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on Microeconomics |
| By: | Martin Peitz; Lily Samkharadze |
| Abstract: | Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome. |
| Keywords: | Two-sided markets, tacit collusion, cartelization, price structure, platform competition |
| JEL: | L41 L13 D43 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_331v2&r= |
| By: | Itai Arieli; Yakov Babichenko; Fedor Sandomirskiy |
| Abstract: | A sender communicates with a receiver through a sequence of mediators. The sender is the only informed agent and the receiver is the only one taking an action. All the agents have their own utility functions, which depend on the receiver's action and the state. For any number of mediators, the sender's optimal value is characterized. For one mediator, the characterization has a clear geometric meaning of constrained concavification of the sender's utility, optimal persuasion requires the same number of signals as without mediators, and the presence of the mediator is never profitable for the sender. Surprisingly, the second mediator may improve the sender's utility; however, optimal persuasion with several mediators may require more signals. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.04285&r= |
| By: | Abhijit Banerjee; Olivier Compte |
| Abstract: | We explore a model of non-Bayesian information aggregation in networks. Agents non-cooperatively choose among Friedkin-Johnsen type aggregation rules to maximize payoffs. The DeGroot rule is chosen in equilibrium if and only if there is noiseless information transmission...leading to consensus. With noisy transmission, while some disagreement is inevitable, the optimal choice of rule blows up disagreement: even with little noise, individuals place substantial weight on their own initial opinion in every period, which inflates the disagreement. We use this framework to think about equilibrium versus socially efficient choice of rules and its connection to polarization of opinions across groups. |
| JEL: | D0 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29897&r= |
| By: | Juan Pereyra (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Francisco Silva |
| Abstract: | Objects of different quality are to be assigned to agents. Agents can be assigned at most one object and there are not enough high-quality objects for every agent. The social planner is unable to use transfers to give incentives for agents to convey their private information; instead, she is able to imperfectly verify their reports. We characterize a mechanism that maximizes welfare, where agents face different lotteries over the various objects, depending on their report. We then apply our main result to the case of college admissions. We find that optimal mechanisms are, in general, ex-post inefficient and do strictly better than the standard mechanisms that are typically studied in the matching literature. |
| Keywords: | imperfect verification, evidence, mechanism design, matching. |
| JEL: | C7 D8 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:0420&r= |
| By: | Shota Ichihashi; Byung-Cheol Kim |
| Abstract: | We study competition for consumer attention, in which platforms can sacrifice service quality for attention. A platform can choose the “addictiveness” of its service. A more addictive platform yields consumers a lower utility of participation but a higher marginal utility of allocating attention. We provide conditions under which increased competition can harm consumers by encouraging platforms to offer low-quality services. In particular, if attention is scarce, increased competition reduces the quality of services because business stealing incentives induce platforms to increase addictiveness. Restricting consumers’ platform usage may decrease addictiveness and improve consumer welfare. A platform’s ability to charge for its service can also decrease addictiveness. |
| Keywords: | Economic models |
| JEL: | D40 L51 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-16&r= |
| By: | Syngjoo Choi; Sanjeev Goyal; Frédéric Moisan (Division of Social Science) |
| Abstract: | We consider a setting in which individuals can purchase information at a cost and form costly links to access information purchased by others. The theory predicts that in every equilibrium of this game the network is a `star'. For small groups, there exists a unique purchase configuration -a pure influencer outcome, in which the hub node purchases information while all others free ride. For large groups, there exists, in addition, a pure connector outcome in which the hub purchases no information and the peripheral players purchase information. We test these predictions on a new experimental platform with asynchronous activity in continuous time. We start with a baseline setting where subjects only see their own payoffs. We find that subjects create a star network. In small groups, the hub purchases equilibrium level information, but in large groups the hub purchases excessive information and as a result earns low payoffs. To study the reasons for this excessive investment we propose a treatment in which subjects see everyone's payoffs. We find that in small groups the pure influencer out- come obtains but that in large groups the pure-connector outcome now becomes common, suggesting that information and group size interact in powerful ways to shape networks and payoffs. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20220077&r= |
| By: | Gregorio Curello; Ludvig Sinander |
| Abstract: | In the canonical persuasion model, comparative statics has been an open question. We answer it, delineating which shifts of the sender's interim payoff lead her optimally to choose a more informative signal. Our first theorem identifies an ordinal notion of 'increased convexity' that we show characterises those shifts of the sender's interim payoff that lead her optimally to choose no less informative signals. To strengthen this conclusion to 'more informative' requires further assumptions: our second theorem identifies the necessary and sufficient condition on the sender's interim payoff, which strictly generalises the 'S'-shape commonly imposed in the literature. (Note: preliminary and incomplete.) |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.07474&r= |
| By: | Takao Asano (Okayama University); Hiroyuki Kojima (Teikyo University) |
| Abstract: | This paper investigates characterizations of a class of belief functions. Our main contributions are threefold. First, using the notion of invariant weights, we characterize the Choquet integral with respect to belief functions along the lines of Schmeidler (1986). Second, we directly derive a class of belief functions on a state space and a collection of events that determines whether Möbius inversions are strictly positive or zero. Third, we show that the derived collection is simple-complete. |
| Keywords: | Mobius inversions, Invariant weights, Simple-completeness |
| JEL: | C71 D81 D90 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1077&r= |
| By: | Ozan Candogan; Nicole Immorlica; Bar Light; Jerry Anunrojwong |
| Abstract: | Individuals increasingly rely on social networking platforms to form opinions. However, these platforms typically aim to maximize engagement, which may not align with social good. In this paper, we introduce an opinion dynamics model where agents are connected in a social network, and update their opinions based on their neighbors' opinions and on the content shown to them by the platform. We focus on a stochastic block model with two blocks, where the initial opinions of the individuals in different blocks are different. We prove that for large and dense enough networks the trajectory of opinion dynamics in such networks can be approximated well by a simple two-agent system. The latter admits tractable analytical analysis, which we leverage to provide interesting insights into the platform's impact on the social learning outcome in our original two-block model. Specifically, by using our approximation result, we show that agents' opinions approximately converge to some limiting opinion, which is either: consensus, where all agents agree, or persistent disagreement, where agents' opinions differ. We find that when the platform is weak and there is a high number of connections between agents with different initial opinions, a consensus equilibrium is likely. In this case, even if a persistent disagreement equilibrium arises, the polarization in this equilibrium, i.e., the degree of disagreement, is low. When the platform is strong, a persistent disagreement equilibrium is likely and the equilibrium polarization is high. A moderate platform typically leads to a persistent disagreement equilibrium with moderate polarization. Lastly, more balanced and less polarized initial opinions are more likely to lead to persistent disagreement than to consensus. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.12453&r= |
| By: | Alexander Kolesnikov; Fedor Sandomirskiy; Aleh Tsyvinski; Alexander P. Zimin |
| Abstract: | We consider the problem of revenue-maximizing Bayesian auction design with several i.i.d. bidders and several items. We show that the auction-design problem can be reduced to the problem of continuous optimal transportation introduced by Beckmann. We establish the strong duality between the two problems and demonstrate the existence of solutions. We then develop a new numerical approximation scheme that combines multi-to-single-agent reduction and the majorization theory insights to characterize the solution. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.06837&r= |
| By: | Shanglyu Deng |
| Abstract: | A speculator can take advantage of a procurement auction by acquiring items for sale before the auction. The accumulated market power can then be exercised in the auction and may lead to a large enough gain to cover the acquisition costs. I show that speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. In the case where speculation is profitable in first-price auctions, it is more profitable in second-price auctions. This comparison in profitability is driven by different competition patterns in the two auction mechanisms. In terms of welfare, speculation causes private value destruction and harms efficiency. Sellers benefit from the acquisition offer made by the speculator. Therefore, speculation comes at the expense of the auctioneer. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.03044&r= |
| By: | Hadi Hosseini; Sujoy Sikdar; Rohit Vaish; Lirong Xia |
| Abstract: | We study fair allocation of indivisible goods and chores among agents with \emph{lexicographic} preferences -- a subclass of additive valuations. In sharp contrast to the goods-only setting, we show that an allocation satisfying \emph{envy-freeness up to any item} (EFX) could fail to exist for a mixture of \emph{objective} goods and chores. To our knowledge, this negative result provides the \emph{first} counterexample for EFX over (any subdomain of) additive valuations. To complement this non-existence result, we identify a class of instances with (possibly subjective) mixed items where an EFX and Pareto optimal allocation always exists and can be efficiently computed. When the fairness requirement is relaxed to \emph{maximin share} (MMS), we show positive existence and computation for \emph{any} mixed instance. More broadly, our work examines the existence and computation of fair and efficient allocations both for mixed items as well as chores-only instances, and highlights the additional difficulty of these problems vis-{\`a}-vis their goods-only counterparts. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.07279&r= |
| By: | Ying Gao |
| Abstract: | This paper considers the disclosure problem of a sender who wants to use hard evidence to persuade a receiver towards higher actions. When the receiver hopes to make inferences based on the distribution of the data, the sender has an incentive to drop observations to mimic the distributions observed under better states. We find that, in the limit when datasets are large, it is optimal for senders to play an imitation strategy, under which they submit evidence imitating the natural distribution under some desirable target state. The volume of data that the sender can submit must meet a certain standard, a "burden of proof", before the receiver can be persuaded to take a high action. The outcome exhibits partial pooling: senders are honest when either they have little data or the state is good, but they try to deceive the receiver when they have access to a lot of data and the state is bad. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.07191&r= |
| By: | A. Arda Gitmez; Pooya Molavi |
| Abstract: | This paper presents a model of partisan media trying to persuade a sophisticated and heterogeneous audience. We base our analysis on a Bayesian persuasion framework where receivers have heterogeneous preferences and beliefs. We identify an intensive-versus-extensive margin trade-off that drives the media's choice of slant: Biasing the news garners more support from the audience who follows the media but reduces the size of the audience. The media's slant and target audience are qualitatively different in polarized and unimodal (or non-polarized) societies. When the media's agenda becomes more popular, the media become more biased. When society becomes more polarized, the media become less biased. Thus, polarization may have an unexpected consequence: It may compel partisan media to be less biased and more informative. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.12698&r= |
| By: | Zo\"e Hitzig; Benjamin Niswonger |
| Abstract: | This paper defines and analyzes default delegation, an indirect mechanism that describes how the government influences bilateral contracts to maximize social welfare. In default delegation, the government chooses the default contract and a possibly-limited set of contract terms it is willing to enforce. Our analysis of this mechanism provides a theoretical foundation for immutable and default rules in contract law: immutable rules mitigate externalities, while default rules achieve particular distributions of surplus in non-contractible states of the world. We derive conditions under which default delegation implements the entire set of first-best contracts. We then characterize how optimal default delegation responds to changes in the underlying contracting environment and in the social welfare function's weighting of efficiency, externalities and distributional concerns. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.01233&r= |
| By: | Cecilia Parlatore; Thomas Philippon |
| Abstract: | We develop a tractable framework to study the optimal design of stress scenarios. A principal wants to manage the unknown risk exposures of a set of agents. She asks the agents to report their losses under hypothetical scenarios before mandating actions to mitigate the exposures. We show how to apply a Kalman filter to solve the learning problem and we characterize the scenario design as a function of the risk environment, the principal’s preferences, and the available remedial actions. We apply our results to banking stress tests. We show how the principal learns from estimated losses under different scenarios and across different banks. Optimal capital requirements are set to cover losses under an adverse scenario while targeted interventions depend on the covariance between residual exposure uncertainty and physical risks. |
| JEL: | D8 G2 H12 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29901&r= |
| By: | Fausto Cavalli; Mario Gilli; Ahmad Naimzada |
| Abstract: | Outcomes observed in laboratory experiments on contests are often not consistent with the results expected by theoretical models, with phenomena that frequently occur like overbidding or persisting oscillations in strategic choices. Several explanations have been suggested to understand such phenomena, dealing primarily with equilibrium analysis. We propose a dynamical model based on the coevolution of strategic choices and agent preferences. Each agent can have non self-interested preferences, which influence strategic choices and in turn evolve according to them. We show that multiple coexisting steady states characterized by non self-interested preferences can exist, and they lose stability as the prize increases, leading to endogenous oscillating dynamics. Finally, with an emphasis on two specific kinds of agents, we explain how overbidding can emerge. The numerical results show a good qualitative agreement with the experimental data. |
| Keywords: | Contest models, Endogenous interdependent preferences, Coevolution of strategies and preferences, Multistability, Non convergent dynamics |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:492&r= |