Collective Decision Making, Industrial Organisation, Market and Mechanism Design
Test design under voluntary participation, Games and Economic Behavior, 104, 632-655, 2017 (working paper version, supplementary material)
Abstract: An agent who is imperfectly informed about his binary quality can voluntarily participate in a test that generates a public signal. I study the design of the test that allows for optimal learning of the agent’s quality when the agent strives for a high perception of his quality but is averse towards perception risk. For a large class of reduced-form utility functions that reflect these properties, the optimal test is binary and not subject to false positives. I uncover the forces that drive this result and show how the problem with endogenous participation can be transformed into a problem to that the concavification approach from the Bayesian persuasion literature applies. Furthermore, for a non-reduced version of my model where the designer estimates the agent’s quality but suffers either more from false positives or from false negatives, I show that the same type of test is optimal.
Continuous decisions by a committee: median versus average mechanisms, Journal of Economic Theory, 159, 15-65, 2015 (working paper version)
Abstract: A group of strategic agents with diverse private information and interdependent preferences has to take a continuous collective decision. I study the design of the decision–making procedure from the viewpoint of a utilitarian social planner. For uniformly distributed information, the implementation of the average report as decision dominates the implementation of the median report for any number of agents and for any degree of interdependence when the set of admissible reports is optimally designed. The result extends to a general class of distributions when the number of agents is large.
Advance-purchase discounts as a price discrimination device, with Volker Nocke and Martin Peitz, Journal of Economic Theory, 146, 141-162, 2011
Abstract: In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We characterize the profit-maximizing pricing strategy of the monopolist. Furthermore, adopting a mechanism design perspective, we provide a necessary and sufficient condition under which advance-purchase discounts implement the monopolist’s optimal mechanism.
Bidding Incentives in Uniform-Price Spectrum Auctions: Divide or conquer
Abstract: In spectrum auctions, bidders often need to get a minimum number of licenses to obtain a positive value, and winning an additional license may increase this value disproportionately. The value of an additional license can be direct or indirect through its effect on the induced market structure. I study the aggressiveness of bidding in uniform-price auctions in such environments. First, I uncover the role of a minimum number of units requirement for the case where an additional license yields a direct value. For any parameter value where otherwise only very aggressive equilibria exist, introducing a sufficiently large minimum number of units requirement renders collusive behavior an equilibrium that bidder-Pareto dominates the aggressive equilibrium. Second, I extend my analysis to the case where bidders draw their values from the induced market structure. While a minimum number of units requirement also renders here collusive behavior more attractive, free-riding incentives can induce perverse effects. High value bidders may try to aggressively force low bidders out and leave the market when they fail, while low value bidders try to free ride. In consequence, it can happen that only the lowest value bidders win licenses in an equilibrium.
Brexit: Dynamic Voting with an irreversible option, with Benny Moldovanu (working paper version)
Abstract: We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly be-tween a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We compare strengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a too small super majority can perform very poorly under circumstances where it is socially optimal to never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problem without relying on fine-tuning, but can lead to inefficient delays. If a final decision for either alternative requires winning by a certain margin, and if a new vote is triggered otherwise, both problems, choosing LEAVE too easily and inefficient delays, can often be avoided.
Authority and motivation in situations of open conflict, with Stefanie Brilon, revise and resubmit, Journal of Economics & Management Strategy.
Abstract: We study the allocation of the authority to select a project in a principal-agent-model with non-transferable utility where the implementation of the project requires effort by the principal and the agent. Although it is common knowledge that the two players prefer the implementation of different projects, each player is privately informed about his flexibility. The principal wants the agent to compromise on the project choice whenever he is flexible, but delegation of the project choice comes along with a discouraging effect. The organization of work on the project affects the players' willingness to compromise and their motivation. If the agent provides effort first and the principal finalizes the project, delegation is only optimal when the principal is flexible with an intermediate probability. If the principal can design the organization of work, delegation is generally optimal despite the open conflict.
(Non-)transparent (non-)mandatory tests with endogenous accuracy, with Elisabeth Schulte
Abstract: We consider a setting in which information about an agent’s type—the quality of their product or their ability—is important for society. Should information be provided through a mandatory testing (or certification) procedure? And should the procedure be transparent, i.e., should test results become publicly announced? We tackle these questions in the following setting. The accuracy of the test is endogenous, the agent possesses imprecise private information about their quality, and the agent is information-averse whereas the principal is information-loving.
Strategic outsourcing and optimal procurement, International Journal of Industrial Organization, 50, 91-130, 2017 (working paper version)
Abstract: I study a procurement problem where each seller can ex ante decide to become an intermediary by outsourcing production to a subcontractor. Production costs are independently distributed and privately learned by the producer in each supply chain. I provide a rationale for outsourcing that relies on procurement and subcontracting mechanisms being designed in a sequentially rational way but not on cost savings. I show how my rationale extends to the case with cost savings and I discuss the sellers’ incentives to engage in nested outsourcing. The driving force behind my rationale is that outsourcing makes the distribution of a seller’s cost of providing the product more dispersed. I explain also how my analysis extends to problems where such a dispersion arises for other reasons than outsourcing.
Negotiating cultures in corporate procurement, with Florian Mueller, Journal of Economic Behavior & Organization, 117, 259-280, 2015 (working paper version)
Abstract: In a repeated procurement problem, the incumbent can undertake a relationship-specific investment that generates opportunity costs of switching for the buyer. We investigate the impact of the negotiating culture on investment incentives, favoritism in the procurement contract allocation, and buyer profit. We compare a stylized competitive negotiating culture with a stylized protective culture. The cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent. Our main result is that the relative performance of the cultures depends non-monotonically on the importance of the investment.
Secret reserve prices in first-price auctions, International Journal of Industrial Organization, 37, 65-74, 2014 (working paper version)
Abstract: This paper offers a theoretical explanation for the use of secret reserve prices in auctions. I study first–price auctions with and without secret reserve price in an independent private values environment with risk–neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using using a secret reserve price to phantom bidding and non-commitment to sell.