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on Microeconomics |
| By: | Andrea Attar (DEF and CEIS, Università di Roma "Tor Vergata" and Toulouse School of Economics); Thomas Mariotti (Toulouse School of Economics, CNRS); François Salanié (Toulouse School of Economics, INRA) |
| Abstract: | We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013). |
| Keywords: | Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity |
| JEL: | D43 D82 D86 |
| Date: | 2017–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:403&r=mic |
| By: | Mikhail Drugov (New Economic School and CEPR); Dmitry Ryvkin (Florida State University) |
| Abstract: | We study the optimal allocation of prizes, comparative statics and architecture of multi-prize rank-order tournaments. For a principal allocating a fixed budget, we show that the winner-take-all (WTA) prize schedule is optimal when the distribution of noise has increasing failure rate (IFR). For noise distributions with unimodal failure rates the optimal prize allocation moves closer to WTA as the distribution becomes smaller in the convex transform order. We also identify a natural ordering of prize schedules by how closely they approximate the WTA schedule and show that for log-concave noise distributions the equilibrium effort is monotone in this order. Comparing one-stage tournaments with parallel tournaments where players are split into subgroups competing for separate prizes, we show that the former architecture always dominates for IFR noise distributions. However, when comparing one-stage tournaments to a two-stage architecture where first-stage winners from parallel subgroups compete in the second-stage tournament, we show that either of the two architectures can be optimal depending on the details of the distribution of noise, including noise dispersion. |
| Keywords: | tournament, optimal allocation of prizes, unimodality, failure rate, comparative statics, architecture, dispersive order, convex transform order |
| JEL: | C72 D72 D82 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2017_05_01&r=mic |
| By: | Herresthal, C. |
| Abstract: | A decision maker (DM) consults an advisor before deciding whether or not to switch from the status quo. Both agree that switching is optimal if and only if some hypothesis is true. But the advisor may be biased in how he trades off falsely accepting against falsely rejecting the hypothesis. Over two periods, the advisor can sequentially run costly tests, where each test yields a noisy binary outcome. I contrast the setting in which the DM observes all outcomes with a setting in which testing itself is hidden and the advisor can selectively disclose outcomes. I fully characterise under which conditions the DM is strictly better off with hidden testing than with observable testing. The reasons why hidden testing can be beneficial depend on the direction of the advisor's bias. Finally, I study what my findings imply about the bias of the ideal advisor. |
| Keywords: | endogenous information acquisition, veriable disclosure, strategic experimentation, transparency |
| JEL: | D83 D82 |
| Date: | 2017–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1712&r=mic |
| By: | Kneeland, Terri |
| Abstract: | This paper studies mechanism design under the level-k solution concept. The first result gives a general necessary condition for a social choice rule to be level-k implementable. In some environments, this necessary condition is equivalent to Bayesian incentive compatibility, making level-k implementation more restrictive than Bayesian implementation. The second result shows that this is not a general implication. In the bilateral trade environment ex post efficient trade is always possible under level-k implementation. Further, ex post efficient trade is possible in a mechanism that is robust to different specifications of beliefs about the levels of reasoning of others and to any specification of beliefs about payoffs. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2017303&r=mic |
| By: | Lefouili, Yassine; Toh, Ying Lei |
| Abstract: | This paper analyzes the effects of a privacy regulation that caps the level of data disclosure on investment in quality and social welfare. We develop a model in which a monopolist offers a service for free to consumers with heterogeneous privacy preferences, and derives revenues from disclosing consumer data to third parties. We assume that the users of the service choose how much information they provide to the firm. In this setting, regulating the disclosure level can alter both the extensive margin effect and the intensive margin effect of an investment in quality. In the case where the market is fully covered, a welfare-maximizing regulator who can commit ex ante to a cap on disclosure level finds it optimal to do so when the complementarity between quality and information is not too strong. In the case where the market is partially covered, such an an ex ante disclosure cap may be socially desirable even when quality and information are strongly complementary. Finally, we extend our analysis to the case where the regulator maximizes consumer surplus, and to a scenario where the regulator sets a disclosure cap ex post. |
| Keywords: | Privacy Regulation, Data Disclosure, Quality. |
| JEL: | L15 L4 M21 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:31630&r=mic |
| By: | Antoine Mandel (Paris School of Economics - Centre d'Economie de la Sorbonne); Xavier Venel (Paris School of Economics - Centre d'Economie de la Sorbonne) |
| Abstract: | We provide an analytical approach to the problem of influence maximization in a social network when two players compete by means of dynamic targeting strategies. We formulate the problem as a two-player zero-sum stochastic game. We prove the existence of the uniform value: if the players are sufficiently patient, both players can guarantee the same mean-average opinion without knowing the exact discount factor. Further, we put forward some elements for the characterization of equilibrium strategies. In general, players must implement a trade-off between a forward-looking perspective, according to which they shall aim at maximizing the future spread of their opinion in the network, and a backward-looking perspective, according to which they shall aim at counteracting their opponent's previous actions. When the influence potential of players is small, an equilibrium strategy is to systematically target the agent with the largest eigenvector centrality |
| Keywords: | Social Network; Dynamic games; Targeting; Stochastic games |
| JEL: | C71 D85 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17021&r=mic |
| By: | Kultti, Klaus |
| Abstract: | Delacroix and Shi (Pricing and signaling with frictions, Journal of Economics Theory 2013) study a model featuring buyers with unit demands and sellers with unit supplies. The sellers may produce a high- or a low-quality good. The buyers get a signal about quality but the signalling technology is quite specific; the signal is either completely revealing or uninformative. The author studies the same model with a symmetric signalling technology where high and low signals are always got with positive probability. As a consequence, whenever high-quality goods are produced also low-quality goods are produced. Instead of price posting the author studies trading by auctions. There are two equilibria, and the author quantifies the efficiency loss due to asymmetric information. |
| JEL: | D8 D82 D44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201719&r=mic |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | We consider a choice of options for an innovating firm to enter the market with or without licensing its new cost-reducing technology to the incumbent firm using a combination of a royalty per output and a fixed license fee, or to license its technology without entry. With general demand and cost functions we show the following results. When the innovating firm licenses its technology to the incumbent firm without entry, the optimal royalty rate per output for the innovating firm is zero with negative fixed fee, and when the innovating firm enters the market and at the same time licenses its technology to the incumbent firm, the optimal royalty rate is positive with positive or negative fixed fee. Also we show that when cost functions are concave, the optimal royalty rate is one such that the incumbent firm drops out of the market and license without entry strategy and entry with license strategy are optimal for the innovator; and when cost functions are strictly convex, there is an internal solution of the optimal royalty rate under duopoly and entry with license strategy is optimal for the innovator. |
| Keywords: | duopoly, royalty, fixed license fee |
| JEL: | D43 L13 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78854&r=mic |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | We consider a choice of options for an innovating firm in duopoly under vertical differentiation to enter the market with or without licensing its technology for producing a higher quality good to the incumbent firm using a combination of a royalty per output and a fixed license fee, or to license its technology without entry. With general distribution function of consumers' taste parameter and cost function we will show that when the innovating firm licenses its technology to the incumbent firm without entry, the optimal royalty rate per output is zero with negative fixed fee, and when the innovating firm enters the market with a license to the incumbent firm, its optimal royalty rate is positive with positive or negative fixed fee. Also we show that when cost function is concave, the optimal royalty rate is one such that the incumbent firm drops out of the market; and when cost function is strictly convex, there is an internal solution of the optimal royalty rate under duopoly. |
| Keywords: | duopoly, royalty, fixed license fee, vertical differentiation |
| JEL: | D43 L13 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78856&r=mic |
| By: | Simon Quemin |
| Abstract: | We study intertemporal abatement decisions by an ambiguity averse firm covered under a cap and trade. Ambiguity aversion is introduced to account for the prevalence of regulatory uncertainty in existing cap-and-trade schemes. Ambiguity bears on both the future permit price and the firm's demand for permits. Ambiguity aversion drives equilibrium choices away from intertemporal efficiency and induces two effects: a pessimistic distortion of beliefs that overemphasises 'detrimental' outcomes and a shift in the effective discount factor. Permit allocation is non neutral and the firm's intertemporal abatement decisions do not solely depend on expected future permit prices, but also on its own expected future market position. In particular, pessimism leads the expected net short (resp. long) firm to overabate (resp. underabate) early on relative to intertemporal efficiency. We show that there is a general incentive for early overabatement and that it is more pronounced under auctioning that under free allocation. |
| Keywords: | Emissions trading, Regulatory uncertainty, Permit banking, Ambiguity aversion. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:cec:wpaper:1703&r=mic |
| By: | Herings, P. Jean-Jacques (General Economics 1 (Micro)); Mauleon, Ana (university of louvain, louvain la neuve); Vannetelbosch, Vincent (university of louvain, louvain la neuve) |
| Abstract: | We study stable sets for marriage problems under the assumption that players can be both myopic and farsighted. We introduce the new notion of the myopic-farsighted stable set, which is based on the notion of a myopic-farsighted improving path. A myopic-farsighted stable set is the set of matchings such that there is no myopic-farsighted improving path from any matching in the set to another matching in the set (internal stability) and there is a myopic-farsighted improving path from any matching outside the set to some matching in the set (external stability). For the special cases where all players are myopic and where all players are farsighted, our concept predicts the set of matchings in the core. When all men are myopic and the top choice of each man is a farsighted woman, we show that the singleton consisting of the woman-optimal stable matching is a myopic-farsighted stable set. The same result holds when all women are farsighted. We present examples where this is the unique myopic-farsighted stable set as well as examples of myopic-farsighted stable sets consisting of a core element different from the woman-optimal matching or even of a non-core element. |
| Keywords: | marriage problems, stable sets, myopic and farsighted players |
| JEL: | C70 C78 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2017011&r=mic |
| By: | Li, Shengwu |
| Abstract: | A strategy is obviously dominant if, for any deviation, at any information set where both strategies first diverge, the best outcome under the deviation is no better than the worst outcome under the dominant strategy. A mechanism is obviously strategy-proof (OSP) if it has an equilibrium in obviously dominant strategies. This has a behavioral interpretation: A strategy is obviously dominant iff a cognitively limited agent can recognize it as weakly dominant. It also has a classical interpretation: A choice rule is OSP-implementable iff it can be carried out by a social planner under a particular regime of partial commitment. |
| Keywords: | microeconomic theory; mechanism design; market design; experiment |
| JEL: | C7 D01 D03 D82 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78930&r=mic |
| By: | Dziubinski, M.; Goyal, S.; Minarsch, D . E. N. |
| Abstract: | In the study of war, a recurring observation is that con ict between two opponents is shaped by third parties. The actions of these parties are in turn in uenced by other In the study of war, a recurring observation is that conflict between two opponents is shaped by third parties. The actions of these parties are in turn influenced by other proximate players. These considerations lead us to propose a model with multiple interconnected opponents. We study the influence of resources, technology, and the network of connections, on the dynamics of war and on the prospects of peace. |
| Keywords: | Hegemony, preventive war, buffer states, imperial overreach, offensive and defensive realism |
| Date: | 2017–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1704&r=mic |
| By: | Chongwoo Choe; Stephen King; Noriaki Matsushima |
| Abstract: | We study a two-period model of spatial competition with two symmetric firms where firms learn customers’ preferences from the first-period purchase, which they use for personalized pricing in the second period. With product choice exogenously fixed with maximal differentiation, we show that there exist two asymmetric equilibria and customer switching is only from one firm to the other unless firms discount future too much. Firms are worse off with such personalized pricing than when they use pricing at higher levels of aggregation. When product choice is also made optimally, there continue to exist two asymmetric equilibria given sufficiently small discounting, none of which features maximal differentiation. More customer information hurts firms, and more so when they make both product choice and pricing decisions. |
| Keywords: | Spatial competition, behavior-based price discrimination, personalized pricing, endogenous product choice |
| JEL: | D43 L13 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2017-07&r=mic |
| By: | Bezalel Peleg; Shmuel Zamir |
| Abstract: | We consider a standard model of judgment aggregation as presented, for example, in Dietrich (2015). For this model we introduce a sequential aggregation procedure (SAP) which uses the majority rule as much as possible. The ordering of the issues is assumed to be exogenous. The exact definition of SAP is given in Section 3. In Section 4 we construct an intuitive relevance relation for our model, closely related to conditional entailment. Unlike Dietrich (2015), where the relevance relation is given exogenously as part of the model, we require that the relevance relation be derived from the agenda. We prove that SAP has the property of independence of irrelevant issues (III) with respect to (the transitive closure of) our relevance relation. As III is weaker than the property of proposition-wise independence (PI) we do not run into impossibility results as does List (2004) who incorporates PI in some parts of his analysis. We proceed to characterize SAP by anonymity, restricted monotonicity, local neutrality, restricted agenda property, and independence of past deliberations (see Section 5 for the precise details). Also, we use this occasion to show that Roberts’s (1991) characterization of choice by plurality voting can be adapted to our model. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp708&r=mic |
| By: | Gian Luigi Albano (Consip S.p.A. e Luiss Guido Carli); Berardino Cesi (DEF, Università di Roma "Tor Vergata"); Alberto Iozzi (DEF and CEIS, Università di Roma "Tor Vergata",) |
| Abstract: | In procurement markets, unverifiable quality provision may be obtained either by direct negotiation or by competitive processes which discriminate firms on the basis of their past performance. However, discrimination is not allowed in many institutional contexts. We show that a non-discriminatory competitive process with a reserve price may allow the buyer to yield an efficient allocation of the contract and to implement the level of quality desired by the buyer. Quality enforcement arises out of a relational contract whereby the buyer threatens to set a `low' reserve price in future competitive tendering processes if any contractor fails to provide the required quality. We study an infinitely repeated procurement model with many firms and one buyer imperfectly informed on the firms' cost, in which, in each period, the buyer runs a standard low-price auction with reserve price. We study the cases of players using grim trigger strategies, analysing both the case of a committed and uncommitted buyer. We find that a competitive process with reserve price is able to elicit the desired level of unverifiable quality provided that the buyer's valuation of the project is not too high and the value of quality is not too low; under these conditions, the buyer can credibly threaten the firms to set, in case a contractor fails to deliver the required quality level, a reserve price so low that no firm is willing to participate to the tender. A committed buyer can elicit the desired quality level for a wider range of preference parameters. |
| Keywords: | public procurement, relational contracts, unverifiable quality, reserve price |
| JEL: | H57 D44 |
| Date: | 2017–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:404&r=mic |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | When an outside innovating firm has a technology to produce a higher quality good than the good produced at present, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fee in such a situation in an oligopoly with three firms under vertical product differentiation, one outside innovating firm and two incumbent firms, considering threat by entry of the innovating firm using a two-step auction. We also present an example of the optimal strategy for the innovating firm under the assumption of uniform distribution of consumers' taste parameter and zero cost. Also we suppose that the innovating firm sells its licenses using a combination of royalty per output and a fixed license fee. |
| Keywords: | royalty, license fee; entry; oligopoly; vertical differentiation; two-step auction |
| JEL: | D43 L13 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78859&r=mic |