter-example (with three types for the sender and type-dependent affine utility functions) in which there is no mixed equilibrium. In the three type case, we provide a full characterization of (possibly mediated) equilibria. |
| JEL: | C7 C72 C78 C |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125607&r= |
| By: | Kiho Yoon |
| Abstract: | We study the problem of when to sell an indivisible object. There is a monopolistic seller who owns an indivisible object and plans to sell it over a given span of time to the set of potential buyers whose valuations for the object evolve over time. We formulate the seller's problem as a dynamic mechanism design problem. We provide the procedure for finding the optimal solution and show how to check incentive compatibility. We also examine sufficient conditions for the optimality of myopic stopping rule and ex-post individual rationality. In addition, we present some comparative static results regarding the seller's revenue and the selling time. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.07649&r= |
| By: | Salvador Barberà; Dolors Berga; Bernardo Moreno; Antonio Nicolò |
| Abstract: | Consider the following principle regarding the performance of collective choice rules. "If a rule selects alternative x in situation 1, and alternative y in situation 2, there must be an alternative z, and some member of society whose appreciation of z relative to x has increased when going from situation 1 to situation 2." This principle requires a minimal justification for the fall of x in the consideration of society: someone must have decreased its appreciation relative to some other possible alternative. We study the consequences of imposing this requirement of pairwise justifiability on a large class of collective choice rules that includes social choice and social welfare functions as particular cases. When preference profiles are unrestricted, it implies dictatorship, and both Arrow's and the Gibbard-Satterthwaite theorems become corollaries of our general result. On appropriately restricted domains, pairwise justifiability, along with anonymity and neutrality, characterize Condorcet consistent rules, thus providing a foundation for the choice of the alternatives that win by majority over all others in pairwise comparisons, when they exist. |
| Keywords: | pairwise justifiability, preference reversal condition, collective choice rules, collective choice correspondences, Social choice functions, social welfare functions, Condorcet consistency, Arrow's theorem, Gibbard-Satterthwaite's theorem |
| JEL: | D70 D71 D78 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1256&r= |
| By: | Aghadadashli, Hamid; Legros, Patrick |
| Abstract: | Managers have imperfect information about each other's willingness to collude and may signal this willingness through direct communication or market actions. Owners offer bonuses to managers and trade off productive effort provision, higher profits if managers coordinate on high prices, and the risk of antitrust fines if managers explicitly communicate. Our model shows that the distribution of fines between the owners and the managers is crucial for com- munication to be informative. High or low bonuses can reflect the willingness of owners to induce managers to explicitly communicate, and are red flags for corporate responsibility when collusion is supported by direct communication. |
| Keywords: | Antitrust fines; Collusion; communication; imperfect information; Incentive Schemes; managerial firms; oligopoly |
| JEL: | C79 D43 D82 K21 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15241&r= |
| By: | Chengsi Wang (Monash University); Makoto Watanabe (FEWEB VU University of Amsterdam/Tinbergen Institute) |
| Abstract: | This paper studies a directed search equilibrium in a platform setting with homo- geneous buyers and sellers.We show that a meeting technology, typically controlled by intermediaries, (e.g., advertisement, interview scheduling, or online search pro- tocol) determines the matching outcome as follows. First, a meeting technology that provides full information to market participants is not necessarily efficient. Second, the seller- and buyer-optimal meeting technologies do not require full market transparency either; rather, the latter may be achieved even with the min- imum information. Finally, the efficient matching outcome can be decentralized by a profi t-maximizing platform who adopts a simple fee-setting policy for its intermediation service. |
| Keywords: | meeting technology, directed search, platform, intermediation |
| JEL: | D83 J64 M37 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2021-02&r= |
| By: | Federico Innocenti |
| Abstract: | I study the effect of polarization and competition on information provision. With a single expert who faces decision-makers with het- erogeneous priors, the expert solves a trade-off between persuading sceptics and retaining believers. With high polarization, an expert has incentives to supply low-quality information to leverage believers' credulity. With multiple experts with opposite biases, competition is harmful if attention is limited. Unbiased and Bayesian decision-makers rationally devote attention to like-minded experts. Echo chambers arise endogenously, whereas decision-makers would be better informed in monopoly. My model can rationalize the spread and persistence of conspiracy theories and fake news. |
| Keywords: | Bayesian Persuasion, Competition, Echo Chambers, Heterogeneous Priors, Limited Attention, Media Pluralism |
| JEL: | D82 D83 L82 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_298&r= |
| By: | Gustavo Bergantiños (Universidade de Vigo); Jordi Massó (Universitat Autónoma de Barcelona. Barcelona Graduate School of Economics); Alejandro Neme (Instituto de Matemática Aplicada San Luis. Universidad Nacional de San Luis . CONICET.) |
| Abstract: | We study individually rational rules to be used to allot, among a group of agents, a perfectly divisible good that is freely available only in whole units. A rule is individually rational if, at each preference profile, each agent finds that her allotment is at least as good as any whole unit of the good. We study and characterize two individually rational and eficient families of rules, whenever agents' preferences are symmetric single-peaked on the set of possible allotments. Rules in the two families are in addition envy-free, but they differ on wether envy-freeness is considered on losses or on awards. Our main result states that (i) the family of constrained equal losses rules coincides with the class of all individually rational and eficient rules that satisfy justified envy-freeness on losses and (ii) the family of constrained equal awards rules coincides with the class of all individually rational and eficient rules that satisfy envy-freeness on awards. |
| Keywords: | Division problem Single-peaked preferences Individual rationality Efficiency Strategy-proofness Envy-freeness |
| JEL: | D71 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:6&r= |
| By: | Christian Oertel; Armin Schmutzler |
| Abstract: | We analyze entry of a firm with a new and differentiated product into a market with two properties: An existing incumbent has a captive consumer base, and all consumers have heterogeneous tastes. The interaction of the share of captive consumers with the degree of taste heterogeneity leads to non-monotone effects of both parameters on entry. In particular, a higher captive share can support entry when heterogeneity is low but not when it is high, and higher taste heterogeneity (i.e., less product substi- tutability) can impede entry in the presence of captive consumers. Considering these effects together leads to new insights on entry, horizontal product innovation, and price discrimination. |
| Keywords: | Entry, captive consumers, asymmetric competition, product innovation |
| JEL: | L13 L40 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:386&r= |
| By: | Rosa-Branca Esteves (Department of Economics/NIPE, University of Minho); Francisco Carballo-Cruz (Department of Economics/NIPE, University of Minho) |
| Abstract: | This paper offers some insights for competition policy agencies in charge of determining whether the use of data by dominant firms can harm competition and consumers. When the welfare criterion is consumer surplus we show that in markets characterized by sufficiently low entry costs, the ability of the incumbent firm to price discriminate is not enough to exclude the rival from the market. In this case, we show that price discrimination intensifies competition and overall consumer surplus is above its non-discrimination counterpart. In these markets there are no reasons to block price discrimination. In contrast, in markets with intermediate values of entry costs, the incumbent access to data for personalised prices, might act as an important barrier to entry. With no intervention, the entrant would decide to stay out and the incumbent would be able to increase profits at the expense of consumer welfare. |
| Keywords: | Data-driven strategies, digital markets, price discrimination, competition policy and regulation. |
| JEL: | D43 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:5/2021&r= |