|
on Microeconomics |
| By: | Patrick Rey; Yossi Spiegel; Konrad Stahl |
| Abstract: | We study the feasibility and profitability of predtion in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predtion may be welfare improving. |
| Keywords: | predation, accommodation, entry, legal rules, Markov perfect equilibrium |
| JEL: | D43 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_529&r=mic |
| By: | Maxim Senkov; Toygar T. Kerman |
| Abstract: | We study a Bayesian persuasion model with two-dimensional states of the world, in which the sender (she) and receiver (he) have heterogeneous prior beliefs and care about different dimensions. The receiver is a naive agent who has a simplistic worldview: he ignores the dependency between the two dimensions of the state. We provide a characterization for the sender’s gain from persuasion both when the receiver is naive and when he is rational. We show that the receiver benefits from having a simplistic worldview if and only if it makes him perceive the states in which his interest is aligned with the sender as less likely. |
| Keywords: | Bayesian persuasion, misspecified prior, correlation neglect |
| JEL: | D82 D83 D91 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp773&r=mic |
| By: | Francesc Dilme (Department of Economics, University of Bonn) |
| Abstract: | This paper studies repeated trade with noisy information about previous transactions. A buyer has private informa- tion about his willingness to pay, which is either low or high, and buys goods from different sellers over time. Each seller observes a noisy history of signals about the buyer’s previous purchases and sets a price. We compare the cases where previous prices are observable to sellers with the case where they are not. We show that more signal precision is counterbalanced by two equilibrium mechanisms that slow learning and keep incentives in balance: (1) sellers offer discounted prices more often, and (2) the buyer rejects high prices with a higher probability. The effect of making prices observable depends on the signal precision: When the signal is imprecise, making prices public strengthens the discounting mechanism, improving efficiency and buyer welfare; when the signal is precise, making prices public activates the rejection mechanism, and efficiency and buyer welfare may decrease. Independently of the price observability, the buyer tends to benefit from a more precise signal about previous purchases. |
| Keywords: | Repeated trade, asymmetric information, internet cookies |
| JEL: | C73 C78 D82 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:296&r=mic |
| By: | Koji Ishibashi (Department of Economics, Keio University) |
| Abstract: | This paper explores how firms respond in designing two-part tariffs to consumers' biased beliefs about their preferences. Biased consumers could be either overpessimistic when they underestimate their true demand or overoptimistic when they overestimate. Assuming that unbiased consumers consist of two types with high and low valuations, I show that the effect of the presence of biased consumers on unbiased consumers depends on market structure. The monopolist wants to educate overpessimistic consumers while may not want to educate overoptimistic consumers. Alternatively, in competition, firms do not have the incentive to educate any biased consumers. A debiasing policy for either overpessimistic or overoptimistic consumers unambiguously improves social welfare in competition but could harm social welfare in monopoly. |
| Keywords: | biased belief, overoptimistic consumers, overpessimistic consumers, two-part tariff |
| JEL: | D42 D43 D91 L12 L13 |
| Date: | 2024–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-009&r=mic |
| By: | Carl-Christian Groh,; Jonas von Wangenheim |
| Abstract: | We study the competitive effects of personalized pricing in horizontally differentiated markets with search frictions. We integrate the possibility of first degree price discrimination into the classic Wolinsky (1986) framework of consumer search. If all consumers are rational, personalized pricing leads to higher consumer surplus if and only if there are no search frictions. If all consumers are unaware that firms price discriminate, i.e. are naive as in Eyster and Rabin (2005), this result is reversed: Personalized pricing improves consumer surplus unless search costs are prohibitive. |
| Keywords: | search, price discrimination, welfare, bounded rationality, anonymity |
| JEL: | D21 D43 D83 D90 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_527&r=mic |
| By: | Byung-Cheol Kim (University of Alabama); Jin Yeub Kim (Yonsei University); Hyunjun Cho (Yonsei University) |
| Abstract: | In a partnership game, a principal and an agent negotiate over their profitsharing rule, after which each individually chooses effort, generating profits. We study the roles of complementarity in efforts, asymmetric productivity, and timing of effort choices in profit-sharing partnerships. When the agent is relatively more productive than the principal, the agent gets lower bargaining power under a stronger degree of complementarity. The surplus of the partnership is always higher in the case of sequential effort choice than in the simultaneous-choice counterpart. We provide implications for allocation of ownership in corporate governance, surplus maximization in partnerships, and optimal hiring. |
| Keywords: | game theory; Partnership, Ownership Structure, Profit-Sharing Rule, Negotiation, Complementarity. |
| JEL: | C72 C78 G32 L14 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2024rwp-224&r=mic |
| By: | Toygar T. Kerman; Anastas P. Tenev |
| Abstract: | We study a multiple-receiver Bayesian persuasion model in which the sender wants to achieve an outcome and commits to an experiment which sends correlated messages to homogeneous receivers. Receivers are connected in a network and can perfectly observe their immediate neighbors’ messages. After updating their beliefs, receivers choose an action to match the true state of the world. Surprisingly, the sender’s gain from persuasion does not change monotonically with network density. We characterize a class of networks in which increased communication among the receivers is strictly better for the sender and hence strictly worse for the receivers. |
| Keywords: | Bayesian Persuasion, Networks, Critical Mass, Voting |
| JEL: | C72 D72 D82 D85 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp772&r=mic |
| By: | Luca Anderlini (Georgetown University, University of Naples Federico II and CSEF); Leonardo Felli (University of Cambridge); Michele Piccione (London School of Economics.) |
| Abstract: | How do mechanisms that enforce cooperation emerge in a society where none are available and agents are endowed with raw power, that allows a more powerful agent to expropriate a less powerful one? We study a model where expropriation is costly and agents can choose whether to engage in surplus-augmenting cooperation or engage in expropriation. While in bilateral relations, if cooperation is not overwhelmingly productive and expropriation is not too costly, the latter will prevent cooperation, when there are three or more agents, powerful ones can become enforcers of cooperation for agents ranked below them. In equilibrium they will expropriate smaller amounts from multiple weaker cooperating agents who in turn will not deviate for fear of being expropriated more heavily because of their larger expropriation proceeds. Surprisingly, the details of the power structure are irrelevant for the existence of equilibria with enforcement provided that enough agents are present and one is ranked above all others. These details are instead key to the existence of other highly noncooperative equilibria that obtain in certain cases. |
| Keywords: | Jungle, Power Structures, Enforcement, Rule of Law. |
| JEL: | C79 D00 D01 D31 K19 K40 K49 |
| Date: | 2024–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:711&r=mic |
| By: | Luca Anderlini (Georgetown University, University of Naples Federico II and CSEF); Larry Samuelson (Yale University); Daniele Terlizzese (EIEF) |
| Abstract: | We examine an economy in which interactions are more productive if agents can trust others to refrain from cheating. Some agents are scoundrels, who always cheat, while others cheat only if the cost of cheating, a decreasing function of the proportion of cheaters, is sufficiently low. The economy exhibits multiple equilibria. As the proportion of scoundrels in the economy declines, the high-trust equilibrium can be disrupted by arbitrarily small perturbations or infusions of low-trust agents, while the low-trust equilibrium becomes impervious to perturbations and infusions of high-trust agents. The resilience of trust may thus hinge upon the prevalence of scoundrels. |
| Keywords: | Trust, Robustness, Fragility, Assimilation, Disruption. |
| JEL: | C72 C79 D02 D80 |
| Date: | 2024–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:710&r=mic |
| By: | Luca Anderlini (Georgetown University, University of Naples Federico II and CSEF); Gaon Kim (EIEF and LUISS University) |
| 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: | 2024–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:712&r=mic |
| By: | Florian Herold; Christoph Kuzmics |
| Abstract: | In a finite two player game consider the matrix of one player's payoff difference between any two consecutive pure strategies. Define the half space induced by a column vector of this matrix as the set of vectors that form an obtuse angle with this column vector. We use Farkas' lemma to show that this player can be made indifferent between all pure strategies if and only if the union of all these half spaces covers the whole vector space. This result leads to a necessary (and almost sufficient) condition for a game to have a completely mixed Nash equilibrium. We demonstrate its usefulness by providing the class of all symmetric two player three strategy games that have a unique and completely mixed symmetric Nash equilibrium. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.02620&r=mic |
| By: | Jihwan Do; Lining Han; Xiaoxi Li |
| Abstract: | This paper studies a stylized model of a monopoly data seller when information-sharing network exists among data buyers. We show that, if the buyers' prior information is sufficiently noisy, the optimal selling strategy is characterized by a maximum independent set, which is the largest set of buyers who do not have information-sharing link at all. In addition, the precision of the seller's data decreases in the number of information-sharing links among buyers, but it is higher than the socially efficient level of precision. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.05546&r=mic |
| By: | Shanglyu Deng; Dun Jia; Mario Leccese; Andrew Sweeting |
| Abstract: | Industries with significant scale economies or learning-by-doing may come to be dominated by a single firm. Economists have studied how likely this is to happen, and whether it is efficient, using models where buyers are price or quantity takers, even though these industries are often also characterized by buyer-seller negotiations. We extend the dynamic “learning-by-doing and forgetting” model of Besanko, Doraszelski, Kryukov, and Satterthwaite (2010) to allow for Nash-in-Nash bargaining over prices. Price-taking and the social planner solution are captured as special cases. We show that sellers’ dynamic incentives, market concentration and welfare can change sharply, and non-monotonically, as one moves away from the price-taking assumption. We study the implications of buyer bargaining power for the existence of multiple equilibria, the design of subsidy policies and the welfare effects of policies designed to increase competition. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32360&r=mic |
| By: | Ying-Ju Chen; Zhengqing Gui; Ernst-Ludwig von Thadden; Xiaojian Zhao |
| Abstract: | A central problem in supply chains is to coordinate the mismatch between supply and demand along the chain. This paper studies a problem of contracting between a manufacturer and a retailer who privately observes the retail demand materialized after the contracting stage. Under quite general assumptions, we show that the optimal contract must be either a wholesale contract or a buyback contract, depending on the retailer's ex-ante liquidity and bargaining power. In a buyback contract, the manufacturer requests an upfront payment from the retailer and buys back the unsold inventory at a previously agreed price. Depending on downstream liquidity and bargaining power this price may be constant or demand-dependent. Since return shipments are inefficient, retail supply and price will be lower than the first-best level. The optimal contracts are robust to several extensions including multiple retailers. |
| Keywords: | Supply chains, informational frictions, buyback contracts, incentive compatibility, limited liability, ironing |
| JEL: | D82 D86 L42 L60 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_528&r=mic |
| By: | Yuliyan Mitkov (University of Bonn) |
| Abstract: | I endogenize the probability of self-fulfilling outcomes in a game where the only uncertainty comes from extrinsic sunspots. There is a group of players wishing to coordinate on the same action and another player, the regime defender, whose action affects the payoff from coordination. The coordinating players’ actions can be based on a sunspot state, which, unlike in the classic sunspot approach, is observed with a small, idiosyncratic noise (a private sunspot). I show how private sunspots, combined with the action of the regime defender, can be used to derive a unique coordination probability in any equilibrium where sunspots influence actions. I show how this approach can be used to determine the probability of a sunspot-driven bank run. |
| Keywords: | Coordination problems, sunspots, strategic uncertainty |
| JEL: | D70 D84 G01 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:295&r=mic |
| By: | Davide Bosco (University of Milan-Bicocca and Center for European Studies); Luca Portoghese (University of Pavia) |
| Abstract: | This paper studies how private information about health states affects social distancing behaviour in epidemics. We propose a social-interaction game where agents are rational and demographically heterogeneous, and the risk of death post-infection depends on demography. Self-tests and public screening campaigns jointly determine the available information. We find that private information determines how the spatial characteristics of the social environment affect agents’ strategic interplay: if private information is not available, social distancing decisions are strategic substitutes in any environment; if private information is available, complementarity arises in congestionable environments, and substitutability prevails otherwise. Policy implications ensue: if self-tests that detect illness are freely available, mass screening campaigns with tests that detect recoveries are beneficial in congestionable environments, but increase the death toll in the absence of congestion. |
| Keywords: | COVID-19, Contagion, Social distancing, Collective action, Strategic complements and substitutes |
| JEL: | C72 D71 H41 I13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0218&r=mic |
| By: | Michail Anthropelos; Scott Robertson |
| Abstract: | We consider a market of risky financial assets where the participants are an informed trader, a mass of uniformed traders and noisy liquidity providers. We prove the existence of a market-clearing equilibrium when the insider internalizes her power to impact prices. In the price-impact equilibrium the insider strategically reveals a noisier (compared to when the insider takes prices as given) signal, and prices are less reactive to the publicly available information. In contrast to the related literature, we show that in the price-impact equilibrium, the insider's ex-ante welfare monotonically increases in the signal precision. This clarifies when a trader with market power is motivated to both obtain and refine her private information. Furthermore, even though the uniformed traders act as price-takers, the effect of price impact is ex-ante welfare improving for them. By contrast, internalization of price impact may reduce insider ex-ante welfare. This happens provided the insider is sufficiently risk averse and the uninformed traders are sufficiently risk tolerant. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.08757&r=mic |
| By: | Gustaf Arrhenius; Klas Markstr\"om |
| Abstract: | In many circumstances there is a trade off between the number of voters and the time they can be given before having to make a decision since both aspects are costly. An example is the hiring of a committee with a fixed salary budget: more people but a shorter time for each to develop their competence about the issue at hand or less people with a longer time for competence development? In this paper we investigate the interaction between the number of voters, the development of their competence over time and the final probability for an optimal majority decision. Among other things we consider how different learning profiles, or rates of relevant competence increase, for the members of a committee affects the optimal committee size. To the best of our knowledge, our model is the first that includes the potentially positive effects of having a heterogeneous group of voters on majority decisions in a satisfactory way. We also discuss how some earlier attempts fail to capture the effect of heterogeneity correctly. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.09523&r=mic |
| By: | Joshua Lanier; Matthew Polisson; John K. -H. Quah |
| Abstract: | The standard criterion of rationality in economics is the maximization of a utility function that is stable across multiple observations of an agent's choice behavior. In this paper, we discuss two notions of the money pump that characterize two corresponding notions of utility-maximization. We explain the senses in which the amount of money that can be pumped from a consumer is a useful measure of the consumer's departure from utility-maximization. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04843&r=mic |
| By: | Vincent Glode; Guillermo Ordoñez |
| Abstract: | We model firms’ allocation of resources across surplus-creating (i.e., productive) and surplus-appropriating (i.e., rent-seeking) activities. Our model predicts that industry-wide technological advancements, such as recent progress in data collection and processing, induce a disproportionate and socially inefficient reallocation of resources toward surplus-appropriating activities. As technology improves, firms rely more on appropriation to obtain their profits, endogenously reducing the impact of technological progress on economic progress and inflating the price of the resources used for both types of activities. We apply our theoretical insights to shed light on the rise of high-frequency trading |
| JEL: | G1 O3 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32359&r=mic |