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on Microeconomics |
| By: | Dworczak, Piotr; Smolin, Alex |
| Abstract: | An agent chooses an action using her private information combined with recommendations from an informed but potentially misaligned adviser. With a known alignment probability, the adviser reports his signal truthfully; with remaining probability, the adviser can send an arbitrary message. We characterize the decision rule that maximizes the agent's worst-case expected payoff. Every optimal rule admits a trust region representation in belief space: advice is taken at face value when it induces a posterior within the trust region; otherwise, the agent acts as if the posterior were on the trust region's boundary. We derive thresholds on the alignment probability above which the adviser's presence strictly benefits the agent and fully characterize the solution in binary-state as well as binary-action environments. |
| JEL: | D81 D82 D83 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21148 |
| By: | Doval, Laura; Smolin, Alex |
| Abstract: | We study mechanism design when a designer repeatedly uses a fixed mechanism to interact with strategic agents who learn from observing their allocations. We introduce a static framework, calibrated mechanism design, requiring mechanisms to remain incentive compatible given the information they reveal about an underlying state through repeated use. In single-agent settings, we prove implementable outcomes correspond to two-stage mechanisms: the designer discloses information about the state, then commits to a stateindependent allocation rule. This yields a tractable procedure to characterize calibrated mechanisms, combining information design and mechanism design. In private values environments, full transparency is optimal and correlation-based surplus extraction fails. We provide a microfoundation by showing calibrated mechanisms characterize exactly what is implementable when an infinitely patient agent repeatedly interacts with the same mechanism. Dynamic mechanisms that condition on histories expand implementable outcomes only by weakening incentive compatibility and individual rationality—a distinction that vanishes in transferable utility settings. |
| Keywords: | Dynamic mechanism design |
| JEL: | D86 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20994 |
| By: | Gersbach, Hans; Schichl, Arthur |
| Abstract: | This paper introduces political term length as a strategic variable in electoral competition, allowing candidates to compete not only over policy but also over the duration of their mandate if elected. In a two-candidate race with an incumbent and a challenger, we model the incentives to propose either a short term (e.g., two years) or a long term (e.g., four years). Because voters can directly assess the incumbent’s ability but face uncertainty about the challenger’s, strong incumbents may favor longer terms while challengers, and weaker incumbents, may prefer shorter ones. We develop a dynamic election model in which candidates compete on term length, characterize the equilibria, and show how such competition can enhance voter welfare by balancing experimentation with new officeholders against stability under high-performing officeholders. |
| Keywords: | Electoral competition; Term length |
| JEL: | C72 C73 D72 D78 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21334 |
| By: | Achim, Peter; Strausz, Roland |
| Abstract: | In modern information markets, buyers routinely combine signals from multiple sellers. We develop a model of "portfolio competition" to analyze this distinctive feature. We show that the combinability of information overturns standard oligopoly intuition. Unlike traditional markets, competitive pressure does not necessarily protect buyers: when signals are complements, sellers can leverage the buyer's desire for the joint portfolio to extract the full social surplus, regardless of the number of competitors. We characterize the precise conditions for rent extraction, which reduce to a simple geometric test for symmetric sellers. Furthermore, we find that the canonical logic of market entry fails. Entry is never socially excessive because efficient portfolio choices eliminate business-stealing effects. Paradoxically, entry can reduce competitive pressure: when entrants provide strong complementarities, they shift the buyer's threat point, allowing all sellers to extract higher rents. |
| Keywords: | Complementarity |
| JEL: | L13 D43 D83 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20867 |
| By: | Cai, Xiaoming (Peking University HSBC Business School); Gautier, Pieter (Vrije Universiteit Amsterdam); Wolthoff, Ronald (University of Toronto) |
| Abstract: | Digital platforms allocate buyer attention across sellers that differ in quality and breadth of appeal. We study a monopoly platform that sets meeting rates between buyers and two seller types --- niche sellers whose high-quality good is valued by a fraction of buyers and mass-market sellers whose good is valued by all. Sellers compete by posting prices à la Burdett and Judd (1983), so buyer surplus requires competition, while platform revenue requires seller rents. This difference creates a systematic distortion: as search capacity grows, the platform keeps high-quality niche attention just past the point where extra exposure stops creating rents and starts eroding them – its saturation point – and diverts the rest to mass-market sellers. Applying the model to Amazon product search and Google passage-ranking data indicates that, for captive buyers, both platforms operate past the saturation point.. Allowing buyer participation to respond to the platform's recommendation strategy disciplines the platform and shrinks this loss. |
| Keywords: | attention allocation, recommendation systems, search frictions, two-sided markets, enshittification of internet |
| JEL: | D62 D83 L12 L40 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18745 |
| By: | Dirk Bergemann (Department of Economics, Yale University); Marek Bojko (Department of Economics, Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (Department of Computer Science, University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study the design of efficient dynamic recommendation systems, such as AI shopping assistants, in which a platform interacts with a user over multiple rounds to identify the most suitable product among those offered by advertisers. Advertisers have multi-dimensional private information: their private value from a purchase and private information about the user's preferences. In each round, the platform displays recommendations; the user learns product characteristics of the shown items and then chooses whether to purchase, exit without purchasing, or submit a new query. These actions generate a stream of feedbackÑpurchase, exit, and follow-up queriesÑthat is informative about the user's preferences and can be used both to refine future recommendations and to design contingent transfers. We introduce a class of data-driven dynamic team mechanisms that condition payments on realized user feedback. Our main result shows that data-driven dynamic team mechanisms achieve periodic ex-post implementation of the efficient allocation rule. We then develop variants that guarantee participation and deliver budget surplus, and provide conditions under which these properties can be jointly attained. |
| Date: | 2026–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2513 |
| By: | Janssen, Maarten; Williams, Cole; Jungbauer, Thomas; Preuss, Marcel |
| Abstract: | This paper investigates the optimal information policy of an online platform (or multi-product firm) when ranking products in response to a consumer search query. The informativeness of rankings ranges from full information to full obfuscation, and consumers learn their match values with the products by engaging in costly sequential search. Invoking continuous match value distributions allows us to establish a novel result about consumer search. While consumers buy products with high match values and continue searching when they encounter low match values, they abort search without buying a product for intermediate ones. For a large class of distributions, the optimal strategy of a platform maximizing the probability of the consumer buying a product is to provide either full or no information at all. As a result, platform and consumer welfare are either fully aligned or at odds with each other. |
| Keywords: | Learning |
| JEL: | C72 D11 D21 D83 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20868 |
| By: | Satoshi Nakada; Toshiya Yoshimura |
| Abstract: | This paper proposes new robustness criteria for social choice correspondences under single-peaked preferences, inspired by the concepts of robustness in statistical estimation, where robust estimators are designed to be resilient to both model misspecification and outliers. Motivated by robustness to model assumptions, we introduce peak-robustness: a voting rule is peak-robust if it never selects an alternative that is a majority loser relative to some unchosen alternative for any preference profile sharing the same peak profile. To capture robustness to outliers, we propose tail-invariance, which requires that variations in the tails of the peak distribution do not affect the collective decision. Our main result shows that the median voting rule is the unique efficient rule satisfying these robustness criteria. When peak-robustness is weakened, we characterize the broader class of quantile rules. Taken together, these results provide a robustness-based axiomatic foundation for median and quantile voting rules, independent of the traditional strategy-proofness approach. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.25798 |
| By: | Mingyang Liu; Gabriele Farina; Asuman Ozdaglar |
| Abstract: | Nash equilibrium (NE) arises from selfish utility maximization, yet its social welfare can be arbitrarily far from optimal. Moreover, computing an NE is intractable in general. We study augmented game models in which players use budget-balanced internal transfers to improve incentives before play. We first introduce \emph{Self-Enforcing Transfer Equilibrium} (SETE), where players commit to nonnegative peer-to-peer transfers that are paid only if the recipient does not deviate from a prescribed strategy. For polymatrix games, we show that every stationary point of the social welfare function, in particular any socially optimal strategy profile, can be sustained as a SETE. This induces a Nash equilibrium in the agent normal form of the corresponding augmented game. We further propose a polynomial-time algorithm and a decentralized learning dynamic to compute such product-form equilibria. We then introduce \emph{Mediated Self-Enforcing Transfer Equilibrium} (M-SETE), where a mediator makes both the payment schedule and the prescribed strategies binding offers. This additional enforcement resolves the agent-normal-form limitation: an M-SETE is a Nash equilibrium of the augmented game itself, not merely of its agent normal form, and any socially optimal strategy profile can be supported as an M-SETE in any finite game while preserving budget balance. Thus, internal transfers improve welfare and computation while preserving independent play on the equilibrium path. When full sequential-game stability is required, binding mediation provides the corresponding implementation. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.20960 |
| By: | Bergemann, Dirk; Heumann, Tibor; Morris, Stephen |
| Abstract: | We develop an integrated framework for information design and mechanism design in screening environments with quasilinear utility. Using the tools of majorization theory and quantile functions, we show that both information design and mechanism design problems reduce to maximizing linear functionals subject to majorization constraints. For mechanism design, the designer chooses allocations weakly majorized by the exogenous inventory. For information design, the designer chooses information structures that are majorized by the prior distribution. When the designer can choose both the mechanism and the information structure simultaneously, then the joint optimization problem becomes bilinear with two majorization constraints. We show that pooling of values and associated allocations is always optimal in this case. Our approach unifies classic results in auction theory and screening, extends them to information design settings, and provides new insights into the welfare effects of jointly optimizing allocation and information. |
| Keywords: | Screening |
| JEL: | D44 D47 D82 D83 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21088 |
| By: | Allain, Marie-Laure; Bourreau, Marc; Moraga-González, José-Luis |
| Abstract: | We study the agency and wholesale models of intermediation in a bilateral monopoly where a platform can charge sellers an entry fee. With full-profit-extracting entry fees, the agency model eliminates double marginalization and yields lower prices and higher platform profits than the wholesale model, while the seller earns zero profit under both models. With partial rent extraction, the agency model yields lower prices than the wholesale model when demand satisfies Marshall’s Second Law, or when the platform can extract a sufficiently large share of the seller’s profit, regardless of demand. To disentangle the mechanisms at play in this comparison, we also study the agency model with per-unit commissions. We show that shifting price-setting power from the platform to the seller lowers prices, while changing the commission instrument from per-unit to ad valorem usually further reduces prices. Finally, when the platform is uncertain about the seller’s dead-weight loss from paying the entry fee, entry may fail. We characterize when the platform optimally sets a zero entry fee, extend the price comparison, and provide conditions under which the agency model delivers both lower prices and higher entry than the wholesale model. We also show that per-unit commissions never dominate ad valorem commissions simultaneously in terms of price and entry, whereas the reverse can occur. |
| JEL: | D21 L42 L86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21154 |
| By: | Gersbach, Hans |
| Abstract: | This paper introduces Propose or Vote (PoV), a democratic procedure for collective decision-making and elections that does not rely on a central mechanism designer. In the first stage, members of a polity choose whether to become proposal-makers or to participate only as voters. In the second stage, voters decide by majority voting over the set of submitted proposals. With appropriately chosen default points, PoV implements the Condorcet winner in a single round of voting whenever one exists. We show that this implementation is globally unique when the number of members is odd; for an even number of members, uniqueness can be restored by adding an artificial agent. PoV can also be applied to elections, where agents decide whether to stand as candidates or vote over the resulting candidate set. |
| Keywords: | proposal-making; Democracy; Majority voting |
| JEL: | C72 D70 D72 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21026 |
| By: | John Cremin (Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | An agent, Sleeping Beauty, in a game with self-locating uncertainty (i.e. one play of the game visits the same information set multiple times, as in the paradox of the absentminded driver) must select a behavioural strategy that is self-ratifying: a best-response to the belief that her other instances do likewise. When there are multiple such fixed points, the standard treatment of Aumann et al. (1997) assumes that all instances of the agent can simply coordinate. I drop this assumption (supposing that Sleeping Beauty 'lose her magic psychic powers' ), and study said agent iteratively reasoning her way to an equilibrium selection instead. Which strategy other instances select can be seen as ambiguous, so I model Beauty's choice via a response function that encodes her response to ambiguity, and a procedure that describes in what manner she iterates the application of this response function. I consider two response functions, 'Bayesian' and EU-maximin, and two procedures, replacement and accumulation, and characterise in which cases the iterative reasoning converges. For either response function, accumulation always converges, but replacement does so if and only if there are no cycles of length weakly greater than two on a particular finite functional digraph I call the support digraph. |
| Keywords: | Sleeping Beauty Problem; Imperfect Recall; Self-Locating Uncertainty; Decision Instability; Ambiguity; Absent-Minded Driver |
| JEL: | C72 C73 D81 D83 |
| Date: | 2026–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2620 |
| By: | Behrooz Moosavi Ramezanzadeh; Jordan Awan |
| Abstract: | We study public-good provision when a planner observes agents' preferences only through a fixed local-privacy channel that randomizes each report before it reaches the planner. We characterize the optimal reduced-form allocation: the project is implemented when an aggregate posterior score is positive, where each agent's score combines the posterior expected valuation and posterior virtual value. Privacy enters through these posterior objects, muting the responsiveness of provision to private preferences and, under weak monotone likelihood ratios, potentially generating pooling. We then distinguish the optimal reduced-form allocation from its implementation through signal-measurable transfers: the required transfers solve a Fredholm integral equation whose solution is unique under completeness when it exists, while existence requires a separate range condition. Maximum reduced-form revenue exhibits three population regimes: it is asymptotically linear, of square-root order, or exponentially small according as the lower endpoint of the valuation distribution is positive, zero, or negative. Finally, welfare comparisons depend on the privacy calibration. At a common noise scale, Laplace Blackwell-dominates logistic noise, while under a common tight $\mu$-GDP calibration the ordering reverses for the maximally separated binary endpoint experiment. Thus the preferred privacy channel depends on the standard used to hold privacy fixed. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.24013 |
| By: | Johnen, Johannes; Shekhar, Shiva |
| Abstract: | This paper proposes a simple yet useful framework for evaluating vertical mergers in digital markets by distinguishing between product-specific and ecosystem-specific network effects. Vis-Ã -vis no network effects, product-specific network effects amplify foreclosure and steering incentives, as a rival’s growth directly undermines the platform’s product value. Conversely, ecosystem-specific effects dampen foreclosure incentives, since rivals contribute to the overall value of the platform ecosystem. We develop a formal model illustrating how this distinction shapes platform behavior and competitive outcomes. We apply this distinction to real-world examples to illustrate its potential usefulness. Our distinction implies that regulators may want to adopt a stricter standard with no presumption of efficiencies where product-specific effects dominate. In contrast, when ecosystem-specific effects prevail, merger evaluation should mirror traditional vertical merger analysis. Thus, offering a more nuanced approach to merger evaluation by presenting a practical screening tool to identify problematic vertical mergers in markets featuring network effects. |
| Keywords: | Network externalities; Platforms; Vertical integration; Foreclosure; Steering |
| JEL: | L22 L41 L51 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20899 |
| By: | Bisceglia, Michele; Bonatti, Alessandro; Scott Morton, Fiona |
| Abstract: | We study how privacy regulation affects menu pricing by a monopolist platform that collects and monetizes personal data. Consumers differ in privacy valuation and sophistication: naïve users ignore privacy losses, while sophisticated users internalize them. The platform designs prices and data collection options to screen users. Without regulation, privacy allocations are distorted and naïve users are exploited. Regulation through privacy-protecting defaults can create a market for information by inducing payments for data; hard caps on data collection protect naïve users but may restrict efficient data trade. |
| Keywords: | Data; Defaults; Privacy |
| JEL: | D18 D82 D83 L12 L51 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20842 |
| By: | Karle, Heiko; Preuss, Marcel; Reisinger, Markus |
| 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: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21117 |
| By: | Blumenthal, Benjamin; Nunnari, Salvatore |
| Abstract: | In this paper, we introduce reciprocity concerns in a political agency model with symmetric learning about politicians’ ability and moral hazard. Voters with reciprocity concerns are both prospective — that is, seek to select competent politician s— and retrospective — that is, reward fair actions and punish unfair ones. We focus on how electoral incentives induce politicians to exert effort (electoral control) and how voters remove incompetent politicians (electoral screening). We show that taking voters' reciprocity concerns into account has important normative implications and can overturn results from standard models that neglect them: increasing transparency about the incumbent's effort improves electoral control if and only if voters have sufficiently strong reciprocity concerns; increasing benefits from office improves electoral control if and only if voters have sufficiently low reciprocity concerns. Moreover, we show that reciprocity concerns can affect electoral screening, by affecting the competence threshold incumbents must clear to ensure reelection, generating incumbency advantages or disadvantages. |
| Keywords: | Political agency; Career concerns; Social preferences; Behavioural political economy |
| JEL: | D72 D91 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20998 |
| By: | Andrew Mackenzie; Christian Trudeau |
| Abstract: | We introduce endogenous shareholding auctions for production economies where a monopolist must elicit consumer demand in order to determine price and quantity. Each of these auctions has the property that the auction's profit is distributed across the monopolist and the consumers in accordance with ownership shares that are determined over the course of the auction. We characterize this class, and a larger class, on the basis of standard axioms. Finally, we investigate optimal auctions according to both prior-free domination and subjective expected welfare. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.02457 |
| By: | Lahiri, Somdeb |
| Abstract: | We introduce multi-attribute bi-matrix games and show that a strategy profile is an equilibrium strategy profile with respect to a preference relation satisfying additivity with respect to the zero vector for an arbitrary finite set of such games having the same number of attributes if and only if it solves a bi-linear programming problem and the value of the objective function at this solution is zero. An immediate consequence of this result, is that if the outcome matrix for the row player is a convex combination of its outcome matrices in the finite collection and the outcome matrix for the column player is a (possibly different) convex combination of its outcome matrices in the finite collection, then a strategy profile is an equilibrium strategy profile for the game associated with pair of matrices if and only if it satisfies the same two conditions. |
| Keywords: | multi-attribute outcomes, preference relation, additivity with respect to the zero vector, equilibrium strategy profile, finite set of bi-matrix games, bi-linear programming problem, value of objective function, convex hull |
| JEL: | C61 C72 D81 |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129920 |
| By: | Liu, Fang; Sainathan, Arvind |
| Abstract: | Retailers increasingly use randomized discount timing, such as unannounced flash sales, to influence strategic customer behavior, yet its advantages over traditional pricing strategies remain unclear. We develop a model with high and low valuation customers who strategically choose when to purchase, and compare three policies: single pricing, fixed discount timing, and randomized discount timing. We show that the retailer’s expected profit is independent of the discount time distribution and fully characterize the optimal high and low prices under randomized discount timing. The optimal low price always equals the valuation of low valuation customers. Interestingly, the optimal high price may increase in the total amount of inventory, which is not observed under fixed discount timing. We also show that randomized discount timing can outperform fixed discount timing when the customer segments are similar in size, their valuations are significantly different, and the inventory is about the size of the low valuation segment. Under these conditions, discount uncertainty induces high valuation customers to buy at a higher price, which improves revenue. However, when the retailer is not required to offer a discount, single pricing combined with fixed discount timing dominates randomized discount timing: randomness in discount timing encourages excessive waiting, reduces high price sales, and leads to more sales at the low price. Similar results hold when we consider salvage costs/values. These findings clarify when retailers should use or avoid randomized discount timing. |
| Keywords: | pricing, randomized discount timing, strategic customers |
| JEL: | M11 M21 M31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128162 |
| By: | Rhodes, Andrew; Zhou, Jidong; Zhou, Junjie |
| Abstract: | This paper develops a framework in which a multiproduct ecosystem competes with multiple single-product firms in both price and innovation. The ecosystem can use data from one product to improve the quality of its other products. We use the framework to study three regulatory policies aimed at leveling the playing field. Restricting the ecosystem's cross-product data usage, or forcing it to share data with single-product firms, benefits those firms and induces them to innovate more. However, these policies also dampen the ecosystem’s incentive to collect data and innovate, potentially raising prices. Consumers are better off only when single-product firms are sufficiently good at innovating. Facilitating data exchange between single-product firms via a data cooperative can backfire and harm them, because it induces the ecosystem to price more aggressively. For both the data-sharing and data-cooperative policies, there exist data-compensation schemes such that consumers are better off compared to no regulation. |
| JEL: | D43 L13 L51 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21209 |
| By: | Mark Whitmeyer |
| Abstract: | Labels -- grades, credentials, scores, ratings, ranks -- do two things. They inform receivers, and they give agents something to chase. I study optimal classification when labels must be earned through costly self-selection. I show that exact certification is inefficiently fine: pooling a small bottom interval saves first-order signaling costs while losing only higher-order decision value. I provide sufficient conditions for lower censorship to maximize efficiency as well as for every optimal classification to use finitely many categories. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.26064 |
| By: | Dubus, Antoine; Legros, Patrick |
| Abstract: | Firms may share data to discover potential synergies between their data sets and algorithms, eventually leading to more efficient mergers and acquisitions (M&A) decisions. However, data sharing also modifies the competitive balance when firms do not merge, and a company may be reluctant to share data with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing data. By doing so, they can merge conditionally based on high synergies. Compared to a laissez-faire situation, the presence of a regulator allowing or refusing the M&A may increase or decrease data sharing, with a concomitant increase or decrease in consumer surplus. Hence, regulation can lower the surplus of consumers it is willing to protect. We revisit the Google/Fitbit acquisition through the lens of this interplay between strategic data sharing and antitrust policy. |
| Keywords: | Artificial intelligence; Synergies; Mergers and acquisitions; Incomplete information; Antitrust |
| JEL: | G34 K21 L1 L21 L24 L5 L86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21125 |
| By: | Jeong, Byeong-hyeon; Pycia, Marek |
| Abstract: | We show that first-price auctions can maximize a wide variety of objectives, including revenue, welfare, bidder surplus, and equality, while second-price (or ascending) auctions do not maximize revenue except in Myerson’s regular case. This stark contrast between canonical auction pricing rules qualifies the celebrated revenue equivalence. Furthermore, the optimality of first-price auctions does not hinge on any distributional assumptions, which enables us to analyze problems that are beyond the scope of Myersonian mechanism design. The resulting optimal auctions might employ not only reserve prices but also bid caps and other exclusions in the space of allowed bids. We also provide tools for the optimal design of first-price auctions and establish conditions for equilibrium existence and uniqueness. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21116 |
| By: | John Mori |
| Abstract: | We consider the social aggregation of preferences over lotteries in the presence of other-regarding preferences. If society respects each individual's sovereignty, an axiom we propose akin to Sen's Liberalism, then society's utility is a linear combination of individuals' self-regarding utilities. That is, other-regarding preferences can only influence the weights society places on each individual. We next characterize the unique weighting method under which society's weight ratio between two individuals is the geometric mean of that of all individuals. The first distinguishing axiom concerns the consistency of sequential aggregation, while the second concerns consensus across changes in individuals' other-regarding preferences. We extend the first result to a setting with feasibility constraints and a setting with subjective uncertainty. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.25904 |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We study a market in which firms each might supply a number of variants, or "brands", of fundamentally the same product. Consumers differ in the sets of brands they consider, and firms compete using (multi-dimensional) mixed pricing strategies. We show when firms apply uniform pricing across their brands, and when they use segmented pricing so that one "discount" brand is priced below another "premium" brand. We study the case of symmetric brands in particular, and discuss the impact of a firm introducing a new brand, of imposing a requirement to set uniform prices across brands, and of mergers between firms. |
| Keywords: | Price dispersion |
| JEL: | C72 D43 D83 L13 M31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20973 |
| By: | Gratton, Gabriele; Lee, Barton |
| 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. |
| JEL: | D72 D73 P00 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21048 |
| By: | Alex Frankel (University of Chicago, Booth School of Business); Navin Kartik (Yale University, Department of Economics) |
| Abstract: | Signaling is wasteful. But how wasteful? We study the fraction of surplus dissipated in a separating equilibrium. For isoelastic environments, this waste ratio has a simple formula: B/(B + o), where B is the benefit elasticity (reward to higher perception) and o is the elasticity of higher typesÕ relative cost advantage. The ratio is constant across types and is independent of other parameters, including convexity of cost in the signal. We show that the directional effects of B and o on waste extend to non-isoelastic environments. |
| Date: | 2026–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2495r1 |
| By: | Ashfaq, Marium; Toxvaerd, Flavio; Wei, Yi |
| Abstract: | We study collusive agreements in an infinite-horizon model in which firms invest in inventories of intermediate goods and compete in quantities of final goods. Stocks of inventories act as capacity constraints at the time of production, but can be replenished for future use through investment. Input stocks simultaneously impact firms’ ability to deviate from collusive agreements and their ability to punish such deviations and therefore have ambiguous effects on the sustainability of collusion. We characterize subgame perfect equilibria in grim trigger strategies in which firms potentially hold asymmetric excess inventories on the collusive path. We show that the sustainability of collusive agreements is non-monotone in inventory stocks. While holding excess capacity is costly and unproductive, the practice can improve firms’ ability to sustain anticompetitive agreements. |
| Keywords: | Collusion |
| JEL: | L13 L41 D25 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21232 |
| By: | Emons, Winand; Lenhard, Severin; Parisi, Francesco |
| Abstract: | We study settlement bargaining under three alternative fee-shifting rules: the American Rule, the English Rule, and an optional feeshifting regime in which the defendant chooses whether the case will proceed under the American or the English Rule. The defendant knows whether his conduct gives rise to liability while the plaintiff only has a noisy signal. This two-sided asymmetric information creates scope for strategic misrepresentation: defendants who face liability may try to pass as if they do not, while plaintiffs with weak evidence may act as if they have a strong case. When litigation costs are similar for both parties, optional fee-shifting reduces litigation rates more effectively than either the American or the English Rule alone. |
| JEL: | D41 D82 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20847 |
| By: | Acemoglu, Daron; Egorov, Georgy; Sonin, Konstantin |
| Abstract: | In turbulent times, political labels become increasingly uninformative about politicians' true policy preferences or their ability to withstand the influence of special interest groups. We offer a model in which politicians use campaign rhetoric to signal their political preferences in multiple dimensions. In equilibrium, the less popular types try to pool with the more popular ones, whereas the more popular types seek to separate themselves. The ability of voters to process information shapes politicians' campaign rhetoric. If the signals on the cultural dimension are more precise, politicians signal more there, even if the economy is more important to voters. The unpopular type benefits from increased conformity, which bridges the candidates' campaign rhetoric and makes it more difficult for voters to make an informed decision. |
| JEL: | D72 D84 P00 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21133 |
| By: | Benjamin Blumenthal; Salvatore Nunnari |
| Abstract: | We introduce reciprocity concerns in a political agency model with both symmetriclearning about politicians’ ability and moral hazard. In our framework, voters possessboth prospective motives, as they aim to select competent politicians, and retrospectiveones, as they reward actions seen as fair and punish actions seen as unfair. We studyhow institutional features affect politicians’ incentives to exert effort (electoral control)and voters’ removal of incompetent politicians (electoral screening). We show thatreciprocity can overturn standard results: increasing transparency of actions improveselectoral control if and only if voters’ reciprocity concerns are sufficiently strong, whileoffice rents have a non-monotone effect, and reducing rents can increase electoral control.We also show that reciprocity concerns shift the competence threshold incumbents mustclear to ensure reelection, generating an incumbency advantage when voters’ fairnessexpectations are low and an incumbency disadvantage when they are high |
| Keywords: | Political Agency; Career concerns; Social Preferences; Behavioral Models of Policy |
| Date: | 2026–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/409783 |
| By: | Alex Chan |
| Abstract: | This paper studies market design for generative AI intermediation. AI answer systems can improve user experience while diverting visits that finance publisher content and generate source-level quality signals. I show that an AI platform that underinternalizes future content reproduction retains too little referral traffic and can make costly open-web information subcritical, even with truthful content, accurate answers, and rational users. The mechanism can be self-reinforcing: less source-level measurement weakens conventional search, inducing further AI reliance. Sustainable repair requires replacing displaced revenue and deleted measurement through visitor-replacement royalties, audited provenance, human-information audits, and keystone-topic compensation. |
| JEL: | D4 D43 D47 D49 D62 D8 D82 D83 L82 L86 O3 O33 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35344 |
| By: | Dirk Bergemann (Yale University); Kevin Breuer; Peter Cramton (Max Planck Institute for Research on Collective Goods and University of Maryland); Jack Hirsch (Harvard University); Yero S. Ndiaye (University of Cologne and Max Planck Institute for Behavioral Economics); Axel Ockenfels (Adenauer School of Government and Department of Economics, University of Cologne; Max Planck Institute for Behavioral Economics) |
| Abstract: | A soft-floor auction asks bidders to accept an opening price to participate in a second-price auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free second-price auction. Efficiency improves because a soft floor allows for a lower hard reserve, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice. |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2512 |
| By: | Hattori, Keisuke |
| Abstract: | Teamwork can either cure or create procrastination. We trace this to guilt: present-biased members who break a joint plan feel guilt that is largest when one shirks alone and smallest when failure is shared-an ordering we derive from a single monotonicity of second-order beliefs rather than impose. The resulting coordination game traps the team in collective procrastination only under symmetry. Two kinds of member break the symmetry and lead the team out, both by acting as a self-starter-one who acts whatever the partner does. The first has the disposition by type: enough follow-through to act unconditionally, she does exactly what a committed visible leader would. The second acquires it by foresight: a sophisticated member who anticipates her own delay pays to commit, making herself a self-starter where her type alone would not. A self-starter is thus an endogenous leader, supplied by heterogeneity when present bias differs across members and by self-commitment when it does not. |
| Keywords: | procrastination, present bias, guilt aversion, teams, coordination, leadership |
| JEL: | C72 D23 D91 M54 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341671 |
| By: | Hattori, Keisuke |
| Abstract: | Leadership is usually understood as a means of influencing followers. Can it also discipline the leader herself? In an infinitely repeated team-production game where the leader moves first, sequential timing creates an enforcement asymmetry: a shirking leader is punished within the same period, whereas a follower can free ride on the leader's sunk effort and is punished only later. Full exposure removes the leader's dynamic incentive constraint and turns role assignment into a choice of whom to discipline. Holding the other dimension fixed, the less patient member should lead, whereas the more able member should follow, because ability relaxes the only remaining constraint. When high ability and low patience coincide in one person, task complementarity favors keeping that person as a productive follower, while substitutability favors assigning her to lead. This pure-exposure benchmark is sharply overturned once a leader's traits spill over to followers: above a single assimilation threshold, the conventional assignment of the high-ability, patient leader becomes superior on both output and enforcement grounds. Greater transparency of the leader's effort strengthens this disciplinary mechanism, and costly supervision can substitute for that discipline. The model implies that promoting the best worker can undermine team cooperation even when that worker would make a competent leader. |
| Keywords: | leadership, repeated games, team production, cooperation, promotion, supervision |
| JEL: | C72 C73 D23 J24 M51 M54 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341546 |
| By: | Moraga-González, José-Luis; Motchenkova, Evgenia |
| Abstract: | We investigate the impact of mergers on R&D incentives within a framework of R&D competition where effort can influence both the probability of innovation and the payoff conditional on success. Our framework nests the results of two classes of existing models and reveals assumptions that are restrictive. In models where R&D effort increases the probability of innovation but does not directly affect the payoff upon success, we show that the assumption of zero payoff upon innovation failure is restrictive. In models where R&D effort influences the payoff conditional on success, but not the probability of success itself, the assumption of deterministic innovation success (i.e., a success probability of one) is similarly restrictive. Across both modeling approaches, we offer a novel insight: the shape of investment costs, and by implication the pre-merger level of innovation, can be pivotal in determining whether a merger strengthens or weakens firms’ incentives to invest in R&D. In an extensions section, we further examine the role of R&D input and output synergies, firm asymmetries, as well as the implications for consumer surplus. |
| Keywords: | Product innovation; Cost-reducing investment |
| JEL: | K21 L13 L40 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20986 |
| By: | Eliaz, Kfir; Rubinstein, Ariel |
| Abstract: | A firm wishes to persuade a patient to take a drug by making either positive statements like "if you take our drug, you will be cured", or negative statements like "anyone who was not cured did not take our drug". Patients are neither Bayesian nor strategic: They use a decision procedure based on sampling past cases. We characterize the firm's optimal statement, and analyze competition between firms making either positive statements about themselves or negative statements about their rivals. The model highlights that logically equivalent statements can differ in effectiveness and identifies circumstances favoring negative ads over positive ones. |
| Keywords: | Persuasion; Non-bayesian behaviour; Narratives |
| JEL: | D83 D91 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20907 |
| By: | Ren\'e A\"id; Nizar Touzi; St\'ephane Villeneuve |
| Abstract: | We study how forward hedging reshapes incentive provision inside the firm. We consider a risk-averse producer facing demand and production risk that can either operate in-house or delegate production to a risk-averse agent under moral hazard, while hedging output in a competitive forward market with a rational market maker. Within a tractable continuous-time CARA framework, we jointly characterize optimal production, compensation, and static hedging in equilibrium. Delegation and external hedging are partial substitutes because both create value through risk sharing. Delegation can increase firm value even when the agent uses the same technology and is more risk averse than the principal, while access to forward hedging reduces the need to provide incentives through risk exposure. This mechanism delivers two main results. First, the principal hedges less under delegation than under in-house production. Second, this lower hedging demand under delegation raises the equilibrium forward price relative to the integrated benchmark. In the constant-demand case, we show that access to hedging lowers the agent's expected compensation under delegation. Numerical results indicate that this mechanism remains robust in the presence of demand uncertainty. More broadly, our results show that external risk transfer through financial markets feeds back into internal organizational design. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.16493 |
| By: | Xuehan Jiang; Xi Zhi Lim |
| Abstract: | Risky consumption generates information when uncertainty is resolved. This paper axiomatically characterizes the consumption-information trade-off even when the analyst does not observe an agent's future problems. A subjective future menu underpins the agent's willingness to sacrifice current consumption for future information. By carefully separating objective risk from subjective risk, we decompose the certainty equivalent of an act into a standard risk premium and a novel information premium. To facilitate applications, we introduce an Arrow-Debreu-Pratt parameterization that yields a tractable model, capturing risk aversion and information incentives with a single coefficient for each. Finally, we show that heterogeneity in risk-taking may arise from differing opportunities to capitalize on information, rather than being solely attributable to differences in risk aversion. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.16380 |
| By: | Haese, Jérémie; Kretschmer, Tobias; Peukert, Christian |
| Abstract: | How early-stage platforms can overcome the chicken-and-egg problem is a central strategic challenge. We develop a dynamic model of two-sided platform adoption in which user utility depends on same-side and cross-side network effects, and adoption is shaped by advertising that increases sensitivity to perceived utility. We highlight the distinct role of advertising as a salience amplifier rather than a direct utility shifter. We derive closed-form conditions under which a platform takes off or collapses, showing that even when one side cannot sustain growth alone, targeted advertising on the other side can trigger self-reinforcing adoption. We show how advertising reduces the required strength of indirect network effects for critical mass and provides strategic guidance on where to allocate early marketing resources. To illustrate these mechanisms, we run agent-based simulations to illustrate the dynamics of three platform archetypes: marketplaces, service platforms, and ad-funded social networks. The simulations confirm that modest early advertising can reliably push the system past its critical threshold and that the optimal side to target depends on market size, the direction and strength of network effects, and competitive conditions within each side. We extend our model to incorporate competition between two platforms in which advertising can have spillovers (category versus brand advertising) and find that early differences in advertising levels across the platforms can tip the market towards one platform. We conclude with a discussion of managerial implications, giving actionable guidance for platform entrepreneurs to overcome the chicken-and-egg problem. |
| Keywords: | Two-sided markets; Advertising |
| JEL: | M37 O33 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21012 |
| By: | José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam); Long Hoàng (Vrije Universiteit Amsterdam) |
| Abstract: | This paper analyzes a monopoly platform’s joint pricing and investment decisions in the canonical two-sided market model of Armstrong (2006). Participants are heterogeneous in outside options and derive both stand-alone benefits from joining the platform, and network benefits from interacting with the opposite side. The platform sets participation prices on both sides and chooses investments that enhance user experience. We characterize monopoly distortions in participation, pricing, and investment relative to a social planner. Taking investment as given, the monopoly outcome features under-participation on both sides, yet participation prices need not transparently reflect these participation distortions. We show that at least one participation price is excessively high relative to the social optimum. Equivalently, while one side’s participation price may be inefficiently low, participation prices that are too low on both sides are impossible. When investment enhances network benefits, marginal returns are proportional to interaction volume; since the planner induces greater participation and therefore more interactions, the monopoly underinvests on both sides. By contrast, when investment enhances stand-alone benefits, marginal returns scale with own-side participation, so investment distortions may be asymmetric across sides, although overinvestment on both sides is ruled out. An application to app platforms, with user-side device pricing and developer-side commissions on in-app purchases, yields sharp predictions for device price, commission and investment distortions, as well as for the effects of commission caps on buyer and seller surplus. |
| Keywords: | two-sided platforms, pricing and investment inefficiency, app-stores, commission caps |
| JEL: | D42 L12 L14 L40 O30 |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260015 |
| By: | Amir, Gideon; Arieli, Itai; Ashkenazi-Golan, Galit; Peretz, Ron |
| Abstract: | We study a model of opinion exchange in social networks where a state of the world is realized and every agent receives a zero-mean noisy signal of the realized state. Golub and Jackson (2010) have shown that under DeGroot (1974) dynamics agents reach a consensus that is close to the state of the world when the network is large. The DeGroot dynamics, however, is highly non-robust and the presence of a single “adversarial agent” that does not adhere to the updating rule can sway the public consensus to any other value. We introduce a variant of DeGroot dynamics that we call 1/ -DeGroot. 1/ -DeGroot dynamics approximates standard DeGroot dynamics to the nearest rational number with as its denominator and like the DeGroot dynamics it is Markovian and stationary. We show that in contrast to standard DeGroot dynamics, 1/ -DeGroot dynamics is highly robust both to the presence of adversarial agents and to certain types of misspecifications. |
| JEL: | C63 D83 D85 |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126309 |
| By: | Fulghieri, Paolo; Hu, Yunzhi; Varas, Felipe |
| Abstract: | Venture capital financing typically features complex securities and staging. We develop a dynamic contracting model where an entrepreneur seeks financing from active investors (who provide costly monitoring and screening) and passive investors (who offer cheaper capital). Under multilateral moral hazard, we show that the optimal contract can be implemented through a sequential offering of securities, including common and preferred equity, options, warrants, as well as a combination of senior debt and credit lines (venture debt). Our model predicts when entrepreneurs optimally separate monitoring and screening across multiple active investors ("rounds financing") versus consolidating these functions with a single active investor ("milestone financing"). Rounds financing dominates when informed capital is scarce. |
| Keywords: | Venture capital financing; Security design |
| JEL: | G32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20966 |
| By: | Jonathan Lafky; Robin Ng |
| Abstract: | We examine how product ratings are interpreted in the presence of heterogeneous prefer ences among both raters and consumers. Raters with altruistic motives should rate for the benefit of future consumers, however an ambiguity arises when preferences are heteroge neous. Multiple equilibria exist in which ratings may reflect the preferences of raters or the preferences of future consumers. In an online experiment, we examine how ratings are se lected by raters and interpreted by consumers, and how information about rater preferences or product attributes can influence equilibrium selection. We find that raters tend to rate based on their own preferences and that consumers largely anticipate this behavior. |
| Keywords: | Ratings and Reviews, Altruism |
| JEL: | C91 D64 D83 L86 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_594v2 |
| By: | Habib, Michel; Ljungqvist, Alexander |
| Abstract: | We develop a unified framework in which IPO practices operate not to manage asymmetric information but to prevent it from arising. Costly information acquisition gives investors an option to pick and choose among offerings, forcing the underwriter to offer a discount. IPO practices lower the value of this option — by diminishing the quality, relevance, or payoff of investor information — and thereby reduce the discount required to deter information production. This information-prevention perspective offers a coherent explanation for otherwise disparate practices, resolves persistent empirical puzzles about IPO allocations, and yields new implications for partial adjustment, cornerstone investors, and the JOBS Act. |
| Keywords: | Information acquisition |
| JEL: | G24 G32 D82 G28 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21291 |