nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒09‒20
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Contracts as a Barrier to Entry: Impact of Buyer's Asymmetric Information and Bargaining Power By David Martimort; Jérôme Pouyet; Thomas Trégouët
  2. Bayesian Persuasion With Costly Information Acquisition By Ludmila Matysková; Alfonso Montes
  3. Optimal Trade Mechanism with Adverse Selection and Inferential Mistakes By Yamashita, Takuro; Murooka, Takeshi
  4. A Note on Adverse Selection and Bounded Rationality By Yamashita, Takuro; Murooka, Takeshi
  5. Information Payoffs: An Interim Perspective By Laura Doval; Alex Smolin
  6. Troll Farms and Voter Disinformation By Denter, Philipp; Ginzburg, Boris
  7. Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-period versus intertemporal price discrimination By Didier Laussel; Ngo Van Long; Joana Resende
  8. The Strong Consistency of Neutral and Monotonic Binary Social Decision Rules By Jain, Satish
  9. Incentives for Collective Innovation By Gregorio Curello
  10. Renegotiation and Discrimination in Symmetric Procurement Auctions By Leandro Arozamena; Juan José Ganuza; Federico Weinschelbaum
  11. Partial utilitarianism By Eric Danan
  12. Contest Design with Threshold Objectives By Edith Elkind; Abheek Ghosh; Paul Goldberg
  13. Quadratic Funding with Incomplete Information By Luis V. M. Freitas; Wilfredo L. Maldonado
  14. Competition and Mergers with Strategic Data Intermediaries By David Bounie; Antoine Dubus; Patrick Waelbroeck
  15. Anticompetitive Vertical Merger Waves By Johan Hombert; Jérôme Pouyet; Nicolas Schutz

  1. By: David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers.
    Keywords: foreclosure,excessive entry,exclusionary behavior,incomplete information
    Date: 2021–08–30
  2. By: Ludmila Matysková; Alfonso Montes
    Abstract: A sender choosing a signal to be disclosed to a receiver can often in fluence the receiver's actions. Is persuasion harder when the receiver has additional information sources? Does the receiver benefit from having them? We extend Bayesian persuasion to a receiver's acquisition of costly information. The game can be solved as a standard Bayesian persuasion under an additional constraint - the receiver never learns. The `threat' of learning hurts the sender. However, the outcome can also be worse for the receiver, in which case the receiver's possibility to gather additional information decreases social welfare. Furthermore, we propose a new solution method that does not rely directly on concavification, which is also applicable to standard Bayesian persuasion.
    Keywords: Bayesian persuasion, Rational inattention, Costly information acquisition, Information design
    JEL: D72 D81 D82 D83
    Date: 2021–04
  3. By: Yamashita, Takuro; Murooka, Takeshi
    Abstract: We study an adverse selection environment, where a rational seller can trade a good of which she privately knows its value to a buyer, and there are gains from trade. The buyer’s types differ in their degree of inferential abilities: A rational type correctly infers the value of the good from the seller’s offer, whereas a naive type under-appreciates the correlation between the seller’s private information and offer. We characterize the optimal menu mechanism that maximizes the social surplus. Notably, no matter how severe the adverse selection is (in particular, even when no trade is the unique possible outcome if all agents are rational), all types of buyers trade in the optimal mecha- nism. The rational buyer’s trade occurs at the expense of the naive buyer’s losses. We also investigate a consumer-protection policy of limiting the losses and discuss its implications.
    Keywords: Adverse selection; Inferential naivety; Mechanism design; Behavioral contract theory; Consumer protection
    JEL: D82 D86 D90 D91
    Date: 2021–09–07
  4. By: Yamashita, Takuro; Murooka, Takeshi
    Abstract: We consider an adverse selection environment between an informed seller and an uninformed buyer, where no trade occurs when all buyers are rational. The buyer may be a “behavioral” type in the sense that he may take actions different from a rational type. We show that, for any incentive-feasible mechanism with any non-trivial trade, the buyer’s ex-ante expected payoff is strictly negative. Our result implies that whenever trade occurs, some behavioral types must incur losses.
    Keywords: Adverse selection; Inferential naivety; Mechanism design; Behavioral contract theory; Consumer protection
    JEL: D82 D89 D90 D91
    Date: 2021–09–07
  5. By: Laura Doval; Alex Smolin
    Abstract: We study the payoffs that can arise under some information structure from an interim perspective. There is a set of types distributed according to some prior distribution and a payoff function that assigns a value to each pair of a type and a belief over the types. Any information structure induces an interim payoff profile which describes, for each type, the expected payoff under the information structure conditional on the type. We characterize the set of all interim payoff profiles consistent with some information structure. We illustrate our results through applications.
    Date: 2021–09
  6. By: Denter, Philipp; Ginzburg, Boris
    Abstract: Political agents often attempt to influence elections through "troll farms" that flood social media platforms with messages from fake accounts that emulate genuine information. We study the ability of troll farms to manipulate elections. We show that such disinformation tactics is more effective when voters are otherwise well-informed. Thus, for example, societies with high-quality media are more vulnerable to electoral manipulation.
    Keywords: Fake News, Disinformation, Troll Farms, Elections, Social Media, Information Aggregation, Fact-Checking
    JEL: D72 D83
    Date: 2021–09–03
  7. By: Didier Laussel; Ngo Van Long; Joana Resende
    Abstract: A durable good monopolist faces a continuum of heterogeneous customers who make purchase decisions by comparing present and expected price-quality offers. The monopolist designs a sequence of price-quality menus to segment the market. We consider the Markov Perfect Equilibrium (MPE) of a game where the monopolist is unable to commit to future price-quality menus. We obtain the novel results that (a) under certain conditions, the monopolist covers the whole market in the first period (even when a static Mussa-Rosen monopolist would not cover the whole market), because this is a strategic means to convince customers that lower prices would not be offered in future periods, and that (b) this can happen only under the stage-wise Stackelberg leadership assumption (whereby consumers base their expectations on the value of the state variable at the end of the period). Conditions under which MPE necessarily involve sequentially trading are also derived. Un monopoleur de biens durables fait face à un continuum de clients hétérogènes qui prennent des décisions d'achat en comparant les offres qualité-prix actuelles et attendues. Le monopole conçoit une séquence de menus qualité-prix pour segmenter le marché. Nous considérons l'équilibre parfait de Markov (MPE) d'un jeu où le monopoleur est incapable de s'engager sur les futurs menus de qualité-prix. Nous prouvons que (a) dans certaines conditions, le monopoleur couvre l'ensemble du marché dans la première période (même lorsqu'un monopoleur statique de Mussa-Rosen ne couvrirait pas l'ensemble du marché), car c'est un moyen stratégique de convaincre les clients que des prix plus bas ne seraient pas proposés dans les périodes futures, et que (b) cela ne peut se produire que sous l'hypothèse de leadership par étapes de Stackelberg (dans laquelle les consommateurs fondent leurs attentes sur la valeur de la variable d'état à la fin de la période). Les conditions dans lesquelles le MPE implique nécessairement des échanges séquentiels sont également dérivées.
    Keywords: Intertemporal price discrimination,Durable goods monopoly,Product quality,Markov perfect equilibrium, Discrimination tarifaire intertemporelle,Monopoleur des biens durables,La qualité des produits,équilibre parfait de Markov
    JEL: C73 D42 L12 L15
    Date: 2021–09–07
  8. By: Jain, Satish
    Abstract: The purpose of this paper is to investigate the strong consistency of neutral and monotonic binary social decision rules. Individuals are assumed to satisfy von Neumann-Morgenstern axioms of individual rationality. The main result of the paper shows that there does not exist any neutral and monotonic non-null non-dictatorial binary social decision rule which is strongly consistent. The relationship between restricted preferences and the existence of strong equilibria is also investigated. It is shown that for every non-dictatorial social decision function satisfying the conditions of independence of irrelevant alternatives, neutrality, monotonicity and weak Pareto-criterion there exists a profile of individual orderings satisfying value-restriction corresponding to which there is no strong equilibrium.
    Keywords: Binary Social Decision Rules, Strong Consistency, Neutrality, Monotonicity, Value-Restricted Preferences
    JEL: D71
    Date: 2020–10–25
  9. By: Gregorio Curello
    Abstract: Innovators with shared interests face a dynamic collective-action problem with two special features: uncertainty about the returns to (research) effort, and an exploration-exploitation trade-off in which exploitation becomes more attractive as discoveries accumulate. I study this problem in a general model with long-lived firms that exert effort to obtain improvements of random size in a technology they share. The firms' flow payoffs grow as the technology improves, but so does the marginal cost of effort. In (the unique symmetric Markov) equilibrium, small discoveries may hurt all firms simultaneously as they drastically reduce effort. Allowing each firm to discard the innovations it obtains (after observing their size) yields uniformly higher effort and welfare in equilibrium. If firms may instead conceal innovations from the others for a period of time, under linear payoffs, there exists an equilibrium in which improvements are kept secret until they reach a cutoff, and effort stops after disclosure. Although concealment is inefficient due to forgone benefits and the risk of redundancy, firms may be better off compared to the baseline equilibrium with forced disclosure.
    Date: 2021–09
  10. By: Leandro Arozamena (Universidad Torcuato Di Tella / CONICET); Juan José Ganuza (Universitat Pompeu Fabra / Barcelona GSE); Federico Weinschelbaum (Universidad Torcuato Di Tella / CONICET)
    Abstract: In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) evenwhen explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm.
    Keywords: Auctions, Favoritism, Auction Design, Renegotiation, Corruption
    JEL: C72 D44 D82
    Date: 2021–08
  11. By: Eric Danan (CY - CY Cergy Paris Université, CNRS - Centre National de la Recherche Scientifique, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: Mongin (1994) proved a multi-profile version of Harsanyi (1955)'s Aggregation Theorem: within the expected utility model, a social welfare functional mapping profiles of individual utility functions into social preference relations satisfies the Pareto and Independence of Irrelevant Alternatives principles if and only if it is utilitarian. The present paper extends Mongin's analysis by allowing individuals to have incomplete preferences, represented by sets of utility functions. An impossibility theorem is first established: social preferences cannot satisfy all the expected utility axioms, precluding utilitarian aggregation in this extended setting. Adapting the objective vs. subjective rationality approach of Gilboa et al. (2010) to the present social choice settings representation theorems are then obtained by relaxing either the Completeness or the Independence axioms at the social level, yielding two forms of partial utilitarianism.
    Keywords: Aggregation,expected utility,completeness,independence,utilitarianism,social rationality
    Date: 2021–08–27
  12. By: Edith Elkind; Abheek Ghosh; Paul Goldberg
    Abstract: We study contests where the designer's objective is an extension of the widely studied objective of maximizing the total output: The designer gets zero marginal utility from a player's output if the output of the player is very low or very high. We model this using two objective functions: binary threshold, where a player's contribution to the designer's utility is 1 if her output is above a certain threshold, and 0 otherwise; and linear threshold, where a player's contribution is linear if her output is between a lower and an upper threshold, and becomes constant below the lower and above the upper threshold. For both of these objectives, we study (1) rank-order allocation contests that use only the ranking of the players to assign prizes and (2) general contests that may use the numerical values of the players' outputs to assign prizes. We characterize the optimal contests that maximize the designer's objective and indicate techniques to efficiently compute them. We also prove that for the linear threshold objective, a contest that distributes the prize equally among a fixed number of top-ranked players offers a factor-2 approximation to the optimal rank-order allocation contest.
    Date: 2021–09
  13. By: Luis V. M. Freitas; Wilfredo L. Maldonado
    Abstract: A recently proposed mechanism for the provision of continuous public goods is the so-called quadratic funding mechanism, which has been shown to provide socially optimal outcomes under complete information. In this work we show that the conditions to obtain the same desirable property under incomplete information are strongly restrictive. We also propose two measures for the size of the inefficiency and show how that deadweight loss responds to changes in the size of the population, the valuation of the public good by individuals and the variance of the expected value of contributions to the fund.
    Keywords: Public goods provision; incomplete information; quadratic funding mechanism
    JEL: C72 D82 H41
    Date: 2021–09–08
  14. By: David Bounie (IP Paris - Institut Polytechnique de Paris); Antoine Dubus (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]); Patrick Waelbroeck (Télécom Paris)
    Abstract: We analyze competition between data intermediaries collecting information on consumers, which they sell to firms for price discrimination purposes. We show that competition between data intermediaries benefits consumers by increasing competition between firms, and by reducing the amount of consumer data collected. We argue that merger policy guidelines should investigate the effect of the data strategies of large intermediaries on competition and consumer surplus in related markets.
    Date: 2021–09–07
  15. By: Johan Hombert (HEC Paris - Ecole des Hautes Etudes Commerciales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Nicolas Schutz (Universität Mannheim [Mannheim])
    Abstract: We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms,
    Date: 2020–02–05

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