nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒12‒20
seven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Tension Between Market Shares and Profit Under Platform Competition By Paul Belleflamme; Martin Peitz; Eric Toulemonde
  2. Observing Actions in Global Games By Dominik Grafenhofer; Wolfgang Kuhle
  3. Maximizing revenue in the presence of intermediaries By Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
  4. Strategic data sales to competing firms By DELBONO Flavio; REGGIANI Carlo; SANDRINI Luca
  5. Whose Bias? By Vasudha Jain; Mark Whitmeyer
  6. Clubs and Networks By Sihua Ding; Marcin Dziubiński; Sanjeev Goyal
  7. Optimal bidding strategies for digital advertising By M\'ed\'eric Motte; Huy\^en Pham

  1. By: Paul Belleflamme; Martin Peitz; Eric Toulemonde
    Abstract: We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets.
    Keywords: Two-sided platforms, market share, market power, oligopoly, network effects, antitrust
    JEL: D43 L13 L86
    Date: 2020–08
  2. By: Dominik Grafenhofer; Wolfgang Kuhle
    Abstract: We study Bayesian coordination games where agents receive noisy private information over the game's payoffs, and over each others' actions. If private information over actions is of low quality, equilibrium uniqueness obtains in a manner similar to a global games setting. On the contrary, if private information over actions (and thus over the game's payoff coefficient) is precise, agents can coordinate on multiple equilibria. We argue that our results apply to phenomena such as bank-runs, currency crises, recessions, or riots and revolutions, where agents monitor each other closely.
    Date: 2021–11
  3. By: Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
    Abstract: We study the mechanism design problem of selling $k$ items to unit-demand buyers with private valuations for the items. A buyer either participates directly in the auction or is represented by an intermediary, who represents a subset of buyers. Our goal is to design robust mechanisms that are independent of the demand structure (i.e. how the buyers are partitioned across intermediaries), and perform well under a wide variety of possible contracts between intermediaries and buyers. We first study the case of $k$ identical items where each buyer draws its private valuation for an item i.i.d. from a known $\lambda$-regular distribution. We construct a robust mechanism that, independent of the demand structure and under certain conditions on the contracts between intermediaries and buyers, obtains a constant factor of the revenue that the mechanism designer could obtain had she known the buyers' valuations. In other words, our mechanism's expected revenue achieves a constant factor of the optimal welfare, regardless of the demand structure. Our mechanism is a simple posted-price mechanism that sets a take-it-or-leave-it per-item price that depends on $k$ and the total number of buyers, but does not depend on the demand structure or the downstream contracts. Next we generalize our result to the case when the items are not identical. We assume that the item valuations are separable. For this case, we design a mechanism that obtains at least a constant fraction of the optimal welfare, by using a menu of posted prices. This mechanism is also independent of the demand structure, but makes a relatively stronger assumption on the contracts between intermediaries and buyers, namely that each intermediary prefers outcomes with a higher sum of utilities of the subset of buyers represented by it.
    Date: 2021–11
  4. By: DELBONO Flavio; REGGIANI Carlo (European Commission – JRC); SANDRINI Luca
    Abstract: The unprecedented access of firms to consumer level data facilitates more precisely targeted individual pricing. We study the incentives of a data broker to sell data about a segment of the market to three competing firms. The segment only includes a share of the consumers in the market around one of the firms. Data are never sold exclusively. Despite the data are particularly tailored to the potential clientele of one of the firms, we show that the data broker has incentives to sell the list to its competitors. Such market outcome is not socially optimal, and a regulator that aims to maximise consumers and social welfare should consider mandating data sharing.
    Keywords: data markets, personalised pricing, price discrimination, oligopoly, selling mechanisms
    Date: 2021–12
  5. By: Vasudha Jain; Mark Whitmeyer
    Abstract: Law enforcement acquires costly evidence with the aim of securing the conviction of a defendant, who is convicted if a decision-maker's belief exceeds a certain threshold. Either law enforcement or the decision-maker is biased and is initially overconfident that the defendant is guilty. Although an innocent defendant always prefers an unbiased decision-maker, he may prefer that law enforcement have some bias to none. Nevertheless, fixing the level of bias, an innocent defendant may prefer that the decision-maker, not law enforcement, is biased.
    Date: 2021–11
  6. By: Sihua Ding; Marcin Dziubiński; Sanjeev Goyal (Division of Social Science)
    Abstract: A recurring theme in the study of society is the concentration of influence and power that is driven through unequal membership of groups and associations. In some instances these bodies constitute a small world while in others they are fragmented into distinct cliques. This paper presents a new model of clubs and networks to understand the sources of individual marginalization and the origins of different club networks. In our model, individuals seek to become members of clubs while clubs wish to have members. Club value is increasing in its size and in the strength of ties with other clubs. We show that a stable membership proï¬ le exhibits marginalization of individuals and that this is generally not welfare maximizing. Our second result shows that if returns from strength of ties are convex (concave) then stable memberships support fragmented networks with strong ties (small worlds held together by weak ties). We illustrate the value of these theoretical results through case studies of inter-locking directorates, boards of editors of journals, and defence and R&D alliances.
    Date: 2021–12
  7. By: M\'ed\'eric Motte (LPSM); Huy\^en Pham (LPSM)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Date: 2021–11

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