nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒01‒17
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Entry-proofness and discriminatory pricing under adverse selection By Andrea Attar; Thomas Mariotti; François Salanié
  2. Optimal Information Disclosure in Auctions By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  3. Reputational Bargaining with Unknown Values By Harry Pei; Maren Vairo
  4. Signaling with Private Monitoring By Gonzalo Cisternas; Aaron Kolb
  5. Ambiguous Social Choice Functions By Demeze-Jouatsa, Ghislain-Herman
  6. Stationary social learning in a changing environment By Rapha\"el L\'evy; Marcin P\k{e}ski; Nicolas Vieille
  7. Bidding in Multi-Unit Auctions under Limited Information By Kasberger, Bernhard; Woodward, Kyle
  8. Local incentive compatibility in ordinal type-spaces By Kumar, Ujjwal; Roy, Souvik
  9. A Sequential Search Model with Partial Depth Evaluation By Yuxin Chen; Lin Liu; X. Henry Wang; Haojun Yu
  10. Reputation, Learning and Externalities in Frictional Markets By Farzad Pourbabaee
  11. Strategic form games and an Index Theory for Extensive form games By Lucas Pahl
  12. Equilibrium and dominance in fuzzy games By Mallozzi, Lina; Vidal-Puga, Juan
  13. Strategy-Proof Aggregation of Approximate and Imprecise Judgments By Marcello Basili; Ernesto Savaglio; Stefano Vannucci
  14. Subsidizing Startups under Imperfect Information By Davide Melcangi; Javier Turen
  15. Cooperation, Retaliation and Forgiveness in Revision Games By Dong Hao; Qi Shi; Jinyan Su; Bo An
  16. Taxes and Market Power: A Network Approach By Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz

  1. By: Andrea Attar (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thomas Mariotti (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); François Salanié (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper studies competitive allocations under adverse selection. We rst provide a general necessary and sucient condition for entry on an inactive market to be unprotable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tari making additional trades with an entrant unprotable. Motivated by the recursive structure of this allocation, we nally show that it emerges as the essentially unique equilibrium outcome of a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets..
    Keywords: Adverse Selection,Entry-Proofness,Discriminatory Pricing,Nonexclusive,Markets,Ascending Auctions.,Nonexclusive Markets,Ascending Auctions. JEL Classification: D43,D82,D86
    Date: 2021–12–17
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, MIT)
    Abstract: We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-o¤: providing more information improves the efficiency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides a rationale for conflation in digital advertising.
    JEL: D44 D47 D83 D84
    Date: 2021–12
  3. By: Harry Pei; Maren Vairo
    Abstract: A buyer and a seller bargain over the price of an object. The buyer's value is common knowledge and the seller has private information about his production cost. In the beginning of the game, each player proposes a price and becomes committed to it with small probability. We characterize the set of equilibria. We show that equilibria with inefficient delays exist if and only if the difference in cost between some pair of adjacent types is large enough and the probability of low-cost type seller is sufficiently high. When there are multiple equilibria, the buyer prefers the least efficient equilibrium and all types of the seller prefer the most efficient equilibrium. In an extension where the seller can decide whether to adopt a cost-saving technology before bargaining, we pin down the equilibrium adoption rate and provide conditions under which bargaining inefficiencies arise in all equilibria.
    Date: 2022–01
  4. By: Gonzalo Cisternas; Aaron Kolb
    Abstract: We study dynamic signaling when the informed party does not observe the signals generated by her actions. A forward-looking sender signals her type continuously over time to a myopic receiver who privately monitors her behavior; in turn, the receiver transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the sender's second-order belief. Because of the private monitoring, this state is an explicit function of the sender's past play, leading to a novel separation effect through the second-order belief channel. Applications to models of organizations and reputation are examined.
    Keywords: signaling; private monitoring; continuous time
    JEL: C73 D82 D83
    Date: 2021–12–01
  5. By: Demeze-Jouatsa, Ghislain-Herman (Center for Mathematical Economics, Bielefeld University)
    Abstract: Call a mechanism that associates each profile of preferences over candidates to an ambiguous act an Ambiguous Social Function (ASCF). This paper studies the strategy-proofness of ASCFs. We find that an ASCF is unanimous and strategyproof if and only if there exists a nonempty subset of voters, called the set of top voters, such that at each preference profile, the range of the selected act equals the set of top-ranked candidates of top voters. We provide a full characterization of the class of unanimous, strategyproof, and anonymous ASCFs, and provide a large subclass of ASCFs that satisfy the additional property of neutrality.
    Keywords: Social Choice Function, Ambiguity Aversion, Ellsberg Urns, Strategy-proofness, Unanimity, Anonymity, Neutrality
    Date: 2022–01–07
  6. By: Rapha\"el L\'evy; Marcin P\k{e}ski; Nicolas Vieille
    Abstract: We consider social learning in a changing world. Society can remain responsive to state changes only if agents regularly act upon fresh information, which limits the value of social learning. When the state is close to persistent, a consensus whereby most agents choose the same action typically emerges. The consensus action is not perfectly correlated with the state though, because the society exhibits inertia following state changes. Phases of inertia may be longer when signals are more precise, even if agents draw large samples of past actions, as actions then become too correlated within samples, thereby reducing informativeness and welfare.
    Date: 2022–01
  7. By: Kasberger, Bernhard; Woodward, Kyle
    Abstract: We study multi-unit auctions in which bidders have limited knowledge of opponent strategies and values. We characterize optimal prior-free bids; these bids minimize the maximal loss in expected utility resulting from uncertainty surrounding opponent behavior. Optimal bids are simply computable despite bidders having multi-dimensional private information, and in certain cases admit closed-form solutions. In the pay-as-bid auction the minimax-loss bid is unique; in the uniform-price auction the minimax-loss bid is unique if the bidder is allowed to determine the quantities for which they bid, as in many practical applications. Payments to the seller may be higher in either auction format, but minimax-loss bids are never uniformly higher in the pay-as-bid auction.
    Keywords: Auctions; multi-unit auctions; loss minimization; non-Bayesian approaches
    JEL: D44 D81
    Date: 2021–12–20
  8. By: Kumar, Ujjwal; Roy, Souvik
    Abstract: We explore the relation between different notions of local incentive compatibility (LIC) and incentive compatibility (IC) on ordinal type-spaces. In this context, we introduce the notion of ordinal local global equivalent (OLGE) and cardinal local global equivalent (CLGE) environments. First, we establish the equivalence between the two environments on strict ordinal type-spaces. Next, we consider ordinal type-spaces admitting indifference. We introduce the notion of almost everywhere IC and strong LIC, and provide a necessary and sufficient condition on ordinal type spaces for their equivalence. Finally, we provide results on how to (minimally) check the IC property of a given mechanism on any ordinal type-space and show that local types along with the boundary types form a minimal set of incentive constraints that imply full incentive compatibility.
    Keywords: point-wise local incentive compatibility, adjusted local incentive compatibility, uniform local incentive compatibility, (global) incentive compatibility, ordinal type-spaces
    JEL: D44 D47 D82
    Date: 2021–12–06
  9. By: Yuxin Chen (Stern School of Business, New York University-Shanghai); Lin Liu (School of Economics and Management, Beihang University); X. Henry Wang (Department of Economics, University of Missouri); Haojun Yu (College of Business, Shanghai University of Economics and Finance)
    Abstract: Improvement in infrastructure and advances in information technology have strived to make both online and offline store visits better experiences and less costly for consumers. In addition, on-site product information search has been unprecedentedly facilitated by provisions of tools such as mobile store apps, search engines, screening/sorting aids, and better in-store display etc. With the decrease in the cost to visit stores, may firms have an incentive to facilitate consumers’ information collection and evaluation on product attributes? This paper attempts to shed light on this important question with a model that considers both travel cost (transportation cost between firm visits) and search cost (product evaluation cost) and explores how they affect consumer search behavior and firms’ pricing decisions. Specifically, consumers make a trade-off between how many attributes to evaluate (search depth) and whether continuing the search to the next firm (search breadth). We extend the classical framework for sequential search developed by Wolinsky (1986) and Anderson and Renault (1999) by letting consumers choose search depth at each step. The analysis reveals a novel interaction effect: lower (higher) search cost benefits firms if travel cost is lower (higher). Thus, facilitating consumers’ product evaluation may benefit firms in the context of reduced travel cost. Critically, we show that this interaction effect occurs only when search depth is endogenous with partial-depth search as the result. In addition, we show that travel and search costs may play opposite roles on depth and prices—they increasing (decreasing) in travel (search) cost. Relevant managerial implications are discussed.
    Keywords: Travel Cost, Search Cost, Partial Depth Search, Pricing, Competition
    JEL: D43 L13 L41
    Date: 2022
  10. By: Farzad Pourbabaee
    Abstract: I introduce a dynamic model of random search where ex ante heterogeneous agents with unknown abilities match with a variety of projects. There is incomplete yet symmetric information about the agents' types. Interpreting the posterior belief about the agents' ability as their reputation, I study the outcomes of the economy (namely the endogenous matching sets and the steady-state distributions) when the success or failure of the projects create feedback effects: reputational externalities and spillovers in the population of projects. In the former case when the meeting rate of each agent is inversely impacted by the distribution of other agents' reputation, the proportion of agents who are both high ability and inactive is inefficiently high, and the projects suffer from early termination. When there are positive spillovers from the low-type to the high-type projects, increased levels of search frictions could save the market from breakdown caused by the rational neglect of spillover effect in the agents' matching decisions.
    Date: 2022–01
  11. By: Lucas Pahl
    Abstract: We present an index theory of equilibria for extensive form games. This requires developing an index theory for games where the strategy sets of players are general polytopes and their payoff functions are multiaffine in the product of these polytopes. Such polytopes arise from identifying (topologically) equivalent mixed strategies of a normal form game.
    Date: 2022–01
  12. By: Mallozzi, Lina; Vidal-Puga, Juan
    Abstract: In this paper, we study the generalization of (Nash) equilibrium and dominance solvability to interval fuzzy games in strategic form. We show that the more straightforward generalizations of these concepts do not inherit their most relevant results, either in terms of existence or refinement. To efficiently handle the fuzziness of the payoffs, we use the Hurwicz criterion and introduce new equilibrium concepts and dominance solutions that greatly overcome these drawbacks.
    Keywords: Dominance solvability; Fuzzy interval payoffs; Hurwicz criterion
    JEL: C72
    Date: 2022–01–05
  13. By: Marcello Basili; Ernesto Savaglio; Stefano Vannucci
    Abstract: The present work is devoted to the study of aggregation rules for several types of approximate judgments and their strategy-proofness properties when the relevant judgment space is lattice-ordered and endowed with a natural metric, and the agents/experts have single-peaked preferences consistent with it. In particular, approximate probability estimates as modeled by intervals of probability values, numerical measurements with explicit error bounds, approximate classifications, and conditional judgments that are amenable to composition by means of a set of logical connectives are considered. Relying on (bounded) distributivity of the relevant lattices, we prove the existence of a large class of inclusive and unanimity-respecting strategy-proof aggregation rules for approximate assessments or conditional judgments, consisting of sup-projections and sup-inf polynomials as parameterized by certain families of locally winning coalitions called committees. Amongst them, the majority aggregation rule is characterized as the only one that ensures both anonymity (i.e. an equal treatment of agents) and bi-idempotence (i.e. a definite choice between the only two judgments nominated by a maximally polarized body).
    JEL: D71 D81
    Date: 2021–11
  14. By: Davide Melcangi; Javier Turen
    Abstract: We study the early stages of firm creation under imperfect information. Because startups make error-prone decisions due to rational inattention, the model generates both inefficient entry and labor misallocation. We show that information frictions alter the effects of lump-sum transfers to startups: the total employment gain is amplified due to an unintended increase in inefficient entry, most entrants hire fewer workers, and misallocation goes up. The transfer makes low-size, previously dominated actions profitable, affecting the entire endogenous learning problem and making even productive startups lean toward more conservative hiring. We show that this novel information channel works against well-known mechanisms (for example, financial frictions) and also dampens the effects of alternative policies such as wage subsidies.
    Keywords: startups; rational inattention; firm subsidy
    JEL: D82 D83 E60 H25
    Date: 2021–12–01
  15. By: Dong Hao; Qi Shi; Jinyan Su; Bo An
    Abstract: Revision game is a very new model formulating the situation where players can prepare and revise their actions in advance before a deadline when payoffs are realized. We identify the Limited Retaliation (LR) strategy for revision games which sustains a high level of mutual cooperation and is robust to players' occasional mistakes. The LR strategy stipulates that, (1) players first follow a recommended cooperative plan; (2) if anyone deviates from the plan, the LR player retaliates by using the defection action for a limited duration; (3) after the retaliation, the LR player returns to the cooperative plan. The LR strategy has two good features. First, it is vengeful, in the sense that it deters the opponent from non-cooperative action by threatening a retaliation. Second, it is forgiving, because it returns to cooperation after a proper retaliation. The vengeful feature makes it constitute a subgame perfect equilibrium, while the forgiving feature makes it tolerate occasional mistakes. These are in clear contrast to the existing strategies for revision games which all assume players are extremely grim and never forgive. Besides its contribution as a new robust and welfare-optimizing equilibrium strategy, our results about LR strategy can also be used to explain how easy cooperation can happen, and why forgiveness emerges in real-world multi-agent interactions.
    Date: 2021–12
  16. By: Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz
    Abstract: Suppliers of differentiated goods make simultaneous pricing decisions, which are strategically linked due to consumer preferences and the structure of production. Because of market power, the equilibrium is inefficient. We study how a policymaker should target a budget-balanced tax-and-subsidy policy to increase welfare. A key tool is a certain basis for the goods space, determined by the network of interactions among suppliers. It consists of eigenbundles -- orthogonal in the sense that a tax on any eigenbundle passes through only to its own price -- with pass-through coefficients determined by associated eigenvalues. Our basis permits a simple characterization of optimal interventions. For example, a planner maximizing consumer welfare should tax eigenbundles with low pass-through and subsidize ones with high pass-through. We interpret these results in terms of the network structure of the market.
    Date: 2021–12

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