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on Microeconomics |
| By: | Patrick Rey (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); Yossi Spiegel (TAU - Tel Aviv University); Ernst Konrad Stahl (University of Mannheim = Universität Mannheim) |
| Abstract: | We study the feasibility and profitability of predation in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predation may be welfare improving. |
| Keywords: | arkov perfect equilibrium, legal rules, entry, accommodation, predation |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05483810 |
| By: | Matthias Lang (LMU Munich); Cédric Wasser (University of Basel) |
| Abstract: | We study the welfare effects of ambiguous product information for a buyer with α-max-min preferences and a price-setting seller. The buyer privately receives information about her valuation. We show that the seller or the buyer can benefit when this information is ambiguous, and we characterize all possible combinations of producer and consumer surplus, as evaluated under ambiguity-sensitive preferences. Ambiguity concerning the valuation perceived by the buyer when making the purchase decision can induce the seller to change the price. Before receiving information, ambiguity concerning the purchase decision can make the buyer optimistic about buying only for high valuations, which relaxes the participation constraint. |
| Keywords: | Ambiguity; uncertainty; information design; bayesian persuasion; strategic learning; pricing; bargaining; |
| JEL: | D42 D81 D82 D83 L12 |
| Date: | 2026–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:564 |
| By: | Fedor Sandomirskiy; Ben Wincelberg |
| Abstract: | We ask when a normal-form game yields a single equilibrium prediction, even if players can coordinate by delegating play to an intermediary such as a platform or a cartel. Delegation outcomes are modeled via coarse correlated equilibria (CCE) when the intermediary cannot punish deviators, and via the set of individually rational correlated profiles (IRCP) when it can. We characterize games in which the IRCP or the CCE is unique, uncovering a structural link between these solution concepts. Our analysis also provides new conditions for the uniqueness of classical correlated and Nash equilibria that do not rely on the existence of dominant strategies. The resulting equilibria are robust to players' information about the environment, payoff perturbations, pre-play communication, equilibrium selection, and learning dynamics. We apply these results to collusion-proof mechanism design. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.21470 |
| By: | Brian Roberson (Purdue University, Department of Economics and Economic Science Institute, Chapman University) |
| Abstract: | We study incentive design when multiple principals simultaneously design mechanisms for their respective teams in environments with strategic spillovers. In this environment, each principal’s set of incentive-compatible mechanisms—those that satisfy their own agents’ incentive compatibility constraints— depends on the mechanisms offered by the other teams. Following a classic example by Myerson (1982), such games may lack equilibrium due to discontinuities in the correspondence of incentive-compatible mechanisms. We establish general conditions for equilibrium existence by introducing a novel approach that involves tracking both the outcome distributions along the truthful-obedient path and the sets of outcome distributions achievable through unilateral deviations, thereby providing a foundation for analyzing a wide range of multi-principal mechanism design with team production and agency problems. |
| Keywords: | Mechanism Design, Principal-Agent Problems, Equilibrium Existence, Generalized Games, Multiple Principals, Stochastic Production, Team Production |
| JEL: | C72 D82 D86 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:26-02 |
| By: | Christoph Carnehl; Anton Sobolev; Konrad Stahl; André Stenzel |
| Abstract: | We study information design in a vertically differentiated market. A third party publicly discloses information about the product qualities of two competing firms. More precise information improves consumer matching but increases perceived differentiation, enabling firms to raise prices. Disclosing the product ranking alone suffices to maximize industry profits in a fully covered market. Consumer surplus, however, is maximized by a rank-preserving policy that withholds any information that overturns the prior ranking, as gains from price competition outweigh losses from allocative inefficiency. The conflict between profit- and consumer-optimal policies persists in settings with endogenous participation and nonlinear or asymmetric costs. |
| Keywords: | Information Design, Vertical Product Differentiation, Quality Rankings, Competition |
| JEL: | D43 D82 L13 L15 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_700v2 |
| By: | Maria Andraos; Mario Ghossoub |
| Abstract: | We study a monopolistic insurance market with hidden information, where the agent's type $\theta$ is private information that is unobservable to the insurer, and it is drawn from a continuum of types. The hidden type affects both the loss distribution and the risk attitude of the agent. Within this framework, we show that a menu of contracts is incentive efficient if and only if it maximizes social welfare, subject to incentive compatibility and individual rationality constraints. This equivalence holds for general concave utility functionals. In the special case of Yaari Dual Utility, we provide a semi-explicit characterization of optimal incentive-efficient menus of contracts. We do this under two different settings: (i) the first assumes that types are ordered in a way such that larger values of $\theta$ correspond to more risk-averse types who face stochastically larger losses; whereas (ii) the second assumes that larger values of $\theta$ correspond to less risk-averse types who face stochastically larger losses. In both settings, the structure of optimal incentive-efficient menus of contracts depends on the level of the social welfare weight. Moreover, at the optimum, higher types receive greater coverage in exchange for higher premia. Additionally, optimal menus leave the lowest type indifferent, with the insurer absorbing all surplus from the lowest type; and they exhibit efficiency at the top, that is, the highest type receives full coverage. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.09967 |
| By: | Siyuan Fan; Zhonghong Kuang; Jingfeng Lu |
| Abstract: | We study the $n$-dimensional contest between two asymmetric players with different marginal effort costs, with each dimension (i.e., battle) modeled as a Tullock contest. We allow general identity-independent and budget-balanced prize allocation rules in which each player's prize increases weakly in the number of their victories, e.g., a majority rule if $n$ is odd. When the discriminatory power of the Tullock winner-selection mechanism is no greater than $2/(n+1)$, a unique equilibrium arises where each player exerts deterministic and identical effort across all dimensions. This condition applies uniformly to all eligible prize allocation rules and all levels of players' asymmetry, and it is tight. Under this condition, we derive the effort-maximizing prize allocation rule: the entire prize is awarded to the player who wins more battles than his opponent by a pre-specified margin, and the prize is split equally if neither player does. When $n$ is odd, and players are symmetric, the majority rule is optimal. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.21564 |
| By: | Tymofiy Mylovanov; Thomas Tröger |
| Abstract: | A mechanism proposal by a privately informed principal is a signal. The agents’ belief updating endogenizes their incentives in the mechanism, implying that such design problems cannot be solved via optimizing subject to incentive constraints. We propose a solution, neo-optimum, that can be interpreted as principal-preferred perfect Bayesian equilibrium. Its neologism-based definition allows an intuitive computation, as we demonstrate in several applications. Any Myerson neutral optimum is a neo-optimum, implying that a neooptimum exists generally. Neo-optimum unifies the other known solution approaches in the informed-principal literature. |
| Keywords: | informed principal, mechanism design, signaling, neologism |
| JEL: | D47 D82 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_643_v2 |
| By: | Martin Peitz; Anton Sobolev; Paul Wegener |
| Abstract: | Advertisers place ads on publishers’ websites to attract the attention of multihoming consumers. Because of competition in the product market, advertisers may have an incentive to partially or fully foreclose their rivals. A gatekeeper may be able to limit publishers’ access to some of the consumers. We fully characterize the equilibrium in which the gatekeeper, publishers, and advertisers make strategic pricing decisions. We show how the presence of the gatekeeper affects the advertisers’ foreclosure decisions and the surplus of the different market participants. |
| Keywords: | gatekeeper, ad-funded media, advertiser competition, ad blocking, uniform pricing, foreclosure, imperfect competition |
| JEL: | L12 L13 L15 M37 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_731 |
| By: | Alistair Barton |
| Abstract: | Recent papers in communication games construct equilibria by conditioning an agent's strategy on private, payoff-irrelevant information. I prove this is impossible in general games if there is any amount of realistic privacy in agents' preferences, generalizing previous results from cheap talk games to mediated cheap talk and communication with receiver commitment. Applying the result to repeated games with public+conditionally independent private monitoring, all equilibria without private randomization are perfect public equilibria, and non-trivial belief free equilibria are impossible. This result can be avoided if information is slightly correlated, or pay-off relevant. Due to undesirable properties of public perfect equilibria in some settings, I argue for further study of belief-based equilibria to understand equilibria of repeated games with noisy monitoring. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.23098 |
| By: | Joseph Root; Evan Sadler |
| Abstract: | We demonstrate that a ubiquitous feature of network games, bilateral strategic interactions, is equivalent to having player utilities that are additively separable across opponents. We distinguish two formal notions of bilateral strategic interactions. Opponent independence means that player i's preferences over opponent j's action do not depend on what other opponents do. Strategic independence means that how opponent j's choice influences i's preference between any two actions does not depend on what other opponents do. If i's preferences jointly satisfy both conditions, then we can represent her preferences over strategy profiles using an additively separable utility. If i's preferences satisfy only strategic independence, then we can still represent her preferences over just her own actions using an additively separable utility. Common utilities based on a linear aggregate of opponent actions satisfy strategic independence and are therefore strategically equivalent to additively separable utilities--in fact, we can assume a utility that is linear in opponent actions. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.16071 |
| By: | Heiko Karle; Marcel Preuss; Markus Reisinger |
| Abstract: | Platforms that provide product recommendations to consumers, such as marketplaces like Amazon or online travel agencies like Expedia, govern a substantial part of transactions in many markets. In addition to selling via platforms, most firms, however, also operate a direct channel. This paper investigates how the interaction between the platform channel and the firms’ direct channel affects platform design and firms' pricing incentives. We provide a rich game-theoretic model in which platforms give recommendations to consumers about products with high match value and facilitate consumer search, but charge sellers commission rates, whereas sellers compete in prices to balance demand across both channels. We show that the interaction between the channels gives rise to novel mechanisms that have counterintuitive effects. First, higher platform fees induce sellers to prioritize their direct channel—where consumers have lower expected match values and are thus more price-sensitive—leading to lower equilibrium prices. Second, improvements in recommendation quality can paradoxically reduce seller prices by intensifying the competitive pressure on the direct channel. Third, we show that for the platform, the quality of recommendations and the commission rate are strategic substitutes, that is, providing better recommendations should optimally be coupled with lower commission rates. This occurs because both instruments have potentially negative effects on seller prices. Finally, we evaluate recent policy interventions within our framework. We find that fee caps and measures that facilitate transactions on the direct channel can have unintended consequences and reduce consumer surplus by distorting the pricing incentives inherent in the dual-channel structure. |
| Keywords: | platform pricing, recommendation quality, consumer search |
| JEL: | D83 L15 L86 M31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12465 |
| By: | Tomoya Kazumura; Debasis Mishra; Shigehiro Serizawa |
| Abstract: | We study a model of auction design where a seller is selling a set of objects to a set of agents who can be assigned no more than one object. Each agent's preference over (object, payment) pair need not be quasilinear. If the domain contains all classical preferences, we show that there is a unique mechanism, the minimum Walrasian equilibrium price (MWEP) mechanism, which is strategy-proof, individually rational, and satisfies equal treatment of equals, no-wastage (every object is allocated to some agent), and no-subsidy (no agent is subsidized). This provides an equity-based characterization of the MEWP mechanism, and complements the efficiency-based characterization of the MWEP mechanism known in the literature. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.16211 |
| By: | Raman Ebrahimi; Sepehr Ilami; Babak Heydari; Isabel Trevino; Massimo Franceschetti |
| Abstract: | Standard models of bounded rationality typically assume agents either possess accurate knowledge of the population's reasoning abilities (Cognitive Hierarchy) or hold dogmatic, degenerate beliefs (Level-$k$). We introduce the ``Connected Minds'' model, which unifies these frameworks by integrating iterative reasoning with a parameterized network bias. We posit that agents do not observe the global population; rather, they observe a sample biased by their network position, governed by a locality parameter $p$ representing algorithmic ranking, social homophily, or information disclosure. We show that this parameter acts as a continuous bridge: the model collapses to the myopic Level-$k$ recursion as networks become opaque ($p \to 0$) and recovers the standard Cognitive Hierarchy model under full transparency ($p=1$). Theoretically, we establish that network opacity induces a \emph{Sophisticated Bias}, causing agents to systematically overestimate the cognitive depth of their opponents while preserving the log-concavity of belief distributions. This makes $p$ an actionable lever: a planner or platform can tune transparency, globally or by segment (a personalized $p_k$), to shape equilibrium behavior. From a mechanism design perspective, we derive the \emph{Escalation Principle}: in games of strategic complements, restricting information can maximize aggregate effort by trapping agents in echo chambers where they compete against hallucinated, high-sophistication peers. Conversely, we identify a \emph{Transparency Reversal} for coordination games, where maximizing network visibility is required to minimize variance and stabilize outcomes. Our results suggest that network topology functions as a cognitive zoom lens, determining whether agents behave as local imitators or global optimizers. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.10053 |
| By: | Siddharth Chatterjee; Daniel F. Garrett |
| Abstract: | A prominent theme in behavioural contract theory is the study of present-biased agents represented through quasi-hyperbolic discounting. In a model of competitive credit provision, we study an alternative to this framework in which the agent has a private stochastic discount factor and may overestimate the likelihood of more patient values. Agent preferences, however, are timeconsistent. While a limiting case of our model corresponds to a "fully naive" agent in work on quasi-hyperbolic discounting, another case is where the agent has correct beliefs about future discounting. In equilibrium, the agent selects options with earlier consumption in case of less patient discount factor realisations, but is penalised by receiving worse terms. Our model thus accounts for an important feature of equilibrium contracts identified in Heidhues and K\H{o}szegi (2010). Unlike Heidhues and K\H{o}szegi, our framework often predicts excessively backloaded consumption, including when the agent holds correct beliefs about future discounting. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.09728 |
| By: | Pasha Andreyanov; Ilia Krasikov; Alex Suzdaltsev |
| Abstract: | We study independent private values auction environments in which the auctioneer's revenue depends nonlinearly on bidders' interim winning probabilities. Our framework accommodates heterogeneity among bidders and places no ad hoc constraints on the mechanisms available to the auctioneer. Within this general setting, we show that feasibility of interim winning probabilities can be tested along a unidimensional curve -- the principal curve -- and use this insight to explicitly characterize the extreme points of the feasible set. We then combine our results on feasibility and extremality to solve for the optimal auction under a natural regularity condition. We show that the optimal mechanism allocates the good based on principal virtual values, which extend Myerson's virtual values to nonlinear settings and are constructed to equalize bidders' marginal revenue along the principal curve. We apply our approach to the classical linear model, settings with endogenous valuations due to ex ante investments, and settings with non-expected utility preferences, where previous results were largely limited either to symmetric environments with symmetric allocations or to two-bidder environments. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.17812 |
| By: | Tymofiy Mylovanov; Thomas Tröger |
| Abstract: | We show that in informed-principal settings with generalized private values any neutral optimum (Myerson, 1983) is strongly neologism proof (Mylovanov and Tröger, 2012) and hence is a strong unconstrained Pareto optimum in the setting of Maskin and Tirole (1990). Thus, in any setting with a unique strongly neologism-proof solution this concept is equivalent to neutral optimum. We rely on the unifying concept of neo-optimum that we develop in the companion paper Mylovanov and Tröger (2026). The main step is to prove that any neo-optimum is strongly neologism-proof. |
| Keywords: | informed principal, private values, mechanism design, signaling, neologism |
| JEL: | C72 D82 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_732 |
| By: | Gratton, Gabriele; Lee, Barton E. |
| Abstract: | We study a model of popular demand for anti-elite populist reforms that drain the swamp: replace experienced public servants with novices that will only acquire experience with time. Voters benefit from experienced public servants because they are more effective at delivering public goods and more competent at detecting emergency threats. However, public servants' policy preferences do not always align with those of voters. This tradeoff produces two key forces in our model: public servants' incompetence spurs disagreement between them and voters, and their effectiveness grants them more power to dictate policy. Both of these effects fuel mistrust between voters and public servants, sometimes inducing voters to drain the swamp in cycles of anti-elite populism. We study which factors can sustain a responsive democracy or induce a technocracy. When instead populism arises, we discuss which reforms may reduce the frequency of populist cycles, including recruiting of public servants and isolating them from politics. Our results support the view that a more inclusive and representative bureaucracy protects against anti-elite populism. We provide empirical evidence that lack of trust in public servants is a key force behind support for anti-elite populist parties and argue that our model helps explain the rise of anti-elite populism in large robust democracies. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:336736 |
| By: | Jong-Hee Hahn (Yonsei University); Seongkyun Kim (Software Policy & Research Institute) |
| Abstract: | This paper examines the welfare effects of most-favored-nation (MFN) clauses in markets where platforms not only act as intermediaries but also compete to offer auxiliary services such as delivery. Analyzing a linear demand model in which platforms set both transaction and service fees, we show that although MFNs intensify competition for service fees, their tendency to elevate transaction fees dominates, reducing aggregate transaction volume and thereby diminishing consumer surplus and overall welfare. This result holds for asymmetric platforms, provided all remain active in the market, and is robust to changes in the intensity of platform competition. |
| Keywords: | Online platform, MFNs, Price parity, Antitrust, Service competition |
| JEL: | L1 L4 D4 D8 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-281 |
| By: | Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia |
| Abstract: | Minimizing volatility and adjustment costs is of central importance in many economic environments, yet it is often complicated by evolving feasibility constraints. We study a decision maker who repeatedly selects an action from a stochastically evolving interval of feasible actions in order to minimize either average adjustment costs or variance. We show that for strictly convex adjustment costs (such as quadratic variation), the optimal decision rule is a reference rule in which the decision maker minimizes the distance to a target action. In general, the optimal target depends both on the previous action and the expectation of future constraints; but for the special case where the constraints follow a random walk, the optimal mechanism is to simply target the previous action. If the decision maker minimizes variance, the optimal policy is also a reference rule, but the target is a constant, which is not necessarily equal to the long-term average action. Compared to mid-point heuristics, these optimal rules may substantially reduce quadratic variation and variance, in natural environments by $50\%$ or more. Applied to stock market auctions, our results provide an explanation for the wide-spread use of reference price rules. We also apply our results to bilateral trade in over-the-counter markets, capacity planning in supply chains, and positioning in political agenda setting. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.15686 |
| By: | Ferreira, José Luis; Ruiz-Castillo, Javier |
| Abstract: | We study the mode of production of the first populations of Homo erectus about 2.5 million years ago. It is characterized by a dual strategy unprecedented in human history: (i) a division of labor into big game hunting and gathering, and (ii) the sharing of the food obtained from both sources. We view these two characteristics as a form of increasing productivity through individual specialization, and a form of insurance. When big game hunters fail to capture a large piece –a highly frequent event–, they rely on the food collected by gatherers. In turn, a successful hunter who could only consume in situ a portion of a large kill, shares the catch with the rest of the group. We present a simple mathematical model of the situation, consisting of a non-cooperative repeated game whose equilibria exhibit the two innovations just mentioned. A sufficient condition for a sexual division of labor where women gather and men hunt is that men are relatively more productive than women in hunting. We compare this model with a number of alternatives found in the literature, and discuss its main shortcoming: the failure to include a third key feature of the hunting-gathering mode of production, namely, the specific study of intergenerational food transfers that may involve three types of agents –children, adults, and grandparents. |
| Keywords: | Homo Erectus; Hunter-Gatherers; Division Of Labor; Food Sharing; Insurance; Specialization; Non-Cooperative Repeated Games; Subgame Perfect Nash Equilibrium |
| Date: | 2026–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:49470 |
| By: | Jean-Marie Baland (Development Finance and Public Policies, University of Namur); Giorgio Ferroni (Development Finance and Public Policies, University of Namur) |
| Abstract: | Dewatripont and Tirole (2024) show that firms’ moral conduct in the market is independent of competitive pressure. We argue that such a result critically hinges on the assumption of perfect information about the firms’ moral actions —an assumption that is, in general, unlikely to hold. Specifically, the number of firms and their size matter if consumers have only a general perception of morality in the market. In such a setting, morality becomes a public good: firms bear the full cost of their moral behaviour while capturing only a fraction of the benefits from increased consumer willingness to pay. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nam:defipp:2603 |
| By: | Zhihao Gavin Tang; Yixin Tao; Shixin Wang |
| Abstract: | We study prior-independent pricing for selling a single item to a single buyer when the seller observes only a single sample from the valuation distribution, while the buyer knows the distribution. Classical robust pricing approaches either rely on distributional statistics, which typically require many samples to estimate, or directly use revealed samples to determine prices and allocations. We show that these two regimes can be bridged by leveraging the buyer's informational advantage: pricing policies that conventionally require the seller to know statistics such as the mean, $L^\eta$-norm, or superquantile can, in our framework, be implemented using only a single hidden sample. We introduce hidden pricing mechanisms, in which the seller commits ex ante to a pricing rule based on a single sample that is revealed only after the buyer's participation decision. We show that every concave pricing policy can be implemented in this way. To evaluate performance guarantees, we develop a general reduction for analyzing monotone pricing policies over $\alpha$-regular distributions, enabling a tractable characterization of worst-case instances. Using this reduction, we characterize the optimal monotone hidden pricing mechanisms and compute their approximation ratios; in particular, we obtain an approximation ratio of approximately $0.79$ for monotone hazard rate (MHR) distributions. We further establish impossibility results for general concave pricing policies and for all prior-independent mechanisms. Finally, we show that our framework also applies to statistic-based robust pricing, thereby unifying sample-based and statistic-based approaches. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.18038 |
| By: | Yusuke Ikuta (Department of Business Administration, Osaka Sangyo University) |
| Abstract: | This paper studies how pricing structures shape AI investment incentives in datadriven markets. We develop a Hotelling model in which effective mismatch costs are jointly determined by firm investment and consumer disclosure. Firms compete either under symmetric personalized pricing or under an asymmetric structure in which one firm personalizes while its rival sets a uniform price. Under symmetric personalized pricing, allocation follows effective costs, and investment affects welfare only through technological improvements. Private and socially second-best incentives therefore coincide. Under asymmetric pricing, however, allocation is governed by total prices. Investment shifts the market boundary and induces strategic price responses by the uniform-price rival, generating a distortion wedge between private and social incentives. The direction of this wedge determines whether investment is socially insufficient or excessive. Our findings show that the welfare consequences of AI investment depend fundamentally on the pricing structure through which competition operates. JEL Classification: L13, L86, D82, O33 |
| Keywords: | Personalized pricing; Data disclosure; Strategic investment; Digital markets |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2602 |
| By: | Jong-Hee Hahn (Yonsei University); Seongkyun Kim (Software Policy & Research Institute) |
| Abstract: | This paper investigates the welfare effects of price parity (most-favored-nation, MFN) clauses in platform markets characterized by cross-platform investment externalities. Although price parity clauses can reduce fee competition and elevate retail prices, they may also improve efficiency by incentivizing platforms to increase demand-enhancing investments. Using a representative consumer model, we demonstrate that under conditions of substantial investment leakage and moderate marginal investment costs, the efficiency gains from enhanced investment can outweigh the negative impact of higher prices. We derive sufficient conditions under which platform profits, consumer surplus, and overall social welfare are all increased by the presence of price parity clauses. The stronger the platform competition, the greater the likelihood that price parity clauses will reduce consumer welfare. |
| Keywords: | Price parity (MFN) clauses, Investment externalities, Antitrust, Platform |
| JEL: | L1 L4 D4 D8 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-282 |
| By: | Bruce I. Carlin; Tingting Liu; Micah S. Officer; Agathe Pernoud; Danni Tu |
| Abstract: | Allocation mechanisms in M&A deals are complex, but a main feature is that a target board controls who to invite to the sale. In a theoretical model, we show that it is optimal for the target to invite fewer potential acquirers when they are more homogeneous (i.e., when their values for the target are more correlated). Furthermore, greater correlation (and hence a smaller optimal bidder pool) yields the target a higher surplus from the sale (i.e., higher premium). We test the model empirically and show that M&A deals with smaller bidder pools are associated with higher target returns. This is not a result of synergies in the deals: the target's share of the surplus is simply higher in deals with smaller bidder pools. Finally, we show that cash deals are associated with larger, whereas stock deals have smaller, pools of bidders. |
| JEL: | G34 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34846 |
| By: | Joshua S. Gans |
| Abstract: | Entrepreneurial ventures typically require multiple independent conditions to hold simultaneously for success. This paper develops a formal framework for decision-making under such multiplicative uncertainty. When a venture's success depends on several factors—each of which must resolve favourably—even modestly uncertain factors compound to produce low overall success probabilities. I introduce the concept of a miracle budget: the maximum aggregate uncertainty a venture can carry while remaining viable. The miracle budget increases with a venture's payoff-to-cost ratio but only logarithmically, so even transformative opportunities buy only modest additional slack in aggregate uncertainty. The framework characterises optimal experimentation strategies, including the value of information from different experimental designs, conditions for optimal sequencing of experiments, and the allocation of experimental effort across uncertain factors. A hierarchical model distinguishes real miracles—genuinely uncertain factors that can only be resolved by trying—from apparent miracles—factors that seem uncertain but can be resolved through investigation. The framework yields actionable principles for early-stage entrepreneurs: compute your budget, prioritise low-cost tests with high “kill” probability (and, when experiment costs are similar, start with the most uncertain factors), and focus early-stage work on learning how many miracles you actually face. |
| JEL: | D81 D83 L26 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34850 |
| By: | Philippe Bontems (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); Stephen F Hamilton (United States of America); Jason Lepore (United States of America) |
| Abstract: | Multisided platforms have emerged as an increasingly important market structure with the rise of the digital economy. In this paper, we consider sequential price setting behavior by platforms and demonstrate sequential pricing outcomes Pareto dominate simultaneous pricing outcomes in terms of firm and industry profits. We compare policy implications and find prices are more balanced across the platform and average prices are higher under sequential pricing than under simultaneous pricing. We also demonstrate that pricing power can be considered independently on each side of the market under multihoming behavior. |
| Keywords: | Platform competition, Two-sided markets, Network effects |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05513277 |
| By: | Nicolas Dietl; Sebastian Krautheim |
| Abstract: | We interpret the increased polarization in Western societies over global economic issues as an interaction of economic forces and shifts in a society’s social identity equilibrium. We combine social identity theory with standard small open economy model of international trade to study the effect of economic globalization with a bias towards "unethical" production. Starting from a social cohesion equilibrium where all consumers identify with society at large, we find that a falling price of the unethical variety leads to an erosion of social cohesion and can ultimately lead to a polarized social identity equilibrium where caring consumers are estranged from the society they live in. We show that this form of economic globalization is not only not always a Pareto improvement, but may even lead to aggregate welfare losses. |
| Keywords: | globalization backlash, social identity, polarization, Ricardo, social cohesion |
| JEL: | F13 F68 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12503 |
| By: | Drew Fudenberg; Florian Mudekereza |
| Abstract: | We propose a tractable unified framework to study the evolution and interaction of model-misspecification concerns and complexity aversion in repeated decision problems. This aims to capture environments where decision makers worry that their models are misspecified while also disliking overly complex models. We find that pathological cycles caused by endogenous concerns for misspecification can be eliminated by penalizing complex models and show that such preferences for simplicity tend to favor safety, which can enhance welfare in the long run. We use our framework to provide new microfoundations for pervasive empirical phenomena such as "scale heterogeneity" in discrete-choice analysis, "probability neglect" in behavioral economics, and "home bias" in international finance. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.15674 |