|
on Microeconomics |
| By: | Drew Fudenberg; Annie Liang |
| Abstract: | AI systems have the potential to improve decision-making, but decision makers face the risk that the AI may be misaligned with their objectives. We study this problem in the context of a treatment decision, where a designer decides which patient attributes to reveal to an AI before receiving a prediction of the patient's need for treatment. Providing the AI with more information increases the benefits of an aligned AI but also amplifies the harm from a misaligned one. We characterize how the designer should select attributes to balance these competing forces, depending on their beliefs about the AI's reliability. We show that the designer should optimally disclose attributes that identify \emph{rare} segments of the population in which the need for treatment is high, and pool the remaining patients. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.14396 |
| By: | Bergemann, Dirk; Bonatti, Alessandro; Smolin, Alex |
| Abstract: | We develop an economic framework to analyze the optimal pricing and product design of Large Language Models (LLM). Our framework captures several key features of LLMs: variable operational costs of processing input and output tokens; the ability to customize models through fine-tuning; and high-dimensional user heterogeneity in terms of task requirements and error sensitivity. In our model, a monopolistic seller offers multiple versions of LLMs through a menu of products. The optimal pricing structure depends on whether token allocation across tasks is contractible and whether users face scale constraints. Users with similar aggregate value-scale characteristics choose similar levels of fine-tuning and token consumption. The optimal mechanism can be implemented through menus of two-part tariffs, with higher markups for more intensive users. Our results rationalize observed industry practices such as tiered pricing based on model customization and usage levels. |
| Keywords: | Large Language Models; Optimal Pricing; Menu Pricing; Fine-Tuning |
| JEL: | D47 D82 D83 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130997 |
| By: | Smolin, Alex; Yamashita, Takuro |
| Abstract: | We study information design in games where players choose from a continuum of ac-tions and have continuously differentiable payoffs. We show that an information structure is optimal when the equilibrium it induces can also be implemented in a principal-agent contracting problem. Building on this result, we characterize optimal information struc-tures in symmetric linear-quadratic games. With common values, targeted disclosure is robustly optimal across all priors. With interdependent and normally distributed values, linear disclosure is uniquely optimal. We illustrate our findings with applications in venture capital, Bayesian polarization, and price competition. |
| Keywords: | Bayesian persuasion; information design; dual certification; first-order approach; linear-quadratic games; targeted disclosure; Gaussian coupling, linea; disclosure. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130998 |
| By: | Izgarshev, Mark; Lukyanov, Georgy |
| Abstract: | A benevolent advisor observes a project’s complexity and posts a pass–fail threshold before the agent chooses effort. The project suc-ceeds only if ability and effort together clear complexity. We com-pare two informational regimes. In the naive regime, the threshold is treated as non-informative; in the sophisticated regime, the threshold is a signal and the agent updates beliefs. We characterize equilibrium threshold policies and show that the optimal threshold rises with com-plexity under mild regularity. We then give primitives-based sufficient conditions that guarantee separating, pooling, or semi-separating out-comes. In a benchmark with uniform ability, exponential complexity, and power costs, we provide explicit parameter regions that partition the space by equilibrium type; a standard refinement eliminates most pooling. The results yield transparent comparative statics and welfare comparisons across regimes. |
| Keywords: | threshold tests; signaling; information design; monotone comparative statics; pooling vs. separation. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131005 |
| By: | Itai Arieli; Yakov Babichenko; Atulya Jain; Rann Smorodinsky |
| Abstract: | We study games with incomplete information and characterize when a feasible outcome is Pareto efficient. We show that any outcome with excessive randomization over actions is inefficient. Generically, efficiency requires that the total number of actions taken across states be strictly less than the sum of the number of players and states. We then examine the efficiency of equilibrium outcomes in communication models. Generically, a cheap talk outcome is efficient only if it is pure. When the sender's payoff is state-independent, it is efficient if and only if the sender's most preferred action is chosen with certainty. In natural buyer-seller settings, Bayesian persuasion outcomes are inefficient across a wide range of priors and preferences. Finally, we show that our results apply to mechanism design problems with many players. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.12508 |
| By: | Ivanik, Vasilii; Lukyanov, Georgy |
| Abstract: | We study sequential social learning with endogenous information acquisition when agents have a taste for nonconformity. Each agent observes predecessors’ actions, decides whether to acquire a private signal (and how precise it should be), and then chooses between two actions. Payoffs value correctness and include a bonus for taking the less popular action among pre-decessors; because this bonus depends only on observed popularity, the equilibrium analysis avoids fixed points in anticipated popularity and preserves standard Bayesian updating. In a Gaussian–quadratic setting, optimal actions follow posterior thresholds that tilt against the majority, and we solve the precision choice problem. Whenever the no-signal decision aligns with the observed majority, stronger contrarian motives weakly raise the value of information and expand the set of histories in which agents invest. We provide compact comparative statics for thresholds, action probabilities, and the precision argmax, a local welfare-and-information treatment, and applications to scientific priority races, cultural diffusion, and online platforms. |
| Keywords: | social learning; information cascades; endogenous information acquisition; nonconformity; popularity; Bayesian thresholds. |
| JEL: | D83 C72 D82 D85 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131013 |
| By: | Alejandro Francetich; Burkhard Schipper (Department of Economics, University of California Davis) |
| Abstract: | We analyze a principal-agent procurement problem in which the principal (she) is unaware some of the marginal cost types of the agent (he). Communication arises naturally as some types of the agent may have an incentive to raise the principal's awareness (totally or partially) before a contract menu is offered. The resulting menu must not only reflect the principal's change in awareness, but also her learning about types from the agent's decision to raise her awareness in the first place. We capture this reasoning in a discrete concave model via a rationalizability procedure in which marginal beliefs over types are restricted to log-concavity, ``reverse'' Bayesianism, and mild assumptions of caution. We show that if the principal is ex ante only unaware of high-cost types, all of these types have an incentive raise her awareness of them---otherwise, they would not be served. With three types, the two lower-cost types that the principal is initially aware of also want to raise her awareness of the high-cost type: Their quantities suffer no additional distortions and they both earn an extra information rent. Intuitively, the presence of an even higher cost type makes the original two look better. With more than three types, we show that this intuition may break down for types of whom the principal is initially aware of so that raising the principal's awareness could cease to be profitable for those types. When the principal is ex ante only unaware of more efficient (low-cost) types, then \textit{no type} raises her awareness, leaving her none the wiser. |
| Keywords: | Screening, disclosure, unawareness, principal-agent model, rationalizability |
| JEL: | D83 |
| Date: | 2025–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:374 |
| By: | Martino Banchio; Andrzej Skrzypacz; Frank Yang |
| Abstract: | A seller wants to sell a good to a set of bidders using a credible mechanism. We show that when the seller has private information about her cost, it is impossible for a static mechanism to achieve the optimal revenue. In particular, even the optimal first-price auction is not credible. We show that the English auction can credibly implement the optimal mechanism, unlike the optimal Dutch auction. For symmetric mechanisms in which only winners pay, we also characterize all the static auctions that are credible: They are first-price auctions that depend only on the seller's cost ex post via a secret reserve, and may profitably pool bidders via a bid restriction. Our impossibility result highlights the role of public institutions and helps explain the use of dynamic mechanisms in informal auctions. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.21439 |
| By: | Agathe Pernoud; Frank Yang |
| Abstract: | A monopolist sells multiple goods to an uninformed buyer. The buyer chooses to learn any one-dimensional linear signal of their values for the goods, anticipating the seller's mechanism. The seller designs an optimal mechanism, anticipating the buyer's learning choice. In a generalized Gaussian environment, we show that every equilibrium has vertical learning where the buyer's posterior means are comonotonic, and every equilibrium is outcome-equivalent to nested bundling where the seller offers a menu of nested bundles. In equilibrium, the buyer learns more about a higher-tier good, resulting in a higher posterior variance on the log scale. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.16396 |
| By: | Yaron Azrieli (The Ohio State University); Ritesh Jain (University of Liverpool); Semin Kim (Yonsei University) |
| Abstract: | We study the design of voting mechanisms in a binary social choice environment where agents' cardinal valuations are independent but not necessarily identically distributed. The mechanism must be anonymous - the outcome is invariant to permutations of the reported values. We show that if there are two agents then expected welfare is always maximized by an ordinal majority rule, but with three or more agents there are environments in which cardinal mechanisms that take into account preference intensities outperform any ordinal mechanism. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-265 |
| By: | Lukyanov, Georgy; Shamruk, Konstantin; Logina, Ekaterina |
| Abstract: | We study a dynamic reputation model with a fixed posted price where only pur-chases are public. A long-lived seller chooses costly quality; each buyer observes the purchase history and a private signal. Under a Markov selection, beliefs split into two cascades—where actions are unresponsive and investment is zero—and an interior region where the seller invests. The policy is inverse-U in reputation and produces two patterns: Early Resolution (rapid absorption at the optimistic cascade) and Dou-ble Hump (two investment episodes). Higher signal precision at fixed prices enlarges cascades and can reduce investment. We compare welfare and analyze two design levers: flexible pricing, which can keep actions informative and remove cascades for patient sellers, and public outcome disclosure, which makes purchases more informa-tive and expands investment. |
| Keywords: | Reputation; Social learning; Informational cascades; Product quality; Dynamic games. |
| JEL: | D82 D83 C73 L15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131019 |
| By: | Cheredina, Darina; Lukyanov, Georgy |
| Abstract: | We study sequential social learning when agents can sometimes pay to verify a claim and obtain hard, publicly checkable evidence. Each agent observes the public history, receives a private signal, may investigate at a cost (succeeding only when the claim is true), and can disclose or conceal any proof. Actions are binary or continuous, with a conformity pull toward the prevailing consensus. We characterize when false cascades persist and when societies self-correct. In the binary benchmark, we derive an investigation cutoff and show how its location relative to classic cascade bands governs breakability; a simple knife-edge condition guarantees that any wrong cascade at the boundary is overturned with positive probability. With continuous actions, coarse observation and conformity can recreate cascades, yet occasional disclosures collapse them. These forces yield a tractable “resilience frontier” with transparent comparative statics and policy levers. |
| Keywords: | social learning; informational cascades; verification; misinformation; conformity; dis-closure |
| JEL: | D83 D85 C73 C72 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131039 |
| By: | Lukyanov, Georgy; Vlasova, Anna |
| Abstract: | We study dynamic delegation with reputation feedback: a long-lived expert advises a sequence of implementers whose effort responds to current reputation, altering outcome informativeness and belief updates. We solve for a recursive, belief-based equilibrium and show that advice is a reputation-dependent cutoff in the expert’s signal. A diagnosticity condition—failures at least as informative as successes—implies reputational conservatism: the cutoff (weakly) rises with reputation. Comparative statics are transparent: greater private precision or a higher good-state prior lowers the cutoff, whereas patience (value curvature) raises it. Reputation is a submartingale under competent types and a supermartingale under less competent types; we separate boundary hitting into learning (news generated infinitely often) versus no-news absorption. A success-contingent bonus implements any target experimentation rate with a plug-in calibration in a Gaussian benchmark. The framework yields testable predictions and a measurement map for surgery (operate vs. conservative care). |
| Keywords: | Dynamic delegation; expert advice; moral hazard; experimentation; reputational conservatism. |
| JEL: | D82 D83 C73 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131008 |
| By: | Dube, Devwrat |
| Abstract: | We study a single-server queue with fixed-length shifts $T > 1$ where service of unit length jobs is non-pre-emptive; residual time shorter than one job, namely fractional part of $T$, at boundaries is lost. Agents have constant private unit waiting costs. The efficient rule partitions agents into feasible shifts, orders shifts by the sum of members' costs, and orders agents within each shift by their costs. We show, by \citet{Holmstrom} and \citet{Suijs} type arguments, that only Vickrey-Clarke-Groves (VCG) transfers implement efficiency in dominant strategies. We then delineate when efficiency and DSIC implementation can be combined with budget balance (first-best mechanisms). If shifts are of unit-capacity ($1 2$ is non-integral (so each shift can host at least two agents but leaves residual slack), no first-best mechanism exists. The proof uses a the cubical-array lemma of \citet{Walker} adapted to our setting. |
| Keywords: | Queueing, Dominant Strategy Implementation, VCG, First-Best Mechanisms |
| JEL: | C72 D61 D63 D82 |
| Date: | 2025–10–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126465 |
| By: | Alejandro Francetich; Burkhard C. Schipper (Department of Economics, University of California Davis) |
| Abstract: | We consider a principal who wishes to screen an agent with \emph{discrete} types by offering a menu of \emph{discrete} quantities and \emph{discrete} transfers. We assume that the principal's valuation is discrete strictly concave and use a discrete first-order approach. We model the agent's cost types as non-integer, with integer types as a limit case. Our modeling of cost types allows us to replicate the typical constraint-simplification results and thus to emulate the well-treaded steps of screening under a continuum of contracts. We show that the solutions to the discrete F.O.C.s need not be unique \textit{even under discrete strict concavity}, but we also show that there cannot be more than two optimal contract quantities for each type, and that---if there are two---they must be adjacent. Moreover, we can only ensure weak monotonicity of the quantities \textit{even if virtual costs are strictly monotone}, unless we limit the ``degree of concavity'' of the principal's utility. Our discrete screening approach facilitates the use of rationalizability to solve the screening problem. We introduce a rationalizability notion featuring robustness with respect to an open set of beliefs over types called \textit{$\Delta$-O Rationalizability}, and show that the set of $\Delta$-O rationalizable menus coincides with the set of usual optimal contracts---possibly augmented to include irrelevant contracts. |
| Keywords: | Screening, discrete concave optimization, rationalizability, level-$k$ reasoning |
| JEL: | D82 |
| Date: | 2025–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:375 |
| By: | Fabian Dietz; Stephan Eitel |
| Abstract: | We consider a model of infinitely repeated lottery contests in which the winner of the prior contest (incumbent) additionally gains the opportunity to bias the subsequent contest by exerting early effort in an intermediate stage. An effortmaximizing contest designer strategically chooses the cost advantage of incumbency. We show that the contest designer prefers to set the cost advantage such that the incumbent only partially discourages the contender, i.e. the contender exerts less, but still positive, effort than in an unbiased contest. In this way, rent extraction is higher than under independent lottery contests with no intermediate stage, because (i) players compete fiercer to become the incumbent and (ii) the increase in early effort outweighs the decrease in effort in the biased contest. Therefore, we provide some rationale for incumbency advantages, for example in repeated procurement settings. |
| Keywords: | repeated contests, lottery contest, incumbent, discouragement effect |
| JEL: | C72 C73 D72 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:244_dietz_eitel.rdf |
| By: | Migrow, Dimitri (University of Edinburgh); Park, Hyungmin (University of Warwick); Squintani, Francesco (University of Warwick) |
| Abstract: | We study a leader’s choice of advisors, balancing political alignment, informational competence, and diversity of views. The leader can consult one or two advisors : one is politically aligned but less informed or shares potentially redundant information; the other is better informed but more biased. The leader’s optimal strategy can exhibit reversals. If both advisors are initially consulted, increasing the bias of the more biased advisor may cause the leader to exclude the aligned advisor to preserve truthfulness from the informed one. As bias rises further, the leader ultimately replaces the informed advisor if his bias becomes too large. When the leader is uncertain about the bias of the more informed advisor, increasing the chance of alignment can justify consulting both advisors. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wqapec:29 |
| By: | Bianchi, Milo; Jehiel, Philippe |
| Abstract: | We analyze bubbles and crashes in a model in which some investors are partially sophisticated. While the expectations of such investors are endogenously determined in equilibrium, these are based on a coarse understanding of the market dynamics. We highlight how such investors may endogenously switch from euphoria to panic and how this may lead to equilibrium bubbles and crashes even in a purely speculative market in which information is complete and it is commonly understood that the bubble cannot grow forever. We also show how this setting can match stylized empirical facts, and we investigate whether bubbles may last longer when the share of fully rational traders increases. |
| Keywords: | Speculative bubbles;crashes; bounded rationality. |
| JEL: | D84 G12 C72 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131050 |
| By: | Felix Reichel |
| Abstract: | This paper introduces a contest-theoretic simplified model of triathlon as a sequential two-stage game. In Stage 1 (post-swim), participants decide whether to continue or withdraw from the contest, thereby generating an endogenous participation decision. In Stage 2 (bike-run), competition is represented as a Tullock contest in which swim drafting acts as a multiplicative shifter of quadratic effort costs. Closed-form equilibrium strategies are derived in the two-player case, and existence, uniqueness, and comparative statics are shown in the asymmetric n-player case. The continuation decision yields athlete-specific cutoff rules in swim drafting intensity and induces subgame-perfect equilibria (SPEs) with endogenous participation sets. The analysis relates swim drafting benefits, exposure, and group size to heterogeneous effective cost parameters and equilibrium efforts. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.00349 |
| By: | Deniz Kattwinkel; Justus Preusser |
| Abstract: | This note applies tightness (Kattwinkel and Preusser (2025)) to the setting of Border and Sobel (1987, "Samurai Accountant: A Theory of Auditing and Plunder"). Border and Sobel characterize efficient mechanisms and argue that efficiency entails no loss of optimality. We characterize tight mechanisms and argue that tightness entails no loss of optimality. We show that tight mechanisms form a subset of efficient mechanisms. Therefore, tightness refines efficiency without loss of optimality. By characterizing tight mechanisms, one can replicate the insights from Border and Sobel (1987) and Chander and Wilde (1998). A novel insight is how and in which order the principal uses different instruments to provide incentives to different agent types. Further, we describe a procedure for constructing efficient mechanisms in a setting with a continuum of types. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.24673 |
| By: | Bo Cowgill (Columbia Business School, Columbia University, New York, NY, USA); Zikai Xu (Department of Economics, Columbia University, New York, NY, USA) |
| Abstract: | This paper develops a mechanism design approach to network formation. A principal has a willingness-to-pay (WTP) for different network configurations while agents have preferences over their network positions. Our approach allows the principal to optimize for global properties of the network, while respecting IC/IR constraints of network participants. We focus on direct mechanisms but develop a broader family of mechanisms in which transfers are set by the allocation rule ("revenue equivalence"). We characterize optimal mechanisms under novel multidimensional regularity conditions and provide an ironing procedure for irregular distributions. These findings contribute to multidimensional mechanism design, with potential applications to network formation in social, economic, and organizational contexts. |
| Keywords: | mechanism design; virtual values; network formation |
| JEL: | D85 L14 D44 D82 D86 D2 M5 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2501 |
| By: | Gregorio Curello; Ludvig Sinander; Mark Whitmeyer |
| Abstract: | We uncover a close link between outside options and risk attitude: when a decision-maker gains access to an outside option, her behaviour becomes less risk-averse, and conversely, any observed decrease of risk-aversion can be explained by an outside option having been made available. We characterise the comparative statics of risk-aversion, delineating how effective risk attitude (i.e. actual choice among risky prospects) varies with the outside option and with the decision-maker's 'true' risk attitude. We prove that outside options are special: among transformations of a decision problem, those that amount to adding an outside option are the only ones that always reduce risk-aversion. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.14732 |
| By: | Nathan Hancart |
| Abstract: | Two identical firms compete to attract and hire from a pool of candidates of unknown productivity. Firms simultaneously post a selection procedure which consists of a test and an acceptance probability for each test outcome. After observing the firms' selection procedures, each candidate can apply to one of them. Both firms have access to a limited set of feasible tests. The firms face two key considerations when choosing their selection procedure: the statistical properties of their test and the selection into the procedure by the candidates. I identify two partial orders on tests that are useful to characterise the equilibrium of this game: the test's accuracy (Lehmann, 1988) and difficulty. I show that in any symmetric equilibrium, the test chosen must be maximal in the accuracy order and minimal in the difficulty order. Intuitively, competition leads to maximal but misguided learning: firms end up having precise knowledge that is not payoff relevant. I also consider the cases where firms face capacity constraints, have the possibility of making a wage offer and the existence of asymmetric equilibria where one firm is more selective than another. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.12653 |
| By: | H\'ector Hermida-Rivera |
| Abstract: | This note characterizes every qualified majority voting rule with a quota $q$ strictly greater than half of the voter set in environments with just two alternatives through anonymity, responsiveness, and $q$-neutrality. Crucially, the latter imposes independence of the labels of the alternatives only for all preference profiles in which some alternative is strictly top-ranked by at least $q$ voters. Thus, this note generalizes May's (1952, Theorem, p.~682) well-known axiomatic characterization of the simple majority voting rule to qualified majority voting rules with a quota $q$ strictly greater than half of the voter set. In doing so, it shows that these qualified majority voting rules are precisely distinguished by their "degree" of neutrality. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.19823 |
| By: | Boris Ginzburg |
| Abstract: | This paper models voters who invest effort to determine whether a particular claim relevant to their voting choices is correct. If a voter succeeds in determining whether the claim is correct, this information is shared via a social network. I show that increased connectivity makes voters more informed about basic facts, but less informed about complicated issues. At the same time, polarization makes voters less informed overall. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.15454 |
| By: | Michael R. Baye (Indiana University); Dan Kovenock (Economic Science Institute, Chapman University); Casper G. de Vries (Erasmus University) |
| Abstract: | We show that MRPM can increase manufacturer profits and total output even in the ab- sence of traditional justifications based on point-of-sale services, retailer effort, or free-riding. The key insight is that MRPM mitigates channel conflict by altering how retailers balance extracting surplus from loyal customers and competing for price-sensitive shoppers. When a manufacturer optimally chooses a wholesale price and MRPM policy, this can intensify com- petition and create systematic distributional effects: prices fall for loyal consumers but rise for shoppers, and the profits of smaller, shopper-dependent retailers decline. We characterize the conditions under which MRPM raises output, benefits a majority of consumers, and reallocates surplus among the manufacturer, retailers, and different consumer segments. The model helps explain why the political economy of MRPM varies across jurisdictions: even when it increases output, it creates predictable winners and losers, and there is no guarantee that the median consumer or retailer -- or the median voter -- benefits when minimum resale prices are imposed. These results suggest that the welfare and distributional effects of MRPM are inherently context-dependent and that its legal evaluation is best approached through a rule-of-reason framework that accounts for demand structure, retailer asymmetries, and the composition of consumer types. |
| Keywords: | Resale Price Maintenance, Vertical Restraints, Price Competition |
| JEL: | D4 D8 M3 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:25-10 |
| By: | Andrew Li; R. Ravi; Karan Singh; Zihong Yi; Weizhong Zhang |
| Abstract: | Motivated by the problem of selling large, proprietary data, we consider an information pricing problem proposed by Bergemann et al. that involves a decision-making buyer and a monopolistic seller. The seller has access to the underlying state of the world that determines the utility of the various actions the buyer may take. Since the buyer gains greater utility through better decisions resulting from more accurate assessments of the state, the seller can therefore promise the buyer supplemental information at a price. To contend with the fact that the seller may not be perfectly informed about the buyer's private preferences (or utility), we frame the problem of designing a data product as one where the seller designs a revenue-maximizing menu of statistical experiments. Prior work by Cai et al. showed that an optimal menu can be found in time polynomial in the state space, whereas we observe that the state space is naturally exponential in the dimension of the data. We propose an algorithm which, given only sampling access to the state space, provably generates a near-optimal menu with a number of samples independent of the state space. We then analyze a special case of high-dimensional Gaussian data, showing that (a) it suffices to consider scalar Gaussian experiments, (b) the optimal menu of such experiments can be found efficiently via a semidefinite program, and (c) full surplus extraction occurs if and only if a natural separation condition holds on the set of potential preferences of the buyer. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.15214 |
| By: | Weijie Zhong |
| Abstract: | We build a mechanism design framework where a platform designs GenAI models to screen users who obtain instrumental value from the generated conversation and privately differ in their preference for latency. We show that the revenue-optimal mechanism is simple: deploy a single aligned (user-optimal) model and use token cap as the only instrument to screen the user. The design decouples model training from pricing, is readily implemented with token metering, and mitigates misalignment pressures. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.09859 |
| By: | Vijay Adithya C ((Corresponding author), Madras School of Economics, Gandhi Mandapam Road, Behind Government Data Centre, Kotturpuram, Chennai, 600025, India.); Poornapushkala Narayanan (Madras School of Economics, Chennai, Tamil Nadu, India, 600025) |
| Abstract: | This paper studies a Cournot market with infinitely many firms facing constant but heterogeneous marginal costs, without assuming perfect competition. We determine a necessary and sufficient condition for the existence of equilibrium - the marginal costs converge to a limit r with summable deviations. We deduce from this condition that perfect competition is not automatic in such markets, but competitive behavior emerges asymptotically under certain conditions on the costs. We also consider a family of finite markets growing to the infinite limit market. We show that the equilibria of finite markets converge to that of the limit market if and only if the average marginal costs of the finite markets converge to r. |
| Keywords: | Cournot-Nash Equilibrium, Limit Market, Equilibrium Convergence |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mad:wpaper:2025-290 |
| By: | Anuj Bhowmik |
| Abstract: | This paper examines the characterizations of equilibrium in economies with public projects. Public goods, as discussed by Mas-Colell (1980), are modeled as elements of an abstract set lacking a unified ordering structure. We introduce the concepts of cost share equilibrium for such economies, where the private commodity space is a (possibly nonseparable) Banach lattice. Within this framework, we present two distinct characterizations of cost share equilibria via the veto power of the grand coalition in economies featuring finitely many agents. The first characterization involves allocations that are Aubin non-dominated, while the second establishes that an allocation is a cost share equilibrium if and only if it cannot be dominated by the grand coalition, where domination is considered under specific perturbations of initial endowments. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.24437 |
| By: | Fasheng Xu; Xiaoyu Wang; Wei Chen; Karen Xie |
| Abstract: | The strategic choice of model "openness" has become a defining issue for the foundation model (FM) ecosystem. While this choice is intensely debated, its underlying economic drivers remain underexplored. We construct a two-period game-theoretic model to analyze how openness shapes competition in an AI value chain, featuring an incumbent developer, a downstream deployer, and an entrant developer. Openness exerts a dual effect: it amplifies knowledge spillovers to the entrant, but it also enhances the incumbent's advantage through a "data flywheel effect, " whereby greater user engagement today further lowers the deployer's future fine-tuning cost. Our analysis reveals that the incumbent's optimal first-period openness is surprisingly non-monotonic in the strength of the data flywheel effect. When the data flywheel effect is either weak or very strong, the incumbent prefers a higher level of openness; however, for an intermediate range, it strategically restricts openness to impair the entrant's learning. This dynamic gives rise to an "openness trap, " a critical policy paradox where transparency mandates can backfire by removing firms' strategic flexibility, reducing investment, and lowering welfare. We extend the model to show that other common interventions can be similarly ineffective. Vertical integration, for instance, only benefits the ecosystem when the data flywheel effect is strong enough to overcome the loss of a potentially more efficient competitor. Likewise, government subsidies intended to spur adoption can be captured entirely by the incumbent through strategic price and openness adjustments, leaving the rest of the value chain worse off. By modeling the developer's strategic response to competitive and regulatory pressures, we provide a robust framework for analyzing competition and designing effective policy in the complex and rapidly evolving FM ecosystem. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.15200 |
| By: | Jose M. Betancourt |
| Abstract: | I study dynamic network formation games in which agents assign arbitrary values to network structures. Any such game admits an equivalent representation in terms of the values agents assign to its sub-structures, linking local valuations to equilibrium behavior. The game is a potential game precisely when all participants in a structure value it equally, yielding a closed-form stationary distribution. When valuations are restricted to a finite set of repeated sub-structures, or motifs, the model exhibits phase transitions: small changes in motif values cause discontinuous shifts in network density. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.10997 |
| By: | Tiziano De Angelis; Jan Palczewski; Jacob Smith |
| Abstract: | This paper provides necessary and sufficient conditions for a pair of randomised stopping times to form a saddle point of a zero-sum Dynkin game with partial and/or asymmetric information across players. The framework is non-Markovian and covers essentially any information structure. Our methodology relies on the identification of suitable super and submartingales involving players' equilibrium payoffs. Saddle point strategies are characterised in terms of the dynamics of those equilibrium payoffs and are related to their Doob-Meyer decompositions. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.15616 |
| By: | Ichihashi, Shota; Smolin, Alex |
| Abstract: | In markets where algorithmic data processing is increasingly prevalent, recom-mendation algorithms can substantially affect trade and welfare. We consider a setting in which an algorithm recommends a product based on its value to the buyer and its price. We characterize an algorithm that maximizes the buyer’s expected payoff and show that it strategically biases recommendations to induce lower prices. Revealing the buyer’s value to the seller leaves overall payoffs un-changed while leading to more dispersed prices and a more equitable distribution of surplus across buyer types. These results extend to all Pareto-optimal algorithms and to multiseller markets, with implications for AI assistants and e-commerce ranking systems. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130999 |
| By: | Bertrand Crettez (Université Paris-Panthéon-Assas, LEMMA); Rabia Nessah (IESEG School of Management, UMR 9221 – LEM – Lille Economie Management, F-59000 Lille, France); Tarik Tazdaït (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris) |
| Abstract: | This paper weakens the notion of robust better-reply correspondence property introduced in [Reny, P. J. [2020] Nash equilibrium in discontinuous games, Annu. Rev. Econ. 12, 439–470] to prove the existence of pure strategy Nash equilibrium in compact convex discontinuous and possibly nonquasiconcave games. Our weakening of this property is satisfied by a large class of these games and our equilibrium existence results strictly generalize the most important ones in the literature, namely those obtained in [Reny, P. J. [2020] Nash equilibrium in discontinuous games, Annu. Rev. Econ. 12, 439–470; Reny, P. [2016b] Introduction to the symposium on discontinuous games, Econ. Theory 61, 423–429; Carmona, G. and Podczeck, K. [2016] Existence of Nash equilibrium in ordinal games with discontinuous preferences, Econ. Theory 61, 457–478] (in a special case), [Reny, P. [1999] On the existence of pure and mixed strategy Nash equilibria in discontinuous games, Econometrica 67, 1029–1056; McLennan, A., Monteiro, P. K. and Tourky, R. [2011] Games with discontinuous payoffs: A strengthening of Reny's existence theorem, Econometrica 79, 1643–1664; Barelli, P. and Meneghel, I. [2013] A note on the equilibrium existence problem in discontinuous games, Econometrica 81, 813–824; Nessah, R. [2011] Generalized weak transfer continuity and Nash equilibrium, J. Math. Econ. 47, 659–662; Nessah, R. and Tian, G. [2016] On the existence of Nash equilibrium in discontinuous games, Econ. Theory 61, 515–540]. |
| Keywords: | better-reply correspondence., discontinuous game, Nash equilibrium |
| Date: | 2025–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05305754 |
| By: | Lars Boerner (Martin Luther University Halle-Wittenberg, IWH Leibniz Institute & DAFM King’s College London); Erik O. Kimbrough (Economic Science Institute, Chapman University); Mouli Modak |
| Abstract: | We study how well people are able to solve pure coordination problems in continuous time. Subjects decide whether and when to pay a cost to go to market with their goods and earn money only if another person shows up at the same time. We show that coordination failure is common in a baseline, and we introduce treatments that feature public coordination devices (meant to mimic clocks) and assess the extent to which coordination improves when such devices are provided via different institutions. A publicly provided device outperforms a variety of privately provided alternatives. Our evidence suggests this is because reliable public provision eliminates uncertainty about whether (and how many) other people expect to observe the coordinating signal. |
| Keywords: | coordination games, experiments, timing games |
| JEL: | C7 C9 D01 D9 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:25-09 |