nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒09‒25
eight papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Third-Degree Price Discrimination in Two-Sided Markets By de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
  2. Full surplus extraction from colluding bidders By Larionov, Daniil
  3. Higher-Order Misspecification and Equilibrium Stability By Takeshi Murooka; Yuichi Yamamoto
  4. Not as good as it used to be: Do streaming platforms penalize quality? By Gambato, Jacopo; Sandrini, Luca
  5. On the Value of Information Structures in Stochastic Games By Daehyun Kim; Ichiro Obara
  6. Arrow-Pratt-Type Measure of Ambiguity Aversion By Chiaki Hara
  7. Political salience and regime resilience By Huck, Steffen; Humphreys, Macartan; Schweighofer-Kodritsch, Sebastian
  8. Monopolistic Duopoly By Emanuele Bacchiega; Elias Carroni; Alessandro Fedele

  1. By: de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
    Abstract: We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation.
    JEL: D42 D62 L11 L12
    Date: 2023–08
  2. By: Larionov, Daniil
    Abstract: I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller's concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium. For every strategy of the seller I define the corresponding "buyer-game" in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller's strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find collusive public perfect equilibria that allow the seller to extract the entire surplus from the buyers in the limit as the buyers' discount factor goes to 1. I therefore show that a non-committed seller can effectively fight collusion even when she faces patient buyers, can only set reserve prices, and has to satisfy stringent public disclosure requirements.
    Date: 2023
  3. By: Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Yuichi Yamamoto (Institute of Economic Research, Hitotsubashi University)
    Abstract: This paper considers a Bayesian learning problem where strategic players jointly learn an unknown economic state, and show that one's higher-order misspecification (i.e., one's misspecification about the opponent's misspecification) can have a significant impact on the equilibrium outcome. We consider a simple environmental problem where players' production, as well as an unknown state, affects the quality of the environment. Crucially, we assume that one of the players is unrealistically optimistic about the quality of the environment. When this optimism is common knowledge, the equilibrium outcome is continuous in the amount of optimism, and hence small optimism leads to approximately correct learning of the state. In contrast, when the optimism is not common knowledge and each player is unaware of the opponent having a different view about the world, the equilibrium outcome is discontinuous, and even vanishingly small optimism leads to completely incorrect learning. We then analyze a general Bayesian learning model and discuss when such discontinuity arises.
    Keywords: model misspecification, learning, unawareness, convergence, stability, inferential naivety, overconfidence
    JEL: C73 D83 D90 D91
    Date: 2023–08
  4. By: Gambato, Jacopo; Sandrini, Luca
    Abstract: We study the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumers' interest in variety and pays royalties to sellers based on the effective consumption of the content they produce. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium: the platform being active represents a Pareto-improvement compared to the case in which she is not. With vertical differentiation, royalties can differ; the platform always biases recommendations in favor of the cheapest content, which hurts consumers and the high-quality seller. Biased recommendation always diminishes the incentives of a seller to increase the quality of her content for a given demand. If a significant share of the users is ex-ante unaware of the existence of the sellers the platform can bias recommendations more freely, but joining the platform encourages investment in quality. The bias, however, can lead to inefficient allocation of R&D efforts. From a policy perspective, we propose this as a novel rationale for regulating algorithmic recommendations in streaming platforms.
    Keywords: platform economics, media economics, recommendation bias, innovation
    JEL: D4 L1 L5
    Date: 2023
  5. By: Daehyun Kim; Ichiro Obara
    Abstract: This paper studies how improved monitoring affects the limit equilibrium payoff set for stochastic games with imperfect public monitoring. We introduce a simple generalization of Blackwell garbling called weighted garbling in order to compare different information structures for this class of games. Our main result is the monotonicity of the limit perfect public equilibrium (PPE) payoff set with respect to this information order: we show that the limit PPE payoff sets with one information structure is larger than the limit PPE payoff sets with another information structure state by state if the latter information structure is a weighted garbling of the former. We show that this monotonicity result also holds for the class of strongly symmetric equilibrium. Finally, we introduce and discuss another weaker sufficient condition for the expansion of limit PPE payoff set. It is more complex and difficult to verify, but useful in some special cases.
    Date: 2023–08
  6. By: Chiaki Hara (Institute of Economic Research, Kyoto University)
    Abstract: We define a measure of ambiguity aversion for ambiguity-averse utility functions in a way analogous to the Arrow-Pratt measure of risk aversion. The measure is determined by the second Peano derivative, which exists even for non-differentiable functions, such as maximin and Choquet expected utility functions. Unlike the standard notion of comparative ambiguity aversion, it allows us to compare ambiguity aversion between two utility functions exhibiting different risk attitudes. We introduce a notion of ambiguity premium and show that our measure is related to the second-order, as opposed to the first-order, ambiguity premium. We also show that it is related to the first-order impact on matching probabilities of the size of prizes.
    Keywords: Expected utility functions, risk aversion, ambiguity aversion, ambiguity premium, matching probabilities, Peano derivative
    JEL: C38 D81 G11
    Date: 2023–09
  7. By: Huck, Steffen; Humphreys, Macartan; Schweighofer-Kodritsch, Sebastian
    Abstract: We study a version of a canonical model of attacks against political regimes where agents have an expressive utility for taking political stances that is scaled by the salience of political decision-making. Increases in political salience can have divergent effects on regime stability depending on costs of being on the losing side. When regimes have weak sanctioning mechanisms, middling levels of salience can pose the greatest threat, as regime supporters are insufficiently motivated to act on their preferences and regime opponents are sufficiently motivated to stop conforming. Our results speak to the phenomenon of charged debates about democracy by identifying conditions under which heightened interest in political decision-making can pose a threat to democracy in and of itself.
    Keywords: Democracy, salience, insurgence
    JEL: C72 D74
    Date: 2023
  8. By: Emanuele Bacchiega (Department of Computer Science and Engineering, University of Bologna, Italy); Elias Carroni (Department of Economics, University of Bologna, Italy); Alessandro Fedele (Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy)
    Abstract: We delve into the Hotelling price competition game without assuming full market coverage, and derive three equilibrium configurations. Two of them are well-known: Hotelling duopoly, where firms set the prices with the aim of stealing customers from the rival, and the market is fully covered; Local Monopolies, where firms avoid strategic interaction and business stealing, and the market is partially covered. In the third, firms interact strategically to keep the market covered, while at the same time avoiding business stealing; we define it as Monopolistic Duopoly (MD) because it combines the features of the other two scenarios. Despite the existence of few contributions on MD, this equilibrium configuration has been substantially ignored. By spelling out the economics of MD and emphasizing its intriguing properties, we establish that MD has, instead, relevant implications for the Hotelling literature.
    Keywords: Hotelling Price Competition Game; Market Coverage; Monopolistic Duopoly.
    JEL: L13 C72 D21
    Date: 2023–09

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