nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒03‒04
thirteen papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Two-Player Rationalizable Implementation By R. Jain; V. Korpela; M. Lombardi
  2. Buyer Power and the Effect of Vertical Integration on Innovation By Claire Chambolle; Morgane Guignard
  3. On Interim Rationalizable Monotonicity By Ritesh Jain; Michele Lombardi
  4. Vertical product differentiation, prominence, and costly search By Rozzi, Roberto; Schmitt, Stefanie Y.
  5. Information Design with Costly State Verifi cation By Lily Ling Yang
  6. Private labels and platform competition By Saruta, Fuyuki
  7. Political Competition and Strategic Voting in Multi-Candidate Elections By Bernhardt, Dan; Krasa, Stefan; Squintani, Francesco
  8. Second-Order Representations: A Bayesian Approach By Ozgur Evren
  9. Tournament Auctions By Luca Anderlini; GaOn Kim
  10. The Economics of Information in a World of Disinformation: A Survey Part 2: Direct Communication By Joseph E. Stiglitz; Andrew Kosenko
  11. Presidential Leadership and Legislative Polarization By Noble, Benjamin S.; Turner, Ian R
  12. Contracting with a Learning Agent By Guru Guruganesh; Yoav Kolumbus; Jon Schneider; Inbal Talgam-Cohen; Emmanouil-Vasileios Vlatakis-Gkaragkounis; Joshua R. Wang; S. Matthew Weinberg
  13. Single-Winner Voting with Alliances: Avoiding the Spoiler Effect By Grzegorz Pierczy\'nski; Stanis{\l}aw Szufa

  1. By: R. Jain; V. Korpela; M. Lombardi
    Abstract: The paper characterizes the class of two-player social choice functions implementable in rationalizable strategies under complete information.
    Keywords: Implementation, Two Players, Rationalizability, Complete Information
    JEL: C79 D82
    Date: 2023–02
  2. By: Claire Chambolle; Morgane Guignard
    Abstract: Our article investigates the impact of vertical integration (without foreclosure) on innovation. We compare cases where either (i) two manufacturers or (ii) a manufacturer and a vertically integrated retailer invest. Then, the independent manufacturer( s) and the retailer bargain over non-linear contracts before selling to consumers. We show that vertical integration always increases the incentives to invest on the integrated product which stifles (resp. spurs) the investment of the independent manufacturer when spillovers are low (resp. high). In contrast, when investments are sequential, if the buyer power is high, the leader independent manufacturer invests more (resp. less) to discourage the integrated retailer’s investment when spillovers are low (resp. high). Furthermore, vertical integration is always profitable even when it is not desirable for the industry and welfare. Overall, vertical integration is only desirable for the industry when the buyer power is high and may damage welfare when both the buyer power and spillovers are low.
    Keywords: Vertical integration, Investment, Buyer power, Spillovers
    JEL: L13 L14 L42
    Date: 2024
  3. By: Ritesh Jain; Michele Lombardi
    Abstract: Interim Rationalizable Monotonicity, due to Bergemann and Morris (2008a) and Oury and Tercieux (2012), fully characterizes the class of social choice functions that are implementable in interim rationalizable strategies by a mechanism that has a pure strategy Bayes-Nash equilibrium
    JEL: C79 D82
    Date: 2022–05
  4. By: Rozzi, Roberto; Schmitt, Stefanie Y.
    Abstract: In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.
    Keywords: consideration sets, duopoly, prominence, search costs, vertical product differentiation
    JEL: D43 D83 L13
    Date: 2024
  5. By: Lily Ling Yang
    Abstract: We study a persuasion problem when the receiver has the ability to probabilistically verify the state at a cost. The sender wants to convince the receiver to accept a project but the receiver is only willing to accept the project when the quality is above a threshold. The optimal disclosure policy balances between influencing the receiver's decisions to accept and to verify the quality. The optimal disclosure is deterministic and involves at most three messages, each consisting of an action recommendation and a verification recommendation. In the optimal disclosure, the action recommendation has a cutoff structure while the verification recommendation has a negative assortative structure. Specifically, the optimal disclosure recommends acceptance when the quality is above a threshold. When the quality is below this threshold, rejection without verification is recommended. Above this threshold, verification is not recommended when the quality lies in the middle range of the interval. The optimal disclosure reveals more information compared to the case where verification is exogenous.
    Keywords: Bayesian persuasion, Information design, Costly information acquisition, Costly state veri cation, Product recommendation
    JEL: D82 D83
    Date: 2024–02
  6. By: Saruta, Fuyuki
    Abstract: This study examines the degree and manner by which first-party selling by a platform affects the profits of a third-party seller and a competing platform. After developing a model in which a third-party seller distributes goods through two competing platforms, with only one platform able to have a private label, we analyze first-party selling effects in both monopoly and duopoly platform cases. Our findings demonstrate the following. In a monopoly case, a platform consistently reduces the seller fee when introducing a private label. In a duopoly case, the two platforms will jointly raise or lower fees upon private label introduction. Additionally, first-party selling can either positively or negatively affect the competing platform's profit. Results suggest that competition among platforms might upset the influence of first-party selling on commission fees. Consequently, platforms might opt for first-party selling as a strategy to weaken commission fee competition and retail competition.
    Keywords: First-party selling; Platform competition; Marketplaces; Agency contracts; Wholesale contracts
    JEL: D21 L13 L22
    Date: 2023–12–27
  7. By: Bernhardt, Dan (Department of Economics, University of Illinois and Department of Economics, University of Warwick,); Krasa, Stefan (Department of Economics, University of Illinois); Squintani, Francesco (Department of Economics, University of Warwick)
    Abstract: We develop a model of strategic voting in a spatial setting with multiple candidates when voters have both expressive and instrumental concerns. The model endogenizes the strategic coordination of voters, yet is flexible enough to allow the analysis of political platform competition by policy-motivated candidates. We characterize all strategic voting equilibria in a three-candidate setting. Highlighting the utility of our approach, we analyze a setting with two mainstream and a spoiler candidate, showing that the spoiler can gain from entering, even though she has no chance of winning the election and reduces the winning probability of her preferred mainstream candidate.
    Date: 2024
  8. By: Ozgur Evren (New Economic School)
    Abstract: For choice problems under ambiguity, I provide a behavioral characterization of a decision maker who holds a second-order belief and updates it in a Bayesian fashion in response to new information concerning the true distribution of the states. The model features a unique second-order belief that can be elicited from choice data and is quite comprehensive in terms of ambiguity attitudes and risk preferences. Special versions, such as the smooth ambiguity model or the recursive non-expected utilitymodel, are easily characterized by additional assumptions on compound-risk preferences. Thereby, the model provides a testing ground to compare and contrast these well-known representations as well as alternative specifications that may be of interest. To illustrate potential benefits of alternative specifications, I provide a detailed analysis of a rank-dependent extension of the smooth ambiguity model.
    Keywords: Ambiguity Aversion and Seeking, Ellsberg Paradox, Second-Order Belief, Probabilistic Sophistication, Bayesian Updating, Compound Risk JEL Classifications: D81, D83
    Date: 2024–01
  9. By: Luca Anderlini (Department of Economics, Georgetown University); GaOn Kim (EIEF)
    Abstract: We examine “tournament” second-price auctions in which N bidders compete for the right to participate in a second stage and contend against bidder N +1. When the first N bidders are committed so that their bids cannot be changed in the second stage, the analysis yields some unexpected results. The first N bidders consistently bid above their values in equilibrium. When bidder N + 1 is sufficiently stronger than the first N, overbidding leads to an increase in expected revenue in comparison to the standard second-price auction when N is large.
    Keywords: Tournament Auctions, Overbidding, Revenue Equivalence
    JEL: C70 C72 C79
    Date: 2024–02–14
  10. By: Joseph E. Stiglitz; Andrew Kosenko
    Abstract: The paper surveys the recent work on economics of information with endogenous information structures where individuals can directly communicate information with each other. We consider the theoretical work on cheap talk, Bayesian persuasion, and information design, and review the implications of information control and information abundance for mis and disinformation. The relationship between information and market power is particularly important when social media can amplify and maintain harmful fictions that lead to polarization and undermine not only markets, but democratic discourse. We review both the “rational” decision-making paradigm, as well as departures from it, such as cases where decision makers can choose what to know, can allocate their attention in different ways or have behavioral biases that influence their information processing. We note some important connections to legal and media studies and highlight key messages in nontechnical language.
    JEL: D82 D86 D9
    Date: 2024–01
  11. By: Noble, Benjamin S.; Turner, Ian R (Yale University)
    Abstract: Presidents go public to raise issue salience, but doing so risks polarizing lawmakers. Legislative polarization can manifest in different ways---some harmful and some beneficial to the president. This creates potential risks and rewards for presidential leadership. We consider this trade-off in a model of policymaking where two pivotal legislators must agree to change policy and a president can go public to support a policy. Going public activates the parties' bases and ties the president's reelection to policy outcomes. We characterize how and when the polarizing effect of presidential leadership benefits the president. In doing so, we establish the logic of ``defensive appeals" where presidents go public to enforce co-partisan loyalty, even while alienating out-partisans. We also provide empirical implications that characterize how the president's beliefs about the potential impacts of going public, baseline polarization, and policy uncertainty affect the incentives to go public.
    Date: 2024–01–21
  12. By: Guru Guruganesh; Yoav Kolumbus; Jon Schneider; Inbal Talgam-Cohen; Emmanouil-Vasileios Vlatakis-Gkaragkounis; Joshua R. Wang; S. Matthew Weinberg
    Abstract: Many real-life contractual relations differ completely from the clean, static model at the heart of principal-agent theory. Typically, they involve repeated strategic interactions of the principal and agent, taking place under uncertainty and over time. While appealing in theory, players seldom use complex dynamic strategies in practice, often preferring to circumvent complexity and approach uncertainty through learning. We initiate the study of repeated contracts with a learning agent, focusing on agents who achieve no-regret outcomes. Optimizing against a no-regret agent is a known open problem in general games; we achieve an optimal solution to this problem for a canonical contract setting, in which the agent's choice among multiple actions leads to success/failure. The solution has a surprisingly simple structure: for some $\alpha > 0$, initially offer the agent a linear contract with scalar $\alpha$, then switch to offering a linear contract with scalar $0$. This switch causes the agent to ``free-fall'' through their action space and during this time provides the principal with non-zero reward at zero cost. Despite apparent exploitation of the agent, this dynamic contract can leave \emph{both} players better off compared to the best static contract. Our results generalize beyond success/failure, to arbitrary non-linear contracts which the principal rescales dynamically. Finally, we quantify the dependence of our results on knowledge of the time horizon, and are the first to address this consideration in the study of strategizing against learning agents.
    Date: 2024–01
  13. By: Grzegorz Pierczy\'nski; Stanis{\l}aw Szufa
    Abstract: We study the setting of single-winner elections with ordinal preferences where candidates might be members of \emph{alliances} (which may correspond to e.g., political parties, factions, or coalitions). However, we do not assume that candidates from the same alliance are necessarily adjacent in voters' rankings. In such case, every classical voting rule is vulnerable to the spoiler effect, i.e., the presence of a candidate may harm his or her alliance. We therefore introduce a new idea of \emph{alliance-aware} voting rules which extend the classical ones. We show that our approach is superior both to using classical cloneproof voting rules and to running primaries within alliances before the election. We introduce several alliance-aware voting rules and show that they satisfy the most desirable standard properties of their classical counterparts as well as newly introduced axioms for the model with alliances which, e.g., exclude the possibility of the spoiler effect. Our rules have natural definitions and are simple enough to explain to be used in practice.
    Date: 2024–01

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