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on Microeconomics |
| By: | Mathias Dewatripont (ULB - Université libre de Bruxelles); Jean Tirole (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Scholars and civil society have argued that competition erodes supplier morality. This paper establishes a robust irrelevance result, whereby intense market competition does not crowd out consequentialist ethics; it thereby issues a strong warning against the wholesale moral condemnation of markets and procompetitive institutions. Intense competition, while not altering the behavior of profitable suppliers, may, however, reduce the standards of highly ethical suppliers or not-for-profits, raising the potential need to protect the latter in the marketplace. |
| Keywords: | Competition, Consequentialism, Replacement logic, Non-profits, Corporate social responsability, Race to the ethical bottom |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04695298 |
| By: | Oihane Gallo |
| Abstract: | We analyze the problem of locating a public facility on a line in a society where agents have either single-peaked or single-dipped preferences. We consider the domain analyzed in Alcalde-Unzu et al. (2024), where the type of preference of each agent is public information, but the location of her peak/dip as well as the rest of the preference are unknown. We characterize all strategy-proof and type-anonymous rules on this domain. Building on existing results, we provide a two-step characterization": first, the median between the peaks and a collection of fixed values is computed (Moulin, 1980), resulting in either a single alternative or a pair of contiguous alternatives. If the outcome of the median is a pair, we apply a double-quota majority method" in the second step to choose between the two alternatives in the pair (Moulin, 1983). We also show the additional conditions that type-anonymity imposes on the strategy-proof rules characterized by Alcalde-Unzu et al. (2024). Finally, we show the equivalence between the two characterizations. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.03387 |
| By: | Andrzej Baranski; Sumit Goel |
| Abstract: | We study the classical contest design problem of allocating a budget across different prizes to maximize effort in a finite type-space environment. For any contest, we characterize the unique symmetric equilibrium. In this equilibrium, different agent types mix over contiguous intervals so that more efficient agents always exert greater effort than less efficient agents. We then solve for the expected equilibrium effort, and identify conditions under which the effect of increasing competition under linear costs is informative about the effect of such a transformation under general costs. As a result, we find that the winner-takes-all contest is optimal under linear and concave costs. Lastly, we obtain an equilibrium convergence result for the continuum type-space, and since the finite type-space encompasses the complete information environment as a special case, our analysis offers a unified approach to studying contests in these classical environments. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.04970 |
| By: | Yohan Pelosse (Humanities and Social Sciences, Swansea University) |
| Abstract: | Following Aumann (1976) and Brandenburger-Friedenberg-Keisler (2008), the standard epistemic approach of strategic games imposes a given type structure to the players with the implicit idea that it is an objectively well-defined ’ commonly known environment or context’. But imposing such ’contexts’ has some important implications for the analysis e.g., under RCBR, it turns strategic uncertainty into the exogenous uncertainty of a (subjective) correlating device in a correlated equilibrium (Brandenburger and Dekel, 1987). Crucially, for a given game, there exists an infinite set of such possible ’contexts’ – each assigning a particular subset of types/ belief restrictions to the description of the game ( Battigalli and Friedenberg, 2009). So, the choice of one vs.another type structure remains an important open question. Here, we follow the suggestion in Brandenburger and Friedenberg (2010) and drop the standard assumption that a type structure (or ’context’ ) is exogenously assigned to the players. Our analysis treats the canonical case where each player is on a par with an analyst facing endogenous uncertainty with no underlying exogenous signals determining the players’ types i.e., no initial restricted subset of beliefs can be taken to be ’known’ by all the players. We show the existence of a ’meta- self-referring epistemicmodel’ where the notion of ’self-belief/knowledge’ arises as an ’intertwined/meta’ version of the ’self-evident events’ (Monderer and Samet [1989]): The subset of types at which the analyst believes possible a subset of states of the world–generating a certain subset of belief hierarchies for the players– must be those that agree with the subset of states at which the agent believes these types. In this self-referringmodel each ’context’–belief system– is an inherently subjective structure that always belongs to the mind of a single agent: An observer assigns subjectively a specific belief systemto the players if and only if he ’self-believes/knows’ that all the agents have the samemodel as his. Our results show that every such subjective player-specific type structure corresponds to a player-independent type structure whose types/beliefs are intertwined i.e., non-separable. In our central result we obtain that any notion of ’context’ of a game –wherein players are analysts allowed to choose their type-structures– is equivalent to the subjective specific type-structure of a meta-observer/analyst. These results suggest that the presence of endogenous uncertainty–wherein no exogenous ex ante stage is assumed– is incompatible with the existence of a ’player independent belief system’. |
| Date: | 2024–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:swn:wpaper:2024-07 |
| By: | Tajika, Tomoya |
| Abstract: | We model a protest against a firm aiming to remove a product that causes negative externalities. Both the firm and consumers are uncertain about the product’s value, but consumers receive noisy signals. Price plays a key role in aggregating information. When prices are high, consumers with both good and bad signals derive almost the same utility from the product being sold, making protests uninformative. By endogenizing the price, we show that as consumer signals improve, protests become less informative, reducing social welfare. This suggests that consumer ignorance may play a role in protest success. |
| Keywords: | Protest, boycotts, information aggregation, ethical voters, monopoly pricing |
| JEL: | D42 D72 D81 D82 |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122143 |
| By: | Benjamin Balzer; Benjamin Young |
| Abstract: | We provide a model of endogenous perception of private information in single-agent screening problems. The agent's evaluation of their type is determined by their cognitive state: either sophisticated (i.e., they correctly perceive their type) or naive (i.e., they misperceive their type). The cognitive state depends on the mechanism's incentive structure via costly investment in cognition. Specifically, the agent is sophisticated only if their value of sophistication (i.e., the expected payoff difference between sophisticated and naive behavior) exceeds some cognitive cost. We impose no restrictions on the form of misperception when naive, allowing for both unbiased perceptions (i.e., information) as well as those generated in a biased manner. We derive a general representation of the value of sophistication, show how it varies with the mechanism's allocation rule, and use it to define a notion of accuracy in perception. In applications we showcase how perception both shapes and is shaped by the design of mechanisms. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.19853 |
| By: | Emiliano Catonini; Antonio Penta |
| Abstract: | Backward Induction is only defined for games with perfect information, but its logic is also invoked in many equilibrium concepts for games with imperfect or incomplete information. Yet, the meaning of ‘backward induction reasoning’ is unclear in these settings, and we lack a way to apply its simple logic to general games. We remedy this by introducing a solution concept, Backwards Rationalizability, that satisfies several properties normally ascribed to backward induction reasoning, foremost the possibility of being computed via a tractable backwards procedure. We also show that Backwards Rationalizability characterizes the robust predictions of a ‘perfect equilibrium’ notion that introduces the backward induction logic and nothing more into equilibrium analysis. We discuss a few applications, including a new version of peer-confirming equilibrium (Lipnowski and Sadler (2019)) that, thanks to Backwards Rationalizability, restores in dynamic games the natural comparative statics that the original concept only displays in static settings. |
| Keywords: | backward induction, backwards procedure, backwards rationalizability, Incomplete Information, interim perfect equilibrium, perfect bayesian equilibrium rationalizability, robustness to bounded rationality |
| JEL: | C72 C73 D82 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1462 |
| By: | Roberto Pinheiro |
| Abstract: | In this paper, we present a model of repeated first-price private value auctions in which the bidders have access to a cheap talk communication mechanism. In this framework, messages allow bidders to transmit their preference rankings over the goods to be auctioned, similar to Pesendorfer (2000). We show that collusion through this static mechanism not only dominates the static bid rotation mechanism presented by McAfee and McMillan (1992), but it is also not strictly dominated by the dynamic bid rotation mechanism presented by Aoyagi (2003). However, we show that asymptotic efficiency of collusion through increasing the number of ordered goods, presented by Pesendorfer (2000), demands patience rates to asymptotically approach one, making collusion increasingly more difficult to sustain. Finally, we study mechanisms through which the auctioneer may try to break bidders' collusion. |
| Keywords: | collusion; auctions; cheap talk communication; repeated games |
| JEL: | D44 C72 L41 |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:98920 |
| By: | Jinglei Huang (Tsinghua University, School of Social Science, Mingzhai Building, Haidian District, Beijing, China); Guofu Tan (University of Southern California, 3620 South Vermont Avenue KAP Hall, 300, Los Angeles, CA 90089-0253, United States); Tat-How Teh (Nanyang Technological University, Division of Economics, 48 Nanyang Ave, 639818 Singapore); Junjie Zhou (Tsinghua University, School of Economics and Management, 30 Shuangqing Road, Haidian District, Beijing, China) |
| Abstract: | Network interoperability between platforms often comes in various possible configurations, including industry-wide, coalition-based, and pairwise interoperability arrangements. We present an approach to incorporate generalized configurations of network interoperability into the analysis of price competition among any number of symmetric platforms. Specifically, the network benefit received by consumers on each platform increases with the effective network size of the platform, which is determined by an interoperability matrix reflecting the connections between platforms. Four key factors—the strength of interoperability, the shape of the network externality function, the interoperability configuration, and the number of platforms—jointly determine the equilibrium prices. Our findings show, among other things, that increased interoperability strength tends to reduce prices and benefit consumers when: (i) the network externality function exhibits strong increasing returns to scale, or (ii) the interoperability configuration includes multiple coalitions. |
| Keywords: | platforms, interoperability, interconnectivity, compatibility, data sharing, learning curve, coalitions |
| JEL: | D43 L15 L20 L50 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2403 |
| By: | Thành Nguyen (Purdue University); Rakesh Vohra (University of Pennsylvania) |
| Abstract: | Any mapping from states to signals induces a distribution over possible posteriors. For decision-making purposes, one is interested in parameters of those posteriors, such as their quartiles or whether they first-order stochastically dominate some given distribution. We show that a generalization of Gale’s demand theorem can be used to characterize which distributions over possible posteriors with the requisite properties can be generated by some mapping from states to signals. |
| Keywords: | Bayesian Persuasion, Information Design, Polymatroids |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-025 |
| By: | Koundouri, Phoebe; Pittis, Nikitas; Samartzis, Panagiotis |
| Abstract: | This paper analyzes the root cause of Ellsberg-type choices. This class of problems share the feature that at the time of the decision, t = m, the decision maker (DM) possesses partial information, Im, about the events/propositions of interest F: DM knows the objective probabilities of the sub-class F1, F1 С F only, whereas she is uninformed about the probabilities of the complement F’1 . As a result, DM may slip into the state of "comparative ignorance" (see Heath and Tve rsky 1991 and Fox and Tversky 1995). Under this state, DM is likely to exhibit "ambiguity aversion" (AA) for the events of F’1 relative to those of F1. AA, in turn results in DM having non-coherent beliefs, that is, her prior probability function, PI0m, is not additive. A possible way to mitigate AA is to motivate DM to form her prior in a state of "uniform ignorance". This may be accomplished by inviting DM to bring herself to the hypothetical time t = 0, in the context of which Im was still a contingency, and trace her "counterfactual prior", Pc0, "back then". Under uniform ignorance, DM may adhere to the "Principle of Indiference", thus identifying Pc0 with the uniform distribution. Once Pc0 is elicited, DM can embody the existing information Im into her current, actual set of beliefs Pm by means of Bayesian Conditionalization. In this case, we show that Pm is additive. |
| Keywords: | JEL Classifcation: C44, D81, D83, D89 |
| JEL: | C0 |
| Date: | 2023–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122027 |
| By: | Tsuritani, Ryosuke |
| Abstract: | In a vertical market, the price of the final good is high if a seller has strong bargaining power. Thus, a policy that strengthens the bargaining power of sub-suppliers may be desirable from a fairness perspective while undesirable from an efficiency perspective. We consider a vertical market with one sub-supplier, focal supplier, and manufacturer. The focal supplier purchases inputs from the sub-supplier and sells its products to the manufacturer. Suppliers' selling prices are determined through Nash bargaining. We find that although suppliers' vertical separation induces triple-markup inefficiency in vertical relations, if the focal supplier has weak bargaining power over the manufacturer or strong bargaining power over the sub-supplier, the suppliers have the incentive to remain separated. This is because suppliers' vertical separation may be a price-increasing commitment and transfer the bargaining surplus from the manufacturer to the suppliers. Therefore, a policy that strengthens the bargaining power of sub-suppliers may also be justified from an efficiency perspective because it may encourage vertical integration. |
| Keywords: | Vertical market; Vertical integration; Three-tier supply chain; Bargaining; Subcontracting Act |
| JEL: | D42 L23 L40 |
| Date: | 2024–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122071 |
| By: | Yair Antler ad Ran Spiegler |
| Abstract: | We develop a market model in which products generate state-dependent potential hidden charges. Firms differ in their ability to realize this potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from market prices, using idiosyncratic subjective models. We show that an interior competitive equilibrium is uniquely given by what is formally a Bellman equation. We leverage this representation to characterize equilibrium headline prices, add-on charges and welfare. Market responses to shocks display patterns that are impossible under rational expectations. For example, equilibrium prices can be fully revealing and yet vary with consumers' private information. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.14885 |
| By: | Bird, Davina; Garrod, Luke; Wilson, Chris M |
| Abstract: | Mandatory refund policies have received a lot of attention from both policymakers and academics. Despite this, little is known about how sellers strategically respond to the policy and the resulting effects on competition. To address this, we analyze mandatory refund policies in a framework that flexibly accommodates the full competition spectrum. We show that the policy can benefit consumers in uncompetitive markets under certain conditions, despite reducing social welfare and profits. Nevertheless, we also demonstrate how the policy can be detrimental to consumers, even in very uncompetitive markets. Intuitively, while the policy always protects consumers from some bad outcomes post-purchase, sellers respond by increasing their prices and so consumers have less chance of obtaining a good deal pre-purchase. |
| Keywords: | Refunds; Product Returns; Cooling-Off Periods; Returns Policy; Cancellation Rights |
| JEL: | D18 D21 M37 |
| Date: | 2024–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122125 |
| By: | Vincent Meisner; Pascal Pillath |
| Abstract: | We design the profit-maximizing mechanism to sell an excludable and non-rival good with network effects. Buyers have heterogeneous private values that depend on how many others also consume the good. In optimum, an endogenous number of the highest types shares consumption, and we provide an algorithm that implements this allocation in dominant strategies. We apply our insights to digital content creation, and we are able to rationalize features seen in monetization schemes in this industry such as voluntary contributions, community subsidies, and exclusivity bids. |
| Keywords: | Mechanism design, non-rival goods, club goods, network effects, digital content, creator economy |
| JEL: | D82 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0049 |
| By: | S. Nageeb Ali; Maximilian Mihm; Lucas Siga |
| Abstract: | This paper offers a strategic rationale for zero-sum thinking in elections. We show that asymmetric information and distributional considerations together make voters wary of policies supported by others. This force impels a majority of voters to support policies contrary to their preferences and information. Our analysis identifies and interprets a form of "adverse correlation" that is necessary and sufficient for zero-sum thinking to prevail in equilibrium. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.15946 |
| By: | Sarit Markovich (Kellogg School of Management, Northwestern University, Evanston, IL, USA); Yaron Yehezkel (Coller School of Management, Tel-Aviv University, Ramat-Aviv, Israel) |
| Abstract: | We consider platform competition when platforms can either 1) commercialize users’ data and in return offer their services for free (data-based business model); 2) protect users’ privacy and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ privacy. When network effects are strong, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model; thereby, increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong, and welfare reducing (or neutral) otherwise. |
| Keywords: | platforms with network effects; business models; data commercialization |
| JEL: | L1 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2402 |
| By: | Guerrazzi, Marco |
| Abstract: | In this note, I evaluate the private and the social welfare gains that in the Diamond-Dybvig model of bank runs characterize the switch from a decentralized to a centralized equilibrium that may hold even in an atomistic environment with banking intermediation. Specifically, relying on logarithmic preferences, I show that such a social welfare gain is an increasing function of the discount rate of more patient agents. Moreover, I show that for each level of the discount rate of patient agents, there is an optimal value of the proportion of these agents in the economy that maximizes the social welfare gain. |
| Keywords: | Bank runs; Private and social welfare gains; Banking intermediation; Bernoulli distribution |
| JEL: | D02 E02 E44 G21 |
| Date: | 2024–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122102 |
| By: | Jasmina Karabegovic (University of Graz, Austria) |
| Abstract: | This paper introduces an explicit algorithm for computing perfect public equilibrium (PPE) payoffs in repeated games with imperfect public monitoring, public randomization, and discounting. The method adapts the established framework by Abreu, Pearce, & Stacchetti (1990) into a practical tool that balances theoretical accuracy with computational efficiency. The algorithm simplifies the complex task of identifying PPE payoff sets for any given discount factor δ. A stand-alone implementation of the algorithm can be accessed on GitHub. |
| Keywords: | Repeated games, imperfect public monitoring, computation. |
| JEL: | C63 C72 C73 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-15 |