nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒06‒26
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Correlation-Savvy Sellers By Roland Strausz
  2. Endogenous Horizontal Mergers in Homogeneous Goods Industries with Bertrand Competition By Elpiniki Bakaouka; Marc Escrihuela-Villar; Walter Ferrarese
  3. Affective interdependence and welfare By Aviad Heifetz; Enrico Minelli; Herakles Polemarchakis
  4. Multi-dimensional social choice under frugal information: The Tukey median as Condorcet winner ex ante by By Nehring, Klaus; Puppe, Clemens
  5. I want to tell you? Maximizing revenue in first-price two-stage auctions By Galit Ashkenazi-Golan; Yevgeny Tsodikovich; Yannick Viossat
  6. The uniform diversification strategy is optimal for expected utility maximization under high model ambiguity By Laurence Carassus; Johannes Wiesel
  7. Public Good Provision with a Distributor By Anwar, Sakib; Matros, Alexander; SenGupta, Sonali
  8. Ratings and Reciprocity By Johnen, Johannes; Ng, Robin
  9. Pareto-improving structural reforms By Gilles Saint-Paul
  10. A Group Public Goods Game with Position Uncertainty By Anwar, Sakib; Bruno, Jorge; SenGupta, Sonali
  11. Social Surplus Maximization in Sponsored Search Auctions Requires Communication By Suat Evren
  12. R&D and Market Sharing Agreements By Dollinger, Jérôme; Mauleon, Ana; Vannetelbosch, Vincent
  13. Rational Dialogues By Geanakoplos, John; Polemarchakis, Herakles
  14. The irrelevance of fee structures for certification By Martin Pollrich; Roland Strausz
  15. A theory of socially responsible investment By Oehmke, Martin; Opp, Marcus

  1. By: Roland Strausz
    Abstract: A multi-product monopolist sells sequentially to a buyer who privately learns his valuations. Using big data, the monopolist learns the intertemporal correlation of the buyer’s valuations. Perfect price discrimination is generally unattainable—even when the seller learns the correlation perfectly, has full commitment, and in the limit where the consumption good about which the buyer has ex ante private information becomes insignificant. This impossibility is due to informational externalities which requires information rents for the buyer’s later consumption. These rents induce upward and downward distortions, violating the generalized no distortion at the top principle of dynamic mechanism design.
    Date: 2023–05–26
  2. By: Elpiniki Bakaouka (Universitat de les Illes Balears); Marc Escrihuela-Villar (Universitat de les Illes Balears); Walter Ferrarese (Universitat de les Illes Balears)
    Abstract: We discuss the effect of horizontal mergers in homogeneous goods industries when firms compete à la Bertrand with increasing marginal costs of production. We set up a two-stage game where in the first stage firms decide whether to join the merger or to remain outside and in the second stage market competition takes place. We identify necessary and sufficient conditions for a market structure where a merger did occur to be coalition proof. We find that such market structure could be consumer surplus enhancing as it could arise even for lower post-merger prices with respect to the pre-merger scenario. This is in sharp contrast with the findings under both price and quantity competition where, absent efficiency gains, mergers unambiguously harm consumers.
    Keywords: Homogeneous Goods; Horizontal Mergers; Bertrand Competition; Coalition Proof Nash Equilibrium.
    JEL: C72 D43 G34 L13
    Date: 2022
  3. By: Aviad Heifetz; Enrico Minelli; Herakles Polemarchakis
    Abstract: Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as "non-explosive mutual affection, " we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction induces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominant.
    Date: 2023–05
  4. By: Nehring, Klaus; Puppe, Clemens
    Abstract: We study a voting model with partial information in which the evaluation of social welfare must be based on information about agents' top choices plus qualitative background conditions on preferences. The former is elicited individually, while the latter is not. The social evaluator is modeled as an imprecise Bayesian characterized by a set of priors over voters' complete ordinal preference profiles. We apply this 'frugal aggregation' model to multi-dimensional budget allocation problems and propose a solution concept of 'ex-ante' Condorcet winners. We show that if the social evaluator has symmetrically ignorant beliefs over profiles of quadratic preferences, the ex-ante Condorcet winners refine the set of Tukey medians (Tukey, 1975).
    Keywords: Social choice under partial information, participatory budgeting, frugal aggregation, ex-ante Condorcet approach, Tukey median
    JEL: D71
    Date: 2023
  5. By: Galit Ashkenazi-Golan (LSE - London School of Economics and Political Science); Yevgeny Tsodikovich (Bar-Ilan University [Israël], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Yannick Viossat (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A common practice in many auctions is to offer bidders an opportunity to improve their bids, known as a best and final offer stage. This improved bid can depend on new information either about the asset or about the competitors. This paper examines the effects of new information regarding competitors, seeking to determine what information the auctioneer should provide assuming the set of allowable bids is discrete. The rational strategy profile that maximizes the revenue of the auctioneer is the one where each bidder makes the highest possible bid that is lower than his valuation of the item. This strategy profile is an equilibrium for a large enough number of bidders, regardless of the information released. We compare the number of bidders needed for this profile to be an equilibrium under different information structures. We find that it becomes an equilibrium with fewer bidders when less additional information is made available to the bidders regarding the competition. It follows that when the number of bidders is a priori unknown, there are some advantages to the auctioneer not revealing information and conducting a one-stage auction instead.
    Keywords: Auctions, Multistage auctions, BAFO, Information utilization
    Date: 2023–04–06
  6. By: Laurence Carassus; Johannes Wiesel
    Abstract: We investigate an expected utility maximization problem under model uncertainty in a one-period financial market. We capture model uncertainty by replacing the baseline model $\mathbb{P}$ with an adverse choice from a Wasserstein ball of radius $k$ around $\mathbb{P}$ in the space of probability measures and consider the corresponding Wasserstein distributionally robust optimization problem. We show that optimal solutions converge to the uniform diversification strategy when uncertainty is increasingly large, i.e. when the radius $k$ tends to infinity.
    Date: 2023–06
  7. By: Anwar, Sakib; Matros, Alexander; SenGupta, Sonali
    Abstract: We present a model of public good provision with a distributor. Our main result describes a symmetric mixed-strategy equilibrium, where all agents contribute to a common fund with probability p and the distributor provides either a particular amount of public goods or nothing. A corollary of this finding is the efficient public good provision equilibrium where all agents contribute to the common fund, all agents are expected to contribute, and the distributor spends the entire common fund for the public good provision.
    Keywords: Public goods, Embezzlement, Distributor
    JEL: D73 H40
    Date: 2022
  8. By: Johnen, Johannes (Université catholique de Louvain, LIDAM/CORE, Belgium); Ng, Robin (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Evidence suggests online ratings and reviews are motivated by reciprocity. We incorporate a standard model of reciprocity into a model of ratings to capture that consumers are only willing to make the effort to rate a seller if this seller provides a sufficient value-for-money. Using this model, we explore how firms use prices to impact their own ratings. We show that firms harvest ratings: they offer lower prices in early periods to trigger consumers’ reciprocal behaviour and obtain a good rating and larger profits in the future. Because also low-quality firms harvest ratings, reciprocity makes ratings less-informative about quality. Based on this mechanism, (i) we argue that reciprocity-based ratings cause rating inflation; (ii) we show that a marketplace that facilitates ratings (e.g. through reminders, one-click ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace that screens the quality of sellers makes ratings less-informative if the screening is insufficient. We show that even as ratings become less-informative, consumers can benefit from lower prices. Nonetheless consumers prefer more-informative ratings than average sellers. We apply these results to characterise when a two-sided platform wants to facilitate ratings, and thereby undermines the informativeness of ratings and harms consumers.
    Keywords: Reciprocity ; Ratings and Reviews ; Digital Economy ; Reputation
    JEL: D21 D83 D90 L10
    Date: 2023–02–09
  9. By: Gilles Saint-Paul (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)
    Abstract: Economists recommend to partly redistribute gains to losers from a structural reform, which in many cases may be required for making the reform politically viable. However, taxation is distortionary. Then, it is unclear that compensatory transfers can support a Pareto-improving reform. This paper provides sufficient conditions for this to occur, despite tax distortions. In a setting where preferences are isoelastic, deregulation is implementable in a Pareto-improving way through compensatory lump-sum transfers, despite that these are financed by distortionary taxes. In a more general setting, there always exist Pareto-improving reforms but they may involve tightening regulation for some goods. I show that if demand cross-price elasticities are not be too large and that the reform is not too unbalanced, deregulation is again implementable in a Pareto-improving way. Finally, I consider counter-examples where some people earn rents associated with informational or institutional frictions, or where non homothetic preferences may make the schemes considered here not viable.
    Keywords: Structural reform, Deregulation, Price controls, Pareto optimality, Taxation, Compensatory transfers
    Date: 2021–06
  10. By: Anwar, Sakib; Bruno, Jorge; SenGupta, Sonali
    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.
    Keywords: Social Dilemmas, Public Goods, Position Uncertainty, Voluntary Contributions, Fundraising, Groups
    JEL: C72 D82 H41
    Date: 2022
  11. By: Suat Evren
    Abstract: We show that computing the optimal social surplus requires $\Omega(mn)$ bits of communication between the website and the bidders in a sponsored search auction with $n$ slots on the website and with tick size of $2^{-m}$ in the discrete model, even when bidders are allowed to freely communicate with each other.
    Date: 2023–05
  12. By: Dollinger, Jérôme (Université catholique de Louvain, LIDAM/CORE, Belgium); Mauleon, Ana (Université catholique de Louvain, LIDAM/CORE, Belgium); Vannetelbosch, Vincent (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We analyze the formation of R&D alliances and market sharing (MS) agreements by which firms commit not to enter in each other’s territory in oligopolistic markets. We show that R&D alliance structures are stable only in the presence of MS agreements. Thus, long lasting R&D alliances could signal the existence of some MS agreement in the industry. We characterize the set of stable symmetric pairs of coalition structures with identical R&D and MS structure. In addition, we show the stability of a class of asymmetric pairs of coalition structures where the most efficient firms form both an R&D and a MS agreement while the other firms do not form any MS agreement but form two smaller R&D alliances. Even though MS agreements are detrimental for consumers, we show that stable cooperation in terms of R&D is yet a better outcome for consumers than no cooperation at all.
    Keywords: R&D alliances ; Market sharing agreements ; Oligopoly ; Cournot competition ; Stability
    JEL: C70 L13 L40
    Date: 2023–01–20
  13. By: Geanakoplos, John (Yale University); Polemarchakis, Herakles (University of Warwick)
    Abstract: Any finite conversation no matter how crazy it sounds can be given context in which it is a rational dialogue
    Keywords: dialogue ; rationality JEL codes: D83
    Date: 2023
  14. By: Martin Pollrich; Roland Strausz
    Abstract: In models of certification possible restrictions on the nature of the fee structures are commonly analyzed. We show that they are irrelevant for the certifier’s ability to maximize profits and trade efficiency. Our results establish that certification schemes involve two substitutable dimensions—the fee structure and the disclosure rule. In the context of a canonical unit good certification setup, these dimensions act as perfect substitutes for achieving trade efficiency and (monotone) distributions of rents; adjustments in the disclosure dimension can fully mitigate restrictions in the fee dimension, but these changes do affect market transparency.
    Keywords: certification, fee structures, disclosure rules, transparency
    JEL: D82
    Date: 2023–05–26
  15. By: Oehmke, Martin; Opp, Marcus
    Abstract: We characterize necessary conditions for socially responsible investors to impact firm behavior in a setting in which firm production generates social costs and is subject to financing constraints. Impact requires a broad mandate, in that socially responsible investors need to internalize social costs irrespective of whether they are investors in a given firm. Impact is optimally achieved by enabling a scale increase for clean production. Socially responsible and financial investors are complementary: jointly they can achieve higher surplus than either investor type alone. When socially responsible capital is scarce, it should be allocated based on a social profitability index (SPI). This micro-founded ESG metric captures not only a firm's social status quo but also the counterfactual social costs produced in the absence of socially responsible investors.
    Keywords: socially responsible investing; ESG; SPI; capital allocation; sustainable investment; social ratings
    JEL: G31 G23
    Date: 2021–11–26

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