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on Microeconomics |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Dept. of Economics, MIT) |
| Abstract: | We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller's profit. The optimal screening mechanism has finitely many items even with a continuum of values. We identify sufficient conditions under which the optimal mechanism has a single item. Thus the seller decreases the variety of items below the efficient level in order to reduce the information rents of the buyers. |
| Keywords: | Nonlinear Pricing, Screening, Bayesian Persuasion, Finite Menu, Second-Degree Price Discrimination, Recommender System |
| JEL: | D44 D47 D83 D84 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2338r2&r=mic |
| By: | Harry Pei |
| Abstract: | A patient firm interacts with a sequence of consumers. The firm is either an honest type who supplies high quality and never erases its action, or an opportunistic type who can choose what quality to supply and may erase its action at a low cost. We show that in every equilibrium, the firm has an incentive to build a reputation for supplying high quality until its continuation value exceeds its commitment payoff, but its ex ante payoff must be close to its minmax value when it has a sufficiently long lifespan. Therefore, even a small fraction of opportunistic types can wipe out the firm's returns from building reputations. Even if the honest type can commit to disclosure policies, the opportunistic type's payoff cannot exceed its equilibrium payoff when the firm reveals no information, regardless of the disclosure policy the honest type commits to. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.13956&r=mic |
| By: | Dhillon, Amrita (King’s College, London); Kotsialou, Grammateia (London School of Economics); Ravindran, Dilip (Humboldt University of Berlin); Xefteris, Dimitrios (University of Cyprus) |
| 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. |
| Keywords: | Liquid democracy, delegation, strategic voting, information aggregation, Condorcet Jury theorem JEL Classification: D72 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:665&r=mic |
| By: | Jan-Henrik Steg; Elshan Garashli; Michael Greinecker; Christoph Kuzmics |
| Abstract: | We show that sender-optimal equilibria in cheap-talk games with a binary state space and state-independent preferences are robust to perturbations of the sender's preferences that allow for slight state-dependence. Other equilibria generally fail to be robust. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.04193&r=mic |
| By: | Sarah Auster; Christian Kellner |
| Abstract: | We study the effect of ambiguity on timing decisions. An agent faces a stopping problem with an uncertain stopping payoff and a stochastic time limit. The agent is unsure about the correct model quantifying the uncertainty and seeks to maximize her payoff guarantee over a set of plausible models. As time passes and the agent updates, the worst-case model used to evaluate a given strategy can change, creating a problem of dynamic inconsistency. We characterize the stopping behavior in this environment and show that, while the agent’s myopic incentives are fragile to small changes in the set of considered models, the best consistent plan from which no future self has incentives to deviate is robust. |
| Keywords: | Stopping problem, ambiguity, consistent planning |
| JEL: | C61 D81 D83 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_460&r=mic |
| By: | Haoyang Wu |
| Abstract: | In mechanism design theory, agents' types are described as their private information, and the designer may reveal some public information to affect agents' types in order to obtain more payoffs. Traditionally, both each agent's private type and the public information are represented as a random variable respectively. In this paper, we propose a type-adjustable mechanism where each agent's private type is represented as a function of two parameters, \emph{i.e.}, his intrinsic factor and an external control factor. Each agent's intrinsic factor is modeled as a private random variable, and the external control factor is modeled as a solution of the designer's optimization problem. The advantage of the type-adjustable mechanism is that by choosing an optimal value of control factor as public information, the designer may obtain Pareto-optimal outcomes, beneficial not only to herself but also to all agents. As a comparison, in an auction with interdependent values where the public information is represented as a random variable, only the seller will benefit from public information. In the end, we compare the type-adjustable mechanism with other relevant models. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.01096&r=mic |
| By: | Jean-Michel Benkert, Igor Letina, Shuo Liu |
| Abstract: | We present a model of startup acquisitions, which may give rise to inefficient “talent hoarding.” We develop a model with two competing firms that can acquire and integrate (or “acquihire”) a startup operating in an orthogonal market. Such an acquihire improves the competitiveness of the acquiring firm. We show that even absent the classical competition effects, acquihires need not be benign but can be the result of oligopolistic behavior, leading to an inefficient allocation of talent. Further, we show that such talent hoarding may reduce consumer surplus and lead to more job volatility for acquihired employees. |
| Keywords: | acquihire, talent hoarding, startup acquisition, competition |
| JEL: | L41 G34 M13 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2309&r=mic |
| By: | Esteban Colla-De-Robertis (Universidad Panamericana) |
| Abstract: | We study information aggregation through voting in dynamic environments. We show that the voting rule under which an informative vote is a Nash equilibrium entails a time-varying quota, which suggests that efficient information aggregation requires the use of time-varying voting rules. We also show that a time-invariant simple majority quota rule is asymptotically efficient, that is when the size of the committee tends to infinity. We discuss possible applications to the monitoring and managing of natural resources and the environment. |
| Keywords: | Condorcet Jury Theorem - Information aggregation - Partially Observable Markov Decision Processes - Management of natural resources - Environment |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:272&r=mic |
| By: | Jeon, Doh-Shin; Lefouili, Yassine; Li, Yaxin; Simcoe, Timothy |
| Abstract: | Motivated by several examples, including Internet of Things patent licensing, we develop a tractable model of multi-product ecosystems, where one or more plat- forms provide inputs to a set of devices linked through demand-side externalities. Prices depend on each device's Katz-Bonacich centrality in a network dened by the externalities, and we show how the relevant network diers for an ecosystem monop- olist, a social planner, or a group of complementary platforms. We use the model to revisit Cournot's analysis of complementary monopolies in a platform setting, and to analyze a partial (one-sided) merger of complementary platforms. |
| Keywords: | Multi-sided Market, Complementary Platforms, Network, Centrality, ; IoT, Licensing |
| Date: | 2023–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128468&r=mic |
| By: | Conrad Kosowsky |
| Abstract: | In this paper, I prove the existence of a pure-strategy Nash equilibrium for a large class of games with nonconvex strategy spaces. Specifically, if each player's strategies form a compact, connected Euclidean neighborhood retract and if all best-response correspondences are null-homotopic, then the game has a pure-strategy Nash equilibrium. As an application, I show how this result can prove the fundamental theorem of algebra. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.11597&r=mic |
| By: | Fritz, Qi Gao |
| Abstract: | In this paper, I propose a model to investigate firms’ signaling decisions on the product level. By seeking (imperfect) third-party certification, firms can label their products with good quality for which only some consumers care. Combining the signaling game with a matching problem, I am able to investigate the impact of the size of conscious consumers and asymmetric firm size on firms’ signaling decisions. In general, the level of certification costs determines the occurrence of different equilibria. While more conscious buyers unambiguously increase the probability of separating and semi-separating equilibria, the effect on the pooling equilibrium is not that straightforward. Asymmetric firm size negatively influences the occurrences of all equilibria. However, product allocation schemes play an important role in such negative effects. |
| Date: | 2023–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:ay8rq&r=mic |
| By: | Esmée Dijk (Vrije Universiteit Amsterdam); José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam) |
| Abstract: | An entrant and an incumbent engage in an investment portfolio problem where each chooses how to allocate its research funds across a rival market, where they compete with one another, and a non-rival market, where they do not interact. Allowing for acquisitions distorts both players’ incentives to allocate funding across their rival and non-rival projects. We show conditions under which the incumbent, anticipating the rents that accrue from the monopolization of the rival market, moves R&D resources from other markets to the rival market. This “incumbency for buyout effect” lowers the expected rents the entrant obtains from the contestable market, which gives it incentives to move its investment portfolio away from the rival market. We show that this strategic effect dominates the usual “innovation for buyout effect” when the entrant’s bargaining power is below a threshold. Allowing for acquisitions may improve the direction of innovation of each of the players as well as consumer surplus. Because precisely the shift of resources towards and away from non-rival projects causes the welfare gains and losses, using the traditional definition-of-the-market approach to assess the impact of acquisitions should be reconsidered. |
| Keywords: | start-up acquisitions, innovation portfolios, direction of innovation, incumbency for buyout, innovation for buyout |
| JEL: | O31 L13 L41 |
| Date: | 2023–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20230047&r=mic |
| By: | Francesc Dilmé |
| Abstract: | This paper introduces and analyzes sequentially stable outcomes in extensive games. An outcome ω is sequentially stable if for any ε>0, any version of the game where players make mistakes with small enough probability has a perfect "-equilibrium with outcome close to ω. Unlike stable outcomes (Kohlberg and Mertens, 1986), sequentially stable outcomes exist for all finite games and are sequentially rational. If there is a unique sequentially stable outcome, such an outcome is the unique stable outcome of the game’s agent normal form. Also, sequentially stable outcomes satisfy versions of forward induction, iterated strict equilibrium dominance, and invariance to simultaneous moves. In signaling games, sequentially stable outcomes pass the standard selection criteria, and when payoffs are generic, they coincide with stable outcomes. |
| Keywords: | Sequential stability, stable outcome, signaling games |
| JEL: | C72 C73 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_463&r=mic |
| By: | Claudia Herresthal; Tatiana Mayskaya; Arina Nikandrova |
| Abstract: | A merger of two companies active in seemingly unrelated markets creates data linkage: by operating in a product market, the merged company acquires an informational advantage in an insurance market where companies compete in menus of contracts. In the insurance market, the informed insurer earns rent through cream-skimming. Some of this rent is passed on to consumers in the product market. Overall, the data linkage makes consumers better off when the insurance market is competitive and, under some conditions, even when the insurance market is monopolistic. The role of competitiveness of the product market and the data-sharing requirement are discussed. |
| Keywords: | insurance market, asymmetric information, data linkage, digital market |
| JEL: | D4 D82 G22 L22 L41 L86 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_462&r=mic |
| By: | Joseph Root; David S. Ahn |
| Abstract: | We introduce a novel family of mechanisms for constrained allocation problems which we call local priority mechanisms. These mechanisms are parameterized by a function which assigns a set of agents -- the local compromisers -- to every infeasible allocation. The mechanism then greedily attempts to match agents with their top choices. Whenever it reaches an infeasible allocation, the local compromisers move to their next favorite alternative. Local priority mechanisms exist for any constraint so this provides a method of constructing new designs for any constrained allocation problem. We give axioms which characterize local priority mechanisms. Since constrained object allocation includes many canonical problems as special constraints, we apply this characterization to show that several well-known mechanisms, including deferred acceptance for school choice, top trading cycles for house allocation, and serial dictatorship can be understood as instances of local priority mechanisms. Other mechanisms, including the Boston mechanism, are not local priority mechanisms. We give necessary and sufficient conditions which characterize the local priority mechanisms that are group strategy-proof. As an application, we construct novel mechanisms for a natural variation of the house allocation problem where no existing class of mechanisms besides serial dictatorship would be applicable. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.04020&r=mic |
| By: | Chao Huang |
| Abstract: | We propose a notion of concavity in two-sided many-to-one matching, which is an analogue to the balancedness condition in cooperative games. A stable matching exists when the market is concave. We provide a class of concave markets. In the proof of the existence theorem, we use Scarf's algorithm to find a stable schedule matching, which is of independent interest. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.04181&r=mic |