nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒11‒27
eleven papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. On the Alignment of Consumer Surplus and Total Surplus Under Competitive Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Disclosure and Incentives in Teams By Paula Onuchic; João Ramos
  3. Conjugate Persuasion By Ian Jewitt; Daniel Quigley
  4. Efficiency and strategy-proofness in object allocation problems with payments: Externalities with income effects By SHINOZAKI, Hiroki
  5. The Power of Simple Menus in Robust Selling Mechanisms By Shixin Wang
  6. Strategy-Proof Allocation of Objects: A Characterization Result By Andersson, Tommy; Svensson, Lars-Gunnar
  7. Diversity Preferences, Affirmative Action and Choice Rules By Oguzhan Celebi
  8. Credibility in Credence Goods Markets By Xiaoxiao Hu; Haoran Lei
  9. Secret vs Public Rings in Common Value Auctions By Ceesay, Muhammed
  10. Collective Search in Networks By Niccolò Lomys
  11. Market Concentration Implications of Foundation Models By Jai Vipra; Anton Korinek

  1. By: Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient production.
    Date: 2023–11–12
  2. By: Paula Onuchic; João Ramos
    Abstract: We consider a team-production environment where all participants are motivated by career concerns, and where a team’s joint productive outcome may have different reputational implications for different team members. In this context, we characterize equilibrium disclosure of team-outcomes when team-disclosure choices aggregate individual decisions through some deliberation protocol. In contrast with individual disclosure problems, we show that equilibria often involve partial disclosure. Furthermore, we study the effort-incentive properties of equilibrium disclosure strategies implied by different deliberation protocols; and show that the partial disclosure of team outcomes may improve individuals’ incentives to contribute to the team. Finally, we study the design of deliberation protocols, and characterize productive environments where effort-incentives are maximized by unilateral decision protocols or more consensual deliberation procedures.
    Date: 2023–05–31
  3. By: Ian Jewitt; Daniel Quigley
    Abstract: We consider a class of persuasion games in which the sender has rank-dependent (Yaari (1987)) preferences. Like much of the recent Bayesian persuasion literature, we allow the sender to choose from a rich set of information structures and assume the receiver’s action depends only on her posterior expectation of a scalar state variable. Conjugate to the standard problem, our sender’s utility is linear in posterior the mean, but may be nonlinear in probabilities. We geometrically characterize the sender’s optimal commitment payoff and identify the corresponding optimal information structure. When the state is continuously distributed, communication takes a monotone partitional form. Our characterization admits a simple analysis of comparative statics—for instance, we find that “grading on a curve” is a feature of optimal design. Finally, we apply our analysis to several problems of economic interest including information design in auctions and elections, as well as the design of equilibrium insurance contracts in the face of the ‘favorite-longshot’ bias.
    Date: 2023–08–16
  4. By: SHINOZAKI, Hiroki
    Abstract: We consider the problem of allocating an object to n ≥ 2 agents with payments. We allow agents to have preferences that exhibit (allocative) externalities and are not necessarily quasi-linear. Thus, agents care not only their own consumption of the object but also other agents’ consumption or the owner keeping the object. A preference of an agent is identity-independent if he does not care who else (except for the owner) wins the object at the payment of zero. We show that if (i) all the agents have identity-independent preferences, and (ii) at least n − 1 agents have preferences that exhibit positive externalities, then the generalized pivotal rule is the only rule satisfying efficiency, weak individual rationality, no subsidy for losers, and strategy-proofness. We also establish that if we relax one of the assumptions (i) and (ii), then no rule satisfies the four properties. Further, we find the two environments where some agents may have identity-dependent preferences, others have quasi-linear preferences exhibiting positive externaliteis, and there is a rule satisfying the four properties. Overall, our results suggest the importance of identity-independence and positive externalities in a non-quasi-linear environment with externalities for the existence of a rule satisfying the four properties.
    Keywords: Efficiency, Strategy-proofness, Allocative externalities, Non-quasi-linear preferences, The generalized pivotal rule, The pivotal rule, Single object auctions
    JEL: D44 D47 D71 D82
    Date: 2023–11
  5. By: Shixin Wang
    Abstract: We study a robust selling problem where a seller attempts to sell one item to a buyer but is uncertain about the buyer's valuation distribution. Existing literature indicates that robust mechanism design provides a stronger theoretical guarantee than robust deterministic pricing. Meanwhile, the superior performance of robust mechanism design comes at the expense of implementation complexity given that the seller offers a menu with an infinite number of options, each coupled with a lottery and a payment for the buyer's selection. In view of this, the primary focus of our research is to find simple selling mechanisms that can effectively hedge against market ambiguity. We show that a selling mechanism with a small menu size (or limited randomization across a finite number of prices) is already capable of deriving significant benefits achieved by the optimal robust mechanism with infinite options. In particular, we develop a general framework to study the robust selling mechanism problem where the seller only offers a finite number of options in the menu. Then we propose a tractable reformulation that addresses a variety of ambiguity sets of the buyer's valuation distribution. Our formulation further enables us to characterize the optimal selling mechanisms and the corresponding competitive ratio for different menu sizes and various ambiguity sets, including support, mean, and quantile information. In light of the closed-form competitive ratios associated with different menu sizes, we provide managerial implications that incorporating a modest menu size already yields a competitive ratio comparable to the optimal robust mechanism with infinite options, which establishes a favorable trade-off between theoretical performance and implementation simplicity. Remarkably, a menu size of merely two can significantly enhance the competitive ratio, compared to the deterministic pricing scheme.
    Date: 2023–10
  6. By: Andersson, Tommy (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University)
    Abstract: This paper considers an allocation problem with a finite number of objects and unit-demand agents. The main result is a characterization of a class of strategy-proof price mechanisms on a general domain where preferences over pairs of objects and houses are rational, monotonic, and continuous. A mechanism belongs to this class if and only if the price space is restricted in a special way and, given this restriction, that the mechanism selects minimal equilibrium prices.
    Keywords: Characterization; House allocation; Strategy-proofness; Multi-object auction
    JEL: D44 D47 D63 D78 D82
    Date: 2023–10–31
  7. By: Oguzhan Celebi
    Abstract: I study the relationship between diversity preferences and the choice rules implemented by institutions, with a particular focus on the affirmative action policies. I characterize the choice rules that can be rationalized by diversity preferences and demonstrate that the recently rescinded affirmative action mechanism used to allocate government positions in India cannot be rationalized. I show that if institutions evaluate diversity without considering intersectionality of identities, their choices cannot satisfy the crucial substitutes condition. I characterize choice rules that satisfy the substitutes condition and are rationalizable by preferences that are separable in diversity and match quality domains.
    Date: 2023–10
  8. By: Xiaoxiao Hu; Haoran Lei
    Abstract: An expert seller chooses an experiment to influence a client's purchasing decision, but may manipulate the experiment result for personal gain. When credibility surpasses a critical threshold, the expert chooses a fully-revealing experiment and, if possible, manipulates the unfavorable result. In this case, a higher credibility strictly benefits the expert, whereas the client never benefits from the expert's services. We also discuss policies regarding monitoring expert's disclosure and price regulation. When prices are imposed exogenously, monitoring disclosure does not affect the client's highest equilibrium value. A lower price may harm the client when it discourages the expert from disclosing information.
    Date: 2023–10
  9. By: Ceesay, Muhammed
    Abstract: For a single-object second-price common value auction with colluding bidders, and assuming an ``almost all-inclusive ring", we analyze whether an auctioneer who knows that a bidding ring is present at the auction should reveal their presence, and if so, whether to make the revelation publicly, or secretly to the non-ring bidder. We show that for a family of value functions, and assuming (where possible) that bidders use symmetric strategies, publicly revealing that a ring is present induces the non-ring bidder to submit a bid higher than the amount he bids when he (the non-ring bidder) is convinced that the auction is purely noncooperative. On one hand, this means that conditional on a ring operating at the auction, the auctioneer may improve his position by publicly announcing the ring presence, rather than keeping the ring concealed. On the other hand, this presents a new way that an auctioneer can cheat at the auction without having to employ shills, as even in the absence of colluding bidders, simply inducing bidders to believe that they are facing a ring causes them to bid higher than they would have.
    JEL: D44
    Date: 2023
  10. By: Niccolò Lomys (CSEF and Università degli Studi di Napoli Federico II.)
    Abstract: I study the dynamics of collective search in networks. Bayesian agents act in sequence, observe the choices of their connections, and privately acquire information about the qualities of different actions via sequential search. If search costs are not bounded away from zero, maximal learning occurs in sufficiently connected networks where individual neighborhood realizations weakly distort agents’ beliefs about the realized network. If search costs are bounded away from zero, maximal learning is possible in several stochastic networks, including almost-complete networks, but generally fails otherwise. When agents observe random numbers of immediate predecessors, the learning rate, the probability of wrong herds, and long-run efficiency properties are the same as in the complete network. The density of indirect connections affects convergence rates. Network transparency has short-run implications for welfare and efficiency.
    Keywords: Networks; Bayesian Learning; Search; Speed and Efficiency of Social Learning.
    JEL: C7 D6 D8
    Date: 2023–10–18
  11. By: Jai Vipra; Anton Korinek
    Abstract: We analyze the structure of the market for foundation models, i.e., large AI models such as those that power ChatGPT and that are adaptable to downstream uses, and we examine the implications for competition policy and regulation. We observe that the most capable models will have a tendency towards natural monopoly and may have potentially vast markets. This calls for a two-pronged regulatory response: (i) Antitrust authorities need to ensure the contestability of the market by tackling strategic behavior, in particular by ensuring that monopolies do not propagate vertically to downstream uses, and (ii) given the diminished potential for market discipline, there is a role for regulators to ensure that the most capable models meet sufficient quality standards (including safety, privacy, non-discrimination, reliability and interoperability standards) to maximally contribute to social welfare. Regulators should also ensure a level regulatory playing field between AI and non-AI applications in all sectors of the economy. For models that are behind the frontier, we expect competition to be quite intense, implying a more limited role for competition policy, although a role for regulation remains.
    Date: 2023–11

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