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on Microeconomics |
| By: | Moshe Babaioff; Linda Cai; Brendan Lucier |
| Abstract: | We consider a principal seller with $m$ heterogeneous products to sell to an additive buyer over independent items. The principal can offer an arbitrary menu of product bundles, but faces competition from smaller and more agile single-item sellers. The single-item sellers choose their prices after the principal commits to a menu, potentially under-cutting the principal's offerings. We explore to what extent the principal can leverage the ability to bundle product together to extract revenue. Any choice of menu by the principal induces an oligopoly pricing game between the single-item sellers, which may have multiple equilibria. When there is only a single item this model reduces to Bertrand competition, for which the principal's revenue is $0$ at any equilibrium, so we assume that no single item's value is too dominant. We establish an upper bound on the principal's optimal revenue at every equilibrium: the expected welfare after truncating each item's value to its revenue-maximizing price. Under a technical condition on the value distributions -- that the monopolist's revenue is sufficiently sensitive to price -- we show that the principal seller can simply price the grand-bundle and ensure (in any equilibrium) a constant approximation to this bound (and hence to the optimal revenue). We also show that for some value distributions violating our conditions, grand-bundle pricing does not yield a constant approximation to the optimal revenue in any equilibrium. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.13835&r= |
| By: | Chia-Hui Chen; Hulya Eraslan; Junichiro Ishida; Takuro Yamashita |
| Abstract: | We consider a dynamic model in which a principal decides what information to release about a product of unknown quality (e.g., a vaccine) to incentivize agents to experiment with the product. Assuming that the agents are long-lived and forward-looking, their incentive to wait and see other agents' experiences poses a significant obstacle to social learning. We show that the optimal feedback mechanism to mitigate information free-riding takes a strikingly simple form: the principal recommends adoption as long as she observes no bad news, but only with some probability; once she does not recommend at some point, she stays silent forever after that. Our analysis suggests the optimality of premature termination, which in turn implies that: (i) false positives (termination in the good state) are more acceptable than false negatives (continuation in the bad state); (ii) overly cautious mechanisms that are biased toward termination can be welfare-enhancing. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1247&r= |
| By: | Max Riegel |
| Abstract: | I study pricing and product design choices of multiproduct firms in a model of directed search. Product design introduces vertical differentiation à la Gabszewicz and Thisse (1979) as well as Shaked and Sutton (1982). While all consumers have a preference for a more niche product design, consumers with lower search costs benefit relatively more. Firms gain from dispersion in tastes through product design and choose maximum differentiation in equilibrium. The firm with the broader product design sets a lower price and attracts consumers with high search costs. |
| Keywords: | product design, vertical differentiation, consumer search, directed search, search cost heterogeneity |
| JEL: | D43 D83 L15 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_556&r= |
| By: | Gambato, Jacopo |
| Abstract: | I analyze a model of directed search in which a consumer inspects a finite number of products sharing attributes with each others. The consumer discovers her valuation for the attributes of the inspected products and adapts her search strategy based on what she has learned. The consumer anticipates the optimal paths that arise after different realizations; this generates a search rule that accounts for learning systematically. In this search environment, a multiproduct seller commits to a menu of horizontally differentiated products. The seller can exploit the fact that the emerging search paths reveal the consumer's preferences: by setting different prices for ex ante identical products, the seller can encourage specific paths to arise and exploit the information that the consumer learned through search. In some cases, the seller optimally limits the set of available products. |
| Keywords: | consumer search, directed search, learning, multiproduct monopoly, pricing, product portfolio |
| JEL: | D42 D83 L12 L15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300012&r= |
| By: | Giovanni Valvassori Bolg\`e |
| Abstract: | A set of agents has to make a decision about the provision of a public good and its financing. Agents have heterogeneous values for the public good and each agent's value is private information. An agenda-setter has the right to make a proposal about a public-good level and a vector of contributions. For the proposal to be approved, only the favourable votes of a subset of agents are needed. If the proposal is not approved, a type-dependent outside option is implemented. I characterize the optimal public-good provision and the coalition-formation for any outside option in dominant strategies. Optimal public-good provision might be a non-monotonic function of the outside option public-good level. Moreover, the optimal coalition might be a non-convex set of types. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.08936&r= |
| By: | Johannes Schneider; \'Alvaro Delgado-Vega |
| Abstract: | We study an organization with a principal and two agents. All three have a long-run agenda which drives their repeated interactions. The principal can influence the competition for agency by endorsing an agent. Her agenda is more aligned with her ``friend'' than with her ``enemy.'' Even when fully aligned with the friend, the principal embraces the enemy by persistently endorsing him once an initial ``cordon sanitaire'' to exclude the enemy breaks exogenously. A dynamically optimizing principal with extreme agenda either implements the commitment solution or reverts to static Nash. For less extreme principals, losing commitment power has more gradual effects. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.09734&r= |
| By: | Kamesh Munagala; Yiheng Shen; Renzhe Xu |
| Abstract: | In this paper, we study third-degree price discrimination in a model first presented in Bergemann, Brooks, and Morris [2015]. Since such price discrimination might create market segments with vastly different posted prices, we consider regulating these prices, specifically, via restricting them to lie within an interval. Given a price interval, we consider segmentations of the market where a seller, who is oblivious to the existence of such regulation, still posts prices within the price interval. We show the following surprising result: For any market and price interval where such segmentation is feasible, there is always a different segmentation that optimally transfers all excess surplus to the consumers. In addition, we characterize the entire space of buyer and seller surplus that are achievable by such segmentation, including maximizing seller surplus, and simultaneously minimizing buyer and seller surplus. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.06023&r= |
| By: | Irfan Tekdir |
| Abstract: | This paper investigates third-degree price discrimination under endogenous market segmentation. Segmenting a market requires access to information about consumers, and this information comes with a cost. I explore the trade-offs between the benefits of segmentation and the costs of information acquisition, revealing a non-monotonic relationship between consumer surplus and the cost of information acquisition for monopolist. I show that in some markets, allowing the monopolist easier access to customer data can also benefit customers. I also analyzed how social welfare reacts to changes in the cost level of information acquisition and showed that the non-monotonicity result is also valid in social welfare analysis. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.06026&r= |
| By: | Paul Heidhues (Heinrich Heine University Düsseldorf & DICE); Botond Kőszegi (University of Bonn); Philipp Strack (Yale University) |
| Abstract: | We model an agent who stubbornly underestimates how much his behavior is driven by undesirable motives, and, attributing his behavior to other considerations, updates his views about those considerations. We study general properties of the model, and then apply the framework to identify novel implications of partially naive present bias. In many stable situations, the agent appears realistic in that he eventually predicts his behavior well. His unrealistic self-view does, however, manifest itself in several other ways. First, in basic settings he always comes to act in a more present-biased manner than a sophisticated agent. Second, he systematically mispredicts how he will react when circumstances change, such as when incentives for forwardlooking behavior increase or he is placed in a new, ex-ante identical environment. Third, even for physically non-addictive products, he follows empirically realistic addiction-like consumption dynamics that he does not anticipate. Fourth, he holds beliefs that — when compared to those of other agents — display puzzling correlations between logically unrelated issues. Our model implies that existing empirical tests of sophistication in intertemporal choice can reach incorrect conclusions. Indeed, we argue that some previous findings are more consistent with our model than with a model of correctly specified learningsophistication in intertemporal choice can reach incorrect conclusions. Indeed, we argue that some previous findings are more consistent with our model than with a model of correctly specified learning. |
| Keywords: | Present bias, naivete, sophistication, misspecified learning, apparent sophistication, implicit bias, prejudice |
| JEL: | D91 D83 D11 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:317&r= |
| By: | Qianjun Lyu (University of Bonn); Wing Suen (University of Hong Kong); Yimeng Zhang (University of Hong Kong) |
| Abstract: | We study an information design problem with continuous state and discrete signal space. Under convex value functions, the optimal information structure is interval-partitional and exhibits a dual expectations property: each induced signal is the conditional mean (taken under the prior density) of each interval; and each interval cutoff is the conditional mean (taken under the value function curvature) of the interval formed by neighboring signals. This property enables an examination into which part of the state space is more finely partitioned. The analysis can be extended to general value functions and adapted to study coarse mechanism design. |
| Keywords: | Dual expectations, scrutiny, Coarse mechanism design |
| JEL: | D81 D82 D83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:314&r= |
| By: | Spyros Galanis; Sergei Mikhalishchev |
| Abstract: | We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that 'separable' securities aggregate information in all equilibria, however, separability is not robust to small changes in the traders' private information. To remedy this problem, we enhance the model by allowing traders to acquire signals with cost $\kappa$, in every period. We show that '$\kappa$ separable securities' aggregate information and, as the cost decreases, nearly all securities become $\kappa$ separable, irrespective of the traders' initial private information. Moreover, the switch to $\kappa$ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. Finally, even with myopic traders, cheaper information may accelerate or decelerate information aggregation for all but Arrow-Debreu securities. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.07186&r= |
| By: | Jose M. Betancourt (Yale University); Ali Horta su (University of Chicago); Aniko …ry (Carnegie Mellon University); Kevin R. Williams (Yale University) |
| Abstract: | We study dynamic price competition between sellers offering differentiated products with limited capacity and a common sales deadline. In every period, firms simultaneously set prices, and a randomly arriving buyer decides whether to purchase a product or leave the market. Given remaining capacities, firms trade off selling today against shifting demand to competitors to obtain future market power. We provide conditions for the existence and uniqueness of pure-strategy Markov perfect equilibria. In the continuous-time limit, prices solve a system of ordinary differential equations. We derive properties of equilibrium dynamics and show that prices increase the most when the product with the lowest remaining capacity sells. Because firms do not fully internalize the social option value of future sales, equilibrium prices can be inefficiently low such that both firms and consumers would benefit if firms could commit to higher prices. We term this new welfare effect the Bertrand scarcity trap. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2394&r= |
| By: | Miettinen, Topi; Vanberg, Christoph |
| Abstract: | We theoretically investigate how the application of unanimity rule can lead to inefficient delay in collective decision making. We do so in the context of a distributive multilateral bargaining model featuring strategic pre-commitment. Prior to each bargaining round, players can declare a minimum share that they must receive in return for their vote. Such declarations become binding with an exogenously given probability. We characterize the set of stationary subgame perfect equilibria under all q-majority rules. Our results suggest that unanimity rule is uniquely inefficient. All other rules, including all-but-one, are fully efficient. |
| Keywords: | bargaining; commitment; conflict; delay; international negotiations; climate negotiations; legislative; multilateral; voting; majority; unanimity |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:awi:wpaper:0749&r= |
| By: | Paul Heidhues (Heinrich Heine University Düsseldorf & DICE); Botond Kőszegi (University of Bonn); Philipp Strack (Yale University) |
| Abstract: | We develop models of markets with procrastinating consumers where competition operates — or is supposed to operate — both through the initial selection of providers and through the possibility of switching providers. As in other work, consumers fail to switch to better options after signing up with a firm, so at that stage they exert little downward pressure on the prices they pay. Unlike in other work, however, consumers are not keen on starting with the best available offer, so price competition fails at this stage as well. In fact, a competition paradox results: an increase in the number of firms or the intensity of marketing increases the frequency with which a consumer receives switching offers, so it facilitates procrastination and thereby potentially raises prices. By implication, continuous changes in marketing costs can, through a self-reinforcing process, lead to discontinuous changes in market outcomes. Sign-up deals do not serve their classically hypothesized role of returning ex-post profits to consumers, and in some cases even exacerbate the failure of price competition. Consumer procrastination thus emerges as a novel source of competition failure that applies in situations where other theories of competition failure do not. |
| Keywords: | Present bias, procrastination, price competition, competition failure, switching, subscription markets |
| JEL: | L11 L13 D11 D41 D43 D91 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:316&r= |
| By: | Ruslan Shavshin (National Research University Higher School of Economics); Marina Sandomirskaia (National Research University Higher School of Economics) |
| Abstract: | This paper proposes a model of a finite two-sided market with a limited arbitrary number of products per seller, where buyers are involved in a directed search for the appropriate purchase. The effect of friction, discovered for the models with a single product per seller, remains, though the competition intensifies. We derive an analytical formula for the case of an equal number of products for every seller and deduce that the equilibrium price decreases with the growth of availability and drops to marginal costs when two sellers are able to serve the whole set of buyers. However, the seller’s utility is a bell-shaped function of the number of products. This produces the controversial impact of market concentration on the various equilibrium characteristics. For the general model with different capacities across sellers, we formulate equilibrium conditions on prices, and clarify how the market power of a particular seller depends on its capacity. Numerical analysis is also applied to the related problem of endogenous capacities |
| Keywords: | finite market, directed search, market inefficiency, market concentration, friction, quantity competition. |
| JEL: | D43 L13 D82 D83 C72 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hig:wpaper:267/ec/2024&r= |
| By: | Kun Heo; Antoine Zerbini |
| Abstract: | We analyze the incentives of authoritarian regimes to segment access to censored content through technology. Citizens choose whether to pay to access censored online content at a cost fixed by the regime: the firewall. A low firewall segments access and generates more compliance than full censorship – a high firewall – ever could. Regime opponents self-select into consuming censored content, and comply conditional on positive independent reporting. Regime supporters exclusively consume state propaganda, which secures their compliance. This segment-and-rule strategy can be engineered by making local news outlets uninformative, or by affecting the intrinsic benefit from access. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:not:notnic:2024-04&r= |
| By: | Whelan, Karl |
| Abstract: | Samuelson (1963) conjectured that accepting multiple independent gambles you would reject on a stand-alone basis violated expected utility theory. Ross (1999) and others presented examples where expected utility maximizers would accept multiple gambles that would be rejected on a stand-alone basis once the number of gambles gets large enough. We show that a stronger result than Samuelson's conjecture applies for DARA preferences over wealth. Expected utility maximizers with DARA preferences have threshold levels of wealth such that those above the threshold will accept N positive expected value gambles while those below will not and these thresholds are increasing with N. |
| Keywords: | Risk aversion; Paul Samuelson; Law of large numbers |
| JEL: | D81 |
| Date: | 2024–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121384&r= |
| By: | Lu Yu |
| Abstract: | Two theorems announced by Topkis about the topological description of sublattices are proved. They are applied to extend some classical results concerning the existence and the order structure of Nash equilibria of certain supermodular games, with some problems in Zhou's proof corrected. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.09582&r= |
| By: | Hiroki Saruya; Masayuki Yagasaki |
| Abstract: | Social norms are an important determinant of behavior, but the behavioral and welfare effects of norms are not well understood. We propose and axiomatize a decision-theoretic model in which a reference point is formed by the decision maker's perceptions of which actions are admired (prescriptive norms) and which are prevalent (descriptive norms), and utility depends on the pride of exceeding the reference point or the shame of falling below it. The model is simple, yet provides a unified explanation for previous empirical findings, and is useful for welfare analysis of norm-evoking policies with a revealed preference approach. |
| Date: | 2024–06–24 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:50&r= |
| By: | Eric AVENEL (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France) |
| Abstract: | With the development of e-commerce, upstream firms have the possibility to sell their products on BtoC markets. I explore the consequences of this observation on the analysis of vertical integration and more specifically vertical foreclosure. I consider the same industry structure as in OSS (1990), but I allow the integrated firm to sell the intermediate good either on a BtoB market (as assumed by OSS) and/or on a BtoC market (in which case it is in fact no longer an intermediate good). I also consider the possibility that the competing producer of the intermediate good sells it on a BtoC market. In this enriched strategic framework, the firm has to decide on how to combine vertical foreclosure and tying, which sheds new light on the relation between these two possibly anticompetitive practices. |
| Keywords: | Vertical foreclosure, tying, BtoB, BtoC. |
| JEL: | L41 L42 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:tut:cremwp:2024-03&r= |
| By: | Gambato, Jacopo |
| Abstract: | The consumer search literature mostly considers independently distributed products. In contrast, I study a model of directed search with infinitely many products whose valuations are correlated through shared attributes. I propose a tractable, systematic, history-dependent scoring system based on nests of correlated products that leverages the predictability of the optimal search process along different paths. This scoring system generates an optimal search policy conceptually equivalent to the familiar optimal policy with independently distributed search products. The policy instructs the consumer to inspect unrelated products until an attribute the realization of which surpasses the added informational value of inspecting two new attributes is found. The search paths emerging from this policy match recent evidence of consumer learning through search, and can rationalize backtracking to a previously abandoned attribute. |
| Keywords: | consumer search, directed search, learning |
| JEL: | D83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300011&r= |