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on Microeconomics |
| By: | Leal Vizcaíno René; Mekonnen Teddy |
| Abstract: | We study how information affects equilibria and welfare in games. For an agent, more precise information about an unknown state of the world leads to a mean-preserving spread of beliefs. We provide necessary and sufficient conditions to obtain either a non-increasing mean or a non-decreasing-mean spread of actions whenever information precision increases for at least one agent. We apply our Bayesian comparative statics framework to study informational externalities in strategic environments. In persuasion games, we derive sufficient conditions that lead to extremal disclosure of information. In oligopolistic markets, we characterize the incentives of firms to share information. In macroeconomic models, we show that information not only drives the amplitude of business cycles but also affects aggregate output. |
| Keywords: | Comparative Statics;Information Acquisition;Information Orders;Persuasion;Value of Information;Supermodular Games |
| JEL: | C44 C61 D42 D81 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2019-03&r=all |
| By: | Laura Doval; Vasiliki Skreta |
| Abstract: | We characterize the revenue-maximizing Perfect Bayesian equilibrium for a seller who owns one unit of a durable good and interacts with a privately informed buyer over infinitely many periods. In each period, the seller can design a mechanism that determines the rules of trade. In the revenue-maximizing equilibrium, as long as a sale has not occurred, the seller chooses a mechanism that can be implemented as a posted price. Conceptually, this shows that the shape of the revenue-maximizing mechanism to sell a durable good is the same under commitment or limited commitment. Methodologically, the paper provides a recipe for problems of mechanism design with limited commitment. While in the case of commitment, subject to the truthtelling and participation constraints of the buyer, the seller's problem is a decision problem, in the case of limited commitment, we show that the seller's problem can be represented as an intrapersonal equilibrium, where the different "incarnations" of the seller represent the different beliefs he may have about the buyer's valuation. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1904.07456&r=all |
| By: | Daniel Bird; Alexander Frug |
| Abstract: | A common feature of dynamic interactions is that the environment in which they occur typically changes, perhaps stochastically, over time. We consider a general uctuating contracting environment with symmetric information, and identify a systematic e ect of the uctuations in the environment on optimal contracts. We develop a notion of a separable activity that corresponds to a large class of contractual components, and provide a tight condition under which these components manifest a form of seniority: any change that occurs in these components over time, under an optimal contract, favors the agent. We illustrate how our results can be applied in various economic settings. |
| Keywords: | Dynamic contracting, stochastic opportunities. |
| JEL: | D86 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1647&r=all |
| By: | Aperjis, Christina (Power Auctions LLC); Kotowski, Maciej (Harvard Kennedy School); Zeckhauser, Richard (Harvard Kennedy School) |
| Abstract: | We study the problem of allocating multiple items to two agents whose cardinal preferences are private information. If money is available, Bayesian incentive compatibility and ex-ante Pareto efficiency can be achieved using the Expected Externality Mechanism (EEM). Absent money, under certain reasonable conditions, Bayesian incentive compatibility and ex-post Pareto efficiency remain achievable with a modified EEM that uses one good as a numeraire in lieu of money. We study this modified EEM’s properties and compare it with other allocation procedures. |
| JEL: | D82 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp19-014&r=all |
| By: | Francesco Decarolis; Maris Goldmanis; Antonio Penta |
| Abstract: | The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative effciency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We nd that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and effciency. |
| Keywords: | Collusion, digital marketing agencies, facebook, Google, GSP, internet auctions, online advertising, VCG |
| JEL: | C72 D44 L81 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1088&r=all |
| By: | Francesc Dilmé; Fei Li |
| Abstract: | A seller has a fixed number of goods to sell by a deadline. At each time, he posts a regular price and decides whether to hold a flash sale. Over time, buyers privately enter the market and strategically time their purchases. If a buyer does not purchase when she arrives, she can pay an attention cost to recheck the regular price afterwards, or she can wait for future flash sales where she may obtain a good at a discounted price. In the unique Markov perfect equilibrium, the seller sporadically holds flash sales to lower the stock of goods. A flash sale increases the willingness to pay of future buyers, but decreases the willingness to pay of buyers who arrive early in the game. When it is very likely that a buyer will obtain a good in a flash sale, the seller holds a “big†initial flash sale for all but one unit of the good. |
| Keywords: | revenue management, commitment power, dynamic pricing, flash sales, inattention frictions |
| JEL: | D82 D83 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_083&r=all |
| By: | Mehmet Ekmekci; Stephan Lauermann |
| Abstract: | We study a model of information transmission through an informal election. Partially informed senders send binary messages to a receiver, and the receiver chooses a policy after observing the number of messages sent. Our leading example is protests in which the citizens' participation choices are their messages, and there may be positive costs or benefits of participation. A policy maker infers information from the aggregate turnout. However, the presence of activists who obtain direct benefits from participation adds noise to turnout. We show that the interplay between noise and costs leads to strategic substitution and strategic complementarity effects in the participation decisions, and we characterize their implications for the informativeness of protests. When there is no noise, information aggregates and the outcome is efficient. Our findings contrast with existing work, which shows that for many informal election scenarios with costless participation, a bias of the policy maker may prohibit any information transmission. |
| Keywords: | Voting, Information Aggregation |
| JEL: | C70 D80 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_080&r=all |
| By: | Agustín G. Bonifacio; Jordi Massó |
| Abstract: | We study social choice rules defined on the domain of semilattice single- peaked preferences. Semilattice single-peakedness has been identified as the necessary condition that a set of preferences must satisfy so that the set can be the domain of a strategy-proof, tops-only, anonymous and unanimous rule. We characterize the class of all such rules on that domain and show that they are deeply related to the supremum of the underlying semilattice structure. |
| Keywords: | Strategy-proofness; Unanimity; Anonymity; Tops-onlyness; Single-peakedness. |
| JEL: | D71 |
| Date: | 2019–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:965.19&r=all |
| By: | Ignacio Esponda; Demian Pouzo |
| Abstract: | We consider an agent who represents uncertainty about her environment via a possibly misspecified model. Each period, the agent takes an action, observes a consequence, and uses Bayes' rule to update her belief about the environment. This framework has become increasingly popular in economics to study behavior driven by incorrect or biased beliefs. Current literature has either characterized asymptotic behavior in general settings under the assumption that the agent's action converges (which sometimes does not) or has established convergence of the action in specific applications. By noting that the key element to predict the agent's behavior is the frequency of her past actions, we are able to characterize asymptotic behavior in general settings in terms of the solutions of a generalization of a differential equation that describes the evolution of the frequency of actions. Among other results, we provide a new interpretation of mixing in terms of convergence of the frequency of actions, and we also show that convergent frequencies of actions are not necessarily captured by previous Nash-like equilibrium concepts. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1904.08551&r=all |
| By: | Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Frédéric Deroïan (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We consider a network game with local complementarities. A policymaker, aiming at minimizing or maximizing aggregate effort, contracts with a single agent on the network to trade effort change against transfer. The policymaker has to find the best agent and the optimal contract to offer. Our study shows that for all utilities with linear best-responses, it only takes two statistics about the position of each agent on the network to identify the key player: the Bonacich centrality and the self-loop centrality. We also characterize key players under linear quadratic utilities for various contractual arrangements. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01981885&r=all |
| By: | Nail Kashaev; Natalia Lazzati |
| Abstract: | This paper develops a dynamic model of discrete choice that incorporates peer effects into consideration sets. We characterize equilibrium behavior and study the empirical content of the dynamic model we offer. In our set-up, the choices of friends act as exclusion restrictions in the stochastic variation of the subset of alternatives that each person considers at the moment of picking an option. They allow us to recover (from a sequence of observed choices) the ranking of preferences of each person, the attention mechanism, and the set of connections or nodes between the people in the network. The identification strategy we offer does not rely on the variation of the set of available options (or menus) which remain the same across all the observations. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1904.06742&r=all |
| By: | Johan Hombert; Jérôme Pouyet; Nicolas Schutz |
| Abstract: | We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms, and when upstream contracts are nondiscriminatory, linear, and public. On the other hand, the optimal merger policy can be non-monotonic in the strength of synergies or in the degree of downstream product differentiation. |
| Keywords: | vertical mergers, vertical foreclosure, merger waves, merger policy |
| JEL: | L13 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_084&r=all |
| By: | Toomas Hinnosaar |
| Abstract: | Most products are produced and sold by supply chain networks, where an interconnected network of producers and intermediaries set prices to maximize their profits. I show that there exists a unique equilibrium in a price-setting game on a network. The key distortion reducing both total profits and social welfare is multiple-marginalization, which is magnified by strategic interactions. Individual profits are proportional to influentiality, which is a new measure of network centrality defined by the equilibrium characterization. The results emphasize the importance of the network structure when considering policy questions such as mergers or trade tariffs. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1904.06757&r=all |
| By: | Sebastiano Della Lena (Department of Economics, University Of Venice Cà Foscari); Fabrizio Panebianco (Department of Economics and Finance, Università Cattolica del Sacro Cuore, Milano) |
| Abstract: | This paper introduces incomplete information in the standard model of cultural transmission (Bisin and Verdier, 2001). We allow parents to ignore own group size and the efficiency of their cultural transmission technology, while receiving a feedback from their children. Using the selfconfirming equilibrium concept, parents may end up to sustain, and be confirmed about, wrong conjectures. We show that in equilibrium optimal socialization efforts display cultural complementarity with respect to own population share, while the standard substitution result holds with respect their own conjectured population shares. Considering the population dynamics, if conjectures about population shares are shaped by cultural leaders who want to maximize the presence of own traits in the next period, then conjectures are characterized by negative biases. Our main finding is that, depending on the magnitude of the bias, the dynamics can display stable or unstable polymorphic equilibria, or just a stable homomorphic equilibrium, potentially reverting standard predictions. |
| Keywords: | Cultural Transmission, Incomplete Information, Selfconfirming Equilibrium, Group Under-Representation, Parental Perceived Efficacy, Cultural leaders |
| JEL: | C72 D10 D80 J10 Z10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2019:11&r=all |
| By: | Henri Loubergé (Geneva School of Economics and Management, University of Geneva, Uni Mail, Pont d'Arve 40, 1211 Geneva 4); Yannick Malevergne (Université Paris 1 Panthéon Sorbonne, PRISM Sorbonne EA 4101 and LabEx ReFi, F-75005 Paris, France); Béatrice Rey (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France) |
| Abstract: | We start by pointing out a simple property of risk apportionment with additive risks in the general stochastic dominance context defined by Eeckhoudt et al. (2009b). Quite generally, an observed preference for risk apportionment with additive risks in a specific risk environment is preserved when the decision-maker is confronted to other risk situations, so long as the total order of stochastic dominance relationships among pairs of risks remains the same. Our objective is to check whether this simple property also holds for multiplicative risk environments. We show that this is not the case, in general, but that the property holds and more strongly for the case of CRRA utility functions. This is due to a particular feature of CRRA functions that we unveil. |
| Keywords: | Additive risks, Constant relative risk aversion, Multiplicative risks, Preserved preference ranking, Risk apportionment |
| JEL: | D81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1915&r=all |
| By: | V. Bhaskar; Nikita Roketskiy |
| Abstract: | We examine the implications of consumer privacy when preferences today depend upon past consumption choices, and consumers shop from different sellers in each period. Although consumers are ex ante identical, their initial consumption choices cannot be deterministic. Thus ex post heterogeneity in preferences arises endogenously. Consumer privacy improves social welfare, consumer surplus and the profits of the second-period seller, while reducing the profits of the first period seller, relative to the situation where consumption choices are observed by the later seller. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1904.07644&r=all |