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on Microeconomics |
| By: | Martimort, David; Pouyet, Jérôme |
| Abstract: | A retailer may boost demand for a manufacturer’s product through unobservable promotional efforts. Fixed fees cannot be used to freely allocate profit within the vertical structure. When manufacturers have market power, the equilibrium wholesale contract features a retail price below cost together with a rebate for incremental units bought by the retailer when effort has succeeded in boosting sales. Loss leading emerges as an incentive device in such an incomplete contracting scenario. A ban on below-cost pricing leads to a higher retail price and a lower promotional effort. |
| Keywords: | Vertical restraints; loss leading; promotional allowances; below-cost; pricing |
| JEL: | L11 L42 L81 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129692 |
| By: | Koharu Nakao (Graduate School of Economics, Kwansei Gakuin University) |
| Abstract: | This study focuses on the e-commerce market and analyzes the pricing behavior of a peer-to-peer platform that intermediates transactions between consumers (individuals). We consider two types of fee rates charged by a platform to consumers. Each consumer type is represented by two vectors, and consumers act depending on the values of these vectors. We investigate how the platform's profit, price of goods, and fee rate are affected by whether the platform charges the fee rate to sellers or buyers. The results indicate that, first, the platform's equilibrium profit is equivalent regardless of whether a fee rate is imposed on sellers or buyers. Second, consumer surplus and social welfare are also equivalent. Finally, the equilibrium price and equilibrium fee rate result in contrasting ones depending on whether sellers or buyers pay the fee. Specifically, when the cost of supply on the seller side increases, the fee rate falls in both cases; however, the price of goods increases more if a platform charges a fee rate to the buyers rather than the sellers. |
| Keywords: | sharing economy, peer-to-peer, e-commerce, fee, platform |
| JEL: | L81 L11 D21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:277 |
| By: | Albrecht, James (Georgetown University); Cai, Xiaoming (Peking University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Vroman, Susan (Georgetown University) |
| Abstract: | This paper considers competitive search equilibrium in a market for a good whose quality differs across sellers. Each seller knows the quality of the good that he or she is offering for sale, but buyers cannot observe quality directly. We thus have a "market for lemons" with competitive search frictions. In contrast to Akerlof (1970), we prove the existence of a unique equilibrium, which is separating. Higher-quality sellers post higher prices, so price signals quality. The arrival rate of buyers is lower in submarkets with higher prices, but this is less costly for higher-quality sellers given their higher continuation values. For some parameter values, higher-quality sellers post the full-information price; for other values these sellers have to post a higher price to keep lower-quality sellers from mimicking them. In an extension, we show that if sellers compete with auctions, the reserve price can also act as a signal. |
| Keywords: | competitive search, signaling |
| JEL: | C78 D82 D83 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17246 |
| By: | Shixin Wang |
| Abstract: | It is generally challenging to characterize the optimal selling mechanism even when the seller knows the buyer's valuation distributions in multi-item screening. An insightful and significant result in robust mechanism design literature is that if the seller knows only marginal distributions of the buyer's valuation, then separable mechanisms, in which all items are sold independently, are robustly optimal under the maximin revenue objectives. While the separable mechanism is simple to implement, the literature also indicates that separate selling can not guarantee any substantial fraction of the potential optimal revenue for given distributions. To design a simple mechanism with a good performance guarantee, we introduce a novel class of mechanisms, termed "semi-separable mechanism". In these mechanisms, the allocation and payment rule of each item is a function solely of the corresponding item's valuation, which retains the separable mechanism's practical simplicity. However, the design of the allocation and payment function is enhanced by leveraging the joint distributional information, thereby improving the performance guarantee against the hindsight optimal revenue. We establish that a semi-separable mechanism achieves the optimal performance ratio among all incentive-compatible and individually rational mechanisms when only marginal support information is known. This result demonstrates that the semi-separable mechanisms ensure both the interpretation and implementation simplicity, and performance superiority. Our framework is also applicable to scenarios where the seller possesses information about the aggregate valuations of product bundles within any given partition of the product set. Furthermore, our results also provide guidelines for the multi-item screening problem with non-standard ambiguity sets. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.13580 |
| By: | Andrew Koh; Sivakorn Sanguanmoo |
| Abstract: | We analyze how uncertain technologies should be robustly regulated. An agent develops a new technology and, while privately learning about its harms and benefits, continually chooses whether to continue development. A principal, uncertain about what the agent might learn, chooses among dynamic mechanisms (e.g., paths of taxes or subsidies) to influence the agent's choices in different states. We show that learning robust mechanisms -- those which deliver the highest payoff guarantee across all learning processes -- are simple and resemble `regulatory sandboxes' consisting of zero marginal tax on R&D which keeps the agent maximally sensitive to new information up to a hard quota, upon which the agent turns maximally insensitive. Robustness is important: we characterize the worst-case learning process under non-robust mechanisms and show that they induce growing but weak optimism which can deliver unboundedly poor principal payoffs; hard quotas safeguard against this. If the regulator also learns, adaptive hard quotas are robustly optimal which highlights the importance of expertise in regulation. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.17398 |
| By: | Debasis Mishra; Sanket Patil |
| Abstract: | We study undominated mechanisms with transfers for regulating a monopolist who privately observes the marginal cost of production. We show that in any undominated mechanism, there is a quantity floor, which depends only on the primitives, and the regulator's operation decision is stochastic only if the monopolist produces at the quantity floor. We provide a near-complete characterization of the set of undominated mechanisms and use it to (a) provide a foundation for deterministic mechanisms, (b) show that the efficient mechanism is dominated, and (c) derive a max-min optimal regulatory mechanism. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.09473 |
| By: | Kiho Yoon |
| Abstract: | We study the equilibria of uniform price auctions where bidders have flat demands up to their respective quantity constraints. We present an iterative procedure that systematically finds a Nash equilibrium outcome under semi-complete information as well as a novel ascending auction under incomplete information that has this outcome as a dominant strategy equilibrium. Demand reduction and low price equilibrium may occur since it is sometimes advantageous for a bidder to give up some of his/her demand and get the remaining demand at a low price rather than to get his/her entire demand at a higher price. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.04047 |
| By: | Reema Deori; Ankur A. Kulkarni |
| Abstract: | A persuasion policy successfully persuades an agent to pick a particular action only if the information is designed in a manner that convinces the agent that it is in their best interest to pick that action. Thus, it is natural to ask, what makes the agent trust the persuader's suggestion? We study a Bayesian persuasion interaction between a sender and a receiver where the sender has access to private information and the receiver attempts to recover this information from messages sent by the sender. The sender crafts these messages in an attempt to maximize its utility which depends on the source symbol and the symbol recovered by the receiver. Our goal is to characterize the \textit{Stackelberg game value}, and the amount of true information revealed by the sender during persuasion. We find that the SGV is given by the optimal value of a \textit{linear program} on probability distributions constrained by certain \textit{trust constraints}. These constraints encode that any signal in a persuasion strategy must contain more truth than untruth and thus impose a fundamental bound on the extent of obfuscation a sender can perform. We define \textit{informativeness} of the sender as the minimum expected number of symbols truthfully revealed by the sender in any accumulation point of a sequence of $\varepsilon$-equilibrium persuasion strategies, and show that it is given by another linear program. Informativeness is a fundamental bound on the amount of information the sender must reveal to persuade a receiver. Closed form expressions for the SGV and the informativeness are presented for structured utility functions. This work generalizes our previous work where the sender and the receiver were constrained to play only deterministic strategies and a similar notion of informativeness was characterized. Comparisons between the previous and current notions are discussed. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.13822 |
| By: | Zhen Zhao |
| Abstract: | We study the problem of allocating a single indivisible good to at most one of n agents when the preferences of agents' are quasilinear, monetary transfers are allowed and strategy-proof mechanism is needed. In this paper, we consider the possibility of constructing feasible allocation mechanisms which satisfy strategy-proofness, anonymity, budget balance and no wastage. In two and three agents cases, we show an impossibility result. |
| Date: | 2024–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:52 |
| By: | Hans Gersbach; Rodrigo Casado Noguerales; Samuel Schenk |
| Abstract: | When a counter-proposal is made to an initiative to change the Swiss constitution, the citizenry makes three binary majority choices: the initiative versus the status quo, the initiative versus the counter-proposal, and the status quo versus the counterproposal as a tie-breaker. If there is a cycle, the alternative that beats the status-quo wins. This system invites strategic voting, as exemplified by the 2010 case of the “Ausschaffungsinitiative”. We suggest to break cycles differently by choosing the middle alternative in case of a cycle, which will normally be the counter-proposal. More precisely, we show that there always exists a strong Nash equilibrium in which all citizens vote sincerely. Moreover, the outcome of all alternative strong equilibria with strategic voting is the same as if everybody votes sincerely. We also show that other common cycle-breaker rules cannot achieve the same result. |
| Keywords: | Swiss democracy, three-way referendum, Condorcet Winner, manipulation, information sharing, initiative |
| JEL: | C72 D70 D72 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11265 |
| By: | Ian Ball; Deniz Kattwinkel |
| Abstract: | The maxmin approach to distributional robustness evaluates each mechanism according to its payoff guarantee over all priors in an ambiguity set. We propose a refinement: the guarantee must be approximately satisfied at priors near the ambiguity set (in the weak topology). We call such a guarantee robust. The payoff guarantees from some maxmin-optimal mechanisms in the literature are not robust. We show, however, that over certain standard ambiguity sets (such as continuous moment sets), every mechanism's payoff guarantee is robust. We give a behavioral characterization of our refined robustness notion by imposing a new continuity axiom on maxmin preferences. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.16898 |
| By: | Jean-Michel Benkert; Armin Schmutzler |
| Abstract: | This paper investigates the value of recommendations for disseminating economic information, with a focus on frictions resulting from preference heterogeneity. We consider Bayesian expected-payoff maximizers who receive non-strategic recommendations by other consumers. The paper provides conditions under which different consumer types accept these recommendations. Moreover, we assess the overall value of a recommendation system and the determinants of that value. Our analysis highlights the importance of disentangling objective information from subjective preferences when designing value-maximizing recommendation systems. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.11362 |
| By: | Wolfgang Kuhle |
| Abstract: | We study games in which every action requires planning and preparation. Moreover, before players act, they can revise their plans based on partially revealing information that they receive on their adversary's preparations. In turn, we examine how players' information over each others' planned actions influences winning odds in matching pennies games, and how it incentivises the use of decoys, deception, and camouflage. Across scenarios, we emphasize that the decomposition of an action into (i) a preparation to act and (ii) the execution of the action, allows to analyze one-shot simultaneous-move games, where players partially observe each others' contemporaneous actions. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.09778 |
| By: | Kasy, Maximilian (University of Oxford); Spiess, Jann (Stanford University) |
| Abstract: | What is the purpose of pre-analysis plans, and how should they be designed? We model the interaction between an agent who analyzes data and a principal who makes a decision based on agent reports. The agent could be the manufacturer of a new drug, and the principal a regulator deciding whether the drug is approved. Or the agent could be a researcher submitting a research paper, and the principal an editor deciding whether it is published. The agent decides which statistics to report to the principal. The principal cannot verify whether the analyst reported selectively. Absent a pre-analysis message, if there are conflicts of interest, then many desirable decision rules cannot be implemented. Allowing the agent to send a message before seeing the data increases the set of decisions rules that can be implemented, and allows the principal to leverage agent expertise. The optimal mechanisms that we characterize require pre-analysis plans. Applying these results to hypothesis testing, we show that optimal rejection rules pre-register a valid test, and make worst-case assumptions about unreported statistics. Optimal tests can be found as a solution to a linear-programming problem. |
| Keywords: | pre-analysis plans, statistical decisions, implementability |
| JEL: | C18 D8 I23 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17187 |
| By: | Wei He; Jiangtao Li; Weijie Zhong |
| Abstract: | We propose a combinatorial ascending auction that is "approximately" optimal, requiring minimal rationality to achieve this level of optimality, and is robust to strategic and distributional uncertainties. Specifically, the auction is rank-guaranteed, meaning that for any menu M and any valuation profile, the ex-post revenue is guaranteed to be at least as high as the highest revenue achievable from feasible allocations, taking the (|M|+ 1)th-highest valuation for each bundle as the price. Our analysis highlights a crucial aspect of combinatorial auction design, namely, the design of menus. We provide simple and approximately optimal menus in various settings. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.12001 |
| By: | Eshwar Ram Arunachaleswaran; Natalie Collina; Sampath Kannan; Aaron Roth; Juba Ziani |
| Abstract: | There has been substantial recent concern that pricing algorithms might learn to ``collude.'' Supra-competitive prices can emerge as a Nash equilibrium of repeated pricing games, in which sellers play strategies which threaten to punish their competitors who refuse to support high prices, and these strategies can be automatically learned. In fact, a standard economic intuition is that supra-competitive prices emerge from either the use of threats, or a failure of one party to optimize their payoff. Is this intuition correct? Would preventing threats in algorithmic decision-making prevent supra-competitive prices when sellers are optimizing for their own revenue? No. We show that supra-competitive prices can emerge even when both players are using algorithms which do not encode threats, and which optimize for their own revenue. We study sequential pricing games in which a first mover deploys an algorithm and then a second mover optimizes within the resulting environment. We show that if the first mover deploys any algorithm with a no-regret guarantee, and then the second mover even approximately optimizes within this now static environment, monopoly-like prices arise. The result holds for any no-regret learning algorithm deployed by the first mover and for any pricing policy of the second mover that obtains them profit at least as high as a random pricing would -- and hence the result applies even when the second mover is optimizing only within a space of non-responsive pricing distributions which are incapable of encoding threats. In fact, there exists a set of strategies, neither of which explicitly encode threats that form a Nash equilibrium of the simultaneous pricing game in algorithm space, and lead to near monopoly prices. This suggests that the definition of ``algorithmic collusion'' may need to be expanded, to include strategies without explicitly encoded threats. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.03956 |
| By: | Broere, Mark; Christmann, Robin |
| Abstract: | Crowdfunding as a part of micro-finance has received considerable attention from the public and among researchers, both due to its novel form of collecting funds and the emergence of fraud and misconduct to the disadvantage of lay backers. We develop an adverse selection model of reward-based crowdfunding that introduces Bertrand-style competition between campaign owners. We find that the traditional result in the literature about successful separation of high-type and low-type creators does no longer hold when accessible information about quality becomes less reliable and the market for the high-quality product grows. Under certain conditions, we also observe an instability in competition where campaign owners randomize between withdrawing to a certain market niche and price competition. All this gives rise to fraud in equilibrium. In this perspective, crowdfunding scams resemble a bet on market demand and are often able to evade liability. We then discuss specific remedies and provide insights for platform policy and regulation. |
| Keywords: | adverse selection; price competition; reward-based crowdfunding; fixed funding; enforcement |
| JEL: | G14 G18 K42 |
| Date: | 2024–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121784 |
| By: | Shunya Noda; Genta Okada |
| Abstract: | We study efficient mechanism design for allocating multiple heterogeneous objects. We aim to maximize the residual surplus, the total value generated from an allocation minus the costs for screening agents' values. We discover a robust trend indicating that no-screening mechanisms such as serial dictatorship with exogenous priority order tend to perform better as the variety of goods increases. We analyze the underlying reasons by characterizing efficient mechanisms in a stylized environment. We also apply an automated mechanism design approach to numerically derive efficient mechanisms and validate the trend in general environments. Building on this implication, we propose the register-invite-book system (RIB) as an efficient system for scheduling vaccination against pandemic diseases. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.10077 |
| By: | David K Levine |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:cla:levarc:11694000000000190 |
| By: | Alastair Langtry |
| Abstract: | This paper presents a new rationale for a self-interested economic elite voluntarily extending property rights. When agents make endogenous investment decisions, there is a commitment problem. Ex-post, the elite face strong incentives to expropriate investments from the non-elite (who don't have property rights), which dissuades investment. Extending property rights to new groups can resolve this problem, even for those not given property rights, by making public good provision more attractive to the elite. Unlike other models of franchise extensions, extending property rights in this paper does not involve the elite ceding control to others. Rather, it changes the incentives they face. Additionally, adding identity groups to the model shows that an elite faces weaker incentives to resolve the commitment problem when it is part of a minority identity -- identity fragmentation makes it harder for a society to extend property rights. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.17335 |
| By: | ST Wang |
| Abstract: | Werewolf game, also known as Mafia game, is a social deduction game that models the conflict between an informed minority (werewolf group) and an uninformed majority (citizen group). This paper explores the optimal strategies of the werewolf game from the perspective of game theory, focusing on cases both with and without prophet. First we examine the existing strategy in game without prophet and propose ``random strategy +", which provides an improved winning probability for the werewolve group. Then we further study the game with prophet, and find the game with prophet can be transformed into a extensive game with complete but imperfect information under a specific rule. We construct a model and design an algorithm to achieve PBE and maximize the citizen group's winning probability. In the end, we examine a property of PBE in game without any restriction. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.17177 |