nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒11‒14
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Flexibility and Information By Mark Whitmeyer
  2. Platform Liability and Innovation By Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio
  3. Should I stay or should I go? Migrating away from an incumbent platform By Jacques Crémer; Gary Biglaiser; André Veiga
  4. A Dynamic Model of Predation By Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
  5. Fair cost sharing: big tech vs telcos By Jullien, Bruno; Bouvard, Matthieu
  6. Platform Oligopoly with Endogenous Homing: Implications for Mergers and Free Entry By Takanori ADACHI; Susumu SATO; Mark J. TREMBLAY
  7. Do No-Surcharge Rules Increase Effective Retail Prices? By Takanori ADACHI; Mark J. TREMBLAY
  8. Market Effects of Sponsored Search Auctions By Motta, Massimo; Penta, Antonio
  9. Safe Implementation By Gavan, Malachy James; Penta, Antonio
  10. A Group Public Goods Game with Position Uncertainty By Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Sonali SenGupta
  11. Expected multi-utility representations of preferences over lotteries By Paolo Leonetti
  12. Content Quality Assurance on Media Platforms with User-Generated Content By Xingzhen Zhu; Markus Lang; Helmut Dietl

  1. By: Mark Whitmeyer
    Abstract: We study the effect of increased flexibility--increasing the number of actions available to an agent by one--on an agent's value for information. Increased flexibility always makes information more valuable if and only if the new action is extremal. This condition is also necessary and sufficient for the agent to not acquire less information as flexibility increases when information is endogenously acquired by the agent. We apply this finding to a monopolistic screening problem in which the good is information and to delegation with information acquisition.
    Date: 2022–10
  2. By: Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio
    Abstract: We study a platformâs incentives to delist IP-infringing products and the effects of holding the platform liable for the presence of such products on innovation and consumer welfare. For a given number of buyers, platform liability increases innovation by reducing the competitive pressure faced by innovative products. However, there can be a misalignment of interests between innovators and buyers. Furthermore, platform liability can have unintended consequences, which overturn the intended effect on innovation. Platform liability tends to increase (decrease) innovation and consumer welfare when the elasticity of participation of innovators is high (low) and that of buyers is low (high).
    Keywords: platform, liability, intellectual property, innovation
    JEL: K40 K42 K13 L13 L22 L86
    Date: 2022
  3. By: Jacques Crémer (TSE-R - 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); Gary Biglaiser (UNC - University of North Carolina [Chapel Hill] - UNC - University of North Carolina System); André Veiga (Imperial College London)
    Abstract: We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive sto- chastic opportunities to migrate to an entrant and can either accept them or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. We use our framework to identify environments where incumbency advantage is larger. A key result is that having more migration opportunities actually increases incumbency advantage.
    Keywords: Platform,Migration,Standardization and Compatibility,Industry Dynamics
    Date: 2022–08
  4. By: Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
    Abstract: Growing concern about the market power of big tech giants has led to renewed interest in predatory behavior. We study the feasibility and prof- itability of predation in a dynamic environment, using a parsimonious infinite- horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to ac- commodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies.
    JEL: D43 L41
    Date: 2022–10–24
  5. By: Jullien, Bruno; Bouvard, Matthieu
    Abstract: We study a cost-sharing mechanism where a content provider contributes to covering the costs incurred by a network operator when delivering content to consumers. The costshare not only boosts the content provider's incentives to moderate trac but also aects the price composition for consumers buying access and content. We show the overall eect on consumer welfare depends on the content provider's ability to monetize users. When that ability is high, introducing a cost-share can lead to lower overall prices and higher consumer welfare. We study the robustness of this result to long-term investments in cost reduction by the operator and to heterogeneity in consumers' taste for content. In extensions with multiple contents and multiple operators, contractual externalities arise that suggest a role for regulation.
    Date: 2022–10–25
  6. By: Takanori ADACHI; Susumu SATO; Mark J. TREMBLAY
    Abstract: Consumer multi-homing is considered to be critical for competition policy regarding digital platforms. To assess the role of consumer multi-homing in competition policy, we embed consumer multi-homing into a model of oligopolistic competition between two-sided platforms and apply it to mergers and free entry. We find that a required level of merger-specific cost reduction is larger if consumers benefit more from multi-homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi-homing. We also show that reductions to sellers' benefit from multi- homing reduces entry (i.e., is an e ective barrier to entry). These results contrast the popular belief that multi-homing mitigates the need for stricter competition policy.
    Keywords: Two-sided markets; Indict network externalities; Multi-homing; Platform entry; Platform mergers.
    JEL: D40 L10 L20 L40
    Date: 2022–03
  7. By: Takanori ADACHI; Mark J. TREMBLAY
    Abstract: In this paper, we determine how a no-surcharge rule (NSR) impacts effective prices in retail markets (prices that include any consumer payment rewards). This question is fundamentally related to policy, and we provide robust answers by considering how a variety of market structures are impacted by multiple payment methods and different surcharging rules. We find that when a no-surcharge rule is applied, effective prices in a particular market are often higher across all payment methods. In this case, the no-surcharge rule protects a double marginalization effect where the premium payment method inserts an additional margin that harms all consumers and all merchants, and this loss in welfare can be rectified by allowing merchant surcharging across payment methods. Our results are robust across retail market structures, suggesting that NSRs are generally harmful (except for the payment companies).
    Keywords: Credit cards, merchant fees, consumer rewards, Ohio v.s. American Express
    JEL: L10 L20 L42
    Date: 2022–08
  8. By: Motta, Massimo; Penta, Antonio
    Abstract: We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival’s brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available in-formation on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand’s characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival’s organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival’s bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant’s link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent’s brand to exist.
    Keywords: Digital advertising; auctions; oligopoly; search engines; brands; horizontal agreements
    Date: 2022–10–11
  9. By: Gavan, Malachy James; Penta, Antonio
    Abstract: We introduce Safe Implementation, a notion of implementation that adds to the standard requirements the restriction that deviations from the baseline solution concept induce outcomes that are acceptable. The primitives of Safe Implementation therefore include both a Social Choice Correspondence, as standard, and an Acceptability Correspondence, each mapping every state of the world to a subset of allocations. This framework generalizes standard notions of implementation, and can accommodate a variety of considerations, including robustness concerns with respect to mistakes in play, model misspecification, behavioral considerations, state-dependent feasibility restrictions, limited commitment, etc. We provide results both for general solution concepts and for the case in which agents’ interaction is modelled by Nash Equilibrium. In the latter case, we identify necessary and sufficient conditions (namely, Comonotonicity and safety-no veto) that restrict the joint behavior of the Social Choice and Acceptability Correspondences. These conditions are more stringent than Maskin’s (1978), but coincide with them when the safety requirements are vacuous. We also show that these conditions are quite permissive in important economic applications, such as environments with single-crossing preferences and in problems of efficient allocation of in-divisible goods, but also that Safe Implementation can be very demanding in environments with ‘rich’ preferences, regardless of the underlying solution concept.
    Keywords: Comonotonicity; mechanism design; implementation; robustness; resilience; safe implementation; safety no-veto
    JEL: C72 D82
    Date: 2022–10–11
  10. By: Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Sonali SenGupta
    Abstract: We model a dynamic public good contribution game, where players are (naturally) formed into groups. The groups are exogenously placed in a sequence, with limited information available to players about their groups' position in the sequence. Contribution decisions are made by players simultaneously and independently, and the groups' total contribution is made sequentially. We try to capture both inter and intra-group behaviors and analyze different situations where players observe partial history about total contributions of their predecessor groups. Given this framework, we show that even when players observe a history of defection (no contribution), a cooperative outcome is achievable. This is particularly interesting in the situation when players observe only their immediate predecessor groups' contribution, where we observe that players play an important role in motivating others to contribute.
    Date: 2022–10
  11. By: Paolo Leonetti
    Abstract: Let $\succsim$ be a binary relation on the set of simple lotteries over a countable outcome set $Z$. We provide necessary and sufficient conditions on $\succsim$ to guarantee the existence of a set $U$ of von Neumann--Morgenstern utility functions $u: Z\to \mathbf{R}$ such that $$ p\succsim q \,\,\,\Longleftrightarrow\,\,\, \mathbf{E}_p[u] \ge \mathbf{E}_q[u] \,\text{ for all }u \in U $$ for all simple lotteries $p,q$. In such case, the set $U$ is essentially unique. Then, we show that the analogue characterization does not hold if $Z$ is uncountable. This provides an answer to an open question posed by Dubra, Maccheroni, and Ok in [J. Econom. Theory~\textbf{115} (2004), no.~1, 118--133]. Lastly, we show that different continuity requirements on $\succsim$ allow for certain restrictions on the possible choices of the set $U$ of utility functions (e.g., all utility functions are bounded), providing a wide family of expected multi-utility representations.
    Date: 2022–10
  12. By: Xingzhen Zhu (School of Economics and Management, Nanjing University of Science and Technology); Markus Lang (Institute of Sport Sciences, University of Lausanne); Helmut Dietl (Department of Business Administration, University of Zurich)
    Abstract: This paper develops a duopoly model of user-generated content (UGC) platforms that compete for consumers and content producers in two-sided markets with network externalities. Each platform can choose the level of investment into a content quality assurance (CQA) system and the level of advertising. Our model shows that network effects are crucial in determining the platforms' optimal strategy and the behavior (single vs. multi-homing) of their users. Specifically, we find that consumers are multi-homing and producers are single-homing when the network effects obtained by producers are weak, while the opposite is true if these network effects are strong. Moreover, our model shows that the user behavior and the network effects determine whether a platform has incentives to place ads and/or invest into CQA. In general, weak network effects induce a platform to invest into a CQA system except when consumers and producers are multi-homing. The results in our model suggests the need for platform companies to assess the magnitude of network effects on their platform to predict the behavior of their users, which in turn will determine the optimal CQA and advertising strategy.
    Keywords: UGC platform; two-sided market; multi-homing; network externalities; platform investment
    JEL: C72 D85 L14
    Date: 2022–10

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