nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒08‒21
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Fair Gatekeeping in Digital Ecosystems By Tirole, Jean; Bisceglia, Michele
  2. Asymmetric Platform Oligopoly By Martin Peitz; Susumu Sato
  3. Persuasion With Limited Data: A Case-Based Approach By Shiri Alon; Sarah Auster; Gabi Gayer; Stefania Minardi
  4. The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case By Tsuyoshi Toshimitsu
  5. A Robust Characterization of Nash Equilibrium By Florian Brandl; Felix Brandt
  6. Incentive separability By Filip Tokarski; Joanna Krysta; Paweł Doligalski; Piotr Dworczak
  7. Complete Conditional Type Structures (Extended Abstract) By Nicodemo De Vito
  8. Price and quality decision of a monopoly platform for transaction with shipping By Tetsuya Shinkai; Naoshi Doi
  9. Quantum Advantage in Bayesian Games By Igal Milchtaich
  10. Wishful Thinking is Risky Thinking: A Statistical-Distance Based Approach By Jarrod Burgh; Emerson Melo
  11. Strategic Budget Selection in a Competitive Autobidding World By Yiding Feng; Brendan Lucier; Aleksandrs Slivkins
  12. Public Goods in Networks: Comparative Statics Results By Sebastian Bervoets; Kohmei Makihara
  13. Difficult Decisions By Yoram Halevy; David Walker-Jones; Lanny Zrill
  14. Sophisticated Reasoning, Learning, and Equilibrium in Repeated Games with Imperfect Feedback By Pierpaolo Battigalli; Davide Bordoli
  15. Smart contracts and the Coase conjecture By Brzustowski, Thomas; Georgiadis Harris, Alkis; Szentes, Balázs
  16. Strategic Incentives and the Optimal Sale of Information By Rosina Rodríguez Olivera
  17. Subjective expected utility and psychological gambles By Gianluca Cassese
  18. Selling Data to a Competitor (Extended Abstract) By Ronen Gradwohl; Moshe Tennenholtz

  1. By: Tirole, Jean; Bisceglia, Michele
    Abstract: Do users receive their fair contribution to digital ecosystems? The frequent accusations of excessive platform fees and self-preferencing leveled at dominant gatekeepers raise the issue of the standard gatekeepers should be held to. The paper provides a framework to explain business strategies and assess regulatory proposals. It stresses the key role played by the zero lower bounds on core and app prices in the setting of privately and socially optimal platform fees. Finally, it derives a simple rule for regulating access conditions and analyses its implementation.
    Keywords: Platforms; ecosystems; fair access; price and non-price foreclosure; zero lower bounds
    JEL: L12 L4
    Date: 2023–06–30
  2. By: Martin Peitz; Susumu Sato
    Abstract: We propose a tractable model of asymmetric platform oligopoly in which users from two distinct groups are subject to within-group and cross-group network effects and decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees. We explore the effects of platform entry, change of incumbent platforms’ quality under free entry, and partial compatibility on market outcomes. We show how the analysis can be extended to partial user participation and zero fees for one of the user groups.
    Keywords: oligopoly theory, aggregative games, network effects, two-sided markets, two-sided single-homing, free entry, compatibility
    JEL: L13 L41 D43
    Date: 2023–05
  3. By: Shiri Alon; Sarah Auster; Gabi Gayer; Stefania Minardi
    Abstract: to adopt a new action. The receiver assesses the profitability of adopting the action by following a classical statistics approach: she forms an estimate via the similarity-weighted empirical frequencies of outcomes in past cases, sharing some attributes with the problem at hand. The sender has control over the characteristics of the sampled cases and discloses the outcomes of his study truthfully. We characterize the sender’s optimal sampling strategy as the outcome of a greedy algorithm. The sender provides more relevant data—consisting of observations sharing relatively more characteristics with the current problem—when the sampling capacity is low, when a large amount of initial public data is available, and when the estimated benefit of adoption according to this public data is low. Competition between senders curbs incentives for biasing the receiver’s estimate and leads to more balanced datasets.
    Keywords: Persuasion, case-based inference, similarity-weighted frequencies
    JEL: D81 D83
    Date: 2023–07
  4. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Based on a horizontal product differentiation model associated with network externalities, we consider the impact of compatibility (interconnectivity) on incentives to innovate in a network goods industry in the cases of Cournot quantity and Bertrand price duopoly. We demonstrate that the effect of compatibility on incentives to innovate depends on network externalities and product substitutability. In particular, an increase in the degree of compatibility increases the incentives to innovate if the degree of network externalities is relatively large and if the degree of product differentiation is sufficiently large, irrespective of the mode of competition. Then, we then examine the same problem in a Hotelling-type unit-linear market and show that an increase in the degree of compatibility reduces the incentives to innovate.
    Keywords: innovation; network externality; compatibility; a fulfilled expectation; cost-reducing
    JEL: D43 L13 L15 O31
    Date: 2023–07
  5. By: Florian Brandl; Felix Brandt
    Abstract: We give a robust characterization of Nash equilibrium by postulating coherent behavior across varying games: Nash equilibrium is the only solution concept that satisfies consequentialism, consistency, and rationality. As a consequence, every equilibrium refinement violates at least one of these properties. We moreover show that every solution concept that approximately satisfies consequentialism, consistency, and rationality returns approximate Nash equilibria. The latter approximation can be made arbitrarily good by increasing the approximation of the axioms. This result extends to various natural subclasses of games such as two-player zero-sum games, potential games, and graphical games.
    Date: 2023–07
  6. By: Filip Tokarski (Stanford University; Group for Research in Applied Economics (GRAPE)); Joanna Krysta (Stanford University; Group for Research in Applied Economics (GRAPE)); Paweł Doligalski (Bristol University; Group for Research in Applied Economics (GRAPE)); Piotr Dworczak (Northwestern University; Group for Research in Applied Economics (GRAPE))
    Abstract: We consider a general mechanism-design environment in which the planner faces incentive constraints such as the ones resulting from agents' private information or ability to take hidden actions. We study the properties of optimal mechanisms when some decisions are incentive-separable: A set of decisions is incentive-separable if, starting at some initial allocation, perturbing these decisions along agents' indifference curves preserves incentive constraints. We show that, under regularity conditions, the optimal mechanism allows agents to make unrestricted choices over incentive-separable decisions, given some prices and budgets. Using this result, we extend and unify the Atkinson-Stiglitz theorem on the undesirability of differentiated commodity taxes and the Diamond-Mirrlees production efficiency result. We also demonstrate how the analysis of incentive separability can provide a novel justification for in-kind redistribution programs similar to food stamps.
    Keywords: equity-efficiency trade-off, separability, optimal taxation
    JEL: D82 H21
    Date: 2023
  7. By: Nicodemo De Vito (Department of Decision Sciences, Bocconi University)
    Abstract: Hierarchies of conditional beliefs (Battigalli and Siniscalchi 1999) play a central role for the epistemic analysis of solution concepts in sequential games. They are practically modelled by type structures, which allow the analyst to represent the players' hierarchies without specifying an infinite sequence of conditional beliefs. Here, we study type structures that satisfy a "richness" property, called completeness. This property is defined on the type structure alone, without explicit reference to hierarchies of beliefs or other type structures. We provide sufficient conditions under which a complete type structure represents all hierarchies of conditional beliefs. In particular, we present an extension of the main result in Friedenberg (2010) to type structures with conditional beliefs.
    Date: 2023–07
  8. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Naoshi Doi (Otaru University of Commerce- Economics)
    Abstract: This paper theoretically examines pricing and quality decisions of a monopoly platform facilitating transactions that involve physical shipping. In our model, the platform provides two types of transaction services (a standard service and a "premium" service with high-quality delivery of a transacted item) and decides a membership fee, transaction fees, and the quality of the premium service. We conduct comparative statics with respect to shipping costs. It is shown that when shipping costs are increased, the directions of changes in the platform's decision variables are ambiguous, depending on the nature of the increased shipping costs. For example, an increase in shipping costs may increase the quality and decrease the membership fee.
    Keywords: Platform monopoly; Menu-pricing; Quality decisions; Two-sided market.
    JEL: D21 D43 L13 L15
    Date: 2023–06
  9. By: Igal Milchtaich (Bar-Ilan University)
    Abstract: Quantum advantage in Bayesian games, or games with incomplete information, refers to the larger set of correlated equilibrium outcomes that can be obtained by using quantum mechanisms rather than classical ones. Earlier examples of such advantage go under the title of quantum pseudo-telepathy. By using measurements of entangled particles, the players in the Mermin–Peres magic square game and similar games can obtain a common payoff that is higher than that afforded by any classical mechanism. However, these common-interest games are very special. In general games, where payoffs differ across players and player types, the implementation of specific correlated equilibrium outcomes may require limiting the information that different player types receive though the signals or messages they receive from a correlation device or mechanism. Because of the inherently destructive nature of measurements in quantum mechanics, it is well suited for this task. In a quantum correlated equilibrium, players choose what part of the information “encoded” in the quantum state to read, and choosing the part meant for their actual type is required to be incentive compatible. This requirement makes the choice of measurement analogous to the choice of report to the mediator in a communication equilibrium, and the measurement value is analogous to the massage sent back from the mediator. A choice of action follows. This paper systematically explores the advantage quantum mechanisms possess over comparable classical mechanisms in correlated and communication equilibria. It identifies the specific properties of quantum mechanisms responsible for these advantages. It then presents a classification of the equilibrium outcomes (both type-action distributions and equilibrium payoffs) in correlated and communication equilibria according to the kind of (classical or quantum) mechanism employed.
    Date: 2023–08
  10. By: Jarrod Burgh; Emerson Melo
    Abstract: We develop a model of wishful thinking that incorporates the costs and benefits of biased beliefs. We establish the connection between distorted beliefs and risk, revealing how wishful thinking can be understood in terms of risk measures. Our model accommodates extreme beliefs, allowing wishful-thinking decision-makers to assign zero probability to undesirable states and positive probability to otherwise impossible states. Furthermore, we establish that wishful thinking behavior is equivalent to quantile-utility maximization for the class of threshold beliefs distortion cost functions. Finally, exploiting this equivalence, we derive conditions under which an optimistic decision-maker prefers skewed and riskier choices.
    Date: 2023–07
  11. By: Yiding Feng; Brendan Lucier; Aleksandrs Slivkins
    Abstract: We study a game played between advertisers in an online ad platform. The platform sells ad impressions by first-price auction and provides autobidding algorithms that optimize bids on each advertiser's behalf. Each advertiser strategically declares a budget constraint (and possibly a maximum bid) to their autobidder. The chosen constraints define an "inner" budget-pacing game for the autobidders, who compete to maximize the total value received subject to the constraints. Advertiser payoffs in the constraint-choosing "metagame" are determined by the equilibrium reached by the autobidders. Advertisers only specify budgets and linear values to their autobidders, but their true preferences can be more general: we assume only that they have weakly decreasing marginal value for clicks and weakly increasing marginal disutility for spending money. Our main result is that despite this gap between general preferences and simple autobidder constraints, the allocations at equilibrium are approximately efficient. Specifically, at any pure Nash equilibrium of the metagame, the resulting allocation obtains at least half of the liquid welfare of any allocation and this bound is tight. We also obtain a 4-approximation for any mixed Nash equilibrium, and this result extends also to Bayes-Nash equilibria. These results rely on the power to declare budgets: if advertisers can specify only a (linear) value per click but not a budget constraint, the approximation factor at equilibrium can be as bad as linear in the number of advertisers.
    Date: 2023–07
  12. By: Sebastian Bervoets (Aix Marseille Univ, CNRS, AMSE, Marseille, France); Kohmei Makihara (Aix Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: We consider public goods games played on a potentially non-symmetric network and provide comparative statics results on individual and aggregate contributions, as well as on the effect of transfers between players. We show that, contrary to the case of the complete and symmetric network, a positive shock on a player can have adverse consequences. First, it could actually decrease this player's contribution, unless the interaction matrix is a P-matrix. Second, a positive shock on a contributing player increases aggregate contributions, but a positive shock on a non-contributing player will decrease aggregate contributions, even if the player who benefited from the positive shock increases his own contribution. In each case we provide simple conditions to determine whether a positive shock will have positive or negative consequences on contributions, by looking at the unconstrained solution of an alternative, associated game. The sign of the coordinates of this solution determines the effect of a shock. With this in hand, we further show that the aggregate neutrality result of Andreoni [1990] regarding transfers between players generally does not hold on non-symmetric networks and provide conditions for it to hold. Finally, as an application of previous results, we consider introducing agents that follow Kantian moral principles and show that, depending on their position in the network, the presence of Kantian agents can, counter-intuitively, lead to a decrease in aggregate contributions.
    Keywords: public Goods, Network, comparative Statics, kantian players
    Date: 2023–07
  13. By: Yoram Halevy; David Walker-Jones; Lanny Zrill
    Abstract: We investigate the problem of identifying incomplete preferences in the domain of uncertainty by proposing an incentive-compatible mechanism that bounds the behavior that can be rationalized by very general classes of complete preferences. Hence, choices that do not abide by the bounds indicate that the decision maker cannot rank the alternatives. Data collected from an experiment that implements the proposed mechanism indicates that when choices cannot be rationalized by Subjective Expected Utility they are usually incompatible with general models of complete preferences. Moreover, behavior that is indicative of incomplete preferences is empirically associated with deliberate randomization.
    Keywords: Incomplete Preferences, Identification, Elicitation, Choice Under Uncertainty, Deliberate Randomization, Experiment
    JEL: C91 D01 D81 D9
    Date: 2023–07–25
  14. By: Pierpaolo Battigalli; Davide Bordoli
    Abstract: We analyze the infinite repetition with imperfect feedback of a simultaneous or sequential game, assuming that players are strategically sophisticated---but possibly impatient---expected-utility maximizers. Sophisticated strategic reasoning in the repeated game is combined with belief updating to provide a foundation for a refinement of self-confirming equilibrium. In particular, we model strategic sophistication as rationality and common strong belief in rationality. Then, we combine belief updating and sophisticated reasoning to provide sufficient conditions for a kind of learning--that is, the ability, in the limit, to exactly forecast the sequence of future observations--thus showing that impatient agents end up playing a sequence of self-confirming equilibria in strongly rationalizable conjectures of the one-period game. We also provide a converse of this result. Irrespective of whether individuals value the future, if they are able to learn then they will play in the limit a self-confirming equilibrium in strongly rationalizable conjectures of the continuation (infinitely repeated) game. Keywords: Self-confirming equilibrium; Common strong belief in rationality; Learning; Repeated games JEL classification: C72 ; C73 ; D83
    Date: 2023
  15. By: Brzustowski, Thomas; Georgiadis Harris, Alkis; Szentes, Balázs
    Abstract: This paper reconsiders the problem of a durable-good monopolist who cannot make intertemporal commitments. The buyer’s valuation is binary and his private information. The seller has access to dynamic contracts and, in each period, decides whether to deploy the previous period’s contract or to replace it with a new one. The main result of the paper is that the Coase Conjecture fails: the monopolist’s payoff is bounded away from the low valuation irrespective of the discount factor
    JEL: D42 D82 D86 L12
    Date: 2023–05–01
  16. By: Rosina Rodríguez Olivera
    Abstract: I consider a model in which a monopolist data-seller offers information to privately informed data-buyers who play a game of incomplete information. I characterize the data-seller's optimal menu, which screens between two types of data-buyers. Data-buyers' preferences for information cannot generally be ordered across types. I show that the nature of data-buyers' preferences for information allows the data-seller to extract all surplus. In particular, the data-seller offers a perfectly informative experiment , which makes the data-buyer with the highest willingness to pay and a partially informative experiment, which makes the data-buyer with the highest willingness to pay for perfect information indifferent between both experiments. I also show that the features of the optimal menu are determined by the interaction between data-buyers' strategic incentives and the correlation of their private information. Namely, the data-seller offers two informative experiments even when data-buyers would choose the same action without supplemental information if data-buyers: i) have coordination incentives and their private information is negatively correlated or ii) have anti-coordination incentives and their private information is positively correlated.
    Keywords: Screening, Information, Strategic incentives
    JEL: D80 D82
    Date: 2023–07
  17. By: Gianluca Cassese
    Abstract: We obtain an elementary characterization of expected utility based on a representation of choice in terms of psychological gambles, which requires no assumption other than coherence between ex-ante and ex-post preferences. Weaker version of coherence are associated with various attitudes towards complexity and lead to a characterization of minimax or Choquet expected utility.
    Keywords: Arbitrage, Choquet expected utility, Coherence, Conglomerability, Expected utility, Gamble, Maxmin expected utility, Multiple priors
    JEL: D81 G12
    Date: 2023–07
  18. By: Ronen Gradwohl (Ariel University); Moshe Tennenholtz (Technion)
    Abstract: We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms -- in which only some consumers' data is sold -- that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.
    Date: 2023–07

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