nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒10‒04
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Robust Equilibria in General Competing Mechanism Games By Seungjin Han
  2. Uncertain Product Availability in Search Markets By Atabek Atayev
  3. Political Agency, Oversight, and Bias: The Instrumental Value of Politicized Policymaking By Turner, Ian R
  4. Tournaments as collective decisions By Storcken, Ton
  5. Unanimity under Ambiguity By Simona Fabrizi; Steffen Lippert; Addison Pan; Matthew Ryan
  6. Economic foundations of generalized games with shared constraint: Do binding agreements lead to less Nash equilibria? By Yann BRAOUEZEC; Keyvan KIANI
  7. Aggregation in Networks By Nizar Allouch
  8. Reviewing Procedure vs. Judging Substance: How Increasing Bureaucratic Oversight Can Reduce Bureaucratic Accountability By Turner, Ian R
  9. Formal insurance and altruism networks By Tizié Bene; Yann Bramoullé; Frédéric Deroïan
  10. Information Acquisition and Diffusion in Markets By Atabek Atayev; Maarten Janssen
  11. Cournot Platform Competition with Mixed-Homing By Mark J. TREMBLAY; Takanori ADACHI; Susumu SATO
  12. Utilitarian Aggregation with Heterogeneous Beliefs * By Antoine Billot; Xiangyu Qu
  13. Nonlinear Prices, Homogeneous Goods, Search By Atabek Atayev

  1. By: Seungjin Han
    Abstract: This paper proposes a general competing mechanism game of incomplete information where a mechanism allows its designer to send a message to himself at the same time agents send messages. This paper introduces a notion of robust equilibrium. If each agent's payoff function is separable with respect to principals' actions, they lead to the full characterization of equilibrium allocations in terms of incentive compatible direct mechanisms without reference to the set of arbitrary mechanisms allowed in the game. Szentes' Critique (Szentes (2010)) on the standard competing mechanism game of complete information is also valid in a model with incomplete information.
    Date: 2021–09
  2. By: Atabek Atayev
    Abstract: In many markets buyers are poorly informed about which firms sell the product (product availability) and prices, and therefore have to spend time to obtain this information. In contrast, sellers typically have a better idea about which rivals offer the product. Information asymmetry between buyers and sellers on product availability, rather than just prices, has not been scrutinized in the literature on consumer search. We propose a theoretical model that incorporates this kind of information asymmetry into a simultaneous search model. Our key finding is that greater product availability may harm buyers by mitigating their willingness to search and, thus, softening competition.
    Date: 2021–09
  3. By: Turner, Ian R (Yale University)
    Abstract: We develop a theory of policymaking between an agent and an overseer, with a principal whose welfare is affected by agent-overseer interactions. The agent can increase the quality of policy outcomes through costly capacity investments. Oversight and agent bias jointly determine optimal agent capacity investments. We show that when oversight improves agent investment incentives the principal always benefits from an agent with biases opposite the overseer. Competing agent-overseer biases translate into higher quality policy outcomes than the principal could induce were she monitoring the agent. Effective oversight is necessary for these incentive effects. The results imply that political principals ought to consider the nature of the broader policymaking environment when appointing agents to make policy on their behalf and when designing managerial strategies aimed at motivating agents.
    Date: 2021–09–22
  4. By: Storcken, Ton (RS: FSE DKE Mathematics Centre Maastricht, RS: GSBE Theme Conflict & Cooperation, QE Math. Economics & Game Theory)
    Abstract: Unless all tournaments are admissible as individual preferences, we show that, structure diversity of the range of a Pareto-optimal, neutral, non-dictatorial, and independent of irrelevant alternatives preference rules is greater than the structure diversity in the individual preferences upon which these preference rules are based.
    Date: 2021–09–30
  5. By: Simona Fabrizi (Department of Economics, University of Auckland, New Zealand); Steffen Lippert (Department of Economics, University of Auckland, New Zealand); Addison Pan (Xi’an Jiaotong-Liverpool University, P. R. China); Matthew Ryan (School of Economics, Faculty of Business, Economics and Law, AUT University)
    Abstract: Ellis (2016) introduced a variant of the classic (jury) voting game in which voters have ambiguous prior beliefs. He focussed on voting under majority rule and the implications of ambiguity for Condorcet’s Theorem. Ryan (2021) studied Ellis’s game when voting takes place under the unanimity rule. His focus was on the implications of ambiguity for the “jury paradox” (Feddersen and Pesendorfer, 1998). Neither paper described all equilibria of these games, though both authors identified equilibria with a very different structure to those in the respective games without ambiguity. We complete the description of all equilibria of voting games under the unanimity rule. In particular, we identify equilibria having the same form as those in Feddersen and Pesendorfer (1998), as well as equilibria with a “dual” form.
    Date: 2021–08
  6. By: Yann BRAOUEZEC (IESEG School of Management, CNRS-LEM, UMR 9221, Paris campus, Socle de la Grande Arche, 1 Parvis de la Défense, 92044 Paris La Défense Cedex); Keyvan KIANI (IESEG School of Management, CNRS-LEM, UMR 9221, Paris campus, Socle de la Grande Arche, 1 Parvis de la Défense, 92044 Paris La Défense Cedex)
    Abstract: A generalized game is a situation in which interaction between agents occurs not only through their objective function but also through their strategy sets; the strategy set of each agent depends upon the decision of the other agents and is called the individual constraint. As opposed to generalized games with exogenous shared constraint literature pioneered by [Rosen, 1965], we take the individual constraints as the basic premises and derive the shared constraint generated from the individual ones, a set K. For a prole of strategies to be a Nash equilibrium of the game with individual constraints, it must lie in K. But if, given what the others do, each agent agrees to restrict her choice in K, something that we call an endogenous shared constraint, this mutual restraint may generate new Nash equilibria. It is the main result of this paper to show that the set of Nash equilibria in endogenous shared constraint contains the set of Nash equilibria in individual constraints. In particular, when there is no Nash equilibrium in individual constraints, there may still exist a Nash equilibrium in endogenous shared constraint and we give two economic applications of this to collective action problems (carb on emission and public good problems).
    Keywords: Generalized games, binding agreements, individual and shared constraints, collective action problems
    Date: 2021–09
  7. By: Nizar Allouch
    Abstract: In this paper, we show that a concept of aggregation can hold in large network games with linear best replies. Breaking up large networks into smaller subnetworks, which can be replaced by representative players, leads to a coarse-grained description of strategic interactions. This method of summarizing complex strategic interactions by simple ones can be applied to compute all Nash equilibria for the special network structure of cograph. A key finding is that a stable Nash equilibrium of the large network game can be decomposed into a collection of Nash equilibria of subnetwork games. Thereby, we establish a systematic relationship between player’s position in a subnetwork and his equilibrium action in the large network game.
    Keywords: aggregation; modular decomposition; network games; public goods; stability
    JEL: C72 D31 D85 H41
    Date: 2021–07
  8. By: Turner, Ian R (Yale University)
    Abstract: How does the scope of review affect bureaucratic policymaking? To explore this question, I consider a policymaking environment in which an expert agency develops policy that is upheld or overturned by an overseer who may have different policy goals. The agency can affect the quality of implementation through effort investments in addition to choosing the substantive content of policy. Under procedural review the overseer only reviews the agency’s effort, which allows the agency to fully utilize its expertise. Substantive review also tasks the overseer with judging agencies’ substantive policy choices, which can lead the agency to disregard its superior information and obfuscate to avoid reversal. Depending on the policy environment, this dynamic can either benefit or harm the overseer. In some cases the overseer can be made better off by having less transparent review institutions; that is, institutions that direct the overseer to only review procedure and preclude judging substance.
    Date: 2021–09–22
  9. By: Tizié Bene (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Frédéric Deroïan (Aix-Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, individual incentives are aligned with social welfare. We extend our analysis to CRRA utilities and to a fixed utility cost of adoption.
    Keywords: formal insurance, informal transfers, altruism networks
    JEL: C72 D85
    Date: 2021–09
  10. By: Atabek Atayev; Maarten Janssen
    Abstract: Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their "friends" and less information acquisition via active search. Free-riding also has an important positive effect, however, in that consumers that do not actively search themselves are more likely to be able to compare prices before purchase, imposing competitive pressure on firms. We show how market prices depend on the characteristics of the network and on search cost. For example, if the search cost becomes small, price dispersion disappears, while the price level converges to the monopoly level, implying that expected prices are decreasing for small enough search cost. More connected societies have lower market prices, while price dispersion remains even in fully connected societies.
    Date: 2021–09
  11. By: Mark J. TREMBLAY; Takanori ADACHI; Susumu SATO
    Abstract: Firms in traditional markets often compete in output `a la Cournot. In this paper, we consider Cournot platform competition in two-sided markets with single-, multi-, and mixed-homing allocations and find that the markup and markdown terms are distorted toward zero for (i) greater levels of platform competition and (ii) greater levels of singlehoming. Furthermore, we develop side specific conduct parameters that depend on the underlying platform conduct as well as the homing allocation; these effectively extend the monopoly platform Lerner indices from Armstrong (2006) and Weyl (2010) to the general case of platform competition. Finally, we show that, in utter contrast to the welfare results in traditional Cournot markets, greater Cournot platform competition often decreases welfare across all feasible homing allocations.
    Keywords: Two-sided markets, conduct parameter, network externality, Lerner index,single-homing, multi-homing, mixed-homing.
    JEL: D40 L10 L20 L40
  12. By: Antoine Billot (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Université); Xiangyu Qu (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique)
    Abstract: The utilitarian aggregation rule requires social utility and beliefs to be a convex combination of individual utilities and beliefs, respectively. Since, in the case of belief heterogeneity, the standard Pareto condition is incompatible with such a separate aggregation, a new condition, called the belief-proof Pareto condition, is proposed to alleviate occurrences of spurious agreement by restricting unanimity to beliefs that can be considered reasonable by society. Then, we show, in the Anscombe-Aumann (Theorems 1) and the Savage (Theorems 2) framework, that the belief-proof Pareto condition is equivalent to separate aggregation of individual beliefs and tastes.
    Date: 2020–08
  13. By: Atabek Atayev
    Abstract: We analyze competition on nonlinear prices in homogeneous goods markets with consumer search. In equilibrium firms offer two-part tariffs consisting of a linear price and lump-sum fee. The equilibrium production is socially efficient as the linear price of equilibrium two-part tariffs equals to the production marginal cost. Firms thus compete in lump-sum fees, which are dispersed in equilibrium. We show that sellers enjoy higher profit, whereas consumers are worse-off with two-part tariffs than with linear prices. The competition softens because with two-part tariffs firms can make effective per-consumer demand less elastic than the actual demand.
    Date: 2021–09

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