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on Microeconomics |
| By: | Rangeet Bhattacharyya; Palash Dey; Swaprava Nath |
| Abstract: | The auction of a single indivisible item is one of the most celebrated problems in mechanism design with transfers. Despite its simplicity, it provides arguably the cleanest and most insightful results in the literature. When the information of the auction is available to every participant, Myerson [17] provided a seminal result to characterize the incentive-compatible auctions along with revenue optimality. However, such a result does not hold in an auction on a network, where the information of the auction is spread via the agents, and they need incentives to forward the information. In recent times, a few auctions (e.g., [10, 15]) were designed that appropriately incentivize the intermediate nodes on the network to promulgate the information to potentially more valuable bidders. In this paper, we provide a Myerson-like characterization of incentive-compatible auctions on a network and show that the currently known auctions fall within this larger class of randomized auctions. We obtain the structure of the revenue optimal auction for i.i.d. bidders on arbitrary trees. We discuss the possibilities of addressing more general settings. Through experiments, we show that auctions following this characterization can provide a higher revenue than the currently known auctions on networks. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.09326&r= |
| By: | Federico Navarra (University of Padova) |
| Abstract: | This paper studies the effects of price parity clauses (PPC) on consumer surplus and platform profit by investigating the strategic interactions among horizontally differentiated multi-channel retailers selling through online platforms as well as in their the direct channel. Consumers first choose which product to buy and then in which channel (online/direct) to finalize the purchase; platforms can decide about whether or not to impose PPCs. We show that the direct sales channel constrains platform pricing strategies such that PPCs have ambiguous effects on consumers. From the social welfare perspective, imposing PPCs is desirable when platforms are perceived as highly substitutable. Both platforms imposing price parity is always a Nash equilibrium but under certain conditions it can also arise another Nash equilibrium in which both platforms select an unrestricted pricing regime. |
| Keywords: | platform competition, price parity clauses, vertical restraints, showrooming, webrooming |
| JEL: | D43 L13 L42 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0281&r= |
| By: | Francesco Giovannoni; Toomas Hinnosaar |
| Abstract: | We study a buyer-seller problem of a novel good for which the seller does not yet know the production cost. A contract can be agreed upon at either the ex-ante stage, before learning the cost, or at the ex-post stage, when both parties will incur a costly delay, but the seller knows the production cost. We show that the optimal ex-ante contract for a profit-maximizing seller is a fixed price contract with an "at-will" clause: the seller can choose to cancel the contract upon discovering her production cost. However, sometimes the seller can do better by offering a guaranteed-delivery price at the ex-ante stage and a second price at the ex-post stage if the buyer rejects the first offer. Such a "limited commitment" mechanism can raise profits, allowing the seller to make the allocation partially dependent on the cost while not requiring it to be embedded in the contract terms. Analogous results hold in a model where the buyer does not know her valuation ex-ante and offers a procurement contract to a seller. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.04985&r= |
| By: | Kohei Daido (Kwansei Gakuin University); Tomoya Tajika (Nihon University) |
| Abstract: | This study develops a dynamic model of information projection and explores how it affects timing of actions. An action is observable and available only after the agents' arrival. The value of an action is unknown; however, each agent receives a noisy signal on its value. Without information projection, if no one has taken action until then, the expected value of taking action reduces with the passage of time because inaction is a bad signal. In contrast, under projection bias, because of which the agent mistakenly believes that the other agent's arrival time is close to theirs, the expected action value may increase as time passes. Consequently, the agent has second thoughts; although they decide not to take action when they find the problem, they overturn their initial decision and take action later. |
| Keywords: | Delay, Information projection bias, Preemption games, Second thoughts, Social learning |
| JEL: | D81 D82 D83 D91 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:238&r= |
| By: | Dai ZUSAI |
| Abstract: | We consider a principal-agent model in which the principal can terminate the agent's project and an outsider can affect the project's result. Only the agent can observe the outsider's action and sends a message to the principal. Under strategic uncertainty about the outsider's action in complete information, sequential equilibrium is a suitable equilibrium concept to select the robust outcome and to completely identify the underlying posterior belief. We prove the revelation principle for sequential equilibrium in such a game. Based on this revelation principle, we present a legitimate and simple form of the limited liability constraint on a financial contract that is robust to strategic uncertainty. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:24&r= |
| By: | Anindya Bhattacharya; Debapriya Sen |
| Abstract: | We study some problems of collective choice when individuals can have expressive preferences, that is, where a decision-maker may care not only about the material benefit from choosing an action but also about some intrinsic morality of the action or whether the action conforms to some identity-marker of the decision-maker. We construct a simple framework for analyzing mechanism design problems with such preferences and present some results focussing on the phenomenon we call "Brexit anomaly". The main findings are that while deterministic mechanisms are quite susceptible to Brexit anomaly, even with stringent domain restriction, random mechanisms assure more positive results. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.09851&r= |
| By: | Mikhail Drugov; Margaret Meyer; Marc Möller |
| 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 opti- mal 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: | D21 D82 D83 M51 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2204&r= |
| By: | Martin Meier; Burkhard C. Schipper (Department of Economics, University of California Davis) |
| Abstract: | Heifetz, Meier and Schipper (2013) introduced generalized extensive-form games that allow for asymmetric unawareness. Here, we study the normal form of a generalized extensive-form game. The generalized normal-form game associated to a generalized extensive-form game with unawareness may consist of a collection of normal-form games. We use it to characterize extensive-form rationalizability (resp. prudent rationalizability) in generalized extensive-form games by iterative conditional strict (resp. weak) dominance in the associated generalized normal-form. We also show that the analogue to iterated admissibility for generalized normal-form games is not independent of the extensive-form structure. This is because under unawareness, a player's information set not only determines which nodes he considers possible but also of which game tree(s) he is aware of. |
| Keywords: | Awareness, unknown unknowns, extensive-form rationalizability, prudent rationalizability, iterated admissibility, iterated conditional dominance |
| JEL: | C72 D83 |
| Date: | 2022–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:351&r= |
| By: | Maximilian Kasy; Jann Spiess |
| Abstract: | Pre-analysis plans (PAPs) are a potential remedy to the publication of spurious findings in empirical research, but they have been criticized for their costs and for preventing valid discoveries. In this article, we analyze the costs and benefits of pre-analysis plans by casting pre-commitment in empirical research as a mechanism-design problem. In our model, a decision-maker commits to a decision rule. Then an analyst chooses a PAP, observes data, and reports selected statistics to the decision-maker, who applies the decision rule. With conflicts of interest and private information, not all decision rules are implementable. We provide characterizations of implementable decision rules, where PAPs are optimal when there are many analyst degrees of freedom and high communication costs. These PAPs improve welfare by enlarging the space of implementable decision functions. This stands in contrast to single-agent statistical decision theory, where commitment devices are unnecessary if preferences are consistent across time. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.09638&r= |
| By: | Koustougeras, Leonidas (University of Manchester, School of Social Sciences); Santos, Manuel (University of Miami, School of Business Administration); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | It is well known that in the presence of asymmetric information, adverse selection has detrimental effects on possible exchanges. We go a step further, and present a game-theoretic setup in which under such adverse selection effects there are uncertain benefits for bribing unknown players’ types (e.g., individuals, committees, or companies). A policy maker may then want to design indirect anti-corruption policies based on triggering failures for bribery attempts. In our stylized framework, we get a complete unraveling of bribes. This result can be extended to more complex environments under fairly mild conditions on players’ payoff functions. |
| Keywords: | Corruption; bribe; adverse selection |
| JEL: | D71 D80 D82 D86 |
| Date: | 2022–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1007&r= |
| By: | Jara-Moroni, Pedro (Universidad de Santiago de Chile.Facultad de Administración y Economía.Departamento de Economía) |
| Abstract: | In this article we prove that, when firms are identical, there are no non-degenerate mixed strategy equilibria in the linear quantity setting duopoly game studied by van Damme and Hurkens (1999) , in which firms engage in the “Action Commitment Game” proposed by Hamilton and Slutsky (1990). The consequence of this is that in the symmetric case, there can not be equilibrium selection through risk dominance in such game |
| Keywords: | Stackelberg, Cournot, Endogenous Timing, Mixed Strategies |
| JEL: | C72 D43 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ars:papers:991943756506116&r= |
| 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. |
| Keywords: | Innovation, Research Joint Ventures, Financial Constraints, Mergers, Intensity of Competition, Licensing |
| JEL: | L13 L24 O31 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2205&r= |
| By: | Bryce McLaughlin; Jann Spiess |
| Abstract: | When we use algorithms to produce recommendations, we typically think of these recommendations as providing helpful information, such as when risk assessments are presented to judges or doctors. But when a decision-maker obtains a recommendation, they may not only react to the information. The decision-maker may view the recommendation as a default action, making it costly for them to deviate, for example when a judge is reluctant to overrule a high-risk assessment of a defendant or a doctor fears the consequences of deviating from recommended procedures. In this article, we consider the effect and design of recommendations when they affect choices not just by shifting beliefs, but also by altering preferences. We motivate our model from institutional factors, such as a desire to avoid audits, as well as from well-established models in behavioral science that predict loss aversion relative to a reference point, which here is set by the algorithm. We show that recommendation-dependent preferences create inefficiencies where the decision-maker is overly responsive to the recommendation, which changes the optimal design of the algorithm towards providing less conservative recommendations. As a potential remedy, we discuss an algorithm that strategically withholds recommendations, and show how it can improve the quality of final decisions. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.07626&r= |
| By: | Fujun Hou |
| Abstract: | `Rank and Yank' is practiced in many organizations. This paper is concerned with the condtions for none to be whipped by `Rank and Yank' when the evaluation data under each criterion are assumed to be ordinal rankings and the majority rule is used. Two sufficient conditions are set forth of which the first one formulates the alternatives indifference definition in terms of the election matrix, while the second one specifies a certain balance in the probabilities of alternatives being ranked at positions. In a sense, `none to be whipped' means that the organization is of stability. Thus the second sufficient condition indicates an intrinsic relation of balance and organization stability. In addition, directions for future research are put forward. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.05093&r= |
| By: | Peter Buisseret; Richard Van Weelden |
| Abstract: | We study how office-seeking parties use direct democracy to shape elections. A party with a strong electoral base can benefit from using a binding referendum to resolve issues that divide its core supporters. When referendums do not bind, however, an electorally disadvantaged party may initiate a referendum to elevate new issues in order to divide the supporters of its stronger opponent. We identify conditions under which direct democracy improves congruence between policy outcomes and voter preferences, but also show that it can lead to greater misalignment both on issues subject to direct democracy and those that are not. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.05535&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]); Erik Mohlin (Lund University [Lund], Institute for Futures Studies) |
| Abstract: | We study learning in a decentralized pairwise adverse selection economy, where buyers have access to the quality of traded goods but not to the quality of nontraded goods. Buyers categorize ask prices in order to predict quality as a function of ask price. The categorization is endogenously determined so that outcomes that are observed more often are categorized more finely, and within each category beliefs reflect the empirical average. This leads buyers to have a very fine understanding of the relationship between qualities and ask prices for prices below the current market price, but only a coarse understanding above that price. We find that this induces a price cycle involving the Nash equilibrium price, and one or more higher prices. |
| Keywords: | Adverse selection,Bounded rationality,Categorization,Learning,Model misspeciÖcation,OTC markets Adverse selection,Model misspecification,OTC markets |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03754118&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]); Larry Samuelson (Yale University [New Haven]) |
| Abstract: | We offer an approach to cooperation in repeated games of private monitoring in which players construct models of their opponents' behavior by observing the frequencies of play in a record of past plays of the game in which actions but not signals are recorded. Players construct models of their opponent's behavior by grouping the histories in the record into a relatively small number of analogy classes to which they attach probabilities of cooperation. The incomplete record and the limited number of analogy classes lead to misspecified models that provide the incentives to cooperate. We provide conditions for the existence of equilibria supporting cooperation and equilibria supporting high payoffs for some nontrivial analogy partitions. |
| Keywords: | Analogical reasoning,Cooperation,Prisoners' dilemma,Repeated game,Private monitoring Analogical reasoning,Private monitoring |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03754101&r= |
| By: | Wesley H. Holliday; Eric Pacuit; Saam Zahedian |
| Abstract: | In social choice theory, voting methods can be classified by invariance properties: a voting method is said to be C1 if it selects the same winners for any two profiles of voter preferences that produce the same majority graph on the set of candidates; a voting method is said to be pairwise if it selects the same winners for any two preference profiles that produce the same weighted majority graph on the set of candidates; and other intermediate classifications are possible. As there are far fewer majority graphs or weighted majority graphs than there are preference profiles (for a bounded number of candidates and voters), computer-aided techniques such as satisfiability solving become practical for proving results about C1 and pairwise methods. In this paper, we develop an approach to generalizing impossibility theorems proved for C1 or pairwise voting methods to impossibility theorems covering all voting methods. We apply this approach to impossibility theorems involving "variable candidate" axioms--in particular, social choice versions of Sen's well-known $\gamma$ and $\alpha$ axioms for individual choice--which concern what happens when a candidate is added or removed from an election. A key tool is a construction of preference profiles from majority graphs and weighted majority graphs that differs from the classic constructions of McGarvey and Debord, especially in better commutative behavior with respect to other operations on profiles. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.06907&r= |