nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒01‒08
24 papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Mechanisms without transfers for fully biased agents By Deniz Kattwinkel; Axel Niemeyer; Justus Preusser; Alexander Winter
  2. Unobserved Wholesale Contracts By Maarten C.W. Janssen; Santanu Roy
  3. Simple Allocation with Correlated Types By Axel Niemeyer; Justus Preusser
  4. The War of Attrition under Uncertainty: Theory and Robust Testable Implications By Jean-Paul Décamps; Fabien Gensbittel; Thomas Mariotti
  5. Information Source's Reliability By Gérard Mondello
  6. Multibrand price dispersion By Armstrong, Mark; John, Vickers
  7. Algorithmic Persuasion Through Simulation: Information Design in the Age of Generative AI By Keegan Harris; Nicole Immorlica; Brendan Lucier; Aleksandrs Slivkins
  8. The Role of Discounting in Bargaining with Private Information By Francesc Dilmé
  9. Transparency in Sequential Common-Value Trade By Justus Preusser; Andre Speit
  10. Formation of Teams in Contests: Tradeoffs Between Inter and Intra-Team Inequalities By Hideo Konishi; Chen-Yu Pan; Dimitar Simeonov
  11. Prices and Mergers in a General Model of Multi-Sided Markets By Raúl Bajo-Buenestado; Markus Kinateder; Raul Bajo-Buenestado
  12. Not obviously manipulable allotment rules By Bonifacio Agustín Germán; Arribillaga Roberto Pablo
  13. Nash equilibria for dividend distribution with competition By De Angelis, Tiziano; Gensbittel, Fabien; Villeneuve, Stéphane
  14. Competition, Privacy, and Multi-Homing By Jean-Marc Zogheib
  15. Allocation Rules of Indivisible Prizes in Team Contests By Hideo Konishi; Nicolas Sahuguet; Benoit Crutzen
  16. Obvious Strategy-proofness with Respect to a Partition By Pablo R. Arribillaga; Jordi Massó; Alejandro Neme
  17. Political salience and regime resilience By Sebastian Schweighofer-Kodritsch; Steffen Huck; Macartan Humphreys
  18. Governance and Regulation of Platforms By Martin Peitz
  19. The Politics of Bargaining as a Group By Vincent Anesi; Peter Buisseret
  20. Principled Mechanism Design with Evidence By Sebastian Schweighofer-Kodritsch; Roland Strausz
  21. Paying with Personal Data By Natvik, Gisle J.; Tangerås, Thomas
  22. Redistributive Politics under Ambiguity By Javier D. Donna
  23. Can Socially-Minded Governance Control the AGI Beast? By Joshua S. Gans
  24. Incentives for Collective Innovation By Curello, Gregorio

  1. By: Deniz Kattwinkel; Axel Niemeyer; Justus Preusser; Alexander Winter
    Abstract: A principal must decide between two options. Which one she prefers depends on the private information of two agents. One agent always prefers the first option; the other always prefers the second. Transfers are infeasible. One application of this setting is the efficient division of a fixed budget between two competing departments. We first characterize all implementable mechanisms under arbitrary correlation. Second, we study when there exists a mechanism that yields the principal a higher payoff than she could receive by choosing the ex-ante optimal decision without consulting the agents. In the budget example, such a profitable mechanism exists if and only if the information of one department is also relevant for the expected returns of the other department. We generalize this insight to derive necessary and sufficient conditions for the existence of a profitable mechanism in the n-agent allocation problem with independent types.
    Keywords: Mechanism design without transfers, correlation, zero-sum games
    JEL: D82
    Date: 2023–12
  2. By: Maarten C.W. Janssen (University of Vienna); Santanu Roy (Southern Methodist University)
    Abstract: A manufacturer with private information about product quality may earn higher expected profit when their wholesale pricing contract with a retailer is unobserved by consumers. Secret wholesale contracts may prevent distortionary signaling by the manufacturer and double marginalization by the retailer. Instead, reasonable pooling outcomes exist where wholesale pricing is independent of quality, leaving the retailer and consumers in the dark about true quality. These outcomes may increase expected consumer and total surplus. The strategic interaction is different from standard signaling games. The pooling outcomes satisfy a new equilibrium refinement that we develop in the spirit of the Intuitive Criterion.
    Keywords: Asymmetric Information; Product Quality; Vertical Contracts; Wholesale Pricing; Signaling; Pooling.
    JEL: L13 L15 D82 D43
    Date: 2023–08
  3. By: Axel Niemeyer; Justus Preusser
    Abstract: An object is allocated among a number of agents. The optimal allocation depends on the agents’ information about their peers, but each agent wants the object for themself. Monetary transfers are unavailable. We consider mechanisms where it is a dominant strategy to report truthfully. We show that deterministic mechanisms do not generally suffice for implementation and optimality, and that anonymous mechanisms cannot meaningfully elicit information. However, there are simple mechanisms—jury mechanisms—that are optimal when there are three or fewer agents, approximately optimal in symmetric environments with many agents, and the only deterministic mechanisms satisfying a relaxed anonymity notion. In a jury mechanism, each agent is either a juror or a candidate. The jurors decide which candidate wins the object, but jurors never win.
    Keywords: Mechanism design without transfers, correlation, peer selection
    JEL: D82
    Date: 2023–12
  4. By: Jean-Paul Décamps; Fabien Gensbittel; Thomas Mariotti
    Abstract: We study a generic model of the war of attrition with symmetric information and stochastic payoffs that depend on a homogeneous linear diffusion. We first show that a player’s mixed Markov strategy can be represented by an intensity measure over the state space together with a subset of the state space over which the player concedes with probability 1. We then show that, if players are asymmetric, then, in all mixed-strategy Markov-perfect equilibria, these intensity measures must be discrete, and characterize any such equilibrium through a variational system for the players’ value functions. We illustrate these findings by revisiting the standard model of exit in a duopoly under uncertainty and construct a mixed-strategy Markov-perfect equilibrium in which attrition takes place on path despite firms having different liquidation values. We show that firms’ stock prices comove negatively over the attrition zone and exhibit resistance and support patterns documented by technical analysis.
    Keywords: war of attrition, mixed-strategy equilibrium, uncertainty
    JEL: C61 D25 D83
    Date: 2023
  5. By: Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This article studies the influence of the quality of information sources on the decisions of agents faced with radical uncertainty. It compares the decision-making process of expected utility maximizers and neo-additive Choquet utility maximizers. It shows that the first type of decision-maker will always prefer information provided by an unreliable source, even if its credibility is very low. The second type conditions its choice on its level of aversion to ambiguity, its degree of optimism and its level of confidence in the information source itself. Furthermore, the preferences may also be influenced by the information content.
    Keywords: Uncertainty theory, decision theory, ambiguity aversion, information
    JEL: I10 I18 I19 D80 D81 D83
    Date: 2023–12
  6. By: Armstrong, Mark; 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.
    Keywords: Price competition, consideration sets, multiproduct firms, multibranding, price discrimination, price dispersion, brand proliferation
    JEL: C72 D42 D43 L13 M31
    Date: 2023–11
  7. By: Keegan Harris; Nicole Immorlica; Brendan Lucier; Aleksandrs Slivkins
    Abstract: How can an informed sender persuade a receiver, having only limited information about the receiver's beliefs? Motivated by research showing generative AI can simulate economic agents, we initiate the study of information design with an oracle. We assume the sender can learn more about the receiver by querying this oracle, e.g., by simulating the receiver's behavior. Aside from AI motivations such as general-purpose Large Language Models (LLMs) and problem-specific machine learning models, alternate motivations include customer surveys and querying a small pool of live users. Specifically, we study Bayesian Persuasion where the sender has a second-order prior over the receiver's beliefs. After a fixed number of queries to an oracle to refine this prior, the sender commits to an information structure. Upon receiving the message, the receiver takes a payoff-relevant action maximizing her expected utility given her posterior beliefs. We design polynomial-time querying algorithms that optimize the sender's expected utility in this Bayesian Persuasion game. As a technical contribution, we show that queries form partitions of the space of receiver beliefs that can be used to quantify the sender's knowledge.
    Date: 2023–11
  8. By: Francesc Dilmé (University of Bonn)
    Abstract: In this paper we analyze a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates for the buyer and seller. We fully characterize the equilibrium behavior, which permits us to study how the agents’ discount rates (i.e., patience levels) shape the bargaining outcome. We find that the seller’s commitment problem persists even when she is fully patient, and that higher seller impatience may lead to higher equilibrium prices. Higher buyer impatience, on the other hand, incentivizes the buyer to trade earlier, which accelerates price decline since the seller’s commitment problem is more severe at earlier times. Under appropriate conditions, we conclude that the buyer is better off when he is more impatient, independently of his private valuation; hence, higher bargaining costs may give negotiators with private information greater bargaining power.
    Keywords: Bargaining with private information, different discount factors
    JEL: C78 D82
    Date: 2023–12
  9. By: Justus Preusser; Andre Speit
    Abstract: We consider the sale of a single indivisible common-value good in a dynamic market where short-lived buyers arrive over time. Buyers observe private signals about the value. The seller is initially uninformed and proposes the terms of trade. As time passes, all players learn about the value from delay in trade. Importantly, this learning process depends on what is made public about buyer-seller interactions. We compare the division of surplus across three transparency regimes that differ with respect to whether buyers observe the seller’s past actions or time-on-the-market. When the seller’s time-on-the market but not the seller’s past actions are observable, and if buyers’ signals are sufficiently rich, then there is no perfect Bayesian equilibrium where the seller extracts the full surplus. In the other two regimes, where buyers observe either everything or nothing about the seller’s past actions and time-on-the-market, the seller extracts the full surplus in at least one equilibrium, no matter the signal structure.
    Keywords: Common-value, dynamic trade, transparency, learning, division of surplus
    JEL: D83
    Date: 2023–12
  10. By: Hideo Konishi (Boston College); Chen-Yu Pan (National Chengchi University, Taiwan); Dimitar Simeonov (Bahçeşehir University)
    Abstract: We consider a team contest in which players make efforts to compete with other teams for a prize, and players of the winning team divide the prize according to a prize-sharing rule. This prize-sharing rule matters in generating members’ efforts and attracting players from outside. Assuming that players differ in their abilities to contribute to a team and their abilities are observable, we analyze which team structure is realized by allowing players to move across teams. This inter-team mobility is achieved via head-hunting: a team leader can offer one of the positions to an outside player. We say that it is a successful head-hunting if the player is better off by taking the position, and the team’s winning probability is improved. A team structure is stable if there is no successful head-hunting opportunity. We show that if all teams employ the egalitarian sharing rule, then the complete sorting of players according to their abilities occurs, and inter-team inequality becomes the largest. In contrast, if all teams employ a substantially unequal sharing rule, there is a stable team structure with a small inter-team inequality and a large intra-team inequality. This result illustrates a trade-off between intra-team inequality and inter-team inequality in forming teams.
    Keywords: group contest, pairwise stable matching, assortative matching, farsightedness, largest consistent set, effectiveness function
    JEL: C71 C72 C78 D71 D72 D74
    Date: 2023–11–18
  11. By: Raúl Bajo-Buenestado; Markus Kinateder; Raul Bajo-Buenestado
    Abstract: We present a general and tractable oligopoly model of multi-sided platforms with endogenous side and platform choices of heterogeneous end-users, considering any mix of single-homing and multi-homing platforms and in which participating on one side could preclude doing so on others. We show the existence of a unique equilibrium number of end-users and characterize optimal platform pricing. Using the equilibrium conditions, we formally derive (across sides and platforms) switching effects that distort optimal pricing, which can lead to markups exceeding the Lerner index and rule out the classical “cross-subsidization” result. We then provide a unifying framework to analyze multi-sided platform mergers, which rationalizes mixed results from the previous literature by providing, based on the switching effects, a set of conditions that predict the upward pricing pressure post-merger. We show that while optimal pricing is determined by the nature of end-users’ side choices, their platform choices are crucial for merger analysis.
    Keywords: multi-sided markets, heterogeneous end-users, endogenous side choice, mergers of platforms, digital platforms
    JEL: D43 G34 L11 L13 L22 L86
    Date: 2023
  12. By: Bonifacio Agustín Germán; Arribillaga Roberto Pablo
    Abstract: In the problem of allocating a single non-disposable commodity among agents whose preferences are single-peaked, we study a weakening of strategy-proofness called not obvious manipulability (NOM). If agents are cognitively limited, then NOM is sufficient to describe their strategic behavior. We characterize a large family of efficient and NOM rules, which we call ""simple"". The idea behind their definition has been dormant in the axiomatic literature for a long time. In economies with excess demand, simple rules fully satiate agents whose peak amount is no greater than equal division and assign, to each remaining agent, an amount between equal division and his peak. In economies with excess supply, simple rules are defined symmetrically. We also show that the single-plateaued domain is maximal for efficiency and NOM (together with other basic requirements). Therefore, even though replacing strategy-proofness with NOM greatly expands the family of admissible rules, the maximal domain of preferences involved remains basically unaltered.
    JEL: D71 D72
    Date: 2023–11
  13. By: De Angelis, Tiziano; Gensbittel, Fabien; Villeneuve, Stéphane
    Abstract: We construct a Nash equilibrium in feedback form for a class of two-person stochastic games with absorption arising from corporate finance. More precisely, the paper focusses on a strategic dynamic game in which two financially-constrained firms operate in the same market. The firms distribute dividends and are faced with default risk. The strategic interaction arises from the fact that if one firm defaults, the other one becomes a monopolist and increases its profitability. To determine a Nash equilibrium in feedback form, we develop two different concepts depending on the initial endowment of each firm. If one firm is richer than the other one, then we use a notion of control vs. strategy equilibrium. If the two firms have the same initial endowment (hence they are symmetric in our setup) then we need mixed strategies in order to construct a symmetric equilibrium.
    Date: 2023–12–13
  14. By: Jean-Marc Zogheib
    Abstract: Two digital firms compete in prices and information disclosure levels. A consumer signing up to one firm's service decides how much personal information to provide. We find that firms essentially trade-off between consumer valuations and disclosure levels to determine their business strategies when consumers single-home. Under multi-homing, business strategies are more complex to assess and may completely shift compared to single-homing. All things being equal, implementing a strict privacy regime with no data disclosure can be optimal under single-homing, while a soft privacy regime with data disclosure may be preferred under multi-homing.
    Keywords: competition, online privacy, information disclosure, multi-homing.
    JEL: D11 D40 L21 L41
    Date: 2023
  15. By: Hideo Konishi (Boston College); Nicolas Sahuguet (HEC Montreal); Benoit Crutzen (Erasmus School of Economics)
    Abstract: We analyze contests in which teams compete to win indivisible homogeneous prizes. Teams are composed of members who may differ in their ability, and who exert effort to increase the success of their team. Each team member can obtain at most one prize as a reward. As effort is costly, teams use the allocation of prizes to give incentives and solve the free-riding problem. We develop a two-stage game. First, teams select a prize-allocation rule. Then, team members exert effort. Members take into account how their effort and the allocation rule influence the chance they receive a prize. We prove the existence and uniqueness of equilibrium. We characterize the optimal prize-assignment rule and individual and aggregate efforts. We then show that the optimal assignment rule is generally not monotonic.
    Keywords: contest, team, moral hazard
    JEL: C72 D72
    Date: 2023–12–02
  16. By: Pablo R. Arribillaga (Universidad Nacional de San Luis/CONICET); Jordi Massó (Universitat Autònoma de Barcelona); Alejandro Neme (Universidad Nacional de San Luis/CONICET)
    Abstract: We define and study obvious strategy-proofness with respect to a partition of the set of agents. It has as special cases strategy-proofness, when the partition is the coarsest one, and obvious strategy-proofness, when the partition is the finest one. For any partition, it lies between these two extreme implementation notions. We give two general properties of the new implementation notion and apply it to the simple voting problem with two alternatives and strict references. We also propose the notion of strong obvious strategy-proofness and show that it coincides with obvious strategy-proofness
    Keywords: Obvious strategy-proofness; Extended majority voting
    JEL: D71
    Date: 2023–12
  17. By: Sebastian Schweighofer-Kodritsch; Steffen Huck; Macartan Humphreys
    Abstract: We introduce political salience into a canonical model of attacks against political regimes, as scaling agents’ expressive payoffs from taking sides. Equilibrium balances heterogeneous expressive concerns with material bandwagoning incentives, and we show that comparative statics in salience characterize stability. As main insight, when regime sanctions are weak, increases from low to middling salience can pose the greatest threat to regimes – ever smaller shocks suffice to drastically escalate attacks. Our results speak to the 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: political conflict, salience, democracy, sanctions
    JEL: C72 D74 D91
    Date: 2023–12–15
  18. By: Martin Peitz
    Abstract: In this chapter, we discuss how platforms manage the interaction between various users. First, we discuss and exemplify governance decisions by platforms that affect access and interactions of users regarding a platform service. Here, we investigate the choice of price structure and the choice of non-price strategies. We also address the horizontal and vertical scope of these platforms. Second, we consider platform decisions that generate spillovers to other platforms or channels, and we explore private incentives and welfare effects. Third, we discuss the role of government regulation in a broad sense, that is, the laws and regulations that constrain platforms and shape their incentives regarding their governance decisions. Emphasis is given to interventions against anti-competitive conduct and practices that may lead to consumer harm.
    Keywords: Platform governance, platform regulation, digital ecosystems, digital markets, competition policy, network effects
    JEL: L12 L13 L41 L42 D42 D47 K21 K23 M21
    Date: 2023–12
  19. By: Vincent Anesi (DEM, Université du Luxembourg); Peter Buisseret (Department of Government, Harvard University, USA)
    Abstract: We develop a dynamic model in which a group collectively bargains with an external party. At each date the group makes an offer to the external party (the ‘agent’) in exchange for a concession. Group members hold heterogeneous preferences over agreements and are uncertain about the agent’s resolve. We show that all group members favor more aggressive proposals than they would if they were negotiating alone. By eliciting more information about the agent’s resolve, these offers reduce the group members’ uncertainty about the agent’s preferences and therefore reduce the group’s internal conflicts over its negotiating strategy. To mitigate the consequent risk that negotiations fail, decisive group members successively give up their influence over proposals: starting from any initially democratic decision process, the group eventually consolidates its entire negotiation authority into the hands of a single member
    Keywords: Adverse selection, collective choice, political economy, dictatorship, bargaining.
    JEL: D02 D71 D78 D82 L22
    Date: 2023
  20. By: Sebastian Schweighofer-Kodritsch; Roland Strausz
    Abstract: We cast mechanism design with evidence in the framework of Myerson (1982), whereby his generalized revelation principle directly applies and yields standard notions of incentive compatible direct mechanisms. Their specific nature depends on whether the agent's (verifiable) presentation of evidence is contractually controllable, however. For deterministic implementation, we show that, in general, such control has value, and we offer two independent conditions under which this value vanishes, one on evidence (WET) and another on preferences (TIWO). Allowing for fully stochastic mechanisms, we also show how randomization generally has value and clarify to what extent this value vanishes under the common assumption of evidentiary normality (NOR). While, in general, the value of control extends to stochastic implementation, neither control nor randomization have any value if NOR holds together with WET or TIWO.
    Keywords: Mechanism Design, Revelation Principle, Evidence, Verifiable Information, Value of Control, Value of Randomization
    JEL: D82
    Date: 2023–12–15
  21. By: Natvik, Gisle J. (Department of Economics); Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: We study commercialization of personal data through personalized advertising by a content platform. Content consumption generates productive data about consumer preferences. The firm invests in artificial intelligence (AI) to improve analytical power and in quality to stimulate content consumption. The profit-maximizing tariff is zero if productive data are highly valuable. Subsidization of usage would generate nonproductive data and be unprofitable. Data provision is efficient when users pay entirely with personal data because then content consumption optimally trades off improvements in user experience against losses in privacy rent. Still, privacy protection is inefficient because of distorted incentives to invest in AI.
    Keywords: Artificial intelligence; Content platform; Personalized advertising; Privacy; Quality
    JEL: D82 L12 L15 L81 M37
    Date: 2023–12–07
  22. By: Javier D. Donna (University of Florida)
    Abstract: The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfactual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income inequality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire).
    Keywords: Redistributive Politics, Taxes, Ambiguity, Beliefs, Effort, Luck, Multiple Equilibria.
    JEL: D80 H10 H30 P16 E62
    Date: 2023–12
  23. By: Joshua S. Gans
    Abstract: This paper robustly concludes that it cannot. A model is constructed under idealised conditions that presume the risks associated with artificial general intelligence (AGI) are real, that safe AGI products are possible, and that there exist socially-minded funders who are interested in funding safe AGI even if this does not maximise profits. It is demonstrated that a socially-minded entity formed by such funders would not be able to minimise harm from AGI that might be created by unrestricted products released by for-profit firms. The reason is that a socially-minded entity has neither the incentive nor ability to minimise the use of unrestricted AGI products in ex post competition with for-profit firms and cannot preempt the AGI developed by for-profit firms ex ante.
    JEL: L20 O33 O36
    Date: 2023–11
  24. By: Curello, Gregorio
    JEL: C73 D82
    Date: 2023

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