nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒07‒17
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Two-Dimensional Information Acquisition in Social Learning By Nina Bobkova; Helene Mass
  2. Trade-off between Manipulability and Dictatorial Power: a Proof of the Gibbard–Satterthwaite Theorem By Agustin G. Bonifacio
  3. Personalized Pricing with Imperfect Customer Recognition By Stefano Colombo; Clara Graziano; Aldo Pignataro
  4. Feedback Design in Strategic-Form Games with Ambiguity Averse Players By Frédéric Koessler; Marieke Pahlke
  5. Information aggregation with delegation of votes By Amrita Dhillon; Grammateia Kotsialou; Dilip Ravindran; Dimitrios Xefteris
  6. Worst-Case Equilibria in First-Price Auctions By Vitali Gretschko; Helene Mass
  7. Cooperative vs. Non-cooperative R&D under Uncertain Probability of Success By Chatterjee, Rittwik; Kabiraj, Tarun
  8. Ambiguous consumer tastes and product differentiation By Olivier Kayser
  9. Biased Decoding and the Foundations of Communication By Luca Braghieri
  10. A Theory of Conglomerate Mergers By Rey, Patrick; Chen, Zhijun
  11. Menu-pricing and Quality Decisions of a Platform Monopolist By Tetsuya Shinkai; Naoshi Doi
  12. Advantageous selection without moral hazard By Philippe de Donder; Marie-Louise Leroux; François Salanié
  13. Self-Resolving Prediction Markets for Unverifiable Outcomes By Siddarth Srinivasan; Ezra Karger; Yiling Chen
  14. Nash implementation in a many-to-one matching market By Noelia Juarez; Paola B. Manasero; Jorge Oviedo
  15. Nash Equilibrium and Axiom of Choice Are Equivalent By Conrad Kosowsky
  16. Robust Predictions in Games with Rational Inattention By Tommaso Denti; Doron Ravid

  1. By: Nina Bobkova; Helene Mass
    Abstract: We analyze a social learning model where the agents’ utility depends on a common component and an idiosyncratic component. Each agent splits a learning budget between the two components. We show that information about the common component is fully aggregated if and only if agents do not have to sacrifice learning about their idiosyncratic component in order to learn marginally about the common component. If agents vary in how much they value their idiosyncratic component, then the order of agents can strictly impact how much information is aggregated
    Keywords: Information Acquisition, Social Learning, Information Aggregation
    JEL: D82 D83
    Date: 2023–06
  2. By: Agustin G. Bonifacio (UNSL/CONICET)
    Abstract: By endowing the class of tops-only and efficient social choice rules with a dual order structure that exploits the trade-off between different degrees of manipulability and dictatorial power rules allow agents to have, we provide a proof of the Gibbard– Satterthwaite Theorem.
    Keywords: Gibbard–Satterthwaite Theorem, manipulability, dictatorial power, tops-only rule
    JEL: D71 D72
    Date: 2023–06
  3. By: Stefano Colombo; Clara Graziano; Aldo Pignataro
    Abstract: We consider a duopoly model where firms can identify only a share of consumers, which is positively correlated with the consumer’ preferences. Firms charge personalized prices to the consumers they can recognize and a uniform price to the rest of consumers. The firms’ available information is given by the combination of two factors: the intensive margin, which determines the share of consumers the firms can recognize in each single location, and the extensive margin, which determines how many locations the firms can identify. Different market configurations emerge according to the size of these margins. We characterize the values of the intensive and extensive margins that maximize firms’ profits, and we show that profits are non-monotonic. We also show that the composition, in addition to the size, of the available information – i.e., the mix of these margins – affects firms’ profits significantly. Implications for regulatory policies concerning the protection of consumers’ information are finally discussed.
    Keywords: personalized pricing, price discrimination, privacy, margins of information
    JEL: D80 D43 L10
    Date: 2023
  4. By: Frédéric Koessler (HEC Paris - Ecole des Hautes Etudes Commerciales, GREGHEC - Groupement de Recherche et d'Etudes en Gestion - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique); Marieke Pahlke (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: We use a notion of maxmin self-confirming equilibrium (MSCE) to study the optimal design of players' feedbacks about others' behavior in games with ambiguity averse players. Coarse feedbacks shape strategic uncertainty and can therefore modify players' equilibrium strategies in an advantageous way. We characterize MSCE and study the equilibrium implications of coarse feedbacks in various classes of games. We show how feedbacks should be optimally designed to improve contributions in generalized volunteer dilemmas and public good games with strategic substitutes, strategic complements, or more general production functions. We also study games with negative externalities and strategic substitutes such as Cournot oligopolies. In general, perfect and no feedbacks are suboptimal. Some results are extended to α-maxmin preferences.
    Keywords: Self-confirming equilibrium, Ambiguity aversion, Information feedback, Strategic uncertainty, Public good games, Volunteer dilemma
    Date: 2023–03
  5. By: Amrita Dhillon; Grammateia Kotsialou; Dilip Ravindran; Dimitrios Xefteris
    Abstract: Liquid democracy is a system that combines aspects of direct democracy and representative democracy by allowing voters to either vote directly themselves, or delegate their votes to others. In this paper we study the information aggregation properties of liquid democracy in a setting with heterogeneously informed truth-seeking voters -- who want the election outcome to match an underlying state of the world -- and partisan voters. We establish that liquid democracy admits equilibria which improve welfare and information aggregation over direct and representative democracy when voters' preferences and information precisions are publicly or privately known. Liquid democracy also admits equilibria which do worse than the other two systems. We discuss features of efficient and inefficient equilibria and provide conditions under which voters can more easily coordinate on the efficient equilibria in liquid democracy than the other two systems.
    Date: 2023–06
  6. By: Vitali Gretschko; Helene Mass
    Abstract: The usual analysis of bidding in first-price auctions assumes that bidders know the distribution of valuations. We analyze first-price auctions in which bidders do not know the precise distribution of their competitors’ valuations, but only the mean of the distribution. We propose a novel equilibrium solution concept based on worst-case reasoning. We find an essentially unique and efficient worst-case equilibrium of the first-price auction, which has appealing properties from both the bidders’ and the seller’s point of view.
    Keywords: Auctions, worst-case equilibria, uncertainty
    JEL: D44 D81 D82
    Date: 2023–06
  7. By: Chatterjee, Rittwik; Kabiraj, Tarun
    Abstract: R&D decision of a firm involves various sources of incomplete information. The present paper introduces incomplete information about the success probability of R&D in a model of two firms interacting in R&D and production and discusses the choice between cooperative and non-cooperative research. We consider research joint venture as the form of R&D cooperation. While the choice depends on the constellation of parameters, the following results are derived, in general. First, the high type firm always has a larger incentive for both cooperative and non-cooperative R&D compared to the low type firm. Second, if the low type firm goes for non-cooperative research, then the high type firm must go for the same, and if the high type firm prefers cooperative research, the low type firm must also prefer cooperative R&D. However, if the high type firm prefers non-cooperative R&D, the low type firm may go for either form of research depending on the parameters. The paper derives conditions, in particular, for the case when the high type firm prefers non-cooperative research whereas the low type firm prefers cooperative research.
    Keywords: Cooperative research; Non-cooperative research; Probability of success; Incomplete information; Research joint venture.
    JEL: D43 D82 L13 O31
    Date: 2023–06–14
  8. By: Olivier Kayser
    Abstract: Considering that firms have multiple consumer taste distributions, we introduce in the vertical differentiation framework an ambiguous demand in a duopoly. We investigate the effects of ambiguity aversion on product differentiation and pricing choices. By specifying these distributions by Heaviside functions we obtain results on the existence and form of several Subgame-Perfect Nash Candidate Equilibria. The associated equilibrium prices are decreasing with ambiguity aversion. Under the market coverage assumption, we show that the level of differentiation is always maximal whatever the degree of ambiguity aversion. Finally, we study which of the Subgame-Perfect Nash Candidate Equilibria is the solution of the game depending on the width of the taste distributions and the degree of ambiguity aversion.
    Keywords: Vertical differentiation, Ambiguous consumer tastes, Ambiguous demand, Ambiguity aversion
    JEL: C72 D43 L13 D8
    Date: 2023
  9. By: Luca Braghieri
    Abstract: One-way communication between an informed sender and an uninformed receiver involves two fundamental processes: a process of encoding – whereby the sender maps states of the world or concepts into arbitrary signals – and a process of decoding – whereby the receiver makes inferences about the state of the world conditional on each signal realization. In this paper, I develop machinery to study the process of decoding for an agent who might have inaccurate beliefs about the information environment (a biased decoder) and show how such machinery can help shed light on foundational aspects of communication.
    Date: 2023
  10. By: Rey, Patrick; Chen, Zhijun
    Abstract: We present a theory of conglomerate mergers and explore the effect of portfolio differentiation due to the heterogeneity of consumption synergy derived from product bundling. The differentiation of product portfolios reduces competition and leads to higher prices for stand- alone products in highly concentrated markets. As a result, conglomerate mergers benefit consumers who purchase bundled products from the merged entity but can harm those who prefer to mix-and-match standalone products. We demonstrate that a conglomerate merger increases total consumer surplus if the merged firm continues to sell standalone products, but it can be detrimental to consumers if the firm commits to pure bundling. Our analysis provides important policy implications for assessing conglomerate merger cases.
    Keywords: Conglomerate mergers; Portfolio differentiation; Bundling
    Date: 2023–06–19
  11. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Naoshi Doi (Otaru University of Commerce- Economics)
    Abstract: This article examines menu-pricing and quality decisions of a platform monopolist for two types of sellers and buyers on a two-sided market. Under the GPD (general Pareto distribution) valuation of buyers for transaction services, we show that unique optimal services fees exist for sellers and buyers. The two types of services (premium and spot) are offered to both sellers and buyers. An optimal premium membership fee and the quality service level are considered for the premium type of buyers in a platform optimization problem. Assuming that the unit cost of the product is fixed, we show that the optimal membership fee/the level of quality service for premium-type buyers decreases/increases as the service cost for premium-type sellers increases. However, if delivery fees charged by transport companies for spot-type sellers increase, the optimal membership fee/level of quality service increases/decreases. However, if the demand for services of the platform for both types of buyers increases, both the optimal membership fee and quality level of services increase.
    Keywords: Platform monopoly; Menu-pricing; Quality decisions; Two-sided market.
    JEL: D21 D43 L13 L15
    Date: 2023–06
  12. By: Philippe de Donder (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - 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, CNRS - Centre National de la Recherche Scientifique); Marie-Louise Leroux (Département des Sciences Economiques, ESG-UQAM, Montréal, Canada); François Salanié (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - 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)
    Abstract: Advantageous selection occurs when the agents most eager to buy insurance are also the cheapest ones to insure. Hemenway (1990) links it to differences in risk-aversion among agents, implying different prevention efforts, and finally different riskinesses. We argue that it may also appear when agents share the same attitude towards risk, and in the absence of moral hazard. Using a standard asymmetric information setting satisfying a single-crossing property, we show that advantageous selection may occur when several contracts are offered, or when agents also face a non-insurable background risk, or when agents face two mutually exclusive risks that are bundled together. We illustrate this last effect in the context of life care annuities, a product bundling long-term care insurance and annuities, by constructing a numerical example based on Canadian survey data.
    Keywords: Propitious selection, Positive or negative correlation property, Contract bundling, Long-term care insurance, Annuity
    Date: 2023–05–26
  13. By: Siddarth Srinivasan; Ezra Karger; Yiling Chen
    Abstract: Prediction markets elicit and aggregate beliefs by paying agents based on how close their predictions are to a verifiable future outcome. However, outcomes of many important questions are difficult to verify or unverifiable, in that the ground truth may be hard or impossible to access. Examples include questions about causal effects where it is infeasible or unethical to run randomized trials; crowdsourcing and content moderation tasks where it is prohibitively expensive to verify ground truth; and questions asked over long time horizons, where the delay until the realization of the outcome skews agents' incentives to report their true beliefs. We present a novel and unintuitive result showing that it is possible to run an $\varepsilon-$incentive compatible prediction market to elicit and efficiently aggregate information from a pool of agents without observing the outcome by paying agents the negative cross-entropy between their prediction and that of a carefully chosen reference agent. Our key insight is that a reference agent with access to more information can serve as a reasonable proxy for the ground truth. We use this insight to propose self-resolving prediction markets that terminate with some probability after every report and pay all but a few agents based on the final prediction. We show that it is an $\varepsilon-$Perfect Bayesian Equilibrium for all agents to report truthfully in our mechanism and to believe that all other agents report truthfully. Although primarily of interest for unverifiable outcomes, this design is also applicable for verifiable outcomes.
    Date: 2023–06
  14. By: Noelia Juarez; Paola B. Manasero; Jorge Oviedo
    Abstract: In a many-to-one matching market with substitutable preferences, we analyze the game induced by a stable rule. When both sides of the market play strategically, we show that any stable rule implements, in Nash equilibrium, the individually rational matchings. Also, when only workers play strategically and firms' preferences satisfy the law of aggregated demand, we show that any stable rule implements, in Nash equilibrium, the stable matchings.
    Date: 2023–05
  15. By: Conrad Kosowsky
    Abstract: In this paper, I prove that existence of pure-strategy Nash equilibrium in games with infinitely many players is equivalent to the axiom of choice.
    Date: 2023–05
  16. By: Tommaso Denti; Doron Ravid
    Abstract: We derive robust predictions in games involving flexible information acquisition, also known as rational inattention (Sims 2003). These predictions remain accurate regardless of the specific methods players employ to gather information. Compared to scenarios where information is predetermined, rational inattention reduces welfare and introduces additional constraints on behavior. We show these constraints generically do not bind; the two knowledge regimes are behaviorally indistinguishable in most environments. Yet, we demonstrate the welfare difference they generate is substantial: optimal policy depends on whether one assumes information is given or acquired. We provide the necessary tools for policy analysis in this context.
    Date: 2023–06

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