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on Microeconomics |
| By: | Marina Agranov; Ran Eilat; Konstantin Sonin |
| Abstract: | We analyze a model of political competition in which the elite forms endogenously to aggregate information and advise the uninformed median voter which candidate to choose. The median voter knows whether or not the endorsed candidate is biased toward the elites, but might still prefer the biased candidate if the elite’s endorsement provides sufficient information about her competence. The elite size and the degree of information aggregation by the elite depend on the extent to which the median voter follows the elite’s advice. A higher cost of redistribution minimizes the elite’s information advantage, hinders information transmission, and decreases the expected competence of the elected politician. |
| JEL: | D72 D83 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31510&r=mic |
| By: | Makoto WATANABE; José L. Moraga-González |
| Abstract: | This paper studies how selling constraints, which refer to the inability of firms to attend to all the buyers who want to inspect their products, affect the equilibrium price and social welfare. We show that the price that maximizes social welfare is greater than the marginal cost. This is because with selling constraints, a higher price, despite reducing the probability of trade (fewer buyers are willing to pay a higher price) increases the value of trade (only trades generating positive surplus are consummated). We show that the equilibrium price is inefficiently high except in the limit when firms selling constraints vanish and consumers observe prices before they visit firms. Thus, selling constraints constitute a source of market power. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:23-012e&r=mic |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | How should a seller offer quantity or quality differentiated products if they have no information about the distribution of demand? We consider a seller who cares about the "profit guarantee" of a pricing rule, that is, the minimum ratio of expected profits to expected social surplus for any distribution of demand. We show that the profit guarantee is maximized by setting the price markup over cost equal to the elasticity of the cost function. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible demand distributions. With a constant elasticity cost function, constant markup pricing provides the optimal revenue guarantee across all possible demand distributions and the lower bound is attained under a Pareto distribution. We characterize how profits and consumer surplus vary with the distribution of values and show that Pareto distributions are extremal. We also provide a revenue guarantee for general cost functions. We establish equivalent results for optimal procurement policies that support maximal surplus guarantees for the buyer given all possible cost distributions of the sellers. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2368&r=mic |
| By: | Martin Peitz; Anton Sobolev; Paul Wegener |
| Abstract: | Advertisers post ads on publishers’ websites to attract the attention of consumers (who visit both available publishers). Since advertisers are competing in the product market, an advertiser may have an incentive to foreclose its competitor through excessive advertising. An ad blocker may be present and charge publishers for whitelisting. We fully characterize the equilibrium in which ad blocker, publishers, and advertisers make strategic pricing decisions. Under some conditions, the ad blocker sells whitelisting to one publisher and both publishers are strictly better off than without the ad blocker. Under other conditions, not only publishers but also advertisers or consumers are worse off. |
| Keywords: | advertising, advertiser competition, ad blocker, whitelisting, imperfect competition |
| JEL: | L12 L13 L15 M37 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_448&r=mic |
| 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. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.10328&r=mic |
| By: | De Francesco, Massimo A.; Salvadori, Neri |
| Abstract: | This paper studies price competition among a given number of capacity-constrained producers of a homogeneous commodity under the efficient rationing rule and constant (and identical) marginal cost until full capacity, when demand is a continuous, non-increasing, and non-negative function defined on the set of non-negative prices and is positive, strictly decreasing, twice differentiable and (weakly) concave when positive. The focus is on general properties of equilibria in the region of the capacity space in which no pure strategy equilibria exist. We study how the properties that are known to hold for the duopoly are generalized to the oligopoly and, on the contrary, what properties do not need to hold in oligopoly. Our inquiry reveals, among other properties, the possibility of an atom in the support of a firm smaller than the largest one and the properties that such an atom entails. Although the characterization of equilibria is far from being complete, this paper provides substantial elements in this direction. |
| Keywords: | Bertrand-Edgeworth; Price game; Oligopoly; Duopoly; Mixed strategy equilibrium. |
| JEL: | C72 D43 L13 |
| Date: | 2023–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118237&r=mic |
| By: | Daher, Wassim; Karam, Fida; Ahmed, Naveed |
| Abstract: | We study a generalization of the Kyle (1985) static model with two risk neutral insiders to the case where each insider is partially informed about the value of the stock and compete under Stackelberg setting. First, we characterize the linear Bayesian equilibrium. Then, we carry out a comparative statics analysis. Our findings reveal that partial information increases the insiders profits in a Stackelberg setting than in a Cournot setting. Finally we study the impact of the information sharing on equilibrium outcomes. |
| Keywords: | Insider trading, Risk neutrality, Partial Information, Stackelberg structure, Kyle model |
| JEL: | D82 G14 |
| Date: | 2023–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118138&r=mic |
| By: | Yannai A. Gonczarowski; Ori Heffetz; Clayton Thomas |
| Abstract: | A menu description presents a mechanism to player i in two steps. Step (1) uses the reports of other players to describe i’s menu: the set of i’s potential outcomes. Step (2) uses i’s report to select i’s favorite outcome from her menu. Can menu descriptions better expose strategyproofness, without sacrificing simplicity? We propose a new, simple menu description of Deferred Acceptance. We prove that—in contrast with other common matching mechanisms—this menu description must differ substantially from the corresponding traditional description. We demonstrate, with a lab experiment on two elementary mechanisms, the promise and challenges of menu descriptions. |
| JEL: | D47 D82 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31506&r=mic |
| By: | Joffrey Derchu; Dimitrios Kavvathas; Thibaut Mastrolia; Mathieu Rosenbaum |
| Abstract: | We study a toy two-player game for periodic double auction markets to generate liquidity. The game has imperfect information, which allows us to link market spreads with signal strength. We characterize Nash equilibria in cases with or without incentives from the exchange. This enables us to derive new insights about price formation and incentives design. We show in particular that without any incentives, the market is inefficient and does not lead to any trade between market participants. We however prove that quadratic fees indexed on each players half spread leads to a transaction and we propose a quantitative value for the optimal fees that the exchange has to propose in this model to generate liquidity. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.15805&r=mic |
| By: | Massimo Motta; Martin Peitz |
| Abstract: | Motivated by a recent antitrust case involving Google, we develop a rationale for foreclosure when the owner of an essential input is not yet integrated downstream. Our theory rests on data-enabled network effects across periods. If a platform considers offering a first-party app in the future, by not allowing a third-party app to be hosted on its platform, it ensures that the third-party app would be a weaker competitor to its own app in the future. This makes denial of access attractive as a full or partial foreclosure strategy, which is costly in the short term but may be beneficial in the long term. We also study the effects of policies such as compulsory access or data-sharing, showing under which conditions they might be beneficial to consumers or backfire. |
| Keywords: | Exclusionary practices, vertical interoperability, refusal to deal, digital platforms, vertical foreclosure, data-enabled networks effects, compulsory access, data-sharing policies |
| JEL: | L10 L40 K21 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_447&r=mic |
| By: | Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Jie Shuai (Wenlan School of Business, Zhongnan University of Economics and Law) |
| Abstract: | This paper offers a complete picture of the impact of behavior-based price discrimination on profits, consumer surplus, and welfare in markets with a general demand function, where consumers and firms can discount the future at different discount factors. Regardless of the demand function considered, in comparison to uniform pricing, BBPD reduces firms´ second-period prices and profits. In contrast, we show that new results arise regarding the impact of BBPD on first-period prices. Under perfectly inelastic and CES demand, the firm-side effect is null and the consumer-side e¤ect fully explains the increase in first-period prices. This is no longer the case when the price elasticity of demand varies with price level. Specifically, we show that the firm-side effect can lead firms to raise first-period prices, even when consumers are myopic. We also show that, depending on the demand function considered, the consumer side effect can act to reduce or increase first-period prices. The overall impact of BBPD on first-period prices depends on the interplay between these two effects. Our analysis reveals that the output effect and consumer switching plays an important role in explaining the impact of BBPD on welfare. When discount factors are equal, BBPD may have a positive or negative impact on consumer surplus and social welfare, which contrasts with the result that BBPD is beneficial for consumers under a unit and CES demand. For a linear demand function, we identify the regions for firms and consumers discount factors where BBPD can simultaneously enhance or reduce total discounted profits, consumer surplus, and social welfare. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:03/2023&r=mic |
| By: | Giuseppe Dari-Mattiacci Author-Workplace-Name :University of Amsterdam; Sander Onderstal Author-Workplace-Name :University of Amsterdam; Francesco Parisi Author-Workplace-Name :University of Minnesota; Ram Singh (Department of Economics, Delhi School of Economicss, University of Delhi) |
| Abstract: | Contract law traditionally applies different disclosure duties on buyers and sellers. Sellers are generally required to disclose “negative” information about hidden defects of the products they sell. Failure to disclose can make the contract voidable and can give rise to liability. By contrast, buyers are generally under no comparable duties to disclose “positive” information about hidden qualities of the products they buy. The leading explanation for the law’s disparate treatment of buyers and sellers in these two asymmetric information problems is that imposing disclosure duties on buyers would undermine their incentives to acquire costly (but socially useful) information prior to forming a contract (Kronman, 1978). This explanation lacks a key step—the failure to correct asymmetric information problems would cause the inverse adverse selection problem (identified by Burckart and Lee (2016) and Dari-Mattiacci et al. (2021)) to arise. Uninformed sellers would withdraw from the market and resources would not move to higher-valuing users. In this paper, we develop a model to study the incentives created by disclosure and non-disclosure rules. We show that when parties can contract around defaults, the choice of alternative disclosure rules (duty to disclose vs. no duty to disclose) makes a difference. Unlike disclosure rules, non-disclosure default rules yield partially separating equilibria that preserve the buyers’ incentives to acquire information. They also foster trade opportunities between expert buyers and uninformed sellers. Our results add to the existing literature by providing an additional rationale for the different treatment of buyers and sellers in asymmetric information problems. JEL Codes : D44, D82, D86, K12. |
| Keywords: | asymmetric information, penalty default rules, inverse adverse selection |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:338&r=mic |
| By: | Ben Hambly; Renyuan Xu; Huining Yang |
| Abstract: | We consider two-player non-zero-sum linear-quadratic Gaussian games in which both players aim to minimize a quadratic cost function while controlling a linear and stochastic state process {using linear policies}. The system is partially observable with asymmetric information available to the players. In particular, each player has a private and noisy measurement of the state process but can see the history of their opponent's actions. The challenge of this asymmetry is that it introduces correlations into the players' belief processes for the state and leads to circularity in their beliefs about their opponents beliefs. We show that by leveraging the information available through their opponent's actions, both players can enhance their state estimates and improve their overall outcomes. In addition, we provide a closed-form solution for the Bayesian updating rule of their belief process. We show that there is a Nash equilibrium which is linear in the estimation of the state and with a value function incorporating terms that arise due to errors in the state estimation. We illustrate the results through an application to bargaining which demonstrates the value of these information corrections. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.15842&r=mic |
| By: | Th\'eo Durandard |
| Abstract: | I study how organizations assign tasks to identify the best candidate to promote among a pool of workers. Task allocation and workers' motivation interact through the organization's promotion decisions. The organization designs the workers' careers to both screen and develop talent. When only non-routine tasks are informative about a worker's type and non-routine tasks are scarce, the organization's preferred promotion system is an index contest. Each worker is assigned a number that depends only on his own type. The principal delegates the non-routine task to the worker whose current index is the highest and promotes the first worker whose type exceeds a threshold. Each worker's threshold is independent of the other workers' types. Competition is mediated by the allocation of tasks: who gets the opportunity to prove themselves is a determinant factor in promotions. Finally, features of the optimal promotion contest rationalize the prevalence of fast-track promotion, the role of seniority, or when a group of workers is systemically advantaged. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.05668&r=mic |
| By: | Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Francisco Carballo-Cruz (NIPE/Center for Research in Economics and Management, University of Minho, Portugal) |
| Abstract: | This paper examines how an incumbent firm´s data investment decisions can impact market structure and competition. In markets with sufficiently low entry costs, using exclusive data for personalized pricing (PP) does not raise any barrier to entry. However, in markets with intermediate entry costs, the risk of competition and harm to consumers is signifi cant. Policy intervention is needed to foster competition. The effectiveness of an information-sharing policy depends on whether the incumbent anticipates it. Mandatory information sharing can only promote entry in markets with intermediate to high entry costs if the incumbent does not foresee its imposition. If the incumbent foresees this policy, it will strategically reduce its data acquisition to deter entry, by serving fewer consumers in the early period. This will cause signi ficant harm to consumers and overall welfare. Only in markets with low enough intermediate entry costs, information-sharing obligations can foster competition and bene fit consumers, regardless of the incumbent´s anticipation. A ban on price personalization practices could be a better policy option to promote competition, especially in markets with high entry costs or where mandatory information sharing is not effective due to the incumbent strategic behavior. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:06/2023&r=mic |
| By: | Besley, Timothy; Persson, Torsten |
| Abstract: | Reducing the emissions of greenhouse gases may be almost impossible without a green transition—a substantial transformation of consumption and production patterns. To study such transitions, we propose a dynamic model, which differs in two ways from the common approach in economics. First, consumption patterns reflect not just changing prices and taxes, but changing values. Transitions of values and technologies create a dynamic complementarity that can help or hinder a green transition. Second, and unlike fictitious social planners, policymakers in democratic societies cannot commit to future policy paths, as they are subject to regular elections. We show that market failures and government failures can interact so as to prevent a welfare-increasing green transition from materializing, or make an ongoing green transition too slow. |
| Keywords: | 693402; 2015-00253 |
| JEL: | D71 D72 D91 Q58 |
| Date: | 2023–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:117946&r=mic |
| By: | Jessica Martin (IMT - Institut de Mathématiques de Toulouse UMR5219 - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique); Stéphane Villeneuve (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: | What type of delegation contract should be offered when facing a risk of the magnitude of the pandemic we are currently experiencing and how does the likelihood of an exogenous early termination of the relationship modify the terms of a full-commitment contract? We study these questions by considering a dynamic principal-agent model that naturally extends the classical Holmström-Milgrom setting to include a risk of shutdown before the maturity of the contract. We obtain an explicit characterization of the optimal wage along with the optimal action provided by the agent when the shutdown risk is independent of the inherent agency problem. The optimal contract is linear by offering both a fixed share of the output which is similar to the standard shutdown-free Holmström Milgrom model and a linear prevention mechanism that is proportional to the random lifetime of the contract. We then extend the model in two directions. We first allow the agent to control the intensity of the shutdown risk. We also consider a structural agency model where the shutdown risk materializes when the state process hits zero. |
| Keywords: | Principal-Agent problems, Shutdown risk, Hamilton-Jacobi Bellman equations |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04164688&r=mic |