When there is strategic complementarity and all agents have access to public information, but only a subset of them has access to private information, strategic complementarity within the subset of privately-informed agents enhances the focal power of public information. The resulting expected social welfare function is always convex in the precision of both private and public information, compared to the symmetric information case. The welfare gain from increasing the precision of the public information always exceeds the welfare loss from the underutilization of private information by a subset of agents. The findings are robust to several extensions such as biased perceptions about public signals and costly acquisition of private information. The results support the use of public information campaigns to change agent behavior regarding vaccine hesitancy and social injustices, and may also shed light on why consumer expectations of economic variables consistently differ from professional forecasts.
{"title":"The Social Value of Public Information When Not Everyone is Privately Informed","authors":"Stephanie L. Chan","doi":"10.2139/ssrn.3926003","DOIUrl":"https://doi.org/10.2139/ssrn.3926003","url":null,"abstract":"When there is strategic complementarity and all agents have access to public information, but only a subset of them has access to private information, strategic complementarity within the subset of privately-informed agents enhances the focal power of public information. The resulting expected social welfare function is always convex in the precision of both private and public information, compared to the symmetric information case. The welfare gain from increasing the precision of the public information always exceeds the welfare loss from the underutilization of private information by a subset of agents. The findings are robust to several extensions such as biased perceptions about public signals and costly acquisition of private information. The results support the use of public information campaigns to change agent behavior regarding vaccine hesitancy and social injustices, and may also shed light on why consumer expectations of economic variables consistently differ from professional forecasts.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122264468","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study dynamic Bayesian persuasion in an entry game. A sender publicly reveals information to an adopter and a competitor. When the sender's loss from competition is small, the optimal policy features hype cycles: the sender first exaggerates the value of a technology to attract the adopter, and then reveals negative information to deter the competitor. Otherwise, the optimal policy features caution: the sender first underplays the value of the technology and reveals positive information later. Hype cycles are more severe in stagnant industries and with higher threat of competition, and arise in industries where the adopter's and the competitor's entry decisions are complementary.
{"title":"Hype Cycles: Dynamic Information Design with Two Audiences","authors":"Xuelin Li, M. Szydlowski, Fangyuan Yu","doi":"10.2139/ssrn.3923908","DOIUrl":"https://doi.org/10.2139/ssrn.3923908","url":null,"abstract":"We study dynamic Bayesian persuasion in an entry game. A sender publicly reveals information to an adopter and a competitor. When the sender's loss from competition is small, the optimal policy features hype cycles: the sender first exaggerates the value of a technology to attract the adopter, and then reveals negative information to deter the competitor. Otherwise, the optimal policy features caution: the sender first underplays the value of the technology and reveals positive information later. Hype cycles are more severe in stagnant industries and with higher threat of competition, and arise in industries where the adopter's and the competitor's entry decisions are complementary.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121974487","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cooperation can be achieved via incentives from future interactions, specifically in the case of public monitoring. But, today, our social and professional spheres keep shifting rapidly and we interact often with strangers. We are interested in such sporadic interactions which can be modeled as a continuous Prisoner’s Dilemma in an environment of the symmetric market where the whole population is competing among themselves to interact with other agents who will contribute the most. The interaction is private, only the agents involved know how much they have contributed to each other’s well-being, and partners may change in the next period. In such an environment if the reputation of agents is not available, then there is no incentive to cooperate. In this paper, we show that if an experience reporting mechanism facilitates assortative matching, then cooperation and honest reporting is evolutionarily (neutral) stable.
{"title":"A Mechanism and Matching in a Social Dilemma","authors":"V. Chaudhary","doi":"10.2139/ssrn.3920936","DOIUrl":"https://doi.org/10.2139/ssrn.3920936","url":null,"abstract":"Cooperation can be achieved via incentives from future interactions, specifically in the case of public monitoring. But, today, our social and professional spheres keep shifting rapidly and we interact often with strangers. We are interested in such sporadic interactions which can be modeled as a continuous Prisoner’s Dilemma in an environment of the symmetric market where the whole population is competing among themselves to interact with other agents who will contribute the most. The interaction is private, only the agents involved know how much they have contributed to each other’s well-being, and partners may change in the next period. In such an environment if the reputation of agents is not available, then there is no incentive to cooperate. In this paper, we show that if an experience reporting mechanism facilitates assortative matching, then cooperation and honest reporting is evolutionarily (neutral) stable.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122803507","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study a model of two parallel contests asymmetric in the prize with multiple types of risk-neutral players. Disclosing or hiding the realized number of players in any contest is shown to be irrelevant. We observe a quasi-sorting equilibrium wherein the most competitive players tend to enter the larger contest, while all the less competitive players equally tend to enter the smaller contest. The most competitive players bid harder in the larger contest than in the smaller contest while the players of any non-top type bid equally hard across contests. The player’s effort increases in ability in each contest.
{"title":"The quasi-sorting equilibrium and incentive effects in parallel contests with multiple types of players","authors":"Wei-Torng Juang, Guang-Zhen Sun, Kuo-Chih Yuan","doi":"10.2139/ssrn.3910203","DOIUrl":"https://doi.org/10.2139/ssrn.3910203","url":null,"abstract":"We study a model of two parallel contests asymmetric in the prize with multiple types of risk-neutral players. Disclosing or hiding the realized number of players in any contest is shown to be irrelevant. We observe a quasi-sorting equilibrium wherein the most competitive players tend to enter the larger contest, while all the less competitive players equally tend to enter the smaller contest. The most competitive players bid harder in the larger contest than in the smaller contest while the players of any non-top type bid equally hard across contests. The player’s effort increases in ability in each contest.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"88 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134468338","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present both theory and evidence that increased competition may decrease rather than increase consumer welfare in subprime credit markets. We present a model of lending markets with imperfect competition, adverse selection and costly lender screening. In more competitive markets, lenders have lower market shares, and thus lower incentives to monitor borrowers. Thus, when markets are competitive, all lenders face a riskier pool of borrowers, which can lead interest rates to be higher, and consumer welfare to be lower. We provide evidence for the model’s predictions in the auto loan market using administrative credit panel data.
{"title":"Competition and Selection in Credit Markets","authors":"Constantine Yannelis, Anthony Lee Zhang","doi":"10.2139/ssrn.3882275","DOIUrl":"https://doi.org/10.2139/ssrn.3882275","url":null,"abstract":"We present both theory and evidence that increased competition may decrease rather than increase consumer welfare in subprime credit markets. We present a model of lending markets with imperfect competition, adverse selection and costly lender screening. In more competitive markets, lenders have lower market shares, and thus lower incentives to monitor borrowers. Thus, when markets are competitive, all lenders face a riskier pool of borrowers, which can lead interest rates to be higher, and consumer welfare to be lower. We provide evidence for the model’s predictions in the auto loan market using administrative credit panel data.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"86 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133320740","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the problem of information sharing between a retail platform and a manufacturer in a supply chain. We develop a stylized model salient to which is that the product’s quality is a priori unknown to customers, who can infer it from customer-generated reviews. The platform, in turn, has access to private information concerning the relationship between quality and demand, and the manufacturer can choose to acquire said information to help determine the quality of its product accordingly. Our analysis yields three main insights. First, information sharing in and of itself induces the manufacturer to improve quality. Second, under a wholesale price contract, information sharing and product reviews together have a negative effect on product quality: When each firm is able to adjust its price in response to the quality signal, it benefits the manufacturer and hinders the platform. Consequently, the presence of reviews discourages the platform from sharing information, and the manufacturer tends to produce a lower-quality product. Finally, the negative effect of product reviews on the supply chain can be mitigated when the platform can share less accurate information or when the platform and manufacturer make a commission contract, rather than a wholesale price contract. This paper was accepted by Jayashankar Swaminathan, operations management. Funding: D. Shin received financial support from the Hong Kong University of Science and Technology [grant IGN17BM09]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4746 .
{"title":"Product Quality and Information Sharing in the Presence of Reviews","authors":"Dongwook Shin, A. Zeevi","doi":"10.2139/ssrn.3886954","DOIUrl":"https://doi.org/10.2139/ssrn.3886954","url":null,"abstract":"This paper investigates the problem of information sharing between a retail platform and a manufacturer in a supply chain. We develop a stylized model salient to which is that the product’s quality is a priori unknown to customers, who can infer it from customer-generated reviews. The platform, in turn, has access to private information concerning the relationship between quality and demand, and the manufacturer can choose to acquire said information to help determine the quality of its product accordingly. Our analysis yields three main insights. First, information sharing in and of itself induces the manufacturer to improve quality. Second, under a wholesale price contract, information sharing and product reviews together have a negative effect on product quality: When each firm is able to adjust its price in response to the quality signal, it benefits the manufacturer and hinders the platform. Consequently, the presence of reviews discourages the platform from sharing information, and the manufacturer tends to produce a lower-quality product. Finally, the negative effect of product reviews on the supply chain can be mitigated when the platform can share less accurate information or when the platform and manufacturer make a commission contract, rather than a wholesale price contract. This paper was accepted by Jayashankar Swaminathan, operations management. Funding: D. Shin received financial support from the Hong Kong University of Science and Technology [grant IGN17BM09]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4746 .","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115527527","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Merchants are wary of a platform entering as a competitor and adversely affecting sales and margins. A platform wanting to maximize profits is interested also in gaining consumer trust and confidence by providing credible quality information to consumers. As a practical matter, could a platform benefit by entering, by using multi-sender prices as signals to alleviate consumers’ uncertainty of quality? Further, can a merchant also benefit from platform entry? We answer these questions by analyzing strategic pricing by a platform and merchant under quality uncertainty. We innovate by modeling platform-merchant competition in a leader-follower framework and characterizing the sub-game perfect pricing strategy that is also PBE with consumers resolving quality uncertainty using both platform and merchant prices. We find that platform entry and resulting multi-agent signaling can help to inform consumers of quality. Consumers can benefit by lower prices and increased market coverage. An important result is that conditions exist for an equilibrium outcome identical to complete information. Even more interesting, the platform, merchant and consumers could all be made better off by platform entry.
{"title":"Who Benefits from Platform Entry if Multi-Agent Prices Signal Product Quality?","authors":"Ye Qiu, R. Rao","doi":"10.2139/ssrn.3879836","DOIUrl":"https://doi.org/10.2139/ssrn.3879836","url":null,"abstract":"Merchants are wary of a platform entering as a competitor and adversely affecting sales and margins. A platform wanting to maximize profits is interested also in gaining consumer trust and confidence by providing credible quality information to consumers. As a practical matter, could a platform benefit by entering, by using multi-sender prices as signals to alleviate consumers’ uncertainty of quality? Further, can a merchant also benefit from platform entry? We answer these questions by analyzing strategic pricing by a platform and merchant under quality uncertainty. We innovate by modeling platform-merchant competition in a leader-follower framework and characterizing the sub-game perfect pricing strategy that is also PBE with consumers resolving quality uncertainty using both platform and merchant prices. We find that platform entry and resulting multi-agent signaling can help to inform consumers of quality. Consumers can benefit by lower prices and increased market coverage. An important result is that conditions exist for an equilibrium outcome identical to complete information. Even more interesting, the platform, merchant and consumers could all be made better off by platform entry.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132461522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes how data-driven vertical integration between a platform and one downstream seller affects market outcomes in a two-sided market where sellers with asymmetric targeting skills target advertisements to individuals who have varying privacy concerns. I show that data-driven vertical integration leads to the incumbent's exclusive use of data. Therefore, a market entrant that has worse targeting technology than an incumbent is disproportionately harmed by such integration. The welfare analysis shows that integration can be welfare-reducing if consumers' privacy concerns are relatively high. Therefore, individually optimal decisions on data disclosure might not be socially optimal when aggregated.
{"title":"Privacy, Information Acquisition, and Market Competition","authors":"Soo-jin Kim","doi":"10.2139/ssrn.2940985","DOIUrl":"https://doi.org/10.2139/ssrn.2940985","url":null,"abstract":"This paper analyzes how data-driven vertical integration between a platform and one downstream seller affects market outcomes in a two-sided market where sellers with asymmetric targeting skills target advertisements to individuals who have varying privacy concerns. I show that data-driven vertical integration leads to the incumbent's exclusive use of data. Therefore, a market entrant that has worse targeting technology than an incumbent is disproportionately harmed by such integration. The welfare analysis shows that integration can be welfare-reducing if consumers' privacy concerns are relatively high. Therefore, individually optimal decisions on data disclosure might not be socially optimal when aggregated.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128047423","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose an equivalent formulation of a two player information design problem in terms of choosing a copula, as opposed to choosing a joint distribution of a signal and the state variable. We then propose a copula based signal ordering which is both necessary and sufficient for the more informative signal to generate higher dispersion of the distribution of posteriors. Applications involving Bayesian persuasion with a continuous state variable, a buyer's incentives to acquire information and a seller's incentives to provide information in a bilateral trade setting, and the role of insider information in European and American call option valuations are presented.
{"title":"Information Design Using Copulas","authors":"Rafayal Ahmed","doi":"10.2139/ssrn.3895563","DOIUrl":"https://doi.org/10.2139/ssrn.3895563","url":null,"abstract":"We propose an equivalent formulation of a two player information design problem in terms of choosing a copula, as opposed to choosing a joint distribution of a signal and the state variable. We then propose a copula based signal ordering which is both necessary and sufficient for the more informative signal to generate higher dispersion of the distribution of posteriors. Applications involving Bayesian persuasion with a continuous state variable, a buyer's incentives to acquire information and a seller's incentives to provide information in a bilateral trade setting, and the role of insider information in European and American call option valuations are presented.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134620052","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The article is concerned with understanding the impact of social preferences and wealth inequality on aggregate economic outcomes. We investigate how different manifestations of societal other-regarding preferences affect labor relationships and incentive contracts at the microeconomic level and how these in turn translate into macroeconomic outcomes. Increasing the workers’ sensitivity to inequality raises effort and reduces wage costs for poor but not necessarily for rich workers. A parameterized version of the model roughly mimicking relevant key features of the industrialized world shows that, at the general equilibrium, increased initial wealth differences raise aggregate profit and output but entail distributional utility losses and increased inequality.
{"title":"Inequality and Incentives with Societal Other-Regarding Preferences","authors":"B. Bental, Jenny Kragl","doi":"10.2139/ssrn.3347083","DOIUrl":"https://doi.org/10.2139/ssrn.3347083","url":null,"abstract":"Abstract The article is concerned with understanding the impact of social preferences and wealth inequality on aggregate economic outcomes. We investigate how different manifestations of societal other-regarding preferences affect labor relationships and incentive contracts at the microeconomic level and how these in turn translate into macroeconomic outcomes. Increasing the workers’ sensitivity to inequality raises effort and reduces wage costs for poor but not necessarily for rich workers. A parameterized version of the model roughly mimicking relevant key features of the industrialized world shows that, at the general equilibrium, increased initial wealth differences raise aggregate profit and output but entail distributional utility losses and increased inequality.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129473624","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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