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on Microeconomics |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | A firm may decide to make total-surplus-reducing purchase recommendations in response to consumer heterogeneity in an experience good setting. First, we show under which conditions the firm chooses to make such biased recommendations in a monopoly setting. Second, we propose a duopoly model with differentiated products in which single-product firms compete in uniform prices and recommendation policies. We provide conditions under which both firms choose to bias their recommendations, whereas the bias would be absent if products were more differentiated or one of the two products were withdrawn from the market. |
| Keywords: | recommendation bias, recommender system, competition |
| JEL: | L12 L13 L15 D21 D42 D43 M37 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_715 |
| By: | Silvio Sorbera |
| Abstract: | In this paper, we analyze a model of competing sealed-bid first-price and second-price auctions where bidders have unit demand and can bid on multiple auctions simultaneously. We show that there is no symmetric pure equilibrium with strategies that are increasing in the lowest type, unlike in standard auction games. However, for a two-player game a symmetric mixed-strategy equilibrium exists, and bidders place bids on all available auctions with probability one. This holds true for any mixed equilibrium and for any number of bidders. We then solve the case of two auctions and two bidders. Analyzing the case of binary type space, we are able to identify mixed strategy equilibria and analyze the consequences of discrete bid spaces. |
| Keywords: | Simultaneous bidding, concurrent auctions, sealed-bid auctions, first-price auction, second-price auction |
| JEL: | C72 D44 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_713 |
| By: | Okada, A.; Sabourian, H. |
| Abstract: | This paper addresses the relationship between cheap talk negotiation and collusion/efficiency in repeated games by explicitly modelling the negotiation. At each date, players bargain over how to play the continuation game and thereafter they play a stage game G. We consider equilibria that are measurable with respect to the latest agreement - as they are salient/focal features of the past. We show equilibrium payoffs are bounded below by that of a Nash equilibrium of G and are weakly renegotiation-proof. Our main results are: a non-babbling efficient equilibrium exists in many games if the discount factor δ is high, and every equilibrium payoff is either babbling or efficient in the limit as δ → 1. Finally, we check the robustness of the latter result to two perturbations: complexity costs and trustworthy/honourable players. Equilibria that survive the former perturbation are efficient or induce one-shot Nash equilibria and equilibria that survive the latter are efficient. |
| Keywords: | Repeated Games, Cheap Talk Negotiation, Efficiency, Babbling Equilibrium, Complexity Cost, Commitment Type |
| Date: | 2025–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2575 |
| By: | Silvio Sorbera |
| Abstract: | This paper investigates the role of second-order beliefs in a reputational bargaining model involving two agents, A and B. Both agents can be either irrational (refusing to concede and sticking to their initial offer) or rational. B can take one of two rational forms: omniscient, who is certain of A’s rationality, or ignorant, who is uncertain. In typical reputational bargaining, agents make an offer at the beginning and adhere to it throughout the negotiation. However, we allow B to propose a ’fair’ 50-50 split of the surplus, which reveals B’s rationality and serves as a potential signal for the omniscient type. Using a hybrid discrete-continuous time framework proposed by Abreu and Pearce (2007), we examine how reputation effects can arise even when one agent (omniscient) is fully aware of the other’s true nature and decides whether to reveal or withhold this information. Our analysis reveals multiple equilibria, including scenarios where no fair offers are made, as rational players strategically avoid disclosing their rationality to preserve their advantage. If B’s irrational demand exceeds a fair division of the surplus, this scenario is the unique equilibrium. Conversely, when the demand is less than 50%, an equilibrium with a fair offer can occur. Every equilibrium of this type is characterized by a period t in which the fair deal is offered with positive probability exclusively at t. |
| Keywords: | Reputation, reputational bargaining, second-order beliefs |
| JEL: | C7 C78 D82 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_712 |
| By: | Lukyanov, Georgy |
| Abstract: | We study a repeated sender–receiver game where inspections are public but the sender’s action is hidden unless inspected. A detected deception ends the relationship or triggers a finite punishment. We show the public state is low-dimensional and prove existence of a stationary equilibrium with cutoff inspection and monotone deception. The sender’s mixing pins down a closed-form total inspection probability at the cutoff, and a finite punishment phase implements the same cutoffs as termination. We extend to noisy checks, silent audits, and rare public alarms, preserving the Markov structure and continuity as transparency vanishes or becomes full. The model yields testable implications for auditing, certification, and platform governance: tapering inspections with reputation, bunching of terminations after inspection spurts, and sharper cutoffs as temptation rises relative to costs. |
| Keywords: | Bilateral reputation; trust; costly verification; auditing; private monitoring; repeated games. |
| JEL: | C73 D82 D83 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131097 |
| By: | Li, David; Lukyanov, Georgy |
| Abstract: | This paper studies an infinite-horizon framework in which two large populations of players are randomly matched to play a Prisoner’s Dilemma. Each player lives for two consecutive periods: as a young player from one group, and then as an old player in the other group. Each population has a known fraction of honest types—individuals who always cooperate unless paired with a player who has been observed to defect against a cooperating partner in the past. Because such defections (i.e., breakdowns of trust) are publicly observed, any defector risks carrying a stigma into future interactions. We show that when the benefits from defection are sufficiently large, there exists an equilibrium in which an increase in the fraction of honest types can reduce the likelihood of cooperation. Moreover, we demonstrate that introducing imperfect public memory—allowing past misdeeds to be probabilistically “cleared”—does not enhance cooperation. |
| Keywords: | Overlapping generations; Prisoner’s Dilemma; Reputation; Stigma. |
| JEL: | C72 C73 D82 D83 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131096 |
| By: | David Lagziel; Ehud Lehrer; Tao Wang |
| Abstract: | This paper studies incomplete-information games in which an information provider, an oracle, publicly discloses information to the players. One oracle is said to dominate another if, in every game, it can replicate the equilibrium outcomes induced by the latter. The companion Part I characterizes dominance under deterministic signaling and under stochastic signaling with a unique common knowledge component. The present paper extends the analysis to general environments and provides a characterization of equivalence (mutual dominance) among oracles. To this end, we develop a theory of information loops, thereby extending the seminal work of Blackwell (1951) to strategic environments and Aumann (1976)'s theory of common knowledge. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.04449 |
| By: | Henrique de Oliveira; Jeffrey Mensch |
| Abstract: | We consider an agent with a rationally inattentive preference over menus of acts, as in de Oliveira et al (2017). We show that two axioms, Independence of Irrelevant Alternatives and Ignorance Equivalence, are necessary and sufficient for this agent to have a posterior-separable cost satisfying a mild smoothness condition, called joint-directional differentiability. Viewing the decision-maker's problem as a Bayesian persuasion problem, we also show that these axioms are necessary and sufficient for solvability by a unique hyperplane. When the cost function remains invariant for different priors, we show that these axioms imply uniformly posterior separable costs that are differentiable. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.09424 |
| By: | Alejandro Neme; R. Pablo Arribillaga; Jordi Massó |
| Abstract: | We introduce the concept of group obvious strategy-proofness, an extension of Li (2017)'s notion of obvious strategy-proofness, by requiring that truth-telling re- mains an obviously dominant strategy for any group of agents in the extensive game form implementing the social choice function. We show that this stronger condition is no more restrictive: the set of all group obviously strategy-proof social choice functions coincides with the set of all obviously strategy-proof social choice functions. Building on this equivalence result and on existing results on obvious strategy-proofness via extensive game forms with perfect information, we derive additional equivalences concerning the implementability of social choice functions: in this class of games, strategy-proofness, group strategy-proofness, obvious strategy-proofness, and group obvious strategy-proofness are all equivalent. |
| Keywords: | (group) strategy-proofness, obvious strategy-proofness |
| JEL: | D71 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1533 |
| By: | Paolo Bertoletti |
| Abstract: | In a setting with Hotelling differentiation and (weak) network effects, when the market is already covered duopoly adoption of compatibility leads to anti-competitive effects and tends to be welfare excessive. We show that the latter result is reversed if the market is not assumed to be covered even under incompatibility (a condition which depends on the value of the intrinsic/stand-alone beneÂ…ts). |
| Keywords: | Compatibility; Network e¤ects; Hotelling differentiation |
| JEL: | D43 L15 L22 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:560 |
| By: | Xiaomeng Ding; Simon Weidenholzer; Boyu Zhang |
| Abstract: | We study evolutionary dynamics in which firms endogenously revise the behavioral rules that govern strategy revisions in symmetric Cournot oligopoly. Specifically, we consider two principles that guide rule revision, No-Birth and Survival-of-the-Fittest, both grounded in imitation-based heuristics. We show that, under these principles, all firms eventually adopt the same behavioral rule. Focusing on two classical rules, myopic best response and imitation, we demonstrate that rule revision plays a crucial role in determining long-run equilibria in Cournot oligopoly. The set of long-run equilibria includes the state where all players use best response learning and choose the Nash equilibrium quantities and states where all firms use imitation learning and choose specific symmetric quantities which include (but are not necessarily restricted to) Walrasian quantities. Our results extend to more general aggregative games. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.09839 |
| By: | J\'anos Flesch; Christopher Kops; Dries Vermeulen; Anna Zseleva |
| Abstract: | We propose a general definition of perfect equilibrium which is applicable to a wide class of games. A key feature is the concept of completely mixed nets of strategies, based on a more detailed notion of carrier of a strategy. Under standard topological conditions, this definition yields a nonempty and compact set of perfect equilibria. For finite action sets, our notion of perfect equilibrium coincides with Selten's (1975) original notion. In the compact-continuous case, perfect equilibria are weak perfect equilibria in the sense of Simon and Stinchcombe (1995). In the finitely additive case, perfect equilibria in the sense of Marinacci (1997) are perfect. Under mild conditions, perfect equilibrium meets game-theoretic desiderata such as limit undominatedness and invariance. We provide a variety of examples to motivate and illustrate our definition. Notably, examples include applications to games with discontinuous payoffs and games played with finitely additive strategies. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.16367 |
| By: | Satoshu Nakada; Kensei Nakamura |
| Abstract: | This paper studies the axiomatic bargaining problem and proposes a new class of bargaining solutions, called coarse Nash solutions. These solutions assign to each problem a set of outcomes coarser than that chosen by the classical Nash solution (Nash, 1950). Our main result shows that these solutions can be characterized by new rationality axioms for choice correspondences, which are modifications of Nash's independence of irrelevant alternatives (or more precisely, Arrow's (1959) choice axiom), when combined with standard axioms. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.05019 |
| By: | Guibril Zerbo; Olivier Renault |
| Abstract: | We propose a model, called β-RDEu (Rank Dependent Expected Utility), that explains how distrust in an exchange relationship can lead to zero demand for a good or service, even when it is heavily subsidized. If an agent’s preferences, as estimated in a decontextualized environment (i.e., without distrust), are represented by a function V, then the β-RDEu function for a contract l is defined as βu(w_n) + (1 − β)V (l), and represents the agent’s preferences in a market environment where distrust may arise. The parameter β captures the agent’s level of distrust, and the wealth level wn represents an outcome excluded by the contractual relationship but considered plausible by a distrustful agent. We characterize the β-RDEu utility through a set of assumptions about preferences, and then apply the model to agricultural insurance demand. The main prediction is that agricultural insurance demand can be zero at any price if the agent is sufficiently distrustful, even though the contract provides positive net utility when assessed solely through the function V. We discuss the introduction of behavioral interventions aimed at either leveraging or reducing distrust to increase the adoption rate of agricultural insurance products. In particular, we propose a procedure to estimate the distribution of the β parameter within a population, in order to show how knowledge of this distribution can enhance the effectiveness of a subsidy. |
| Keywords: | Willingness to pay; Behavioral insurance; Distrust; Risk aversion; Zero probability distortions; Public policies |
| JEL: | D81 D78 D91 G22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-44 |
| By: | Kaushil Patel |
| Abstract: | To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have different thresholds. Similar models of bounded rationality have been studied in the empirical marketing literature. We fully characterize the model, and using observational choice data alone, we identify the welfare implications of a price change. The behavioral content of our model overlaps with an important class of random utility models, but the welfare implications are meaningfully different. The distribution of equivalent variation under our model first-order stochastically dominates that under the random utility model. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03813 |
| By: | Elizabeth Maggie Penn; John W. Patty |
| Abstract: | This paper characterizes optimal classification when individuals adjust their behavior in response to the classification rule. We model the interaction between a designer and a population as a Stackelberg game: the designer selects a classification rule anticipating how individuals will comply, cheat, or abstain in order to obtain a favorable classification. Under standard monotone likelihood ratio assumptions, optimal rules belong to a small and interpretable family (single-threshold and two-cut rules) that encompass both conventional and counterintuitive designs. Our results depart sharply from prior findings that optimal classifiers reward higher signals: in equilibrium, the designer may deliberately reward those with lower likelihood ratios or concentrate rewards/penalties in a middle band to improve informational quality. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.08347 |
| By: | Tiziano de Angelis (UNITO - Università degli studi di Torino = University of Turin); Fabien Gensbittel (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements 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); Stéphane Villeneuve (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements 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: | We construct Nash equilibria in feedback form for a class of two-person stochastic games of singular control with absorption, arising from a stylized model for corporate finance. More precisely, the paper focusses on a strategic dynamic game in which two financially-constrained firms operate in the same market. The firms distribute dividends and are faced with default risk. The strategic interaction arises from the fact that if one firm defaults, the other one becomes a monopolist and increases its profitability. The firms choose their dividend distribution policies from a class of randomised strategies and we identify two types of equilibria, depending on the firms' initial endowments. In both situations the optimal strategies and the equilibrium payoffs are found explicitly. |
| Keywords: | Nash Equilibrium, Dividend problem, Free boundary problems, Randomised strategies, Nonzero-sum games, Singular controls |
| Date: | 2025–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05345639 |
| By: | Konan Hara (Michigan State University); Yuki Ito (Indiana University Bloomington); Paul S. Koh (Yonsei University) |
| Abstract: | We develop an empirical framework for analyzing dynamic games when the underlying information structure is unknown to the analyst. We introduce Markov correlated equilibrium, a dynamic analog of Bayes correlated equilibrium, and show that its predictions coincide with the Markov perfect equilibrium predictions attainable when players observe richer signals than the analyst assumes. We provide tractable methods for informationally robust estimation, inference, and counterfactual analysis. We illustrate the framework with a dynamic entry game between Starbucks and Dunkin’ in the US and study the role of informational assumptions. |
| Keywords: | Dynamic games, Markov, correlated equilibrium, information, partial identification |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-267 |
| By: | Abheek Ghosh; Tzeh Yuan Neoh; Nicholas Teh; Giannis Tyrovolas |
| Abstract: | We study a model of subscription-based platforms where users pay a fixed fee for unlimited access to content, and creators receive a share of the revenue. Existing approaches to detecting fraud predominantly rely on machine learning methods, engaging in an ongoing arms race with bad actors. We explore revenue division mechanisms that inherently disincentivize manipulation. We formalize three types of manipulation-resistance axioms and examine which existing rules satisfy these. We show that a mechanism widely used by streaming platforms, not only fails to prevent fraud, but also makes detecting manipulation computationally intractable. We also introduce a novel rule, ScaledUserProp, that satisfies all three manipulation-resistance axioms. Finally, experiments with both real-world and synthetic streaming data support ScaledUserProp as a fairer alternative compared to existing rules. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.04465 |
| By: | Liping Tang; Michiko Ogaku |
| Abstract: | We study linguistic indirectness when speakers attend to social ties. Social ties are modeled by a graph, and conferences are the sets of nodes that hear a message. Conference worth is a distance polynomial on the graph; allocations are given by the Myerson value of the conference-restricted worth, which yields the bargaining-power components for each participant. Aggregating these components gives an effective bias that, via a Partition-Threshold rule, pins down the number of equilibrium message partitions in a cheap talk game. Results: (i) among trees, stars maximize worth, leading to weakly fewer equilibrium partitions; (ii) on stars, we derive closed-form effective biases, with a witness-hub marginal effect of adding leaves changing sign at $\delta^{\ast}=0.6$; (iii) for two stars joined by one link, two-star (hub-hub) vs big-star (hub-leaf) precision flips at 8/15 for the same number of nodes; private leaf-leaf conferences are most informative. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.07961 |
| By: | Christopher Teh (Toulouse School of Economics, 31000 Toulouse, France & School of Economics,); Chengsi Wang (Department of Economics and Monash Digital Lab, Monash University) |
| Abstract: | This article critically examines recent economic theories on the relationship between startup acquisitions and innovation. We argue that the prevalence of killer acquisitions is likely overstated, even from a purely theoretical perspective. We further show that the entry-for-buyout effect may not always hold: relaxing merger control does not necessarily lead startups to invest more or pursue more disruptive innovation. Effective merger policy must adopt a dynamic perspective, balancing short-term competitive harms against long-terminnovation benefits. The article concludes with practical policy recommendations for the design and enforcement of merger control. |
| Keywords: | acquisition, innovation, merger policy, startup |
| JEL: | G34 L12 L41 O3 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:mos:moswps:2025-15 |
| By: | Mathieu Lauri\`ere; Ariel Neufeld; Kyunghyun Park |
| Abstract: | We propose and analyze a framework for discrete-time robust mean-field control problems under common noise uncertainty. In this framework, the mean-field interaction describes the collective behavior of infinitely many cooperative agents' state and action, while the common noise -- a random disturbance affecting all agents' state dynamics -- is uncertain. A social planner optimizes over open-loop controls on an infinite horizon to maximize the representative agent's worst-case expected reward, where worst-case corresponds to the most adverse probability measure among all candidates inducing the unknown true law of the common noise process. We refer to this optimization as a robust mean-field control problem under common noise uncertainty. We first show that this problem arises as the asymptotic limit of a cooperative $N$-agent robust optimization problem, commonly known as propagation of chaos. We then prove the existence of an optimal open-loop control by linking the robust mean field control problem to a lifted robust Markov decision problem on the space of probability measures and by establishing the dynamic programming principle and Bellman--Isaac fixed point theorem for the lifted robust Markov decision problem. Finally, we complement our theoretical results with numerical experiments motivated by distribution planning and systemic risk in finance, highlighting the advantages of accounting for common noise uncertainty. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.04515 |
| By: | Isaak Mengesha; Meiqi Sun; Debraj Roy |
| Abstract: | Why do maladaptive perceptions and norms, such as zero-sum interpretations of interaction, persist even when they undermine cooperation and investment? We develop a framework where bounded rationality and heterogeneous cognitive biases shape the evolutionary dynamics of norm coordination. Extending evolutionary game theory with quantal response equilibria and prospect-theoretic utility, we show that subjective evaluation of payoffs systematically alters population-level equilibrium selection, generating stable but inefficient attractors. Counterintuitively, our analysis demonstrates that the benefit of rationality and the cost of risk aversion on welfare behave in nonmonotone ways: intermediate precision enhances coordination, while excessive precision or strong loss aversion leads to persistent lock-in at low-payoff and zero-sum equilibria. These dynamics produce an endogenous equity-efficiency trade-off: parameter configurations that raise aggregate welfare also increase inequality, while more equal distributions are associated with lower efficiency. The results highlight how distorted payoff perceptions can anchor societies in divergent institutional trajectories, offering a behavioral-evolutionary explanation for persistent zero-sum norms and inequality. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.16453 |
| By: | Michele Aleandri (LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma]); Felix Fritz (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique); Stefano Moretti (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We present an axiomatic study of various solutions to the social ranking problem, where a solution links any ranking of coalitions of players to a binary relation between individual players. We focus on solutions that align with the desirability relation, asserting that player i is more desirable than player j if any coalition including i but not j ranks higher than the corresponding coalition formed by replacing i with j. Unlike previous characterizations, our study highlights the central role of the desirability property as a foundational axiom in the characterization of five solutions from the related literature: Ceteris Paribus majority, lexicographic excellence and its dual, L (1) solution and its dual. Our main results reveal additional similarities among these five solutions and emphasize the essential features that should be considered when selecting the most appropriate solution for a given scenario. A practical application involving a bicameral legislature is also presented. |
| Keywords: | social ranking problem, axiomatic approach, desirability, power index, coalitional games, coalitional ranking |
| Date: | 2025–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05365555 |