nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒01‒24
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Collusion Between Non-differentiated Two-Sided Platforms By Martin Peitz; Lily Samkharadze
  2. Learning in Repeated Interactions on Networks By Wanying Huang; Philipp Strack; Omer Tamuz
  3. Privacy Desiderata in Mechanism Design By Andreas Haupt; Zoe Hitzig
  4. Robust Voting under Uncertainty By Satoshi Nakada; Shmuel Nitzan; Takashi Ui
  5. Ex-post moral hazard and manipulation-proof contracts By Jean-Gabriel Lauzier
  6. Nonlinear prices, homogeneous goods, search By Atayev, Atabek
  7. Should I stay or should I go? Migrating away from an incumbent platform By Crémer, Jacques; Biglaiser, Gary; Veiga, André
  8. Truly costly search and word-of-mouth communication By Atayev, Atabek
  9. Simultaneous Search and Adverse Selection By Sarah Auster; Piero Gottardi; Ronald Wolthoff
  10. Dynamic Monopoly Pricing With Multiple Varieties: Trading Up By Buehler, Stefan; Eschenbaum, Nicolas
  11. Information acquisition and diffusion in markets By Atayev, Atabek; Janssen, Maarten C. W.
  12. Oligopoly under incomplete information: On the welfare effects of price discrimination By Garrett, Daniel F.; Gomes, Renato; Maestri, Lucas
  13. Private Private Information By Kevin He; Fedor Sandomirskiy; Omer Tamuz
  14. Legislative bargaining with private information: A comparison of majority and unanimity rule By Piazolo, David; Vanberg, Christoph
  15. Inattention and Inequity in School Matching By Stefan F. Bucher; Andrew Caplin
  16. Shining with the Stars: Competition, Screening, and Concern for Coworkers' Quality By Barigozzi, Francesca; Cremer, Helmuth

  1. By: Martin Peitz; Lily Samkharadze
    Abstract: Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome.
    Keywords: Two-sided markets, tacit collusion, cartelization, price structure, platform competition
    JEL: L41 L13 D43
    Date: 2022–01
  2. By: Wanying Huang; Philipp Strack; Omer Tamuz
    Abstract: We study how long-lived, rational, exponentially discounting agents learn in a social network. In every period, each agent observes the past actions of his neighbors, receives a private signal, and chooses an action with the objective of matching the state. Since agents behave strategically, and since their actions depend on higher order beliefs, it is difficult to characterize equilibrium behavior. Nevertheless, we show that regardless of the size and shape of the network, and the patience of the agents, the equilibrium speed of learning is bounded by a constant that only depends on the private signal distribution.
    Date: 2021–12
  3. By: Andreas Haupt; Zoe Hitzig
    Abstract: In a direct mechanism, a communication protocol queries agents' private information in order to determine the outcome. Protocols make a distinction between the information solicited by the mechanism designer and the information revealed to the designer, and thus allow for the formulation of privacy desiderata in mechanism design. One such desideratum is need-to-know privacy, which formalizes a notion of data minimization. A protocol is need-to-know private if every piece of an agent's private information that is revealed to the designer is needed to determine their outcome. A social choice rule is need-to-know implementable if there is a need-to-know protocol that implements it. Need-to-know implementability depends on the commitment power of the designer. When the designer can commit to arbitrary (cryptographic) protocols, any non-bossy social choice rule is need-to-now implementable. When the designer can only commit to personalized queries that correspond to messages sent in an extensive-form game, random serial dictatorship is the unique need-to-know and efficient object assignment rule, and the first price auction is the unique need-to-know and efficient standard auction. When the designer can commit to making some anonymous queries, the second-price auction becomes need-to-know implementable.
    Date: 2021–12
  4. By: Satoshi Nakada (School of Management, Department of Business Economics, Tokyo University of Science); Shmuel Nitzan (Department of Economics, Bar-Ilan University); Takashi Ui (Department of Economics, Hitotsubashi University)
    Abstract: This paper proposes normative criteria for voting rules under uncertainty about individual preferences to characterize a weighted majority rule (WMR). The criteria stress the significance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. A voting rule is said to be robust if, for any probability distribution of preferences, the responsiveness of at least one individual is greater than one-half. This condition is equivalent to the seemingly stronger condition requiring that, for any probability distribution of preferences and any deterministic voting rule, the responsiveness of at least one individual is greater than that under the deterministic voting rule. Our main result establishes that a voting rule is robust if and only if it is a WMR without ties. This characterization of a WMR avoiding the worst possible outcomes provides a new complement to the well-known characterization of a WMR achieving the optimal outcomes, i.e., efficiency in the set of all random voting rules.
    Keywords: majority rule, weighted majority rule, responsiveness, belief-free criterion.
    JEL: D71 D81
  5. By: Jean-Gabriel Lauzier
    Abstract: We examine the trade-off between the provision of incentives to exert costly effort (ex-ante moral hazard) and the incentives needed to prevent the agent from manipulating the profit observed by the principal (ex-post moral hazard). Formally, we build a model of two-stage hidden actions where the agent can both influence the expected revenue of a business and manipulate its observed profit. We show that manipulation-proofness is sensitive to the interaction between the manipulation technology and the probability distribution of the stochastic output. The optimal contract is manipulation-proof whenever the manipulation technology is linear. However, a convex manipulation technology sometimes leads to contracts with manipulations in equilibrium. Whenever the distribution satisfies the monotone likelihood ratio property, we can always find a manipulation technology for which the optimal contract is not manipulation-proof.
    Date: 2021–12
  6. By: Atayev, Atabek
    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.
    Keywords: Nonlinear prices,consumer search,homogeneous goods
    JEL: D11 D43 D83 L13
    Date: 2021
  7. By: Crémer, Jacques; Biglaiser, Gary; Veiga, André
    Abstract: We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive sto- chastic opportunities to migrate to an entrant and can either accept them or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. We use our framework to identify environments where incumbency advantage is larger. A key result is that having more migration opportunities actually increases incumbency advantage.
    Keywords: Platform; Migration; Standardization and Compatibility; Industry Dynamics
    JEL: D85 L14 R23 L15 L16
    Date: 2022–01–10
  8. By: Atayev, Atabek
    Abstract: In markets with search frictions, consumers can acquire information about goods either through costly search or from friends via word-of-mouth (WOM) communication. How do sellers' market power react to a very large increase in the number of consumers' friends with whom they engage in WOM? The answer to the question depends on whether consumers are freely endowed with price information. If acquiring price quotes is costly, equilibrium prices are dispersed and the expected price is higher than the marginal cost of production. This implies that firms retain market power even if price information is disseminated among a very large number of consumers due to technological progress, such as social networking websites.
    Keywords: Consumer Search,Word-of-Mouth Communication,Social Networks
    JEL: D43 D83 D85
    Date: 2021
  9. By: Sarah Auster; Piero Gottardi; Ronald Wolthoff
    Abstract: We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents' types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier.
    Keywords: search, adverse selection, screening, labor market, coordination frictions, search frictions
    JEL: D82 D83 E24
    Date: 2022–01–04
  10. By: Buehler, Stefan; Eschenbaum, Nicolas
    Abstract: This paper studies dynamic monopoly pricing for a class of settings that includes multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the seller’s incentive to switch consumers—buyers and non-buyers—to higher-valued consumption options by lowering prices (“trading up”). If consumers cannot be traded up from the static optimal allocation, pricing dynamics do not emerge in equilibrium. If consumers can be traded up, pricing dynamics arise until all trading-up opportunities are exhausted. We study the conditions under which pricing dynamics end in finite time and characterize the final prices at which dynamics end.
    Keywords: price discrimination, inter-temporal pricing, Coasian dynamics
    JEL: D42 L12
    Date: 2021
  11. By: Atayev, Atabek; Janssen, Maarten C. W.
    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.
    Keywords: Consumer Search,Word-of-Mouth Communication,Social Networks
    JEL: D43 D83 D85
    Date: 2021
  12. By: Garrett, Daniel F.; Gomes, Renato; Maestri, Lucas
    Abstract: We study competition by firms that simultaneously post (potentially nonlinear) tariffs to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms’ offers. In the absence of regulation, all firms offer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms’ profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective.
    Keywords: oligopoly,; nonlinear pricing,; linear pricing; informational frictions; asymmetric information
    JEL: D82
    Date: 2022–01–10
  13. By: Kevin He; Fedor Sandomirskiy; Omer Tamuz
    Abstract: In a private private information structure, agents' signals contain no information about the signals of their peers. We study how informative such structures can be, and characterize those that are on the Pareto frontier, in the sense that it is impossible to give more information to any agent without violating privacy. In our main application, we show how to optimally disclose information about an unknown state under the constraint of not revealing anything about a correlated variable that contains sensitive information.
    Date: 2021–12
  14. By: Piazolo, David; Vanberg, Christoph
    Abstract: We present a three-person, two-period bargaining game with private information. A single proposer is seeking to secure agreement to a proposal under either majority or unanimity rule. Two responders have privately known "breakdown values" which determine their payoff in case of "breakdown". Breakdown occurs with some probability if the first proposal fails and with certainty if the second proposal fails. We characterize Bayesian Equilibria in Sequentially Weakly Undominated Strategies. Our central result is that responders have a signaling incentive to vote "no" on the first proposal under unanimity rule, whereas no such incentive exists under majority rule. The reason is that being perceived as a "high breakdown value type" is advantageous under unanimity rule, but disadvantageous under majority rule. As a consequence, responders are "more expensive" under unanimity rule and disagreement is more likely. These results confirm intuitions that have been stated informally before and in addition yield deeper insights into the underlying incentives and what they imply for optimal behavior in bargaining with private information.
    Date: 2022–01–13
  15. By: Stefan F. Bucher; Andrew Caplin
    Abstract: The attractive properties of the Deferred Acceptance (DA) algorithm rest on the assumption of perfect information. Yet field studies of school matching show that information is imperfect, particularly for disadvantaged students. We model costly strategic learning when schools are ex ante symmetric, agree on their ranking of students, and learning is rationally inattentive. Our analytic solution quantifies how each student’s rank, learning costs and prior beliefs interact to determine their gross and net welfare as well as the extent and form of mistakes they make. In line with the evidence, we find that lower-ranked students are affected disproportionately more by information costs, generally suffering a larger welfare loss than higher-ranked students. Interactions between mechanism design, inattention and inequity are thus of first order importance.
    JEL: C78 D47 D82 D83
    Date: 2021–12
  16. By: Barigozzi, Francesca (University of Bologna); Cremer, Helmuth (Toulouse School of Economics)
    Abstract: We study how workers' concern for coworkers' ability (CfCA) affects competition in the labor market. We consider two firms offering nonlinear contracts to a unit mass of prospective workers. Firms may differ in their marginal productivity, while workers are heterogeneous in their ability (high or low), and in their taste for being employed by any of the two firms. Workers receive a utility premium when employed by the firm hiring the workforce with larger average ability and they suffer a utility loss in the opposite case. These premiums/losses are endogenously determined. When workers' ability is observable and the difference in firms' marginal productivities is strictly positive, we show that CfCA increases surplus but it also increases firms' competition for high-ability workers. As a result, CfCA benefits high-ability workers but is detrimental to firms. In addition, CfCA exacerbates the existing distortion in sorting of high-ability workers to firms: too many workers are hired by the least efficient firm. When ability is not observable, the additional surplus appropriated by high-ability workers is eroded by overincentivization (countervailing incentives) and the more so when CfCA is high. Conversely, high-types' sorting improves when CfCA is low and remains the same when it is high.
    Keywords: screening, competition, concern for coworkers’ quality, sorting
    JEL: D82 L13 M54
    Date: 2021–11

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