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on Microeconomics |
| By: | Gambato, Jacopo; Sandrini, Luca |
| Abstract: | In this study, we analyze the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumer interest in variety and pays royalties to sellers based on the effective consumption of the generated content. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium. With vertical differentiation, royalties can differ, and the platform biases recommendations in favor of the cheapest content, hurting consumers and high-quality sellers. Biased recommendations, if unconstrained, eliminate sellers' incentives to increase the quality of their content, but if constrained, may lead to the inefficient allocation of R&D efforts. |
| Keywords: | platform economics, media economics, content aggregator, recommendation bias, innovation |
| JEL: | D4 L1 L5 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300272 |
| By: | Park, Hyungmin (University of Warwick); Squintani, Francesco (University of Warwick) |
| Abstract: | We study the choice of multiple advisors, balancing political alignment, competence, and diverse perspectives. An imperfectly informed leader can consult one or two advisors. One has views closely aligned with the leader’s, but his information is imprecise or correlated with the leaders own. The other is more biased but has independent or more precise information. We identify a trade-off between consulting the more aligned or the better informed expert, even when this entails small costs. Subtle comparative statics emerge : When the leader consults both advisors, increasing the bias of the more biased expert may result in the dismissal of the other advisor. The leader may opt to delegate consulting and decision-making, but only to the advisor who collects superior information in equilibrium. We then study the uncertain trade-off case where the most informed advisor is not necessarily also more biased. We find that reducing the probability that the better-informed expert is more biased may lead to hiring also the other advisor. The leader may delegate to the advisor with uncertain bias, although he is more biased in expectation, because he more easily aggregates information in equilibrium. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wqapec:23 |
| By: | Eric Yan |
| Abstract: | We show the existence of mechanism design settings where the social planner has an interest in players receiving noisy signals about the types of other agents. When the social planner is interested only in partial implementation, any social choice rule that is incentive compatible after players receive additional information about other agents was originally incentive compatible prior to the change in information structure. However, information about other agents can eliminate undesired equilibria in an implementing mechanism. Thus, there are social choice rules which are not fully implementable in a given information environment that become fully implementable after players have additional information about the types of other agents. We provide some general conditions under which an undesired equilibrium can be eliminated by additional information about other players. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.00037 |
| By: | Jan-Henrik Steg (Bielefeld University, Germany); Elshan Garashli (University of Graz, Austria); Michael Greinecker (ENS Paris-Saclay, France); Christoph Kuzmics (University of Graz, Austria) |
| Abstract: | For cheap-talk games with a binary state space in which the sender has state-independent preferences, we characterize equilibria that are robust to introducing slight state-dependence on the side of the sender. Not all equilibria are robust, but the sender-optimum is always achieved at some robust equilibrium. |
| Keywords: | Cheap talk, Communication, Information transmission, Robustness. |
| JEL: | C72 D82 D83 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-09 |
| By: | Lily Ling Yang |
| Abstract: | We consider a common-value voting model in which voters are uncertain about the precision of the information they receive. With incomplete preference, party supporters adopt their own party as their status quo and vote for it whenever it is justi able under some belief. Uncertainty is ampli ed by strategic consideration. As a result, voting becomes fully partisan and party supporters stick to their own party in large elections, even though all voters share the same preference. Additionally, voting is more partisan when voting is compulsory or when the population of party supporters is sufficiently large. |
| Keywords: | Common values, Elections, Information aggregation, Knightian uncertainty, Partisan voting |
| JEL: | C72 D72 D81 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_574 |
| By: | Navin Kartik; Andreas Kleiner |
| Abstract: | For multidimensional Euclidean type spaces, we study convex choice: from any choice set, the set of types that make the same choice is convex. We establish that, in a suitable sense, this property characterizes the sufficiency of local incentive constraints. Convex choice is also of interest more broadly. We tie convex choice to a notion of directional single-crossing differences (DSCD). For an expected-utility agent choosing among lotteries, DSCD implies that preferences are either one-dimensional or must take the affine form that has been tractable in multidimensional mechanism design. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.19063 |
| By: | Florian Herold (University of Bamberg, Germany); Christoph Kuzmics (University of Graz, Austria) |
| 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. |
| Keywords: | completely mixed strategies, mixed Nash equilibria, Farkas' lemma. |
| JEL: | C72 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-08 |
| By: | Narumi Teshima (Graduate School of Economics, Keio University and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN) |
| Abstract: | This paper analyzes the delegation of binary decisions to a committee of homogeneous agents. The principal determines the committee size and a reward scheme contingent on the revealed state and the committee's choice. Agents can acquire private information at a cost but lack intrinsic motives to make correct decisions. The main results are as follows: For any committee size and any prior distribution of the state, the reward scheme that minimizes the cost of making agents acquire information induces the committee to make decisions by majority rule. If the principal is ex-ante indifferent between the two alternatives, the optimal reward scheme for the principal induces the committee to use the majority rule and the optimal committee size is inversely U-shaped regarding information quality. |
| Keywords: | Moral hazard; Free-rider problem; Majority rule; Committee size; Information acquisition; Monetary transfers |
| JEL: | D71 D82 D86 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2024-25 |
| By: | Davide Bosco; Mario Gilli |
| Abstract: | We study effort provision and incentivisation in a Tullock group-contest with m ≥ 2 groups that differ in size. A novel algorithmic procedure is presented that, under a symmetry assumption, explicitly characterises the equilibrium. Endogenous, optimal incentivisation schemes are then determined. Four results ensue. First, strategic interactions endogenously come in mean-field form: individual effort provision responds to the aggregate effort and average egalitarianism across groups. Therefore, the game is aggregative. Second, individuals endlessly cycle between zero and positive effort provision at some incentivisation schemes: no pure-strategy equilibria exist in these cases. Third, group size determines whether the egalitarianism of endogenous schemes increases or decreases in the average egalitarianism across groups. Fourth, all groups provide effort at the endogenous schemes if incentivisation is properly restricted. |
| Keywords: | Collective-action problem, Conflict, Selective incentives, Strategic complements and substitutes. |
| JEL: | D74 D71 C72 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:540 |
| By: | Piazolo, David; Vanberg, Christoph |
| Abstract: | We present a three-person, two-period bargaining game with private information. A single proposer is seeking to secure agreement to a proposal under either majority or unanimity rule. If the first period proposal fails, the game ends immediately with an exogenously given “breakdown” probability. Two responders have privately known disagreement payoffs. We characterize Bayesian equilibria in stagewise undominated strategies. Our central result is that responders have a signaling incentive to vote “no” on the first proposal under unanimity rule, whereas no such incentive exists under majority rule. The reason is that being perceived as a “high breakdown value type” is advantageous under unanimity rule, but disadvantageous under majority rule. As a consequence, responders are “more expensive” under unanimity rule and disagreement is more likely. These results confirm intuitions that have been stated informally before and in addition yield deeper insights into the underlying incentives and what they imply for optimal behavior in bargaining with private information. |
| Keywords: | Bargaining; voting; unanimity rule; majority rule; private information; signaling |
| Date: | 2024–07–27 |
| URL: | https://d.repec.org/n?u=RePEc:awi:wpaper:0753 |
| By: | Patrick Rey; Joseph E. Stiglitz |
| Abstract: | Principal-agent models take outside options, determining participation and incentive constraints, as given. We construct a general equilibrium model where workers’ reservation wages and the maximum punishment acceptable before workers quit are instead determined endogenously. We simultaneously extend the standard effort efficiency-wage model by incorporating noisy signals, labor market frictions, and the possibility of performance-based pay, analyzing the equilibrium response to an adverse signal, and establishing conditions under which equilibrium entails lowering wages (performance contracting) rather than firing. We provide a complete analysis of the general equilibrium comparative statics, showing, for instance, that frictions (sand-in-the-wheels) may decrease unemployment and that the equilibrium is determined by two simple aggregates which depend on the parameters of the economy, interpretable as the intercept and slope of a pseudo-labor supply curve, embedding all the binding constraints (e.g., the no-shirking and labor market participation constraints). We also show that there may exist only a firing equilibrium, a no-firing equilibrium, multiple (firing and no-firing) equilibria, and no pure-strategy equilibrium. The economy is, in general, not efficient either in the selection of the form of equilibrium or the wages paid within any type of equilibrium. We discuss welfare enhancing government interventions, including publicly provided sand-in-the-wheels. |
| JEL: | D82 D86 E24 J31 J41 J63 J64 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32700 |
| By: | Condorelli, Daniele; Szentes, Balázs |
| Abstract: | We characterize equilibria of oligopolistic markets where identical rms with constant marginal cost compete a' la Cournot. For given maximal willingness to pay and maximal total demand, we rst identify all combinations of equilibrium consumer surplus and industry prot that can arise from arbitrary demand functions. Then, as a further restriction, we x the average willingness to pay above marginal cost (i.e., rst-best surplus) and identify all possible triples of consumer surplus, industry prot and deadweight loss. |
| Keywords: | Cournot; monopoly |
| JEL: | D42 D43 |
| Date: | 2022–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:111890 |
| By: | Lu Yu |
| Abstract: | To generalize complementarities for games, we introduce some conditions weaker than quasisupermodularity and the single crossing property. We prove that the Nash equilibria of a game satisfying these conditions form a nonempty complete lattice. This is a purely order-theoretic generalization of Zhou's theorem. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.00636 |
| By: | Paolo Bertoletti; Federico Etro |
| Abstract: | We study entry in markets with monopolistic competition under quasi-linear preferences, with homogeneous and heterogeneous firms. For common demand systems with a price aggregator that is a demand shifter, we show that entry tends to be insufficient: namely that, given market pricing, the business stealing effect of entry cannot dominate the consumer surplus effect. We then identify preferences that deliver efficient production and selection of firms (including the isoelastic demand case), confirming the insufficient entry result also compared to first-best allocations, and discuss a specification (which includes the Logit case) that also delivers efficient entry. Finally, we introduce more general quasi-linear preferences (nesting those of Spence, Melitz-Ottaviano and other cases) that generate flexible demand systems depending on a price aggregator. In this framework, we show that competitive effects of entry on prices actually strengthen the case for insufficient entry, and discuss conditions for its emergence. |
| Keywords: | Entry, Monopolistic competition, Business stealing, Heterogeneous |
| JEL: | D11 D43 L11 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:543 |
| By: | Eric Langlais; Nanxi Li |
| Abstract: | This paper studies how the combination of Product Liability and Tort Law shapes a monopoly' incentives to invest in R&D for developing risky AI-based technologies ("robots") that may accidentally induce harm to third-party victims. We assume that at the engineering stage, robots are designed to have two alternative modes of motion (fully autonomous vs human-driven), corresponding to optimized performances in predefined circumstances. In the autonomous mode, the monopoly (i.e. AI designer) faces Product Liability and undertakes maintenance expenditures to mitigate victims' expected harm. In the human-driven mode, AI users face Tort Law and exert a level of care to reduce victims' expected harm. In this set-up, efficient maintenance by the AI designer and efficient care by AI users result whatever the liability rule enforced in each area of law (strict liability, or negligence). However, overinvestment as well as underinvestment in R&D may occur at equilibrium, whether liability laws rely on strict liability or negligence, and whether the monopoly uses or does not use price discrimination. The first best level of R&D investments is reached at equilibrium only if simultaneously the monopoly uses (perfect) price discrimination, a regulator sets the output at the socially optimal level, and Courts implement strict liability in Tort Law and Product Liability. |
| Keywords: | Artificial Intelligence, Algorithms, Tort Law, Product Liability, Strict Liability, Negligence |
| JEL: | K13 K2 L1 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-22 |
| By: | Anton Kolotilin (School of Economics, UNSW Business School); Hongyi Li (School of Economics, UNSW Business School); Andriy Zapechelnyuk (School of Economics, University of Edinburgh) |
| Abstract: | We study monotone persuasion in the linear case, where a posterior distribution over states is summarized by its mean. We identify two settings where the optimal unrestricted signal can be nonmonotone. In the first setting, the optimal unrestricted signal requires randomization. In the second setting, the optimal unrestricted signal entails nonmonotone pooling of states. We solve for the optimal monotone signal in each setting, and illustrate our results with an application to media censorship. |
| Keywords: | Bayesian persuasion, monotone persuasion |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:swe:wpaper:2024-05 |
| By: | Sandrini, Luca; Somogyi, Robert |
| Abstract: | We build a model of the news market where advertisers allocate their ads between a social media platform and a news website. Our objective is to evaluate policy interventions aimed at fostering news creation by transferring revenues from social media to news websites already introduced in Australia, Canada, and Indonesia). We show that social media may voluntarily contribute to news development, but only suboptimally. Beyond a certain level of state-mandated transfer, the social media platform can credibly threaten to remove news content. We provide some guidance on how to design a policy that improves welfare by promoting news creation. |
| Keywords: | social media, news quality, platform regulation, news media bargaining code, online advertising |
| JEL: | D43 D62 L13 L51 M37 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300268 |
| By: | Paul Heidhues (Heinrich Heine University Düsseldorf); Mats Kösters (Central European University, Vienna); Botond Kőszegi (University of Bonn) |
| Abstract: | We develop a model of digital ecosystems based on the assumption that a multimarket firm can use a sale in or data from one market to steer users toward its products in other markets. Due to this “cross-market leverage, ” a market leader at an “access point” (where users begin their online journeys) has a high value from offering services in connected markets (where users continue their journeys), and can thus make profitable takeovers. Indeed, because the firm has the threatening outside option of acquiring, and steering users toward, its target’s competitor, it can take over the target at a discount. In contrast, other firms have no or smaller incentives for takeovers, explaining why ecosystems grow out of market leaders at access points. Conversely, cross-market leverage also implies that once an ecosystem has grown, it has an increased value of controlling access points, so it may go to great lengths to dominate these markets. Our theory’s logic suggests that ecosystems have mixed implications for consumer welfare. Under plausible assumptions, a to-be ecosystem takes over market leaders, and this consolidation of good services across markets benefits consumers in the short run. But an ecosystem’s takeovers and dominance of access points lower incentives for entry and innovation, and lower the efficiency of access-point markets with superior alternatives. Hence, the long-run welfare implications of ecosystem growth are often negative. |
| Keywords: | Digital ecosystems, takeover, contestability, entry, envelopment, default effects, steering |
| JEL: | L41 L86 L22 D43 D83 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:329 |
| By: | Jin Yeub Kim (Yonsei University); Jong Jae Lee (The Catholic University of Korea) |
| Abstract: | This paper presents a theory of mediator selection in conflicts that compares biased mediation and unbiased mediation. We determine when and how parties in dispute accept a biased mediator, and characterize optimal mechanisms used by biased mediators when they are selected into mediation in equilibrium. When asymmetric information is significant, parties accept biased mediation as long as the degree of mediator bias is not too high. Biased mediators care more about the payoffs of their favored party. Nevertheless, we find that biased mediators can be equally effective in promoting peace as the unbiased mediator. This implies that, once selected into mediation, the mediator’s effectiveness is independent of the degree of mediator bias. The key force of our results is that a biased mediator’s optimal recommendation strategies allocate more shares of resource to the favored party while providing a higher chance of a peaceful settlement to the disfavored party. |
| Keywords: | Biased Mediation, Conflict, Mechanism Design, Mediator Selection. |
| JEL: | C72 D74 D82 F51 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2024rwp-230 |
| By: | Bart Taub |
| Abstract: | I examine strategic behaviour for a duopoly in a noisy environment. Firms attempt to learn the value of the rival’s privately observed demand shocks via a noisy signal of price, and at the same time firms attempt to obfuscate that signal by producing excess output on the publicly observable signals, that is, they signal jam. In a dynamic setting firms also distort the intertemporal structure of output keyed to the publicly observable demand shock process in order to disguise their private shocks. The net outcome is to radically increase the persistence of output over its full-information value. |
| Keywords: | Dynamic games, signal jamming, strategic information, frequency-domain methods. |
| JEL: | C61 C62 C63 C73 D43 D82 |
| Date: | 2023–01 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2023_02 |
| By: | Mikhail Drugov; Margaret Meyer; Marc Möller |
| Abstract: | We analyze a model of organizational learning where agents’ performance reflects time-invariant unobservable ability, privately-chosen effort, and noise. Our main result is that, even when performance is almost entirely random, maximizing the probability of identifying the best agent (“selective efficiency”) requires biasing final selection in favor of early winners. Making luck persistent, e.g. through fast-tracks, is thus rationalized by the pursuit of selective efficiency. Agents’ strategic efforts amplify the persistence of luck. Organizational learning also affects the persistence of initial advantages stemming from identity. Identity-dependent biases, e.g. gender specific mentoring, create incentives that make selection both more efficient and more equitable. |
| Date: | 2024–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1049 |
| By: | David McCune |
| Abstract: | We analyze a type of voting paradox which we term an involvement paradox, in which a candidate who loses an election could be made into a winner if more of the candidate's non-supporters participated in the election, or a winner could be made into a loser if more of the candidate's supporters participated. Such paradoxical outcomes are possible under the voting method of single transferable vote (STV), which is widely used for political elections throughout the world. We provide a worst-case analysis of involvement paradoxes under STV and show several interesting examples of these paradoxes from elections in Scotland. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.20045 |
| By: | Qiang Gong (Zhongnan University of Economics and Law [China]); Yujing Xu (Shenzhen Univerisity [Shenzhen]); Huanxing Yang (OSU - Ohio State University [Columbus]) |
| Abstract: | We study a dynamic model of price competition with differentiated products in which new generations of consumers acquire information about available products from their friends of previous generations. The social network, which links consumers across generations, affects the evolution of consumers' awareness of products and firms' long-term (steady-state) market shares. Focusing on steady-state equilibria, we examine how the structure of the social network—including connectivity and homophily—influences market shares, pricing, and welfare. |
| Keywords: | Learning from friends, Social network, Price competition, Market Shares, Differentiated products |
| Date: | 2024–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04625204 |
| By: | Lu Yu |
| Abstract: | We prove three results on the existence and structure of Nash equilibria for quasisupermodular games. A theorem is purely order-theoretic, and the other two involve topological hypotheses. Our topological results genralize Zhou's theorem (for supermodular games) and Calciano's theorem. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.13783 |
| By: | Martin W. Cripps |
| Abstract: | Cripps, Ely, Mailath and Samuelson (2008) showed that if there are finitely many states, and the signals are i.i.d and finite, then individual learning is sufficient for common learning. In this note we describe what is commonly learned when this sufficient condition does not hold. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.20029 |
| By: | Erik Madsen; Eran Shmaya |
| Abstract: | We design mechanisms for maintaining public goods which require periodic non-monetary contributions. Utilitarian welfare is maximized by concentrating contributions among low-cost group members, but such policies generally induce some members to leave the group or misreport their preferences. To forestall exit, contributions must be shifted from members with intermediate costs to some high-cost members. To deter misreporting, members must be screened using up to two membership tiers, which reward larger contributions with increased access to the good. We apply our results to the design of platforms such as Netflix and TikTok hosting crowd-sourced recommendation engines, which function as public goods supported by user feedback about new content. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.05196 |