nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒02‒07
seven 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. Market for Information and Selling Mechanisms By David Bounie; Antoine Dubus; Patrick Waelbroeck
  3. Observability, Dominance, and Induction in Learning Models By Daniel Clark; Drew Fudenberg; Kevin He
  4. Robust Private Supply of a Public Good By Wanchang Zhang
  5. A Preference-Based Model of Platform Competition By Paolo Bertoletti
  6. The value of network information: Assortative mixing makes the difference By Mohamed Belhaj; Frédéric Deroïan
  7. Variation margins, fire-sales and information-constrained optimality By Biais, Bruno; Heider, Florian; Hoerova, Marie

  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: excessive entry,foreclosure,exclusionary behavior,incomplete information
    Date: 2021–12
  2. By: David Bounie (i3, CNRS, Télécom Paris, Institut Polytechnique de Paris); Antoine Dubus (Department of Management, Technology and Economics, ETH Zurich Leonhardstrasse 21 Switzerland – 8092 Zurich, Switzerland); Patrick Waelbroeck (i3, CNRS, Télécom Paris, Institut Polytechnique de Paris)
    Abstract: A monopolist data intermediary collects consumer information that it strategically sells to competing firms in a product market for price discrimination purposes. The intermediary charges a price of information and chooses the optimal partition that maximizes the willingness to pay of firms for information. Different selling mechanisms are compared: list prices, sequential bargaining, and auctions. The intermediary optimally sells information through auctions, whereas consumer surplus is maximized with sequential bargaining and list prices. We discuss the regulatory implications of our results.
    Keywords: Selling mechanisms; Market for information; Data intermediaries; Competition policy; Regulation of digital markets
    Date: 2022–02
  3. By: Daniel Clark; Drew Fudenberg; Kevin He
    Abstract: Learning models do not in general imply that weakly dominated strategies are irrelevant or justify the related concept of "forward induction," because rational agents may use dominated strategies as experiments to learn how opponents play, and may not have enough data to rule out a strategy that opponents never use. Learning models also do not support the idea that the selected equilibria should only depend on a game's normal form, even though two games with the same normal form present players with the same decision problems given fixed beliefs about how others play. However, playing the extensive form of a game is equivalent to playing the normal form augmented with the appropriate terminal node partitions so that two games are information equivalent, i.e., the players receive the same feedback about others' strategies.
    Date: 2022–01
  4. By: Wanchang Zhang
    Abstract: We study the mechanism design problem of selling a public good to a group of agents by a principal in the correlated private value environment. We assume the principal only knows the expectations of the agents' values, but does not know the joint distribution of the values. The principal evaluates a mechanism by the worst-case expected revenue over joint distributions that are consistent with the known expectations. We characterize maxmin public good mechanisms among dominant-strategy incentive compatible and ex-post individually rational mechanisms for the two-agent case and for a special $N$-agent ($N>2$) case.
    Date: 2022–01
  5. By: Paolo Bertoletti
    Abstract: We study platform competition by modelling the preferences of a “"representative buyer" ”over the services platforms provide and the commodities they intermediate. This captures an intensive margin of buyers’' participation which is neglected by the canonical setting, and delivers a welfare measure of platform quality. Assuming that sellers offer a large variety of commodities under monopolistic competition and free entry, in contrast to previous results we find that in a duopoly setting strategically chosen commissions (whose value depends on sellers’ expenditure share and demand elasticity) actually worsen buyers' ’welfare, which improves if platforms set commissions in advance of sellers' ’entry.
    Keywords: platform competition, market intermediation, exchange commissions
    JEL: D11 L13 L41 L51
    Date: 2022–01
  6. By: Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); Frédéric Deroïan (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université)
    Abstract: A monopoly sells a network good to a large population of consumers. We explore how the monopoly's profit and the consumer surplus vary with the arrival of public information about the network structure. The analysis reveals that, under homogeneous preferences for the good, degree assortativity ensures that information arrival increases both profit and consumer surplus. In contrast, heterogeneous preferences for the good can create a tension between consumer surplus and profit.
    Keywords: monopoly,network effects,network information,Bonacich centrality,degree assortativity,assortative mixing
    Date: 2021–03
  7. By: Biais, Bruno; Heider, Florian; Hoerova, Marie
    Abstract: In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counter-party risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation mar-gins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and re-duces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales.
    Keywords: variation margins; fire sales; pecuniary externality; moral hazard, con-strained efficiency; regulation
    JEL: G18 D62 G13 D82
    Date: 2022–01–27

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