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on Microeconomics |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Católica de Chile); Stephen Morris (Dept. of Economics, MIT) |
| Abstract: | We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller’s profits. The seller who cannot observe the buyer’s willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents. |
| Keywords: | Nonlinear Pricing, Finite Menu, Second-degree Price Discrimination, Recommender System |
| JEL: | D44 D47 D83 D84 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2338&r= |
| By: | Frédéric Koessler (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Marie Laclau (GREGHEC - Groupement de Recherche et d'Etudes en Gestion - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique); Jerôme Renault (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); Tristan Tomala (Unknown) |
| Abstract: | We analyze information design games between two designers with opposite preferences and a single agent. Before the agent makes a decision, designers repeatedly disclose public information about persistent state parameters. Disclosure continues until no designer wishes to reveal further information. We consider environments with general constraints on feasible information disclosure policies. Our main results characterize equilibrium payoffs and strategies of this long information design game and compare them with the equilibrium outcomes of games where designers move only at a single predetermined period. When information disclosure policies are unconstrained, we show that at equilibrium in the long game, information is revealed right away in a single period; otherwise, the number of periods in which information is disclosed might be unbounded. As an application, we study a competition in product demonstration and show that more information is revealed if each designer could disclose information at a pre-determined period. The format that provides the buyer with most information is the sequential game where the last mover is the ex-ante favorite seller. |
| Keywords: | Bayesian persuasion,concavification,convexification,information,design,Mertens–Zamir solution,product demonstration,splitting games,Statistical experiments,stochastic games. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03700394&r= |
| By: | Daske, Thomas; March, Christoph |
| Abstract: | This study explores mechanism design with allocation-based social preferences. Agents' social preferences and private payoffs are all subject to asymmetric information. We assume quasi-linear utility and independent types. We show how the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. Our main result is a possibility result for groups of at least three agents: If endowments are sufficiently large, any such group can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. |
| Keywords: | mechanism design,social preferences,Bayesian implementation,participation constraints,participation stimulation |
| JEL: | C72 C78 D62 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:180&r= |
| By: | Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Yuhta Ishii (Department of Economics at Pennsylvania State University) |
| Abstract: | We study which multi-agent information structures are more effective at eliminating both first-order and higher-order uncertainty, and hence at facilitating efficient play in incomplete-information coordination games. We consider a learning setting à la Cripps, Ely, Mailath, and Samuelson (2008) where players have access to many private signal draws from an information structure. First, we characterize the rate at which players achieve approximate common knowledge of the state, based on a simple learning efficiency index. Notably, this coincides with the rate at which players’ first-order uncertainty vanishes, as higher-order uncertainty becomes negligible relative to first-order uncertainty after enough signal draws. Based on this, we show that information structures with higher learning efficiency induce more efficient equilibrium outcomes in coordination games that are played after sufficiently many signal draws. We highlight some robust implications for information design in games played in data-rich environments. |
| Keywords: | higher-order beliefs, common learning, coordination, speed of learning, comparison of information structures. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2299r2&r= |
| By: | Gradwohl, Ronen; Heller, Yuval; Hillman, Arye |
| Abstract: | We study the ability of a social media platform with a political agenda to influence voting outcomes. Our benchmark is Condorcet’s jury theorem, which states that the likelihood of a correct decision under majority voting increases with the number of voters. We show how information manipulation by a social media platform can overturn the jury theorem, thereby undermining democracy. We also show that sometimes the platform can do so only by providing information that is biased in the opposite direction of its preferred outcome. Finally, we compare manipulation of voting outcomes through social media to manipulation through traditional media. |
| Keywords: | Bayesian persuasion; Political agenda; Information manipulation; Condorcet Jury Theorem; Biased signals |
| JEL: | D72 D82 P16 |
| Date: | 2022–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113609&r= |
| By: | Stéphan Sémirat (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Françoise Forges (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS - Centre National de la Recherche Scientifique - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres) |
| Abstract: | We consider a sender-receiver game, in which the sender has finitely many types and the receiver's decision is a real number. We assume that utility functions are concave, single-peaked and single-crossing. After the cheap talk phase, the receiver makes a decision, which requires the sender's approval to be implemented. Otherwise, the sender "exits". At a perfect Bayesian equilibrium without exit, the receiver must maximize his expected utility subject to the participation constraints of all positive probability types. This necessary condition may not hold at the receiver's prior belief, so that a non-revealing equilibrium may fail to exist. Similarly, a fully revealing equilibrium may not exist either due to the sender's incentive compatibility conditions.We propose a constructive algorithm that always achieves a perfect Bayesian equilibrium without exit. |
| Keywords: | Participation constraints,Discrete Cheap talk,Single-crossing |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03231673&r= |
| By: | Vladimir Smirnov; Andrew Wait |
| Abstract: | We examine innovation in an n-player market-entry timing game with complete information and observable actions. In our novel multi-player setup, we allow for heterogeneous payoffs between players and for a leader's payoff functions to be multi-peaked an non-monotonic, only requiring that followers' payoffs are non-increasing with the time of the leader's entry. We provide conditions for when equilibrium actions do not depend on historic payoffs, showing in this case that the n-player asymmetric game generates standard leader-maximized or preemption equilibria. In the two-player game we provide a complete characterization of the pure-strategy equilibria for when historic payoffs affects equilibrium actions (including the possibility of no equilibria in pure strategies). Finally, we relate our results to three applications from the literature. |
| Keywords: | timing games; preempting entry, innovation; |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2022-02&r= |
| By: | Michail Anthropelos; Paul Schneider |
| Abstract: | We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are nondifferentiable, resemble observed bid-ask spreads, and are consistent with existing parametric limiting participation results under ambiguity. Ambiguity seekers exhibit a discontinuous demand function, implying an empty set of reservation prices. If agents have identical, or sufficiently similar prior beliefs, the first-best equilibrium is no trade. Simple conditions yield the existence of a Pareto-efficient second-best equilibrium, implying that heterogeneity in ambiguity preferences is sufficient for mutually beneficial transactions among all else homogeneous traders. These equilibria reconcile many observed phenomena in liquid high-information financial markets, such as liquidity dry-ups, portfolio inertia, and negative risk premia. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.10489&r= |
| By: | Marek Kapera |
| Abstract: | This paper provides theoretical foundations for preference discovery theory. We propose to relax the assumption that the consumer has perfect knowledge of their own preferences, so that the consumer knows only the subjective probability of those alternatives being in any given relation, which is conditional on the information available to the consumer. To achieve that, we construct probabilistic measures on the space of all permissible preference relations and consider the consumer to be equipped with one such measure, instead of a preference relation. These measures are intrinsically linked by construction to the information structure available to the consumer and allow for indirect learning. We visualize how these measures correspond to the choices of the consumer, we consider three distinct decision procedures. These procedures formalize how under different assumptions regarding the underlying probability measure, the consumer guesses their own tastes. Finally, we use these measures to define the value of the information provided by the consumption of a chosen alternative and study the properties of the preference ranking induced by it. |
| Keywords: | Taste uncertainty, Preference discovery, Learning through consumption, Conditional preferences, Experimental preferences |
| JEL: | D11 D83 D91 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2022074&r= |
| By: | Anton Kolotilin; Roberto Corrao; Alexander Wolitzky |
| Abstract: | In persuasion problems where the receiver's action is one-dimensional and his utility is single-peaked, optimal signals are characterized by duality, based on a first-order approach to the receiver's problem. A signal is optimal if and only if the induced joint distribution over states and actions is supported on a compact set (the contact set) where the dual constraint binds. A signal that pools at most two states in each realization is always optimal, and such pairwise signals are the only solutions under a non-singularity condition on utilities (the twist condition). We provide conditions under which higher actions are induced at more or less extreme pairs of states. Finally, we provide conditions for the optimality of either full disclosure or negative assortative disclosure, where signal realizations can be ordered from least to most extreme. Optimal negative assortative disclosure is characterized as the solution to a pair of ordinary differential equations. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.09164&r= |
| By: | Joshua S. Gans; Richard Holden |
| Abstract: | Blockchain consensus is a state whereby each node in a network agrees on the current state of the blockchain. Existing protocols achieve consensus via a contest or voting procedure to select one node as a dictator to propose new blocks. However, this procedure can still lead to potential attacks that make consensus harder to achieve or lead to coordination issues if multiple, competing chains (i.e., forks) are created with the potential that an untruthful fork might be selected. We explore the potential for mechanisms to be used to achieve consensus that are triggered when there is a dispute impeding consensus. Using the feature that nodes stake tokens in proof of stake (POS) protocols, we construct revelation mechanisms in which the unique (subgame perfect) equilibrium involves validating nodes propose truthful blocks using only the information that exists amongst all nodes. We construct operationally and computationally simple mechanisms under both Byzantine Fault Tolerance and a Longest Chain Rule, and discuss their robustness to attacks. Our perspective is that the use of simple mechanisms is an unexplored area of blockchain consensus and has the potential to mitigate known trade-offs and enhance scalability. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.10065&r= |
| By: | Ghosh, Meenakshi |
| Abstract: | Two sellers trade vertically and horizontally differentiated goods on a platform which charges them a commission fee. Some consumers are naive and do not observe, or consider, add-on prices until after they commit to buying the base good from a seller. We address the following questions. First, how do consumer naivete and costs asymmetries (arising from differences in fees) influence pricing strategies. Second, we examine the welfare loss arising from sub-optimal decisions made by naive consumers who buy the bundle, but fail to factor in its total price at the outset. Third, how does naivete affect seller and platform payoffs. |
| Keywords: | add-on pricing, consumer naivete, cost asymmetry, horizontal differentiation, vertical differentiation, platform fee, cost pass-through |
| JEL: | L1 L11 |
| Date: | 2022–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113548&r= |
| By: | Philippe Jehiel (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCL - University College of London [London]); Konrad Mierendorff (UCL - University College of London [London]) |
| Abstract: | We study the existence of e¢cient auctions in private value settings in which some bidders choose their bids based on the accessible data from past similar auctions consisting of bids and ex post values. We consider steady-states in such environments with a mix of rational and data-driven bidders, and we allow for correlation across bidders in the signal distributions about the ex post values. After reviewing the working of the approach in second-price and first-price auctions, we show our main result that there is no e¢cient auction in such environments. |
| Keywords: | Belief Formation,Auctions,E¢ciency,Analogy-based Expectations Belief Formation |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03735747&r= |
| By: | Onur A. Koska (University of Canterbury) |
| Abstract: | In a duopoly model with network externalities, this paper studies Cournot and Bertrand firms’ optimal investments in network strength under passive and responsive consumer expectations, and looks at the welfare implications. The results suggest minimum sufficient threshold levels of initial network strength for which (i) the optimal investment levels by both Cournot and Bertrand firms are greater under responsive expectations; (ii) Cournot firms invest more than Bertrand firms under responsive expectations, whereas Bertrand firms invest more than Cournot firms under passive expectations. These threshold levels are also sufficient in that welfare is (i) greater under responsive expectations than under passive expectations for a given competition mode, and (ii) greater under Bertrand competition than under Cournot competition for a given type of consumer expectations. |
| Keywords: | Network strength, investment, consumer expectations, Cournot duopoly, Bertrand duopoly |
| JEL: | D43 L13 M21 |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:22/09&r= |
| By: | Sarah Auster (Department of Economics, University of Bonn); Piero Gottardi (Department of Economics, Essex University and University of Venice) |
| Abstract: | We study the role of traders' meeting capacities in decentralized markets with adverse selection. Uninformed customers choose trading mechanisms in order to find a provider for a service. Providers are privately informed about their quality and aim to match with one of the customers. We consider a rich set of meeting technologies and characterize the properties of the equilibrium allocations for each of them. In equilibrium, different provider types can be separated either via sorting---they self-select into different submarkets---or screening within the trading mechanism, or a combination of the two. We show that, as the meeting technology improves, the equilibrium features more screening and less sorting. Interestingly, this reduces both the average quality of trade as well as the total level of trade in the economy. The trading losses are, however, compensated by savings in entry costs, so that welfare increases. |
| Keywords: | Competitive Search, Adverse Selection, Market Segmentation |
| JEL: | C78 D44 D83 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:180&r= |
| By: | Lirong Xia |
| Abstract: | We introduce a notion of fairest tie-breaking for voting w.r.t. two widely-accepted fairness criteria: anonymity (all voters being treated equally) and neutrality (all alternatives being treated equally). We proposed a polynomial-time computable fairest tie-breaking mechanism, called most-favorable-permutation (MFP) breaking, for a wide range of decision spaces, including single winners, $k$-committees, $k$-lists, and full rankings. We characterize the semi-random fairness of commonly-studied voting rules with MFP breaking, showing that it is significantly better than existing tie-breaking mechanisms, including the commonly-used lexicographic and fixed-agent mechanisms. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.14838&r= |
| By: | In-Koo Cho; Jonathan Libgober |
| Abstract: | This paper examines whether one can learn to play an optimal action while only knowing part of true specification of the environment. We choose the optimal pricing problem as our laboratory, where the monopolist is endowed with an underspecified model of the market demand, but can observe market outcomes. In contrast to conventional learning models where the model specification is complete and exogenously fixed, the monopolist has to learn the specification and the parameters of the demand curve from the data. We formulate the learning dynamics as an algorithm that forecast the optimal price based on the data, following the machine learning literature (Shalev-Shwartz and Ben-David (2014)). Inspired by PAC learnability, we develop a new notion of learnability by requiring that the algorithm must produce an accurate forecast with a reasonable amount of data uniformly over the class of models consistent with the part of the true specification. In addition, we assume that the monopolist has a lexicographic preference over the payoff and the complexity cost of the algorithm, seeking an algorithm with a minimum number of parameters subject to PAC-guaranteeing the optimal solution (Rubinstein (1986)). We show that for the set of demand curves with strictly decreasing uniformly Lipschitz continuous marginal revenue curve, the optimal algorithm recursively estimates the slope and the intercept of the linear demand curve, even if the actual demand curve is not linear. The monopolist chooses a misspecified model to save computational cost, while learning the true optimal decision uniformly over the set of underspecified demand curves. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.10140&r= |