|
on Contract Theory and Applications |
| By: | Jeon, Doh-Shin; Ichihashi, Shota; Kim, Byung-Cheol |
| Abstract: | We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with dierent ad revenues, and consumers with heterogeneous tastes for content quality. The optimal mechanism balances revenue from advertising and revenue from selling access to content: Increasing advertising revenue requires serving content to more consumers, which may reduce access revenue. Contrary to the standard monopolistic screening, the platform may serve content to consumers with negative virtual values while, to reduce information rents, limiting their access to higher-quality content. Then, an increase in ad protability reduces its incentive to invest in content quality. |
| JEL: | D42 D82 L15 O31 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129923 |
| By: | Martimort, David; Stole, Lars |
| Abstract: | We study menu auction games in which several principals influence the choice of a privately-informed agent by simultaneously offering action-contingent payments; the agent is free to accept any subset of the offers. Building on tools from non-smooth optimal control with type-dependent participation constraints, we provide necessary conditions for any equilibrium allocation as the (constrained) maximizer of an endogenous aggregate virtual-surplus program. The aggregate maximand includes an information-rent component which captures how the principals’ rent-extraction motives combine. Although there is a large set of equilibria, including equilibrium allocations with discontinuities, we isolate one particular equilibrium allocation, the maximal allocation, which is the solution to an unconstrained maximization program. Under weak conditions, necessary conditions for a maximal allocation are also sufficient, and the corresponding equilibrium tariff offers are easily constructed. We illustrate our findings and derive some economic implications in several applications, with principals having either congruent interests (e.g., public goods collective action games), opposed interests (e.g., pork barrel politics, lobbying), and protection for sale in an international trade context. |
| Keywords: | Menu auctions;; delegated common agency;; screening contracts;; non-smooth optimization problems;; public goods games; ; collective action;; pork barrel politics; ; positive theory of regulation;; protection for sale |
| Date: | 2024–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129924 |
| By: | Mustapha Nyenye Issah |
| Abstract: | We explore how dynamic entry deterrence operates through feedback strategies in markets experiencing stochastic demand fluctuations. The incumbent firm, aware of its own cost structure, can deter a potential competitor by strategically adjusting prices. The potential entrant faces a one-time, irreversible decision to enter the market, incurring a fixed cost, with profits determined by market conditions and the incumbent's hidden type. Market demand follows a Chan-Karolyi-Longstaff-Sanders Brownian motion. If the demand is low, the threat of entry diminishes, making deterrence less advantageous. In equilibrium, a weak incumbent may be incentivized to reveal its type by raising prices. We derive an optimal equilibrium using path integral control, where the entrant enters once demand reaches a high enough level, and the weak incumbent mixes strategies between revealing itself when demand is sufficiently low. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.16203 |
| By: | Ilya Hajiaghayi; MohammadTaghi Hajiaghayi; Gary Peng; Suho Shin |
| Abstract: | We study bilateral trade with a broker, where a buyer and seller interact exclusively through the broker. The broker strategically maximizes her payoff through arbitrage by trading with the buyer and seller at different prices. We study whether the presence of the broker interferes with the mechanism's gains-from-trade (GFT) achieving a constant-factor approximation to the first-best gains-from-trade (FB). We first show that the GFT achieves a $1 / 36$-approximation to the FB even if the broker runs an optimal posted-pricing mechanism under symmetric agents with monotone-hazard-rate distributions. Beyond posted-pricing mechanisms, even if the broker uses an arbitrary incentive-compatible (IC) and individually-rational (IR) mechanism that maximizes her expected profit, we prove that it induces a $1 / 2$-approximation to the first-best GFT when the buyer and seller's distributions are uniform distributions with arbitrary support. This bound is shown to be tight. We complement such results by proving that if the broker uses an arbitrary profit-maximizing IC and IR mechanism, there exists a family of problem instances under which the approximation factor to the first-best GFT becomes arbitrarily bad. We show that this phenomenon persists even if we restrict one of the buyer's or seller's distributions to have a singleton support, or even in the symmetric setting where the buyer and seller have identical distributions. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.17444 |
| By: | Haefner, Samuel; Haeusle, Niklas; Koeniger, Winfried; Braun, Alexander |
| Abstract: | We develop a model in which large risk-neutral firms and individual risk-averse consumers compete to employ heterogeneous workers by posting compensation menus. Production takes time, and we analyze how screening motives interact with the desire to smooth consumption. There is a unique symmetric separating equilibrium that is also efficient. In equilibrium, the extent to which the compensation scheme delays payment until the production quality becomes known depends on whether, and to which extent, the consumers are financially constrained. We discuss how our model relates to the design of compensation schemes in current online peer-to-peer markets. |
| Keywords: | Adverse selection, Self selection, Peer-to-peer markets, Labor markets, Capital market imperfections |
| JEL: | D15 D82 D86 E24 J33 M52 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:usg:econwp:2024:05 |