nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒08‒30
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Consumer Search and Choice Overload By Rey, Patrick; Nocke, Volker
  2. Persuasion and Information Aggregation in Elections By Carl Heese; Stephan Lauermann
  3. Best-Response Dynamics, Playing Sequences, And Convergence To Equilibrium In Random Games By Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
  4. Ex-post implementation with interdependent values By Saurav Goyal; Aroon Narayanan
  5. Single-peaked domains with designer uncertainty By Aroon Narayanan
  6. The Frequency of Convergent Games under Best-Response Dynamics By Heinrich, Torsten; Wiese, Samuel
  7. Strategic Exploration for Innovation By Shangen Li
  8. Influential News and Policy-making By Federico Vaccari
  9. The perpetual trouble with network products: Why IT firms choose partial compatibility By Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
  10. Dynamic Monopoly Pricing With Multiple Varieties: Trading Up By Stefan Buehler; Nicolas Eschenbaum
  11. Expected Values for Variable Network Games By Subhadip Chakrabarti; Loyimee Gogoi; Robert P Gilles; Surajit Borkotokey; Rajnish Kumar
  12. Complexity and Choice By Yuval Salant; Jörg L. Spenkuch
  13. Competition and Selection in Credit Markets By Constantine Yannelis; Anthony Lee Zhang

  1. By: Rey, Patrick; Nocke, Volker
    Abstract: We consider a multiproduct seller facing consumers who must search to learn prices and valuations. The equilibrium features choice overload: the larger the product line, the fewer consumers start searching. We provide conditions under which the seller o¤ers too much or too little variety. We then allow the seller to position products or make recommendations, thereby introducing the possibility of directed search, and show that the seller may .nd it pro.table to maintain some noise. Finally, we study the seller.s incentive to disclose product identity and extend our analysis to that of a platform choosing which sellers to host.
    Keywords: Sequential consumer search; product variety; choice overload; multi-product firm; platform
    JEL: L12 L15 D42
    Date: 2021–08–24
  2. By: Carl Heese (University of Vienna, Department of Economics); Stephan Lauermann (University of Bonn, Department of Economics)
    Abstract: This paper studies a large majority election with voters who have heterogeneous, private preferences and exogenous private signals. We show that a Bayesian persuader can implement any state-contingent outcome in some equilibrium by providing additional information. In this setting, without the persuader's information, a version of the Condorcet Jury Theorem holds. Persuasion does not require detailed knowledge of the voters' private information and preferences: the same additional information is effective across environments. The results require almost no commitment power by the persuader. Finally, the persuasion mechanism is effective also in small committees with as few as 15 members.
    Keywords: Information Aggregation, Bayes Correlated Equilibria, Persuasion, Condorcet Jury Theorem
    JEL: C72 D72 D82
    Date: 2021–08
  3. By: Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
    Abstract: We show that the playing sequence–the order in which players update their actions–is a crucial determinant of whether the best-response dynamic converges to a Nash equilibrium. Specifically, we analyze the probability that the best-response dynamic converges to a pure Nash equilibrium in random n-player m-action games under three distinct playing sequences: clockwork sequences (players take turns according to a fixed cyclic order), random sequences, and simultaneous updating by all players. We analytically characterize the convergence properties of the clockwork sequence best-response dynamic. Our key asymptotic result is that this dynamic almost never converges to a pure Nash equilibrium when n and m are large. By contrast, the random sequence best-response dynamic converges almost always to a pure Nash equilibrium when one exists and n and m are large. The clockwork best-response dynamic deserves particular attention: we show through simulation that, compared to random or simultaneous updating, its convergence properties are closest to those exhibited by three popular learning rules that have been calibrated to human game-playing in experiments (reinforcement learning, fictitious play, and replicator dynamics).
    Keywords: Best-response dynamics, equilibrium convergence, random games, learning models in games
    JEL: C62 C72 C73 D83
    Date: 2021–01
  4. By: Saurav Goyal; Aroon Narayanan
    Abstract: We characterize ex-post implementable allocation rules for single object auctions under quasi-linear preferences with convex interdependent value functions. We show that requiring ex-post implementability is equivalent to requiring that the allocation rule must satisfy a condition that we call eventual monotonicity (EM), which is a weakening of monotonicity, a familiar condition used to characterize dominant strategy implementation.
    Date: 2021–08
  5. By: Aroon Narayanan
    Abstract: This paper studies single-peaked domains where the designer is uncertain about the underlying alignment according to which the domain is single-peaked. The underlying alignment is common knowledge amongst agents, but preferences are private knowledge. Thus, the state of the world has both a public and private element, with the designer uninformed of both. I first posit a relevant solution concept called implementation in mixed information equilibria, which requires Nash implementation in the public information and dominant strategy implementation in the private information given the public information. I then identify necessary and sufficient conditions for social rules to be implementable. The characterization is used to identify unanimous and anonymous implementable social rules for various belief structures of the designer, which basically boils down to picking the right rules from the large class of median rules identified by Moulin (1980), and hence this result can be seen as identifying which median rules are robust to designer uncertainty.
    Date: 2021–08
  6. By: Heinrich, Torsten; Wiese, Samuel
    Abstract: Generating payoff matrices of normal-form games at random, we calculate the frequency of games with a unique pure strategy Nash equilibrium in the ensemble of n-player, m-strategy games. These are perfectly predictable as they must converge to the Nash equilibrium. We then consider a wider class of games that converge under a best-response dynamic, in which each player chooses their optimal pure strategy successively. We show that the frequency of convergent games goes to zero as the number of players or the number of strategies goes to infinity. In the 2-player case, we show that for large games with at least 10 strategies, convergent games with multiple pure strategy Nash equilibria are more likely than games with a unique Nash equilibrium. Our novel approach uses an n-partite graph to describe games.
    Keywords: Pure Nash equilibrium, best-response dynamics, random games
    Date: 2020–11
  7. By: Shangen Li
    Abstract: We analyze a game of technology development where players allocate resources between exploration, which continuously expands the public domain of available technologies, and exploitation, which yields a flow payoff by adopting the explored technologies. The qualities of the technologies are correlated and initially unknown, and this uncertainty is fully resolved once the technologies are explored. We consider Markov perfect equilibria with the quality difference between the best available technology and the latest technology under development as the state variable. In all such equilibria, while the players do not fully internalize the benefit of failure owing to free-riding incentives, they are more tolerant of failure than in the single-agent optimum thanks to an encouragement effect. In the unique symmetric equilibrium, the cost of exploration determines whether free-riding prevails as team size grows. Pareto improvements over the symmetric equilibrium can be achieved by asymmetric equilibria where players take turns performing exploration.
    Date: 2021–08
  8. By: Federico Vaccari
    Abstract: It is believed that interventions that change the media's costs of misreporting can increase the information provided by media outlets. This paper analyzes the validity of this claim and the welfare implications of those types of interventions that affect misreporting costs. I study a model of communication between an uninformed voter and a media outlet that knows the quality of two competing candidates. The alternatives available to the voter are endogenously championed by the two candidates. I show that higher costs may lead to more misreporting and persuasion, whereas low costs result in full revelation; interventions that increase misreporting costs never harm the voter, but those that do so slightly may be wasteful of public resources. I conclude that intuitions derived from the interaction between the media and voters, without incorporating the candidates' strategic responses to the media environment, do not capture properly the effects of these types of interventions.
    Date: 2021–08
  9. By: Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
    Abstract: Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding strategically or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low.
    Keywords: Compatibility,Network Products,Network Effects
    JEL: C72 L13 L15
    Date: 2021
  10. By: Stefan Buehler; Nicolas Eschenbaum
    Abstract: This paper studies dynamic monopoly pricing for a broad class of Coasian and Non-Coasian settings. We show that the driving force behind pricing dynamics is the seller's incentive to trade up consumers to higher-valued consumption options. In Coasian settings, consumers can be traded up from the static optimum, and pricing dynamics arise until all trading-up opportunities are exhausted. In Non-Coasian settings, consumers cannot be traded up from the static optimum, and no pricing dynamics arise. Hence, dynamic monopoly pricing can be characterized by checking for trading-up opportunities in the static optimum.
    Date: 2021–08
  11. By: Subhadip Chakrabarti; Loyimee Gogoi; Robert P Gilles; Surajit Borkotokey; Rajnish Kumar
    Abstract: A network game assigns a level of collectively generated wealth to every network that can form on a given set of players. A variable network game combines a network game with a network formation probability distribution, describing certain restrictions on network formation. Expected levels of collectively generated wealth and expected individual payoffs can be formulated in this setting. We investigate properties of the resulting expected wealth levels as well as the expected variants of well-established network game values as allocation rules that assign to every variable network game a payoff to the players in a variable network game. We establish two axiomatizations of the Expected Myerson Value, originally formulated and proven on the class of communication situations, based on the well-established component balance, equal bargaining power and balanced contributions properties. Furthermore, we extend an established axiomatization of the Position Value based on the balanced link contribution property to the Expected Position Value.
    Date: 2021–08
  12. By: Yuval Salant; Jörg L. Spenkuch
    Abstract: We study two dimensions of complexity that may interfere with individual choice. The first one is object complexity, which corresponds to the difficulty in evaluating any given alternative in a choice set. The second dimension is composition complexity, which increases when suboptimal alternatives become more similar to optimal ones. We develop a satisficing-with-evaluation-errors theory that incorporates both dimensions and delivers sharp empirical predictions about their effect on choice behavior. We confirm these predictions in a novel data set with information on hundreds of millions of decisions in chess endgames. First, as the object complexity of an optimal (suboptimal) alternative increases, it becomes less (more) likely to be chosen. Second, even highly experienced decision-makers are more likely to make mistakes when choosing from sets with higher composition complexity. These findings help to shed some of the first light on the effect of complexity on choice behavior outside of the laboratory.
    Keywords: complexity, choice, satisficing, bounded rationality
    JEL: D91
    Date: 2021
  13. By: Constantine Yannelis; Anthony Lee Zhang
    Abstract: We present both theory and evidence that increased competition may decrease rather than increase consumer welfare in subprime credit markets. We present a model of lending markets with imperfect competition, adverse selection and costly lender screening. In more competitive markets, lenders have lower market shares, and thus lower incentives to monitor borrowers. Thus, when markets are competitive, all lenders face a riskier pool of borrowers, which can lead interest rates to be higher, and consumer welfare to be lower. We provide evidence for the model’s predictions in the auto loan market using administrative credit panel data.
    JEL: D14 D4 G20 G21 G5 L62
    Date: 2021–08

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