nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒01‒01
fourteen papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Consensus and Disagreement: Information Aggregation under (not so) Naive Learning By Abhijit Banerjee; Olivier Compte
  2. Multibrand Price Dispersion By Mark Armstrong; John Vickers
  3. “Sherlocking” and Platform Information Policy By Jay Pil Choi; Kyungmin Kim; Arijit Mukherjee
  4. Network Effects on Information Acquisition by DeGroot Updaters By Miguel Risco
  5. The Optimal Design Of Elimination Tournaments With A Superstar By Daria Tabashnikova; Marina Sandomirskaia
  6. Maximizing a preference relation on complete chains and lattices By Kukushkin, Nikolai S.
  7. Information spillovers in experience goods competition By Chen, Zhuoqiong; Stanton, Christopher; Thomas, Catherine
  8. Shaking Up the System: When Populism Disciplines Elite Politicians By Emmanuelle Auriol; Nicolas Bonneton; Mattias Polborn
  9. Organizing data analytics By Alonso, Ricardo; Câmara, Odilon
  11. Randomisation with moral hazard: a path to existence of optimal contracts By Daniel Kr\v{s}ek; Dylan Possama\"i
  12. Debunking Rumors in Networks By Luca Paolo Merlino; Paolo Pin; Nicole Tabasso
  13. Welfare Effects of Platforms' Exclusivity Clauses By Holler, Marit
  14. Incentive separability By Pawel Doligalski; Piotr Dworczak; Joanna Krysta

  1. By: Abhijit Banerjee; Olivier Compte
    Abstract: We explore a model of non-Bayesian information aggregation in networks. Agents non-cooperatively choose among Friedkin-Johnsen type aggregation rules to maximize payoffs. The DeGroot rule is chosen in equilibrium if and only if there is noiseless information transmission, leading to consensus. With noisy transmission, while some disagreement is inevitable, the optimal choice of rule amplifies the disagreement: even with little noise, individuals place substantial weight on their own initial opinion in every period, exacerbating the disagreement. We use this framework to think about equilibrium versus socially efficient choice of rules and its connection to polarization of opinions across groups.
    Date: 2023–11
  2. By: Mark Armstrong; John Vickers
    Abstract: We study a market in which several firms potentially each supply a number of “brands” of fundamentally the same product. In fashion, for example, a single firm might retail similar items under different labels and different prices. Consumers differ in which products they consider for their purchase, and firms compete using (multi-dimensional) mixed pricing strategies for their brands. Using relative elasticity conditions, we discuss when firms choose to offer uniform pricing across their brands, and when they use segmented pricing so that one “discount” brand is always priced below another. We solve duopoly models in which equilibria can be derived for all parameters. We discuss the impact of introducing a new brand, of imposing a requirement to set uniform prices across a firm’s brands, and of mergers between single-brand firms.
    Date: 2023–11–30
  3. By: Jay Pil Choi; Kyungmin Kim; Arijit Mukherjee
    Abstract: Platform-run marketplaces may exploit third-party sellers’ data to develop competing products, but potential for future competition can deter sellers’ entry. We explore how this trade-off affects the platform’s referral fee and its own entry decision. We first characterize the platform’s optimal referral fee under full commitment on entry decision and study its economic implications. We then analyze the extent to which the platform’s own information sharing policy substitutes for its commitment to entry. We characterize the platform’s optimal information policy and examine how it interacts with the platform’s fee structure. Our findings highlight the importance of considering the platform’s fee structure as a regulatory response in the policy debates on marketplace regulation.
    Keywords: hybrid platforms, referral fee, information design
    JEL: D82 D42 L10
    Date: 2023
  4. By: Miguel Risco
    Abstract: In today’s world, social networks have a significant impact on information processes, shaping individuals’ beliefs and influencing their decisions. This paper proposes a model to understand how boundedly rational (DeGroot) individuals behave when seeking information to make decisions in situations where both social communication and private learning take place. The model assumes that information is a local public good, and individuals must decide how much effort to invest in costly information sources to improve their knowledge of the state of the world. Depending on the network structure and agents’ positions, some individuals will invest in private learning, while others will free-ride on the social supply of information. The model shows that multiple equilibria can arise, and uniqueness is controlled by the lowest eigenvalue of a matrix determined by the network. The lowest eigenvalue roughly captures how two-sided a network is. Two-sided networks feature multiple equilibria. Under a utilitarian perspective, agents would be more informed than they are in equilibrium. Social welfare would be improved if influential agents increased their information acquisition levels.
    Keywords: Information Acquisition, Learning, Public Goods, Network Effects, Information Diffusion, Bounded Rationality
    JEL: C72 D61 D83 D85 H41
    Date: 2023–04
  5. By: Daria Tabashnikova (National Research University Higher School of Economics); Marina Sandomirskaia (National Research University Higher School of Economics)
    Abstract: We study single- and double-elimination tournaments with heterogeneous players of two types: regular players and a superstar. Players choose efforts in each match with linear costs, winning with a probability calculated with the Tullock success function. We consider several designer maximization problems: total efforts, probability of winning the strongest player, and a weighted composed function. We show that a double-elimination tournament is less profitable in most cases, except when the tournament organizer is concerned about the probability that the superstar wins the tournament.
    Keywords: single-elimination tournament, double-elimination tournament, tournament design, heterogeneous players, superstar
    JEL: C72 D47 Z20
    Date: 2023
  6. By: Kukushkin, Nikolai S.
    Abstract: Maximization of a preference relation on a given family of subsets of its domain defines a choice function. Assuming the domain to be a poset or a lattice, and considering subcomplete chains or sublattices as potential feasible sets, we study conditions ensuring the existence of optima, as well as properties of the choice function conducive to monotone comparative statics. Concerning optimization on chains, quite a number of characterization results are obtained; when it comes to lattices, we mostly obtain sufficient conditions.
    Keywords: preference relation; choice function; complete chain; complete lattice; quasisupermodularity; single crossing; monotone selection
    JEL: C61 C72 D11
    Date: 2023–11–12
  7. By: Chen, Zhuoqiong; Stanton, Christopher; Thomas, Catherine
    Abstract: Trialing an experience good allows consumers to learn their value for the sampled good and also informs beliefs about their value for similar products. These demand-side information spillovers across products create a relatively well-informed group of potential future consumers for rival firms. When both switching consumers and repeat buyers are profitable, firms face reduced incentives to set a low initial price to attract inexperienced consumers. Switchers and repeat buyers are more likely to be profitable in new product categories that build on major innovations and when firms can price discriminate based on purchasing history. We suggest that competing products and services arising from new innovations often have demand-side information spillovers from any product trial and are, hence, settings where competing firms can make overall profits even when selling products that consumers perceive to be indistinguishable prior to initial trial.
    Keywords: experience goods; duopoly; behavior based price discrimination; product differentiation; information spillovers; No. 71903046) and the “Shenzhen Peacock Program” (No. GA11409002).
    JEL: J50
    Date: 2023–08–11
  8. By: Emmanuelle Auriol; Nicolas Bonneton; Mattias Polborn
    Abstract: his article studies the behavior of rational voters who, although aware of the limitations of populist leaders, consider supporting them strategically. We present a moral hazard model of electoral accountability in which elite politicians are both office- and policy-motivated and face the risk of being replaced by elite or populist candidates. The optimal retention strategy depends on the policy implemented by the incumbent in the previous period and its perceived success, and involves differentiated punishment for a failing incumbent. Rational voters only vote for populists when the chosen policy is both perceived as failure and as benefiting the elites. This challenges the simplistic view of the populist vote as mere frustration with the elite.
    Date: 2023–11
  9. By: Alonso, Ricardo; Câmara, Odilon
    Abstract: We develop a theory of credible skepticism in organizations to explain the main tradeoffs in organizing data generation, analysis, and reporting. In our designer-agent-principal game, the designer selects the information privately observed by the agent who can misreport it at a cost, whereas the principal can audit the report. We study three organizational levers: tampering prevention, tampering detection, and the allocation of the experimental-design task. We show that motivating informative experimentation while discouraging misreporting are often conflicting organizational goals. To incentivize experimentation, the principal foregoes a flawless tampering detection/prevention system and separates the tasks of experimental design and analysis.
    Keywords: strategic experimentation; Bayesian persuasion; tampering; organizational design; information technology; audit
    JEL: D80 D83 M10
    Date: 2023–07–18
  10. By: Pierpaolo Battigalli
    Abstract: In a recent paper, Lin & Palfrey (2022, revised2023) developed a theory of cognitive hierarchies (CH) in sequential games and observed that this solution concept in not reduced-normal-form invariant. In this note I qualify this observation by showing that the CH model is normal-form invariant, and that the diferences arising from the application of the CH model to the reduced normal form depend only on how randomization by level-0 types is modeled. Indeed, while the uniform behavior strategy in the extensive form yields the uniform mixed strategy in the normal form, the latter does not correspond to the uniform randomization in the reduced normal form, because different reduced strategies may correspond to sets of equivalent strategies with different cardinalities. I also note that results in the literature on transformations of sequential games imply that the sequential CH modelof Lin & Palfrey is in variant to the interchanging of essentially simultaneous moves, but it is not invariant to coalescing of moves(and, of course, its inverse, sequential agents splitting).Finally, I note that the independence of ex ante beliefs about the level-types of co-players is preserved by updated beliefs conditional on information sets in all games with observable deviators. Keywords: Cognitive hierarchies, sequential games, extensive form, normal form, structurally reduced normal form, coalescing of moves, independence, observable deviators.
    Date: 2023
  11. By: Daniel Kr\v{s}ek; Dylan Possama\"i
    Abstract: We study a generic principal-agent problem in continuous time on a finite time horizon. We introduce a framework in which the agent is allowed to employ measure-valued controls and characterise the continuation utility as a solution to a specific form of a backward stochastic differential equation driven by a martingale measure. We leverage this characterisation to prove that, under appropriate conditions, an optimal solution to the principal's problem exists, even when constraints on the contract are imposed. In doing so, we employ compactification techniques and, as a result, circumvent the typical challenge of showing well-posedness for a degenerate partial differential equation with potential boundary conditions, where regularity problems often arise.
    Date: 2023–11
  12. By: Luca Paolo Merlino; Paolo Pin; Nicole Tabasso
    Abstract: We study the diffusion of a true and a false message (the rumor) in a social network. Upon hearing a message, individuals may believe it, disbelieve it, or debunk it through costly verification. Whenever the truth survives in steady state, so does the rumor. Communication intensity in itself is irrelevant for relative rumor prevalence, and the effect of homophily depends on the exact verification process and equilibrium verification rates. Our model highlights that successful policies in the fight against rumors increase individuals’ incentives to verify. (JEL D83, D85, L82, Z13)
    Date: 2023–02–01
  13. By: Holler, Marit
    JEL: D43 D47 D62 L13 L22
    Date: 2023
  14. By: Pawel Doligalski; Piotr Dworczak; Joanna Krysta
    Date: 2023–12–07

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