Abstract This study considers a search market with an outside option and shows that entry may be insufficient. When a firm enters the search market, the price decreases, and consumers can search for more products, which increases the market demand and improves social welfare. However, firms do not internalize the effect, and insufficient entry can occur. Additionally, insufficient entry is likely to occur in a search market with low search costs and/or an attractive outside option, as these factors increase the socially optimal number of firms but decrease the firms’ profits.
{"title":"Insufficient Entry and Consumer Search","authors":"Toshiki Matsuoka","doi":"10.1515/bejte-2020-0087","DOIUrl":"https://doi.org/10.1515/bejte-2020-0087","url":null,"abstract":"Abstract This study considers a search market with an outside option and shows that entry may be insufficient. When a firm enters the search market, the price decreases, and consumers can search for more products, which increases the market demand and improves social welfare. However, firms do not internalize the effect, and insufficient entry can occur. Additionally, insufficient entry is likely to occur in a search market with low search costs and/or an attractive outside option, as these factors increase the socially optimal number of firms but decrease the firms’ profits.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"245 - 258"},"PeriodicalIF":0.4,"publicationDate":"2022-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43965083","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We introduce the concept of an Arrowian social equilibrium that inverts the schemata of the famous impossibility theorem of Arrow (1950. “A Difficulty in the Concept of Social Welfare.” Journal of Political Economy 58 (4): 328–46) and captures the possibility of aggregating non-rational individual preferences into rational social preferences while respecting the Arrowian desiderata. Specifically, we consider individuals whose preferences may not be complete and who, accordingly, may be indecisive when faced with an issue. Breaking with tradition, we consider the possibility of such individuals drawing on their beliefs about society’s preferences that result from the aggregation process to resolve their indecisiveness. Formally, individual choices are modeled as a rational shortlist method (Manzini and Mariotti 2007. “Sequentially Rationalizable Choice.” The American Economic Review 97 (5): 1824–39), with own preferences followed by society’s as the pair of ordered rationales. This results in a mutual interaction between individual and social choices. We study this interaction using majority rule as the aggregator, with an Arrowian social equilibrium specifying how individual and social choices are co-determined, while requiring the latter to be rational. Our main result identifies minimal levels of societal indecisiveness needed to guarantee the existence of such equilibrium.
{"title":"Arrowian Social Equilibrium: Indecisiveness, Influence and Rational Social Choices under Majority Rule","authors":"Abhinash Borah, Raghvi Garg, Nitesh Singh","doi":"10.1515/bejte-2021-0149","DOIUrl":"https://doi.org/10.1515/bejte-2021-0149","url":null,"abstract":"Abstract We introduce the concept of an Arrowian social equilibrium that inverts the schemata of the famous impossibility theorem of Arrow (1950. “A Difficulty in the Concept of Social Welfare.” Journal of Political Economy 58 (4): 328–46) and captures the possibility of aggregating non-rational individual preferences into rational social preferences while respecting the Arrowian desiderata. Specifically, we consider individuals whose preferences may not be complete and who, accordingly, may be indecisive when faced with an issue. Breaking with tradition, we consider the possibility of such individuals drawing on their beliefs about society’s preferences that result from the aggregation process to resolve their indecisiveness. Formally, individual choices are modeled as a rational shortlist method (Manzini and Mariotti 2007. “Sequentially Rationalizable Choice.” The American Economic Review 97 (5): 1824–39), with own preferences followed by society’s as the pair of ordered rationales. This results in a mutual interaction between individual and social choices. We study this interaction using majority rule as the aggregator, with an Arrowian social equilibrium specifying how individual and social choices are co-determined, while requiring the latter to be rational. Our main result identifies minimal levels of societal indecisiveness needed to guarantee the existence of such equilibrium.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"181 - 194"},"PeriodicalIF":0.4,"publicationDate":"2022-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44816069","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We consider a private-value auction with one-sided incomplete information in which two objects are sold in a sequence of two second-price auctions. The buyers have multiunit demand and are asymmetrically informed at the ex ante stage of the game. One buyer perfectly knows his type, and the other buyer is uninformed about her own type. We consider interim information acquisition by the uninformed buyer and derive an asymmetric equilibrium that is shown to produce a declining price sequence across both sales. The supermartingale property of the price sequence stems from the uninformed buyer’s incentives to gather private information, which leads to aggressive bidding in the first-stage auction.
{"title":"Uninformed Bidding in Sequential Auctions","authors":"Emmanuel Lorenzon","doi":"10.2139/ssrn.3825783","DOIUrl":"https://doi.org/10.2139/ssrn.3825783","url":null,"abstract":"Abstract We consider a private-value auction with one-sided incomplete information in which two objects are sold in a sequence of two second-price auctions. The buyers have multiunit demand and are asymmetrically informed at the ex ante stage of the game. One buyer perfectly knows his type, and the other buyer is uninformed about her own type. We consider interim information acquisition by the uninformed buyer and derive an asymmetric equilibrium that is shown to produce a declining price sequence across both sales. The supermartingale property of the price sequence stems from the uninformed buyer’s incentives to gather private information, which leads to aggressive bidding in the first-stage auction.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"155 - 179"},"PeriodicalIF":0.4,"publicationDate":"2022-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49360204","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper incorporates network externalities into a model of vertical product differentiation to examine how firms determine product quality and network size. We show that, with significant network benefits from quality improvement, the effects of network externalities differ depending on the type of competition. In response to an increase in network externalities, vertical product differentiation enlarges under price competition but shrinks under quantity competition. Moreover, under price competition, the network size of a high-quality product increases, whereas that of a low-quality product decreases for a sufficiently large extent of network externalities, resulting in a reversal in the leading position in terms of network size from the low- to the high-quality product. By contrast, the network sizes of high- and low-quality products both increase under quantity competition; moreover, the gap between their network sizes shrinks for a sufficiently large extent of network externalities.
{"title":"Quality Competition and Market-Share Leadership in Network Industries","authors":"Yi-Ling Cheng, Ya-Yuan Chan","doi":"10.1515/bejte-2020-0188","DOIUrl":"https://doi.org/10.1515/bejte-2020-0188","url":null,"abstract":"Abstract This paper incorporates network externalities into a model of vertical product differentiation to examine how firms determine product quality and network size. We show that, with significant network benefits from quality improvement, the effects of network externalities differ depending on the type of competition. In response to an increase in network externalities, vertical product differentiation enlarges under price competition but shrinks under quantity competition. Moreover, under price competition, the network size of a high-quality product increases, whereas that of a low-quality product decreases for a sufficiently large extent of network externalities, resulting in a reversal in the leading position in terms of network size from the low- to the high-quality product. By contrast, the network sizes of high- and low-quality products both increase under quantity competition; moreover, the gap between their network sizes shrinks for a sufficiently large extent of network externalities.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"259 - 289"},"PeriodicalIF":0.4,"publicationDate":"2022-02-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44517744","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract When a firm appoints a new manager, it reopens the possibility of new contractual friction with its partners. We explore strategic ambiguity as a potential for friction with a supplier. The firm’s new manager probably has fuzzy expectations about the supplier’s strategy. An optimistic manager weights favorable strategies more heavily than detrimental ones, whereas a pessimistic manager does the opposite. We show that the manager’s degree of optimism is critical: above a threshold, it can cause the supplier to change the timing of its contracting and increase its profits. We also find that this threshold degree of optimism depends on the degree of product substitution: it is more stringent with imperfect substitutes than with perfect substitutes or unrelated goods.
{"title":"Management Turnover, Strategic Ambiguity and Supply Incentives","authors":"Nicolas Pasquier, Pascal Toquebeuf","doi":"10.1515/bejte-2021-0070","DOIUrl":"https://doi.org/10.1515/bejte-2021-0070","url":null,"abstract":"Abstract When a firm appoints a new manager, it reopens the possibility of new contractual friction with its partners. We explore strategic ambiguity as a potential for friction with a supplier. The firm’s new manager probably has fuzzy expectations about the supplier’s strategy. An optimistic manager weights favorable strategies more heavily than detrimental ones, whereas a pessimistic manager does the opposite. We show that the manager’s degree of optimism is critical: above a threshold, it can cause the supplier to change the timing of its contracting and increase its profits. We also find that this threshold degree of optimism depends on the degree of product substitution: it is more stringent with imperfect substitutes than with perfect substitutes or unrelated goods.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"121 - 154"},"PeriodicalIF":0.4,"publicationDate":"2022-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42119182","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-01DOI: 10.1515/bejte-2022-frontmatter1
{"title":"Frontmatter","authors":"","doi":"10.1515/bejte-2022-frontmatter1","DOIUrl":"https://doi.org/10.1515/bejte-2022-frontmatter1","url":null,"abstract":"","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"1 1","pages":""},"PeriodicalIF":0.4,"publicationDate":"2022-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41320432","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Elena D’Agostino, Marco Alberto De Benedetto, G. Sobbrio
Abstract Firms use standard contracts and possibly include unfavorable fine print which consumers may read at some positive cost. We propose a comparison between a monopoly and a perfect competition market under (1) an unregulated legal regime (duty to read) and (2) a regulation that mandates clause disclosure (duty to disclose). If consumers bear the duty to read contract terms, regardless of market structure, sellers disclose in equilibrium only if it is cheaper than reading for consumers. Conversely, if sellers bear the duty to disclose contract terms, then such regulation is never welfare improving in either market; it may turn out to be consumer protective only if there are several sellers, whereas it is uneffective on this regard in a monopoly.
{"title":"Duty to Read vs Duty to Disclose Fine Print. Does the Market Structure Matter?","authors":"Elena D’Agostino, Marco Alberto De Benedetto, G. Sobbrio","doi":"10.1515/bejte-2020-0157","DOIUrl":"https://doi.org/10.1515/bejte-2020-0157","url":null,"abstract":"Abstract Firms use standard contracts and possibly include unfavorable fine print which consumers may read at some positive cost. We propose a comparison between a monopoly and a perfect competition market under (1) an unregulated legal regime (duty to read) and (2) a regulation that mandates clause disclosure (duty to disclose). If consumers bear the duty to read contract terms, regardless of market structure, sellers disclose in equilibrium only if it is cheaper than reading for consumers. Conversely, if sellers bear the duty to disclose contract terms, then such regulation is never welfare improving in either market; it may turn out to be consumer protective only if there are several sellers, whereas it is uneffective on this regard in a monopoly.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"1 - 47"},"PeriodicalIF":0.4,"publicationDate":"2021-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46709654","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies ϵ-efficiency, periodic Bayesian incentive compatibility, interim individual rationality, and ex-post budget balance. In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent’s current effort affects other agents’ future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.
{"title":"Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard","authors":"V. Cao","doi":"10.1515/bejte-2020-0089","DOIUrl":"https://doi.org/10.1515/bejte-2020-0089","url":null,"abstract":"Abstract For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies ϵ-efficiency, periodic Bayesian incentive compatibility, interim individual rationality, and ex-post budget balance. In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent’s current effort affects other agents’ future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"73 - 119"},"PeriodicalIF":0.4,"publicationDate":"2021-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49281551","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.
{"title":"Endogenous Expectations Management with Network Effects: A Note","authors":"Kangsik Choi, Seonyoung Lim","doi":"10.1515/bejte-2021-0046","DOIUrl":"https://doi.org/10.1515/bejte-2021-0046","url":null,"abstract":"Abstract We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"649 - 668"},"PeriodicalIF":0.4,"publicationDate":"2021-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45150712","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract In this paper, we investigate how pollution changes with preferences, focusing on a finite bilateral oligopoly model where agents have asymmetric Cobb-Douglas preferences. Producers are also consumers and the choice of heterogeneous preferences is related to the psychological foundations and identity aspects of group membership. We compare two strategic equilibria: the Stackelberg-Cournot equilibrium with pollution (SCEP) and the Cournot equilibrium with pollution (CEP). We show that considering the asymmetric preferences helps the public decision-maker to identify precisely the category of agents (consumer–producers or pure-consumers) for which a change in environmental preference parameters will most effectively reduce pollution. Furthermore, we find that firms’ emissions’ elasticity decreases with market power (when the market power increases) if their marginal cost is lower than their competitor. Finally, we show that when producers are also consumers, an action on pure-consumers’ preference parameters reduces more emissions than a similar action on consumer–producers, and this regardless of the timing of interaction.
{"title":"Cobb-Douglas Preferences and Pollution in a Bilateral Oligopoly Market","authors":"Anicet B. Kabré","doi":"10.1515/bejte-2020-0090","DOIUrl":"https://doi.org/10.1515/bejte-2020-0090","url":null,"abstract":"Abstract In this paper, we investigate how pollution changes with preferences, focusing on a finite bilateral oligopoly model where agents have asymmetric Cobb-Douglas preferences. Producers are also consumers and the choice of heterogeneous preferences is related to the psychological foundations and identity aspects of group membership. We compare two strategic equilibria: the Stackelberg-Cournot equilibrium with pollution (SCEP) and the Cournot equilibrium with pollution (CEP). We show that considering the asymmetric preferences helps the public decision-maker to identify precisely the category of agents (consumer–producers or pure-consumers) for which a change in environmental preference parameters will most effectively reduce pollution. Furthermore, we find that firms’ emissions’ elasticity decreases with market power (when the market power increases) if their marginal cost is lower than their competitor. Finally, we show that when producers are also consumers, an action on pure-consumers’ preference parameters reduces more emissions than a similar action on consumer–producers, and this regardless of the timing of interaction.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"23 1","pages":"49 - 71"},"PeriodicalIF":0.4,"publicationDate":"2021-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46669004","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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