nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒09‒12
twenty-one papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Consumer Scores and Price Discrimination By Alessandro Bonatti; Gonzalo Cisternas
  2. Selecting the Best when Selection is Hard By Mikhail Drugov; Margaret Meyer; Marc Möller
  3. Monotone Comparative Statics for Equilibrium Problems By Alfred Galichon; Larry Samuelson; Lucas Vernet
  4. Decision-making under Imperfect Information with Bayesian Learning or Heuristic Rules By Carina Burs; Thomas Gries
  5. Credence goods, consumer feedback and (in)efficiency By Mehdi Ayouni; Thomas Lanzi
  6. Search and competition in expert markets By Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
  7. Negative Tax Incidence with Multiproduct Firms By Anna D'Annunzio; Antonio Russo
  8. Stable Matching with Mistaken Agents By Georgy Artemov; Yeon-Koo Che; YingHua He
  9. Efficient Entry in Cournot (Global) games By Harrison, Rodrigo; Jara-Moroni, Pedro
  10. Misinformation in Social Media: The Role of Verification Incentives By Gonzalo Cisternas; Jorge Vásquez
  11. Ordered Surprises and Conditional Probability Systems By Adam Dominiak; Matthew Kovach; Gerelt Tserenjigmid
  12. Opacity in Bargaining over Public Good Provision By Julian Lamprecht; Marcel Thum
  13. Superiority-Seeking and the Preference for Exclusion By Alex Imas; Kristóf Madarász
  14. Regret-Free Truth-Telling Voting Rules By R. Pablo Arribillaga; Agustín G. Bonifacio; Marcelo A. Fernandez
  15. Information Aggregation in Multidimensional Cheap Talk By Daniel Habermacher
  16. Optimal capacity allocation in a vertical industry By Antelo, Manel; Bru, Lluís
  17. Subgame perfect Nash equilibrium for dynamic pricing competition with finite planning horizon By Niloofar Fadavi
  18. The Sample Complexity of Forecast Aggregation By Yiling Chen; Tao Lin
  19. Engagement Maximization By Hebert, Benjamin; Zhong, Weijie
  20. The perils of a coherent narrative By Alessandro Ispano
  21. Product licensing in a Stackelberg industry By Antelo, Manel; Bru, Lluís

  1. By: Alessandro Bonatti; Gonzalo Cisternas
    Abstract: The consumer suffers because she buys less (with the loss represented by the red area). And while not depicted, she also suffers from future price discrimination due to information about her willingness to pay (that is, the intercept of her demand function) getting transmitted to Firm 2. However, Firm 1 is forced to lower its price (P’ in the figure) after the strategic demand reduction occurs. If the consumer has high willingness to pay, the benefit of this discount applied to many units is such that she wants to be tracked (the blue area—a benefit—grows as the intercept of demand increases).
    Keywords: price discrimination; consumer scores; privacy
    JEL: E51
    Date: 2022–07–11
  2. By: Mikhail Drugov (New Economic School and CEPR); Margaret Meyer (Nuffield College and Department of Economics, Oxford University, and CEPR); Marc Möller (University of Bern)
    Abstract: In dynamic promotion contests, where performance measurement is noisy and ordinal, selection can be improved by biasing later stages in favor of early leaders. Even in the worst-case scenario, where noise swamps ability differences in determining relative performance, optimal bias is i) strictly positive; ii) locally insensitive to changes in the heterogeneity-to-noise ratio. A close relationship with expected optimal bias under cardinal information helps explain this surprising result. Properties i) and ii) imply that the simple rule of setting bias as if in the worst-case scenario achieves most of the potential gains in selective efficiency from biasing dynamic rank-order contests.
    Keywords: Dynamic Contests; Selective Efficiency; Bias; Learning; Promotions JEL Classifications: D21, D82, D83, M51
    Date: 2022–08
  3. By: Alfred Galichon; Larry Samuelson; Lucas Vernet
    Abstract: We introduce a notion of substitutability for correspondences and establish a monotone comparative static result, unifying results such as the inverse isotonicity of M-matrices, Berry, Gandhi and Haile's identification of demand systems, monotone comparative statics, and results on the structure of the core of matching games without transfers (Gale and Shapley) and with transfers (Demange and Gale). More specifically, we introduce the notions of 'unified gross substitutes' and 'nonreversingness' and show that if Q is a supply correspondence defined on a set of prices P which is a sublattice of R^N, and Q satisfies these two properties, then the set of prices yielding supply vector q is increasing (in the strong set order) in q; and it is a sublattice of P.
    Date: 2022–07
  4. By: Carina Burs (Paderborn University); Thomas Gries (Paderborn University)
    Abstract: Information is one of the most important ingredients for decision-making. While the neoclassical assumption of perfect information is surely an important conceptual benchmark for discussing efficient allocations, it is obviously far from describing a rational choice under real conditions. In reality, optimal choices should be considered choices under imperfect information. Thus, decision-makers' information problem can be solved by two strategies. Either they collect an optimal set of information to make an optimal allocation choice under this imperfect information set or they can apply heuristic reasoning. In this paper, we suggest a formal model framework for the example of a simple consumer decision for the allocation of differentiated goods to explore information acquisition strategies in such a simple standard choice situation. Using the model variation under perfect information as a benchmark, we answer the following questions. First and most importantly, under imperfect information, can a heuristic rule substitute information acquisition as an optimal choice? Second, what is the role of risk aversion in the information acquisition process? Finally, we explore the differences to the benchmark, both ex ante the first purchase decision and ex post when repeated purchases and consumption allows for experiences with the choices made.
    Keywords: information economics; imperfect information; Bayesian learning; risk; heuristics; differentiated products
    JEL: D8 D83 D90 D18
    Date: 2022–08
  5. By: Mehdi Ayouni (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thomas Lanzi (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We analyze the effects of consumer feedback on a credence goods market. We present a model inspired by Dulleck and Kerschbamer (2006) where consumers sequentially visit a monopolistic expert. Each consumer faces a problem which can be either minor or major. The expert performs a diagnosis that may or may not reveal the severity of the problem faced by each consumer. He then implements a treatment which can solve the problem or not. After visiting the expert, each consumer reveals the received treatment and its outcome, i.e., whether it solved her problem. Each consumer receives the feedback from all previous consumers and uses it to update her belief about the informativeness of the expert's diagnosis. She then decides whether to visit the expert. We show that consumer feedback can lead to inefficiency. More precisely, when the diagnosis fails, the expert overtreats consumers whereas the probability of a major problem is sufficiently low. This behavior does not arise without consumer feedback.
    Keywords: Reputation,Consumer feedback,Credence goods,Expert,Overtreatment
    Date: 2022–07–29
  6. By: Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
    Abstract: We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.
    Keywords: search, experts, competition, credence good
    JEL: D8 L1
    Date: 2022–08–12
  7. By: Anna D'Annunzio; Antonio Russo
    Abstract: A fundamental result in the theory of commodity taxation is that taxes increase consumer prices and reduce supply, aggravating the distortions caused by market power. This result hinges on the assumption that each firm provides a single product. We study the effects of commodity taxes in presence of multiproduct firms that have market power. We consider a monopolist providing two goods and obtain simple conditions such that an ad valorem tax reduces the prices and increases the supply of both goods, thereby increasing total surplus. We show that these conditions can hold in a variety of settings, including add-on pricing, multiproduct retailing with price advertising, intertemporal models with switching costs and two-sided markets.
    Keywords: commodity taxation, tax incidence, multi-product firms, monopoly
    JEL: D42 H21 H22
    Date: 2022
  8. By: Georgy Artemov; Yeon-Koo Che; YingHua He
    Abstract: Motivated by growing evidence of agents' mistakes in strategically simple environments, we propose a solution concept -- robust equilibrium -- that requires only an asymptotically optimal behavior. We use it to study large random matching markets operated by the applicant-proposing Deferred Acceptance (DA). Although truth-telling is a dominant strategy, almost all applicants may be non-truthful in robust equilibrium; however, the outcome must be arbitrarily close to the stable matching. Our results imply that one can assume truthful agents to study DA outcomes, theoretically or counterfactually. However, to estimate the preferences of mistaken agents, one should assume stable matching but not truth-telling.
    Date: 2022–07
  9. By: Harrison, Rodrigo; Jara-Moroni, Pedro (Universidad de Santiago de Chile.Facultad de Administración y Economía.Departamento de Economía; Universidad Adolfo Ibáñez. Facultad de Ingeniería y Ciencias)
    Abstract: IWe present a two stage entry game in which a large number of firms choose simultaneouslywhether to enter a market or not. Firms that decide to enter the market produce a homogeneousgood facing Cournot competition under a parametrized demand. Using a global game approach, weshow that there exist selection of a unique equilibrium in the first stage entry game, in which thereis efficient entry, i.e. firms that enter are the ones with the lowest entry cost, providing theoreticalfoundation for the equilibrium selection assumption utilized in entry models in the empirical entryliterature. We explore as well efficiency properties of the selected equilibrium and provide examplesthat do not fit our general framework, but where similar results may be obtained.
    Keywords: Cournot, Global game, Equilibrium selection, Strategic substitutes
    JEL: L13 D82 C72
    Date: 2021–04
  10. By: Gonzalo Cisternas; Jorge Vásquez
    Abstract: We develop a model of misinformation wherein users’ decisions to verify and share news of unknown truthfulness interact with producers’ choices to generate fake content as two sides of a market that balance to deliver an equilibrium prevalence and pass-through of fake news. We leverage the tractability of the model to examine the efficacy of various policies intended to combat misinformation that are in place currently, stressing how these may nontrivially interact with users’ incentives: news verification is a costly activity. Our analysis emphasizes the importance of examining users’ and producers’ decisions jointly, as well as of evaluating how policies interact with one another. It also provides sensitivity measures that are key for policy evaluation.
    Keywords: misinformation; news verification; social media
    JEL: D40 L10 L50
    Date: 2022–08–01
  11. By: Adam Dominiak; Matthew Kovach; Gerelt Tserenjigmid
    Abstract: We study conditioning on null events, or surprises, and behaviorally characterize the Ordered Surprises (OS) representation of beliefs. For feasible events, our Decision Maker (DM) is Bayesian. For null events, our DM considers new beliefs in order until one is consistent with the surprise. The DM adopts this prior and updates via Bayes' rule. Unlike Bayesian updating, OS provides a complete updating rule: conditional beliefs are well-defined for any event. OS is (behaviorally) equivalent to the Conditional Probability System (Myerson 1986b) and is a strict, special case of Hypothesis Testing (Ortoleva, 2012), clarifying the relationships between the various approaches to null events.
    Date: 2022–08
  12. By: Julian Lamprecht; Marcel Thum
    Abstract: We consider ultimatum bargaining over the provision of a public good. Offer-maker and responder can delegate their decisions to agents, whose actual decision rules are opaque. We show that the responder will benefit from strategic opacity, even with bilateral delegation. The incomplete information created by strategic opacity choices does not lead to inefficient negotiation failure in equilibrium. Inefficiencies arise from an inefficient provision level. While an agreement will always be reached, the public good provision will, however, fall short of the socially desirable level. Compared to unilateral delegation, bilateral delegation is never worse from a welfare perspective.
    Keywords: public good provision, transparency, opacity, bargaining, incomplete information, delegation
    JEL: C78 H40
    Date: 2022
  13. By: Alex Imas; Kristóf Madarász
    Abstract: We propose that a person’s desire to consume an object or possess an attribute increases in how much others want but cannot have it. We term this motive superiority-seeking, and show that it generates preferences for exclusion that help explain a host of market anomalies and make novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade and people exhibit a ‘social endowment effect.’ People’s value of consuming a good increases in its scarcity, which generates a motive for firms and organizations to cater to such preferences by engaging in exclusionary policies. Randomly barring potential consumers from the opportunity to acquire a product increases the seller’s profits both in standard monopoly and auction settings. Such non-price-based exclusion leads to higher revenues than the classic optimal sales mechanisms. A series of experiments provides direct support for these predictions. In basic exchange, a person’s willingness to pay for a good increases as more people are explicitly barred from the opportunity to acquire it. In auctions, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Our model of superiority-seeking generates ‘Veblen effects,’ rationalizes attitudes against redistribution, and provides a novel motive for social stratification and discrimination.
    JEL: D01 D02 D03 D45 D9 D91
    Date: 2022–08
  14. By: R. Pablo Arribillaga (Universidad Nacional de San Luis/CONICET); Agustín G. Bonifacio (Universidad Nacional de San Luis/CONICET); Marcelo A. Fernandez (Johns Hopkins University)
    Abstract: We study the implications of regret-free truth-telling for voting rules. Regretfreeness, a weakening of strategy-proofness, provides incentives to report preferences truthfully if agents want to avoid regret. We first show that for tops-only rules regret-freeness is equivalent to strategy-proofness. Then, we focus on three families of (non-tops-only) voting methods: maxmin, scoring, and Condorcet consistent ones. We show positive and negative results for both neutral and anonymous versions of maxmin and scoring rules. We also show that Condorcet consistent rules that satisfy a mild monotonicity requirement are not regret-free, and neither are successive elimination rules. Furthermore, we provide full characterizations for the case of three alternatives and two agents.
    Keywords: Strategy-proofness, Regret-freeness, Voting Rules, Social Choice
    JEL: D71
    Date: 2022–08
  15. By: Daniel Habermacher (Universidad de los Andes, Chile)
    Abstract: I examine a cheap talk game with multiple interdependent decisions, in which biased senders privately observe information about payoff-relevant states. I find that senders are willing to use open (state-specific) communication channels to strategically convey information about other states that otherwise cannot be revealed. In equilibrium, this leads to a loss of credibility that reduces the set of parameters for which communication is incentive compatible. The credibility loss associated with a sender arises when a given piece of information is relevant for both low- and high-conflict decisions. Surprisingly, when the receiver is expected to observe more of such information on path,the associated credibility loss recedes—i.e. the sender is more willing to reveal information that is only relevant for low-conflict decisions. Finally, I fully characterize the communication equilibrium in a simple version of the model, which I use as baseline to analyze the interaction between informational interdependence and preferences for coordinated decisions.
    Keywords: Information Economics, Cheap Talk, Multidimensional Communication
    JEL: D21 D83
    Date: 2022–08
  16. By: Antelo, Manel; Bru, Lluís
    Abstract: We examine how a social planner should allocate productive capacity in a downstream industry when, upstream, there is an efficient supplier and a set of less efficient suppliers of an essential input. We show that optimal allocation consists of setting a large quota and small quotas for the remaining capacity. This allows the planner, without necessarily harming consumers, to reap licensing rents above those that would be obtained in a competitive downstream market or under public management of capacity. We also discuss circumstances under which a use-or-lose requirement for the large quota is welfare enhancing or welfare reducing, and under which banning price discrimination in the intermediate market may be socially optimal.
    Keywords: Capacity allocation, dominant firm, use-or-lose requirement, price discrimination, quota licence, soft-budget constraint
    JEL: D43 F13 L13
    Date: 2022–01
  17. By: Niloofar Fadavi
    Abstract: Having fixed capacities, homogeneous products and price sensitive customer purchase decision are primary distinguishing characteristics of numerous revenue management systems. Even with two or three rivals, competition is still highly fierce. This paper studies sub-game perfect Nash equilibrium of a price competition in an oligopoly market with perishable assets. Sellers each has one unit of a good that cannot be replenished, and they compete in setting prices to sell their good over a finite sales horizon. Each period, buyers desire one unit of the good and the number of buyers coming to the market in each period is random. All sellers' prices are accessible for buyers, and search is costless. Using stochastic dynamic programming methods, the best response of sellers can be obtained from a one-shot price competition game regarding remained periods and the current-time demand structure. Assuming a binary demand model, we demonstrate that the duopoly model has a unique Nash equilibrium and the oligopoly model does not reveal price dispersion with respect to a particular metric. We illustrate that, when considering a generalized demand model, the duopoly model has a unique mixed strategy Nash equilibrium while the oligopoly model has a unique symmetric mixed strategy Nash equilibrium.
    Date: 2022–08
  18. By: Yiling Chen; Tao Lin
    Abstract: We consider a Bayesian forecast aggregation model where $n$ experts, after observing private signals about an unknown binary event, report their posterior beliefs about the event to a principal, who then aggregates the reports into a single prediction for the event. The signals of the experts and the outcome of the event follow a joint distribution that is unknown to the principal, but the principal has access to i.i.d. "samples" from the distribution, where each sample is a tuple of experts' reports (not signals) and the realization of the event. Using these samples, the principal aims to find an $\varepsilon$-approximately optimal (Bayesian) aggregator. We study the sample complexity of this problem. We show that, for arbitrary discrete distributions, the number of samples must be at least $\tilde \Omega(m^{n-2} / \varepsilon)$, where $m$ is the size of each expert's signal space. This sample complexity grows exponentially in the number of experts $n$. But if experts' signals are independent conditioned on the realization of the event, then the sample complexity is significantly reduced, to $\tilde O(1 / \varepsilon^2)$, which does not depend on $n$.
    Date: 2022–07
  19. By: Hebert, Benjamin (Stanford U); Zhong, Weijie (Stanford U)
    JEL: D83 D86
    Date: 2022–07
  20. By: Alessandro Ispano (Université de Cergy-Pontoise, THEMA)
    Abstract: A persuader infuences a decision-maker by providing a narrative to interpret some upcoming news. The decision-maker embraces a narrative when it is coherent (likelihoods of each news conditional on a realized state must sum to unity) and compatible with the truth (the marginal distribution of news is undistorted). Even if coherence restricts the set of beliefs the persuader can induce, it may nonetheless harm also the decision-maker. As a result, both players may benefit when the persuader can provide news-contingent, overall incoherent, narratives. Likewise, both players may benefit when the persuader can privately learn the truth, or when he can design the process of news arrival.
    Keywords: interpretation, consistency, misspecification, manipulation, model, cognition.
    JEL: D82 D83 D90
    Date: 2022
  21. By: Antelo, Manel; Bru, Lluís
    Abstract: We study in a Stackelberg industry the licensing of a product that embodies an innovation (a quality-improving product). The innovation may be owned by the firm that acts as the leader or follower in the marketplace. If the innovation owner is the market leader, licensing takes place and consists of a revenue royalty with no fixed payment, but is not socially desirable, because it yields a more collusive industry. However, if the innovation owner is the market follower, licensing does not hold, even though it would be welfare enhancing and thus socially desirable. Thus, stimulating licensing by subsidizing a follower firm owning a product innovation would benefit both consumers and society as a whole.
    Keywords: Vertical differentiation, licensing, per-unit and ad-valorem royalties, market leader and follower, welfare
    JEL: D43 D45
    Date: 2022–01

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