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on Microeconomics |
| By: | Albin Erlanson; Andreas Kleiner |
| Abstract: | A principal has m identical objects to allocate among a group of n agents. Objects are desirable and the principal's value of assigning an object to an agent is the agent's private information. The principal can verify up to k agents, where k |
| Keywords: | Mechanism Design with Evidence; Allocations; Verification |
| JEL: | D82 D71 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_630 |
| By: | Teddy Mekonnen |
| Abstract: | I consider a two-sided frictional search market where buyers search and match to vertically differentiated sellers. The market is segmented into submarkets based on seller types, with segmentation serving as a public signal that directs buyers' search. I characterize the socially efficient and equilibrium allocations of buyers across submarkets for any fixed segmentation, and identify a Hosios condition under which the equilibrium allocation is efficient. I further examine the design of surplus-maximizing segmentations, demonstrating the role of congestion externalities in determining whether the constrained-efficient segmentation fully reveals seller types or pools types into at most a binary partition. These results clarify the conditions under which the provision of public information is welfare enhancing in search markets with externalities. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.11753 |
| By: | David P. Myatt (London Business School); David Ronayne (ESMT Berlin) |
| Abstract: | We study markets in which potential buyers engage in costly search to find a good deal. Our novel solution concept for prices builds upon the idea that any movement in a firm's price is followed by an opportunity for its competitors to respond with special offers. This mechanism selects the highest prices such that no firm wishes to undercut a competitor. We identify a distinctive closed-form pattern of disperse prices that uniquely satisfy our pricing solution, and pair that price profile with optimal fixed-sample search. In a stable equilibrium with active search, the intensity of search and consumer surplus are lower and industry profit is higher with more competitors. In a concentrated oligopoly, complete search in equilibrium can eliminate industry profit. |
| Date: | 2025–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:524 |
| By: | Kensei Nakamura; Shohei Yanagita |
| Abstract: | Uncertainty aversion introduced by Gilboa and Schmeidler (1989) has played a central role in decision theory, but at the same time, many incompatible behaviors have been observed in the real world. In this paper, we consider an axiom that postulates only a minimal degree of uncertainty aversion, and examine its implications in the preferences with the basic structure, called the invariant biseparable preferences. We provide three representation theorems for these preferences. Our main result shows that a decision maker with such a preference evaluates each act by considering two "dual" scenarios and then adopting the worse one as its evaluation in a cautious manner. The other two representations share a structure similar to the main result, which clarifies the key implication of weak uncertainty aversion. Furthermore, we offer another foundation for the main representation in the objective/subjective rationality model and characterizations of extensions of the main representation. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.13410 |
| By: | Somdeb Lahiri |
| Abstract: | We present a simple proof of a well-known axiomatic characterization of state-salient decision rules, using Weak Dominance Criterion and Global Independence of Irrelevant Alternatives. Subsequently we provide a simple axiomatic characterization of the Strict-Condorcet choice function on the domain of all preference profiles that have a strict-Condorcet winner, assuming that if the first two ranks are occupied by the same two alternatives in all states of nature, then the chosen alternative will be the one from these two that is preferred to the other with probability greater than half-provided such an alternative exists. We also show that this result is not valid if we extend the domain to the set of all preference profiles that have a unique weak-Condorcet winner. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.10986 |
| By: | S. Nageeb Ali; Andreas Kleiner; Kun Zhang |
| Abstract: | This paper studies games of voluntary disclosure in which a sender discloses evidence to a receiver who then offers an allocation and transfers. We characterize the set of equilibrium payoffs in this setting. Our main result establishes that any payoff profile that can be achieved through information design can also be supported by an equilibrium of the disclosure game. Hence, our analysis suggests an equivalence between disclosure and design in these settings. We apply our results to monopoly pricing, bargaining over policies, and insurance markets. |
| Keywords: | voluntary disclosure, evidence games |
| JEL: | D82 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_632 |
| By: | M\"ucahit Ayg\"un; Roger J. A. Laeven; Mitja Stadje |
| Abstract: | We introduce a model-free preference under ambiguity, as a primitive trait of behavior, which we apply once as well as repeatedly. Its single and double application yield simple, easily interpretable definitions of ambiguity aversion and ambiguity prudence. We derive their implications within canonical models for decision under risk and ambiguity. We establish in particular that our new definition of ambiguity prudence is equivalent to a positive third derivative of: (i) the capacity in the Choquet expected utility model, (ii) the dual conjugate of the divergence function under variational divergence preferences and (iii) the ambiguity attitude function in the smooth ambiguity model. We show that our definition of ambiguity prudent behavior may be naturally linked to an optimal insurance problem under ambiguity. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.13143 |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Michael C. Wang (Yale University) |
| Abstract: | We analyze how market segmentation affects consumer welfare when a monopolist can engage in both second-degree price discrimination (through product differentiation) and third-degree price discrimination (through market segmentation). We characterize the consumer-optimal market segmentation and show that it has several striking properties: (1) the market segmentation displays monotonicityÑhigher-value customers always receive higher quality product than lower-value regardless of their segment and across any segment; and (2) when aggregate demand elasticity exceeds a threshold determined by marginal costs, no segmentation maximizes consumer surplus. Our results demonstrate that strategic market segmentation can benefit consumers even when it enables price discrimination, but these benefits depend critically on demand elasticities and cost structures. The findings have implications for regulatory policy regarding price discrimination and market segmentation practices. |
| Date: | 2024–12–22 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2420 |
| By: | Wataru Tamura |
| Abstract: | This paper examines the optimal design of information sharing in organizations. Organizational performance depends on agents adapting to uncertain external environments while coordinating their actions, where coordination incentives and synergies are modeled as graphs (networks). The equilibrium strategies and the principal's objective function are summarized using Laplacian matrices of these graphs. I formulate a Bayesian persuasion problem to determine the optimal public signal and show that it comprises a set of statistics on local states, necessarily including their average, which serves as the organizational goal. When the principal benefits equally from the coordination of any two agents, the choice of disclosed statistics is based on the Laplacian eigenvectors and eigenvalues of the incentive graph. The algebraic connectivity (the second smallest Laplacian eigenvalue) determines the condition for full revelation, while the Laplacian spectral radius (the largest Laplacian eigenvalue) establishes the condition for minimum transparency, where only the average state is disclosed. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12669 |
| By: | Egor Bronnikov; Elias Tsakas |
| Abstract: | We introduce a robust belief-based measure of complexity. The idea is that task A is deemed more complex than task B if the probability of solving A correctly is smaller than the probability of solving B correctly regardless of the reward. We fully characterize the corresponding order over the set of tasks. The main characteristic of this relation is that it depends, not only on difficulty (like most complexity definitions in the literature) but also on ex ante uncertainty. Finally, we show that for every task for which information is optimally acquired, there exists a more complex task which always induces less effort regardless of the reward. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09139 |
| By: | Jean-Michel Benkert, Ludmila Matyskova, Egor Starkov |
| Abstract: | A researcher allocates a budget of informative tests across multiple unknown attributes to influence a decision-maker. We derive the researcher’s equilibrium learning strategy by solving an auxiliary single-player problem. The attribute weights in this problem depend on how much the researcher and the decision-maker disagree. If the researcher expects an excessive response to new information, she forgoes learning altogether. In an organizational context, we show that a manager favors more diverse analysts as the hierarchical distance grows. In another application, we show how an appropriately opposed advisor can constrain a discriminatory politician, and identify the welfare-inequality Pareto frontier of researchers. |
| Keywords: | Attributes, Information acquisition, Gaussian distribution, Strategic learning |
| JEL: | D72 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ube:dpvwib:dp2411 |
| By: | Saglam, Ismail |
| Abstract: | In this paper, we study price stickiness in a dual-channel supply chain where a single manufacturer sells its product through an online channel and a retailer. We construct a noncooperative game where the manufacturer and the retailer decide on whether or not to costlessly adjust their prices after a demand shock. If the demand shock is positive, then the Nash equilibrium is always unique and non-sticky. If the demand shock is negative, then there exist Nash equilibria where some prices are sticky. Moreover, no Nash equilibrium is always Pareto optimal, pointing to the possibility of the Prisoner's Dilemma. |
| Keywords: | Supply chain; price adjustment; price stickiness. |
| JEL: | D43 L11 L13 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123409 |
| By: | Gorkem Celik (ESSEC); Strausz Roland (HU Berlin) |
| Abstract: | We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information. |
| Keywords: | certification; disclosure; screening; information acquisition; monopolistic distortions; |
| JEL: | D82 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:525 |
| By: | Cao, Yiran; Lin, ping; Zhang, Tianle |
| Abstract: | Incumbent firms may acquire start-ups to eliminate potential competition without intending to develop new technology (killer acquisitions). We develop a model to examine the incentives and welfare implications of killer acquisitions under different market structures: vertical separation and integration. Our model focuses on the competition between an upstream incumbent firm and a start-up with the potential to develop superior technology, where the incumbent has the option to acquire the start-up and decide whether to continue the development of the superior technology. We find that killer acquisitions are more likely when the cost of developing the superior technology is moderate under both vertical separation and integration. However, these acquisitions lead to a welfare loss only when the development cost is relatively low. Comparing vertical integration to separation, the probability of killer acquisition is higher (lower) when the incumbent firm has a greater (smaller) chance of successfully developing the superior technology. |
| Keywords: | innovation incentive, killer acquisitions, vertical integration. |
| JEL: | D8 L1 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123344 |
| By: | Wenqian Wang; Zhiwen Zheng |
| Abstract: | Recent literature highlights the advantages of implementing social rules via dynamic game forms. We characterize when truth-telling remains a dominant strategy in gradual mechanisms implementing strategy-proof social rules, where agents gradually reveal their private information while acquiring information about others in the process. Our first characterization hinges on the incentive-preservation of a basic transformation on gradual mechanisms called illuminating that partitions information sets. The second relies on a single reaction-proofness condition. We demonstrate the usefulness of both characterizations through applications to second-price auctions and the top-trading cycles algorithm. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.08802 |
| By: | Ziv Hellman; Mikl\'os Pint\'er |
| Abstract: | Type spaces are analysed, and we identify three types of consistency of the players' beliefs in a type space: consistency, universal consistency, and strong consistency. Furthermore, we propose a new interpretation of a type space, defining it as a collection of the players' beliefs. This new interpretation introduces a radically different perspective on key theoretic notions, such as the prior, common prior, and posterior. In this framework: the terms of prior, common prior, and posterior are replaced by and interpreted as adequate aggregation of beliefs, consistency of the players' beliefs, and beliefs respectively. Through examples, we demonstrate that, under the proposed approach to type spaces, the ex-ante stage is not only meaningless but nonsensical. This is because, strong consistency of the players' beliefs cannot be witnessed by any probability distribution over the state space (i.e., a concrete common prior). |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09835 |
| By: | Jorge Justiniano (University of Bonn); Andreas Kleiner (University of Bonn); Benny Moldovanu (University of Bonn); Martin Rumpf (University of Bonn); Philipp Strack (Yale University) |
| Abstract: | In this paper, we explore a scenario where a sender provides an information policy and a receiver, upon observing a realization of this policy, decides whether to take a particular action, such as making a purchase. The senderÕs objective is to maximize her utility derived from the receiverÕs action, and she achieves this by careful selection of the information policy. Building on the work of Kleiner et al., our focus lies specifically on information policies that are associated with power diagram partitions of the underlying domain. To address this problem, we employ entropy-regularized optimal transport, which enables us to develop an efficient algorithm for finding the optimal solution. We present experimental numerical results that highlight the qualitative properties of the optimal configurations, providing valuable insights into their structure. Furthermore, we extend our numerical investigation to derive optimal information policies for monopolists dealing with multiple products, where the sender discloses information about product qualities. |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2419 |
| By: | Norihito Sakamoto |
| Abstract: | This study proposes a new efficiency requirement, a minimal almost weak Pareto principle, which says that x is socially better than y whenever the only one individual never prefers y to x, and all the others prefers x to y. Then, I show that even if the Pareto principle is modified into this harmless form, that seems sufficiently acceptable in the setting of social choice with variable population sizes or incomplete preferences, it violates acyclicity. Furthermore, it is shown that under this framework, a modified Pareto indifference and usual weak Pareto are inconsistent. These results are serious because they have a wide range of applications, not only to population economics and intergenerational equity analysis, but also to welfare evaluations of incomplete preferences and multi-dimensional well-being. In order to solve these problems, it is necessary to impose very strong assumptions on various contexts of social choice problems. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09977 |
| By: | Leonardo Cherici |
| Abstract: | This paper studies the relationship between economic inequality and political polarization in an electoral context where voters (poor or rich and cosmopolitan or nationalist) have preferences over a redistributive and a migration policy. Building on Besley and Persson (2021), I pro- pose a different version of their theoretical model where the two parties that compete to win the election do not have symmetric strategies and loyal voters of traditional left and right wing movements place different salience on migration. I then study how an increase in economic inequality can affect the electoral competition: inequality leads both parties to please more nationalist voters, however the polarization between the two increases. The results reflect the outcomes of recent elections in western democracies. |
| JEL: | D31 D63 D72 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:dis:wpaper:dis2501 |
| By: | Luis Guijarro; Jos\'e-Ram\'on Vidal; Vicent Pla |
| Abstract: | We model a market for data where an incumbent and a challenger compete for data from a producer. The incumbent has access to an exclusive data producer, and it uses this exclusive access, together with economies of scope in the aggregation of the data, as a strategy against the potential entry by the challenger. We assess the incumbent incentives to either deter or accommodate the entry of the challenger. We show that the incumbent will accommodate when the exclusive access is costly and when the economies of scope are low, and it will blockade or deter otherwise. The results would justify an access regulation that incentivizes the entry of the challenger, e.g., by increasing production costs for the exclusive data. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07235 |
| By: | Florian Mudekereza |
| Abstract: | This paper proposes a simple framework to study the effect of correlation neglect on social learning and welfare in games with social incentives. It examines statistical learners (frequentists, Bayesians, etc.) who make decisions based on their peers' actions but overlook the correlation between the actions they observe. A novel solution concept called correlated sampling equilibrium with statistical inference (CoSESI) reveals that correlation neglect affects strategic behavior through persistent overprecision, which leads to polarization and information cascades. CoSESI always exists and differs from existing concepts. It captures the fact that naive beliefs are overly sensitive to correlations, which causes failures of social learning. Applications of CoSESI in matching markets, monopoly pricing, and financial markets demonstrate that correlation neglect bears significant economic consequences. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.13019 |
| By: | Crampes, Claude; Renault, Jérôme |
| Abstract: | Electricity is consumed continuously night and day and is not storable at large scale. Consequently, in an electricity industry organized and managed efficiently, demand should be tightly responsive to time-varying prices. We explore the consequences of the limited ability of electricity consumers to use price signals in their decisions to withdraw energy from the grid and the advantages of an assistance service that can correct this bias. Depending on the statistical distribution of price misperception types, we determine the allocation of assistance that allows to decrease total consumption and the outcome of different market structures. Because of the impossibility of distinguishing between consumers who underestimate and those who overestimate electricity prices, we show that it may be suboptimal to organize a market for assistance. We also show that it is less efficient to rely on a private integrated monopoly than on two separate private monopolies, one for assistance, the other for energy. |
| JEL: | C72 D24 D47 L23 L94 |
| Date: | 2025–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130188 |
| By: | Shingo Ishiguro (Graduate School of Economics, Osaka University); Sultan Mehmood (New Economic School); Avner Seror (Aix Marseille Univ, CNRS, AMSE) |
| Abstract: | This paper studies dynamic contracts in illegal addictive markets where individuals’ tastes for addictive goods develop through prolonged consumption and contract enforcement is limited. Our theoretical analysis uncovers the optimality of a ‘freefirst- dose’ strategy where sellers intensify buyers’ addiction by offering consumption credit to newcomers. We show that buyers default a certain portion of the debts for early period consumption but are never imposed any penalty on the equilibrium path. This implies that illegal markets might favor non-violent interactions over violent ones, defying the stereotypical association of illegality with violence. Meanwhile, in illegal gambling markets, a distinct equilibrium phenomenon known as the long-shot bias emerges due to the influence of addiction, illustrating another complex dynamic within these markets. We discuss the implications of the model in the context of illegal sports wagering, narcotics, and religious sects. |
| Keywords: | Addiction, Dynamic Contracts, Illegal Markets |
| JEL: | D40 D91 D21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2431 |