nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒08‒29
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Economics of Platform Liability By Yassine Lefouili; Leonardo Madio
  2. Building Reputations via Summary Statistics By Harry Pei
  3. Improved Information in Search Markets By Jidong Zhou
  4. Symmetric reduced form voting By Xu Lang; Debasis Mishra
  5. When Do Consumers Talk? By Ishita Chakraborty; Joyee Deb; Aniko Oery
  6. An Efficient and Strategy-Proof Multi-Item Ascending Auction under Financial Constraints By Zaifu Yang; Jingsheng Yu
  7. Policy Reforms and the Amount of Checks & Balances By Hans Gersbach; Oriol Tejada; Julia Wagner
  8. Auction Design with Data-Driven Misspecifications By Philippe Jehiel; Konrad Mierendorff
  9. Information Design in Cheap Talk By Qianjun Lyu; Wing Suen
  10. Research Joint Ventures: The Role of Financial Constraints By Philipp Brunner; Igor Letina; Armin Schmutzler

  1. By: Yassine Lefouili (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); Leonardo Madio (Universita degli Studi di Padova)
    Abstract: Public authorities in many jurisdictions are concerned about the proliferation of illegal content and products on online platforms. One often discussed solution is to make the platform liable for third parties' misconduct. In this paper, we first identify platform incentives to stop online misconduct in the absence of liability. Then, we provide an economic appraisal of platform liability that highlights the intended and unintended effects of a more stringent liability rule on several key variables such as prices, terms and conditions, business models, and investments. Specifically, we discuss the impact of the liability regime applying to online platforms on competition between them and the incentives of third parties relying on them. Finally, we analyze the potential costs and benefits of measures that have received much attention in recent policy discussions.
    Keywords: Liability rules,Online platform,Illegal content and products,Intellectual property
    Date: 2022–06
  2. By: Harry Pei
    Abstract: A patient seller interacts with a sequence of myopic consumers. Each consumer decides whether to trust the seller after she observes the number of times that the seller took each of his actions in the last K periods, but not the order with which these actions were taken. I assume that the seller's effort and consumers' trust are strategic complements, and that with positive probability, the seller is a commitment type who exerts the highest effort in every period. I show that the seller sustains his reputation for exerting the highest effort in all equilibria if and only if K is below some cutoff. Although a larger K allows more consumers to observe the seller's opportunistic behavior, it weakens consumers' incentives to punish the seller after they observe opportunistic behaviors. This effect undermines the seller's reputational incentives and lowers consumers' welfare. I also show that coarsening the summary statistics observed by the consumers may encourage the seller to sustain his reputation and may improve consumers' welfare.
    Date: 2022–07
  3. By: Jidong Zhou (Cowles Foundation, Yale University)
    Abstract: How will an improved information environment affects competition and market performance when consumers face search frictions? This paper provides a unified way to model information improvement that makes the search pool more ``selective" (e.g., due to personalized recommendations), or more ``informative" (e.g., due to the availability of more detailed product information). Information improvement tends to induce consumers to search less, intensify price competition and benefit consumers, if the search friction is small, or if information improvement truncates the match utility distribution from below. More generally, however, it is also possible for information improvement to raise the market price and harm consumers.
    Keywords: consumer search, personalized recommendations, information improvement, price competition
    JEL: D43 D83 L13
    Date: 2020–11
  4. By: Xu Lang; Debasis Mishra
    Abstract: We study a model of voting with two alternatives in a symmetric environment. We characterize the interim allocation probabilities that can be implemented by a symmetric voting rule. We show that every such interim allocation probabilities can be implemented as a convex combination of two families of deterministic voting rules: qualified majority and qualified anti-majority. We also provide analogous results by requiring implementation by a unanimous voting rule. A consequence of our results is that if the prior is independent, every symmetric and ordinally Bayesian incentive compatible voting rule is reduced (interim) form equivalent to a symmetric and strategy-proof voting rule.
    Date: 2022–07
  5. By: Ishita Chakraborty (Yale School of Management); Joyee Deb (Cowles Foundation, Yale University); Aniko Oery (Cowles Foundation, Yale University)
    Abstract: The propensity of consumers to engage in word-of-mouth (WOM) can di?er after good versus bad experiences, resulting in positive or negative selection of user-generated reviews. We study how the propensity to engage in WOM depends on information available to customers through di?erent marketing channels. We develop a model of WOM in which a target customer makes a purchase decision based on his private brand association, public product-speci?c information (e.g. from advertising or past reviews) and WOM content, and an early adopter of the new product engages in WOM only if her information is instrumental to the target customer’s purchase decision. We de?ne brand image to be the distribution of the customers’ brand associations, and strength of the brand image to be the precision of this distribution. We show that if the brand image is strong, then in equilibrium only negative WOM can arise. In contrast, with a weak brand image, positive WOM must occur. Moreover, holding product quality ?xed, a positive advertising signal realization leads to a more positive WOM selection. We use restaurant review data from to motivate our model assumptions and validate the predictions. For example, a textual analysis of reviews is consistent with prevalence of an instrumental motive for WOM. Further, a review rating for national established chain restaurant locations, where the brand image is strong, is almost 1-star lower (on a 5-star scale) than a review rating for a comparable independent restaurant, controlling for reviewer and restaurant characteristics.
    Keywords: Brand image, Costly communication, Recommendation engines, Review platforms, Word of mouth
    Date: 2020–08
  6. By: Zaifu Yang; Jingsheng Yu
    Abstract: This paper proposes an ascending auction for selling multiple heterogeneous indivisible items to several potential bidders. Every bidder demands at most one item and faces a budget constraint. His valuations and budget are private information. Budget constraints may lead to the failure of competitive equilibrium. Bidders are not assumed to behave as price-takers and may therefore act strategically. We prove that the auction always induces bidders to bid truthfully and finds a strongly Pareto efficient core allocation when bidders are budget constrained, otherwise a Walrasian equilibrium with the minimum equilibrium price vector.
    Keywords: Ascending auction, core, equilibrium, budget constraint, incentive, assignment market.
    JEL: D44
    Date: 2022–05
  7. By: Hans Gersbach (CER-ETH – Center of Economic Research at ETH Zurich and CEPR Zuerichbergstrasse 18 8092 Zurich, Switzerland); Oriol Tejada (Faculty of Economics and Business Universitat de Barcelona Diagonal 690-696 08034 Barcelona, Spain); Julia Wagner (CER-ETH – Center of Economic Research at ETH Zurich and CEPR Zuerichbergstrasse 18 8092 Zurich, Switzerland)
    Abstract: We examine how democracies choose their amount of checks and balances (C&B). For this purpose, we consider a simple model of political competition with costly policy reforms. The cost of a marginal reform is determined endogenously at the constitutional phase—i.e. before policies are chosen—through the choice of (the amount of) C&B. We characterize the set of stable C&B for different constitutional rules which vary depending on (i) who has the power to propose changes to C&B and (ii) on the qualified majority used for approving such changes. Our main results show that stable C&B always exist, are never zero, lead to gridlock, and are higher if the proposal-maker is the party in government. We also find that higher majority requirements for constitutional changes and more polarized societies are conducive to larger sets of stable C&B.
    Keywords: elections; democracy; political polarization; reform costs; constitutions; checks and balances
    JEL: C72 D72 D78 H4
    Date: 2022–08
  8. 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
  9. By: Qianjun Lyu; Wing Suen
    Abstract: An uninformed sender publicly commits to an informative experiment about an uncertain state, privately observes its outcome, and sends a cheap-talk message to a receiver. We provide an algorithm valid for arbitrary state-dependent preferences that will determine the sender's optimal experiment, and give sufficient conditions for information design to be valuable or not under different payoff structures. These conditions depend more on marginal incentives -- how payoffs vary with the state -- than on the alignment of sender's and receiver's rankings over actions within a state.
    Date: 2022–07
  10. By: Philipp Brunner; Igor Letina; Armin Schmutzler
    Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
    Date: 2022–07

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