nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒05‒09
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Data Collection by an Informed Seller By Smolin, Alex; Ichihashi, Shota
  2. Hierarchical Bayesian Persuasion: Importance of Vice Presidents By Majid Mahzoon
  3. Collusion Between Non-differentiated Two-Sided Platforms By Martin Peitz; Lily Samkharadze
  4. Optimal accuracy of unbiased Tullock contests with two heterogeneous players By Sahm, Marco
  5. Prerationality as Avoiding Predictably Regrettable Consequences By Hammond, Peter J.
  6. Multi-unit Object Allocation Problems with Money for (Non)Decreasing Incremental Valuations: Impossibility and Characterization Theorems By Hiroki Shinozaki; Tomoya Kazumura; Shigehiro Serizawa
  7. Impacts of Public Information on Flexible Information Acquisition By Takashi Ui
  8. Best-response dynamics in combinatorial auctions with item bidding By Dütting, Paul; Kesselheim, Thomas
  9. Budget-Constrained Auctions with Unassured Priors By Zhaohua Chen; Xiaotie Deng; Jicheng Li; Chang Wang; Mingwei Yang
  10. The Impact of Product Qualities on Downstream Bundling in a Distribution Channel By Angelika Endres-Fröhlich; Joachim Heinzel
  11. Inducing Social Optimality in Games via Adaptive Incentive Design By Chinmay Maheshwari; Kshitij Kulkarni; Manxi Wu; Shankar Sastry
  12. Matching with Recall By Yann Bramoullé; Brian Rogers; Erdem Yenerdag
  13. Moldy Lemons and Market Shutdowns By Jin-Wook Chang; Matt Darst
  14. Local Rationalizability and Choice Consistency By Felix Brandt; Chris Dong
  15. The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralized Public Good Provision By Gani Aldashev; Esteban Jaimovich; Thierry Verdier
  16. Choosing on Sequences By Bhavook Bhardwaj; Siddharth Chatterjee
  17. Signaling, Screening, and Core Stability By Yusuke Kamishiro; Rajiv Vohra; Roberto Serrano
  18. Risk measures under model uncertainty: a Bayesian viewpoint By Christa Cuchiero; Guido Gazzani; Irene Klein
  19. Endogenous Risk Attitudes By Nick Netzer; Arthur Robson; Jakub Steiner; Pavel Kocourek
  20. Net Neutrality and Universal Service Obligations By Axel Gautier; Jean-Christophe Poudou; Michel Roland

  1. By: Smolin, Alex; Ichihashi, Shota
    Abstract: A seller faces a consumer with an uncertain value for the product. The seller has imperfect private information about the value and requests additional data to set the price. The consumer can decline any request. The consumer’s willingness to provide data depends on his belief about the seller’s type which in turn depends on the request. We show that the type uncertainty limits the scope of data collection: All equilibrium payoffs are spanned by fully pooling equilibria in which the seller collects the same data regardless of the type. The seller’s private information lowers efficiency and profits, but benefits the consumer by fueling his skepticism and preventing excessive data collection. Having less private information may enable the seller to collect more data directly from the consumer and may lower the overall consumer welfare.
    Keywords: consumer privacy; data collection; information design; mechanism design; price discrimination
    JEL: D42 D82 D83
    Date: 2022–04–19
  2. By: Majid Mahzoon
    Abstract: We study strategic information transmission in a hierarchical setting where information gets transmitted through a chain of agents up to a decision maker whose action is of importance to every agent. This situation could arise whenever an agent can communicate to the decision maker only through a chain of intermediaries, for example, an entry-level worker and the CEO in a firm, or an official in the bottom of the chain of command and the president in a government. Each agent can decide to conceal part or all the information she receives. Proving we can focus on simple equilibria, where the only player who conceals information is the first one, we provide a tractable recursive characterization of the equilibrium outcome, and show that it could be inefficient. Interestingly, in the binary-action case, regardless of the number of intermediaries, there are a few pivotal ones who determine the amount of information communicated to the decision maker. In this case, our results underscore the importance of choosing a pivotal vice president for maximizing the payoff of the CEO or president.
    Date: 2022–04
  3. 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
  4. By: Sahm, Marco
    Abstract: I characterize the optimal accuracy level r of an unbiased Tullock contest between two players with heterogeneous prize valuations. The designer maximizes the winning probability of the strong player or the winner's expected valuation by choosing a contest with an all-pay auction equilibrium (r ≥ 2). By contrast, if she aims at maximizing the expected aggregate effort or the winner's expected effort, she will choose a contest with a pure-strategy equilibrium, and the optimal accuracy level r
    Keywords: Tullock Contest,Heterogeneous Valuations,Accuracy,Discrimination,Optimal Design,All-Pay Auction
    JEL: C72 D72
    Date: 2022
  5. By: Hammond, Peter J. (Dept. of Economics, University of Warwick)
    Abstract: Following previous work on consequentialist decision theory, we consider an unrestricted domain of finite decision trees, including continuation subtrees, with : (i) decision nodes where the decision maker must make a move ; (ii) chance nodes at which a “roulette lottery†with exogenously specified strictly positive probabilities is resolved ; (iii) event nodes at which a “horse lottery†is resolved. A complete family of binary conditional base preference relations over Anscombe–Aumann lottery consequences is defined to be “prerational†just in case there exists a behaviour rule that is defined throughout the tree domain which is explicable as avoiding, under all predictable circumstances, consequences that are regrettable given what is feasible. Prerationality is shown to hold if and only if all conditional base preference relations are complete and transitive, while also satisfying both the independence axiom of expected utility theory and a strict form of Anscombe and Aumann’s extension of Savage’s sure thing principle. Assuming that the base relations satisfy non-triviality and a generalized form of state independence that holds even when consequence domains are state dependent, prerationality combined with continuity on Marschak triangles is equivalent to representation by a refined subjective expected utility function that excludes zero probabilities.
    Keywords: Prerational base relations ; rational planning ; decision trees ; regrettable consequences ; Anscombe–Aumann lotteries ; preference ordering ; independence axiom ; sure-thing principle ; subjective probability ; subjective expected utility ; Bayesian rationality ; state independence JEL codes: D81
    Date: 2022
  6. By: Hiroki Shinozaki; Tomoya Kazumura; Shigehiro Serizawa
    Abstract: We consider the problem of allocating multiple units of an object and collecting payments. Each agent can receive multiple units, and his (consumption) bundle is a pair consisting of the units he receives and his payment. An agent’s preference over bundles may not be quasi-linear. A class of preferences is rich if it includes all quasi-linear preferences with constant incremental valuations. We show that for an odd number of units, if a class of preferences is rich and includes at least one preference exhibiting both decreasing incremental valuations and either positive or negative income effects, then no rule satisfies efficiency, individual rationality, no subsidy for losers, and strategy-proofness. In contrast, for an even number of units, the existence of a rule satisfying the four properties depends on the size of the income effects. We further show that if a rich class of preferences includes only preferences that exhibit nondecreasing incremental valuations, then the generalized Vickrey rule (Saitoh and Serizawa, 2008; Sakai, 2008) is the only rule satisfying the four properties. Our results suggest that (i) there a rule satisfying the four properties “almost” only when preferences exhibit nondecreasing incremental valuations, and (ii) it depends not only on the properties of preferences such as nondecreasing incremental valuations, but also on other characteristics of the environment such as the number of units.
    Date: 2020–08
  7. By: Takashi Ui
    Abstract: Interacting agents receive public information at no cost and flexibly acquire private information at a cost proportional to entropy reduction. When a policymaker provides more public information, agents acquire less private information, thus lowering information costs. Does more public information raise or reduce uncertainty faced by agents? Is it beneficial or detrimental to welfare? To address these questions, we examine the impacts of public information on flexible information acquisition in a linear-quadratic-Gaussian game with arbitrary quadratic material welfare. More public information raises uncertainty if and only if the game exhibits strategic complementarity, which can be harmful to welfare. However, when agents acquire a large amount of information, more provision of public information increases welfare through a substantial reduction in the cost of information. We give a necessary and sufficient condition for welfare to increase with public information and identify optimal public information disclosure, which is either full or partial disclosure depending upon the welfare function and the slope of the best response.
    Date: 2022–04
  8. By: Dütting, Paul; Kesselheim, Thomas
    Abstract: In a combinatorial auction with item bidding, agents participate in multiple single-item second-price auctions at once. As some items might be substitutes, agents need to strategize in order to maximize their utilities. A number of results indicate that high social welfare can be achieved this way, giving bounds on the welfare at equilibrium. Recently, however, criticism has been raised that equilibria of this game are hard to compute and therefore unlikely to be attained. In this paper, we take a different perspective by studying simple best-response dynamics. Often these dynamics may take exponentially long before they converge or they may not converge at all. However, as we show, convergence is not even necessary for good welfare guarantees. Given that agents’ bid updates are aggressive enough but not too aggressive, the game will reach and remain in states of high welfare after each agent has updated his bid at least once.
    Keywords: algorithmic game theory; combinatorial auctions; item bidding; best-response dynamics
    JEL: J1
    Date: 2020–10–01
  9. By: Zhaohua Chen; Xiaotie Deng; Jicheng Li; Chang Wang; Mingwei Yang
    Abstract: In today's online advertising markets, it is common for an advertiser to set a long-period budget. Correspondingly, advertising platforms adopt budget control methods to ensure that any advertiser's payment is within her budget. Most budget control methods rely on value distributions of advertisers. However, due to the complex environment advertisers stand in and privacy issues, the platform hardly learns their true priors. Therefore, it is essential to understand how budget control auction mechanisms perform under unassured priors. This paper gives a two-fold answer. First, we propose a bid-discount method barely studied in the literature. We show that such a method exhibits desirable properties in revenue-maximizing and computation when fitting into first-price auction. Second, we compare this mechanism with another four in the prior manipulation model, where an advertiser can arbitrarily report a value distribution to the platform. These four mechanisms include the optimal mechanism satisfying budget-constrained IC, first-price/second-price mechanisms with the widely-studied pacing method, and an application of bid-discount in second-price mechanism. We consider three settings under the model, depending on whether the reported priors are fixed and advertisers are symmetric or not. We show that under all three cases, the bid-discount first-price auction we introduce dominates the other four mechanisms concerning the platform's revenue. For the advertisers' side, we show a surprising strategic-equivalence result between this mechanism and the optimal auction. Extensive revenue dominance and strategic relationships among these mechanisms are also revealed. Based on these findings, we provide a thorough understanding of prior dependency in repeated auctions with budgets. The bid-discount first-price auction itself may also be of further independent research interest.
    Date: 2022–03
  10. By: Angelika Endres-Fröhlich (Paderborn University); Joachim Heinzel (Paderborn University)
    Abstract: Research has found that downstream bundling aggravates the problem of double marginalization in a decentralized channel, but reduces the intensity of downstream price competition when trading homogeneous goods. We study the validity of those results in a set-up where the traded goods have heterogeneous product qualities. We find that the quality relation between the goods determines whether the competition reduction effect of bundling outweighs the aggravation of double marginalization in a decentralized channel. Thus, the quality relation between the goods determines the profitability of downstream bundling. The underlying market consists of a distribution channel with two downstream firms and two price-setting monopolistic upstream producers. One upstream firm sells good 1 exclusively to one downstream firm and the other upstream firm sells good 2 to both downstream firms. The downstream firms compete in prices and the two-product downstream firm has the option to bundle both goods. In particular, we find bundling to be profitable for the two-product downstream firm only when the quality of good 2 exceeds the quality of good 1. However, we find bundling always to be profitable when the production process is controlled by the downstream industry. The impact on total welfare is ambiguous and depends on the distribution of market power in the channel and the quality levels of the goods.
    Keywords: double marginalization; downstream bundling; leverage theory; quality differentiation
    JEL: D21 D61 L11 L15
    Date: 2022–04
  11. By: Chinmay Maheshwari; Kshitij Kulkarni; Manxi Wu; Shankar Sastry
    Abstract: How can a social planner adaptively incentivize selfish agents who are learning in a strategic environment to induce a socially optimal outcome in the long run? We propose a two-timescale learning dynamics to answer this question in both atomic and non-atomic games. In our learning dynamics, players adopt a class of learning rules to update their strategies at a faster timescale, while a social planner updates the incentive mechanism at a slower timescale. In particular, the update of the incentive mechanism is based on each player's externality, which is evaluated as the difference between the player's marginal cost and the society's marginal cost in each time step. We show that any fixed point of our learning dynamics corresponds to the optimal incentive mechanism such that the corresponding Nash equilibrium also achieves social optimality. We also provide sufficient conditions for the learning dynamics to converge to a fixed point so that the adaptive incentive mechanism eventually induces a socially optimal outcome. Finally, we demonstrate that the sufficient conditions for convergence are satisfied in a variety of games, including (i) atomic networked quadratic aggregative games, (ii) atomic Cournot competition, and (iii) non-atomic network routing games.
    Date: 2022–04
  12. By: Yann Bramoullé (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Brian Rogers (WUSTL - Washington University in Saint Louis); Erdem Yenerdag (WUSTL - Washington University in Saint Louis)
    Abstract: We study a two-period one-to-one dynamic matching environment in which agents meet randomly and decide whether to match early or defer. Crucially, agents can match with either partner in the second period. This "recall" captures situations where, e.g., a firm and worker can conduct additional interviews before contracting. Recall has a profound impact on incentives and on aggregate outcomes. We show that the likelihood to match early is nonmonotonic in type: early matches occur between the good-but-not-best agents. The option value provided by the first-period partner provides a force against unraveling, so that deferrals occur under small participation costs.
    Keywords: recall,unraveling,dynamic matching
    Date: 2022–02–14
  13. By: Jin-Wook Chang; Matt Darst
    Abstract: This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass of moldy lemons can lead to a large cascade of exits when buyers possess outside options. Our results suggest a parsimonious way of generating sudden market shutdowns without relying on institutional details or imposing additional structure on the model. Thus, the simple insights on the properties of market shutdowns we consider are applicable to many different markets and contexts.
    Keywords: Asymmetric information; Market unraveling; Non-exclusive contracting
    JEL: D52 D53 D82 E44 G32
    Date: 2022–03–23
  14. By: Felix Brandt; Chris Dong
    Abstract: We introduce a new notion of rationalizability where the rationalizing relation may depend on the set of feasible alternatives. More precisely, we say that a choice function is locally rationalizable if it is rationalized by a family of rationalizing relations such that a strict preference between two alternatives in some feasible set is preserved when removing other alternatives. We then show that a choice function is locally rationalizable if and only if it satisfies Sen's $\gamma$ and give similar characterizations for local rationalizability via transitive, PIP-transitive, and quasi-transitive relations. Local rationalizability is realized via families of revealed preference relations that are sandwiched in between the base relation and the revealed preference relation of a choice function. We demonstrate the adequacy of our results for analyzing and constructing consistent social choice functions by giving simple characterizations of the top cycle and the uncovered set using transitive and quasi-transitive local rationalizability.
    Date: 2022–04
  15. By: Gani Aldashev (ECARES, SBS-EM, Université libre de Bruxelles); Esteban Jaimovich (University of Surrey); Thierry Verdier (PSE/École des Ponts-ParisTech/PUC Rio/CEPR)
    Abstract: We study the implications of transparency policies on decentralized public good provision. The moral hazard inside non-profits interacts with the competitive structure of the sector under alternative informational regimes. More transparency on the use of funds has an ambiguous e§ect on the total public good provision and donors’ welfare. Transparency encourages non-profits to more actively curb rent-seeking inside organizations, but it also tilts the playing field against non-profits facing higher monitoring costs, inducing them to abandon their missions and reducing non-profit diversity. Donors’ welfare is lower under transparency for intermediate levels of asymmetry in monitoring costs.
    Keywords: public goods, non-profit organizations, charitable giving, altruism, transparency.
    JEL: L31 D64 D43 D23
    Date: 2022–03
  16. By: Bhavook Bhardwaj; Siddharth Chatterjee
    Abstract: The standard economic model of choice assumes that a decision maker chooses from sets of alternatives. A new branch of literature has considered the problem of choosing from lists i.e. ordered sets. In this paper, we propose a new framework that considers choice from infinite sequences. Our framework provides a natural way to model decision making in settings where choice relies on a string of recommendations. We introduce three broad classes of choice rules in this framework. Our main result shows that bounded attention is due to the continuity of the choice functions with respect to a natural topology. We introduce some natural choice rules in this framework and provide their axiomatic characterizations. Finally, we introduce the notion of computability of a choice function using Turing machines and show that computable choice rules can be implemented by a finite automaton.
    Date: 2022–02
  17. By: Yusuke Kamishiro; Rajiv Vohra; Roberto Serrano
    Abstract: This paper provides a noncooperative approach to core stability in an economy with incomplete information. The analysis covers general exchange economies, although our tightest results hold when effective coalitions consist of at most two players, as in matching. We study the perfect Bayesian equilibria of an extensive form mechanism that extends the one used by Serrano and Vohra (1997) to implement the core of a complete information economy. This leads to a version of the core that we refer to as the sequential core, which allows for information to be transmitted among the agents during the process of coalition formation. Such information flows include proposals that can be viewed as signaling devices and/or screening contracts. The same result is obtained in a model of infinite-horizon coalitional bargaining for stationary PBE. Equilibrium refinements are then used to provide justifications for the coarse core and the fine core.
    Date: 2022
  18. By: Christa Cuchiero; Guido Gazzani; Irene Klein
    Abstract: We introduce two kinds of risk measures with respect to some reference probability measure, which both allow for a certain order structure and domination property. Analyzing their relation to each other leads to the question when a certain minimax inequality is actually an equality. We then provide conditions under which the corresponding robust risk measures, being defined as the supremum over all risk measures induced by a set of probability measures, can be represented classically in terms of one single probability measure. We focus in particular on the mixture probability measure obtained via mixing over a set of probability measures using some prior, which represents for instance the regulator's beliefs. The classical representation in terms of the mixture probability measure can then be interpreted as a Bayesian approach to robust risk measures.
    Date: 2022–04
  19. By: Nick Netzer; Arthur Robson; Jakub Steiner; Pavel Kocourek
    Abstract: In a model inspired by neuroscience, we show that constrained optimal perception encodes lottery rewards using an S-shaped encoding function and over-samples low-probability events. The implications of this perception strategy for behavior depend on the decision-maker’s understanding of the risk. The strategy does not distort choice in the limit as perception frictions vanish when the decision-maker fully understands the decision problem. If, however, the decision-maker underrates the complexity of the decision problem, then risk attitudes reflect properties of the perception strategy even for vanishing perception frictions. The model explains adaptive risk attitudes and probability weighting as in prospect theory and, additionally, predicts that risk attitudes are strengthened by time pressure and attenuated by anticipation of large risks.
    Keywords: endogenous preferences, probability distortions, misspecified learning
    JEL: D81 D87 D91
    Date: 2022
  20. By: Axel Gautier (LCII - Liège Competition and Innovation Institute, HEC Liège); Jean-Christophe Poudou; Michel Roland (CREATE - ULaval - Université Laval [Québec], ULaval - Université Laval [Québec])
    Abstract: This paper analyzes whether repealing net neutrality (NN) improves or decreases the capacity of a regulator to make internet service providers (ISPs) extend broadband coverage through universal service obligations (USOs). We model a two-sided market where a monopolistic ISP links content providers (CPs) to end users with a broadband network of a given bandwidth. A regulator determines whether to submit the ISP to NN or to allow it to supply paid priority (P) services to CPs. She can also impose a broadband USO to the ISP, i.e. she can mandate the broadband market coverage. We show that the greater is the network bandwidth, the more likely the repeal of net neutrality increases ISP profits and social welfare. Regulation can still be necessary, however, as there are bandwidth ranges for which the ISP would benefit from a repeal of NN while such a repeal is detrimental to society.
    Keywords: L96,Internet,Net Neutrality,Universal Service Obligations,Prioritization,Regulation JEL: D21,K23,L12,L51
    Date: 2022–03–07

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