We explore the optimal disclosure policy of a certification intermediary in an environment where (i) the seller's decision on entry and investment in product quality are endogenous and (ii) the buyers observe an additional public signal on quality. The intermediary mutes the seller's entry incentives but enhances investment incentives following entry, and the optimal policy maximizes rent extraction from the seller in the face of this trade-off. We identify conditions under which full, partial or no disclosure can be optimal. The intermediary's report becomes noisier as the public signal gets more precise, but if the public signal becomes too precise, the intermediary resorts to full disclosure. In the presence of an intermediary, a more precise public signal may also lead to lower social welfare.
{"title":"Optimal certification policy, entry, and investment in the presence of public signals","authors":"J. Choi, A. Mukherjee","doi":"10.1111/1756-2171.12347","DOIUrl":"https://doi.org/10.1111/1756-2171.12347","url":null,"abstract":"We explore the optimal disclosure policy of a certification intermediary in an environment where (i) the seller's decision on entry and investment in product quality are endogenous and (ii) the buyers observe an additional public signal on quality. The intermediary mutes the seller's entry incentives but enhances investment incentives following entry, and the optimal policy maximizes rent extraction from the seller in the face of this trade-off. We identify conditions under which full, partial or no disclosure can be optimal. The intermediary's report becomes noisier as the public signal gets more precise, but if the public signal becomes too precise, the intermediary resorts to full disclosure. In the presence of an intermediary, a more precise public signal may also lead to lower social welfare.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":" ","pages":""},"PeriodicalIF":2.3,"publicationDate":"2020-11-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12347","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46629781","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A decision maker (DM) must address a series of problems over time. Each period, a random case arises and the DM must make a yes-or-no decision, which we call a ruling. She is uncertain about the correct ruling until she conducts a costly investigation. A ruling establishes a precedent, which may be costly to violate in the future. We compare the DM's incentive to acquire information, the evolution of standards and the social welfare under two institutions: nonbinding precedent and binding precedent. Under nonbinding precedent, the DM is not required to follow previous rulings, but under binding precedent, she must follow previous rulings where applicable. We find that, compared to nonbinding precedent, the incentive for information acquisition is stronger under binding precedent in earlier periods when few precedents exist, but as more precedents are established over time, the incentive for information acquisition becomes weaker under binding precedent. Even though erroneous rulings may be perpetuated under binding precedent, social welfare can be higher because of the more intensive investigation conducted early on.
{"title":"Learning while setting precedents","authors":"Ying Chen, Hülya Eraslan","doi":"10.1111/1756-2171.12355","DOIUrl":"https://doi.org/10.1111/1756-2171.12355","url":null,"abstract":"A decision maker (DM) must address a series of problems over time. Each period, a random case arises and the DM must make a yes-or-no decision, which we call a ruling. She is uncertain about the correct ruling until she conducts a costly investigation. A ruling establishes a precedent, which may be costly to violate in the future. We compare the DM's incentive to acquire information, the evolution of standards and the social welfare under two institutions: nonbinding precedent and binding precedent. Under nonbinding precedent, the DM is not required to follow previous rulings, but under binding precedent, she must follow previous rulings where applicable. We find that, compared to nonbinding precedent, the incentive for information acquisition is stronger under binding precedent in earlier periods when few precedents exist, but as more precedents are established over time, the incentive for information acquisition becomes weaker under binding precedent. Even though erroneous rulings may be perpetuated under binding precedent, social welfare can be higher because of the more intensive investigation conducted early on.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"1092 1","pages":"1-54"},"PeriodicalIF":2.3,"publicationDate":"2020-11-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12355","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41763392","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In 2010, the US Supreme Court loosened contribution limits to Political Action Committees (PACs), sparking fears that big donors could exert outsize influence on elections by funding PAC advertising. However, PACs are potentially handicapped when buying advertising time; data from 2012 reveal that PACs pay 32% above regulated campaign rates. I estimate a model of demand for advertising by PACs, exploiting the misalignment of state and media market borders to address price endogeneity. I find that prices reflect willingness‐to‐pay for viewer demographics rather than media bias. The estimates further suggest that network‐owned stations discriminate more successfully than do local affiliates.
{"title":"Price discrimination in political advertising: Evidence from the 2012 presidential election","authors":"Sarah Moshary","doi":"10.1111/1756-2171.12335","DOIUrl":"https://doi.org/10.1111/1756-2171.12335","url":null,"abstract":"In 2010, the US Supreme Court loosened contribution limits to Political Action Committees (PACs), sparking fears that big donors could exert outsize influence on elections by funding PAC advertising. However, PACs are potentially handicapped when buying advertising time; data from 2012 reveal that PACs pay 32% above regulated campaign rates. I estimate a model of demand for advertising by PACs, exploiting the misalignment of state and media market borders to address price endogeneity. I find that prices reflect willingness‐to‐pay for viewer demographics rather than media bias. The estimates further suggest that network‐owned stations discriminate more successfully than do local affiliates.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"615-649"},"PeriodicalIF":2.3,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12335","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48647240","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper unifies various approaches to the analysis of exclusive dealing that so far have been regarded as distinct. The common element of these approaches is that firms depart from efficient pricing,raising marginal prices above marginal costs. We show that with distorted prices, exclusive dealing can be directly profitable and anti-competitive provided that the dominant firm enjoys a strong competitive advantage over rivals. The dominant firm gains directly, rather than in the future or in adjacent markets, thanks to the boost in demand it enjoys when buyers sign exclusive contracts. We discuss the implication of the theory for antitrust policy.
{"title":"The demand‐boost theory of exclusive dealing","authors":"G. Calzolari, V. Denicoló, Piercarlo Zanchettin","doi":"10.1111/1756-2171.12338","DOIUrl":"https://doi.org/10.1111/1756-2171.12338","url":null,"abstract":"This paper unifies various approaches to the analysis of exclusive dealing that so far have been regarded as distinct. The common element of these approaches is that firms depart from efficient pricing,raising marginal prices above marginal costs. We show that with distorted prices, exclusive dealing can be directly profitable and anti-competitive provided that the dominant firm enjoys a strong competitive advantage over rivals. The dominant firm gains directly, rather than in the future or in adjacent markets, thanks to the boost in demand it enjoys when buyers sign exclusive contracts. We discuss the implication of the theory for antitrust policy.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"713-738"},"PeriodicalIF":2.3,"publicationDate":"2020-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12338","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45727459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cristián Hernández, D. Quint, Christopher Turansick
We propose a framework for identification and estimation of a private values model with unobserved heterogeneity from bid data in English auctions, using variation in the number of bidders across auctions, and extend the framework to settings where the number of bidders is not cleanly observed in each auction. We illustrate our method on data from eBay Motors auctions. We find that unobserved heterogeneity is important, accounting for two thirds of price variation after controlling for observables, and that welfare measures would be dramatically misestimated if unobserved heterogeneity were ignored.
{"title":"Estimation in English auctions with unobserved heterogeneity","authors":"Cristián Hernández, D. Quint, Christopher Turansick","doi":"10.1111/1756-2171.12343","DOIUrl":"https://doi.org/10.1111/1756-2171.12343","url":null,"abstract":"We propose a framework for identification and estimation of a private values model with unobserved heterogeneity from bid data in English auctions, using variation in the number of bidders across auctions, and extend the framework to settings where the number of bidders is not cleanly observed in each auction. We illustrate our method on data from eBay Motors auctions. We find that unobserved heterogeneity is important, accounting for two thirds of price variation after controlling for observables, and that welfare measures would be dramatically misestimated if unobserved heterogeneity were ignored.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"1 1","pages":""},"PeriodicalIF":2.3,"publicationDate":"2020-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12343","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"63248321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article develops a computational framework to analyze dynamic auctions and uses it to investigate the impact of information sharing among bidders. We show that allowing for the dynamics implicit in many auction environments enables the emergence of equilibrium states that can only be reached when firms are responding to dynamic incentives. The impact of information sharing depends on the extent of dynamics and provides support for the claim that information sharing, even of strategically important data, need not be welfare reducing. Our methodological contribution is to show how to adapt the experience‐based equilibrium concept to a dynamic auction environment and to provide an implementable boundary‐consistency condition that mitigates the extent of multiple equilibria.
{"title":"A computational framework for analyzing dynamic auctions: The market impact of information sharing","authors":"John Asker, Chaim Fershtman, Jihye Jeon, A. Pakes","doi":"10.1111/1756-2171.12341","DOIUrl":"https://doi.org/10.1111/1756-2171.12341","url":null,"abstract":"This article develops a computational framework to analyze dynamic auctions and uses it to investigate the impact of information sharing among bidders. We show that allowing for the dynamics implicit in many auction environments enables the emergence of equilibrium states that can only be reached when firms are responding to dynamic incentives. The impact of information sharing depends on the extent of dynamics and provides support for the claim that information sharing, even of strategically important data, need not be welfare reducing. Our methodological contribution is to show how to adapt the experience‐based equilibrium concept to a dynamic auction environment and to provide an implementable boundary‐consistency condition that mitigates the extent of multiple equilibria.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"805-839"},"PeriodicalIF":2.3,"publicationDate":"2020-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12341","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43211128","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a government auction program where first‐price auctions generate significantly higher revenue than English auctions, I document evidence that bidders are uncertain about the number of auction entrants. Motivated by additional data evidence, I estimate a structural model of auctions in which rivals' participation is stochastic, allowing for bidders' risk aversion and asymmetry. Counterfactual simulations reveal that bidders' uncertainty about the number of entrants, combined with risk aversion, substantially softens the revenue impact of low competition in first‐price auctions. This explains the observed revenue patterns and uncovers an empirically important reason for sellers to favor first‐price auctions over English auctions.
{"title":"Not knowing the competition: evidence and implications for auction design","authors":"Yunmi Kong","doi":"10.1111/1756-2171.12342","DOIUrl":"https://doi.org/10.1111/1756-2171.12342","url":null,"abstract":"In a government auction program where first‐price auctions generate significantly higher revenue than English auctions, I document evidence that bidders are uncertain about the number of auction entrants. Motivated by additional data evidence, I estimate a structural model of auctions in which rivals' participation is stochastic, allowing for bidders' risk aversion and asymmetry. Counterfactual simulations reveal that bidders' uncertainty about the number of entrants, combined with risk aversion, substantially softens the revenue impact of low competition in first‐price auctions. This explains the observed revenue patterns and uncovers an empirically important reason for sellers to favor first‐price auctions over English auctions.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"840-867"},"PeriodicalIF":2.3,"publicationDate":"2020-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12342","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41454440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We demonstrate the "curse of knowledge" when a monopolist can recognize different consumer groups through their purchase histories which are influenced by its dynamic pricing policies. Under the Markov-perfect equilibrium, after each commitment period, the firm offers a new introductory price so as to attract new customers. More and more market segments are added gradually. Eventually, the whole market is covered. Shortening the commitment period will result in a fall in profit. In contrast, a full-commitment monopolist would choose to stick to uniform pricing, achieving higher profit. Hence, the firm is better off by refraining from collecting customer information. Nous demontrons la "malediction du savoir" lorsqu'un monopoleur peut reconnaitre differents groupes de consommateurs a travers leurs historiques d'achat influences par sa politique de prix dynamique. Sous l'equilibre de Markov-parfait, l'entreprise propose, apres chaque periode d'engagement, un nouveau prix de lancement afin d'attirer de nouveaux clients. De plus en plus de segments de marche sont ajoutes progressivement. Finalement, tout le marche est couvert. La reduction de la periode d'engagement entrainera une baisse des benefices. En revanche, un monopoleur pleinement engage choisirait de s'en tenir a un prix unique, realisant des benefices plus eleves. Par consequent, le monopoleur gagnerait plus de profit s’il pouvait s'engager de ne pas collecter des informations sur les clients.
当垄断者可以通过受其动态定价政策影响的购买历史来识别不同的消费者群体时，我们证明了“知识的诅咒”。在马尔可夫完全均衡下，在每一个承诺期之后，企业都会提供一个新的引入价格，以吸引新的客户。越来越多的细分市场逐渐加入。最终，整个市场都被覆盖了。缩短承诺期将导致利润下降。相反，一个完全承诺的垄断者会选择坚持统一定价，从而获得更高的利润。因此，公司最好避免收集客户信息。noous demontrons ' s malediction du savir '或' unmonopoleur ' ' re re re re re不同群体的共谋者和旅行者的历史影响的政治和动态的价格。Markov-parfait的平衡，企业的提议，preres chque period d'engagement, unnouveau prix de lancement in a 'attirer de nouveaux clients。De + en + De segments De marche sont ajoutes progreses。最后，我要向你证明。减少参与的时间，使其受益的基础更加丰富。在复仇的过程中，非垄断性的满足涉及到选择的选择，这是一种独特的、现实的好处和好处。因此，垄断性的垄断加上利润的增加，将会使“参与人”、“收集者”、“信息收集者”和“客户”之间的关系更加紧密。
{"title":"The curse of knowledge: having access to customer information can reduce monopoly profits","authors":"D. Laussel, Ngo Van Long, J. Resende","doi":"10.1111/1756-2171.12336","DOIUrl":"https://doi.org/10.1111/1756-2171.12336","url":null,"abstract":"We demonstrate the \"curse of knowledge\" when a monopolist can recognize different consumer groups through their purchase histories which are influenced by its dynamic pricing policies. Under the Markov-perfect equilibrium, after each commitment period, the firm offers a new introductory price so as to attract new customers. More and more market segments are added gradually. Eventually, the whole market is covered. Shortening the commitment period will result in a fall in profit. In contrast, a full-commitment monopolist would choose to stick to uniform pricing, achieving higher profit. Hence, the firm is better off by refraining from collecting customer information. Nous demontrons la \"malediction du savoir\" lorsqu'un monopoleur peut reconnaitre differents groupes de consommateurs a travers leurs historiques d'achat influences par sa politique de prix dynamique. Sous l'equilibre de Markov-parfait, l'entreprise propose, apres chaque periode d'engagement, un nouveau prix de lancement afin d'attirer de nouveaux clients. De plus en plus de segments de marche sont ajoutes progressivement. Finalement, tout le marche est couvert. La reduction de la periode d'engagement entrainera une baisse des benefices. En revanche, un monopoleur pleinement engage choisirait de s'en tenir a un prix unique, realisant des benefices plus eleves. Par consequent, le monopoleur gagnerait plus de profit s’il pouvait s'engager de ne pas collecter des informations sur les clients.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":" ","pages":""},"PeriodicalIF":2.3,"publicationDate":"2020-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12336","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44471161","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In many deceptive markets, firms design contracts to exploit mistakes of naive consumers. These contracts also attract less profitable sophisticated consumers. I study such markets when firms compete repeatedly and gather usage data about their customers which is informative about the likelihood of a customer being sophisticated. I find that in sharp contrast to a model with only rational consumers, this customer information is of great value to its owner despite perfect competition. Formally, I introduce a two-period model in which all consumers are aware of a transparent price component. Naives additionally pay a hidden fee, e.g. for an add-on service, that they do not take into account. Competing firms cannot discriminate between new consumers, but in period 2 can employ their private information to offer type-dependent contracts to their first-period customer base. I find that in period 2, firms offer a transparent discount to continuing naives but not to sophisticates, thereby making the less profitable sophisticates more prone to switch to poaching competitors. Uninformed competitors therefore adversely attract unprofitable sophisticates, leading them to compete less vigorously. This allows firms to earn positive margins on continuing naives, while breaking even on sophisticates. Since the adverse attraction of sophisticates mitigates competition, margins from naives increase in the share of sophisticates and firms prefer an even mix of both customer types. I also show that if firms can educate (some) naives about hidden fees, competition is already mitigated when firms compete for customers in the first period with symmetric information. Intuitively, firms coordinate prices in period 1 to prevent education in period 2. As a result, total profits increase already before firms learn about their customers’ naivete. I analyze a policy that discloses customer information to all firms and thereby increases consumer surplus, and illustrate the robustness of results through several extensions.
{"title":"Dynamic competition in deceptive markets","authors":"J. Johnen","doi":"10.1111/1756-2171.12318","DOIUrl":"https://doi.org/10.1111/1756-2171.12318","url":null,"abstract":"In many deceptive markets, firms design contracts to exploit mistakes of naive consumers. These contracts also attract less profitable sophisticated consumers. I study such markets when firms compete repeatedly and gather usage data about their customers which is informative about the likelihood of a customer being sophisticated. I find that in sharp contrast to a model with only rational consumers, this customer information is of great value to its owner despite perfect competition. Formally, I introduce a two-period model in which all consumers are aware of a transparent price component. Naives additionally pay a hidden fee, e.g. for an add-on service, that they do not take into account. Competing firms cannot discriminate between new consumers, but in period 2 can employ their private information to offer type-dependent contracts to their first-period customer base. I find that in period 2, firms offer a transparent discount to continuing naives but not to sophisticates, thereby making the less profitable sophisticates more prone to switch to poaching competitors. Uninformed competitors therefore adversely attract unprofitable sophisticates, leading them to compete less vigorously. This allows firms to earn positive margins on continuing naives, while breaking even on sophisticates. Since the adverse attraction of sophisticates mitigates competition, margins from naives increase in the share of sophisticates and firms prefer an even mix of both customer types. I also show that if firms can educate (some) naives about hidden fees, competition is already mitigated when firms compete for customers in the first period with symmetric information. Intuitively, firms coordinate prices in period 1 to prevent education in period 2. As a result, total profits increase already before firms learn about their customers’ naivete. I analyze a policy that discloses customer information to all firms and thereby increases consumer surplus, and illustrate the robustness of results through several extensions.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":" ","pages":""},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12318","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42828194","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"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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