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on Economic Design |
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Issue of 2018‒11‒12
three papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Bergemann, Dirk; Heumann, Tibor; Morris, Stephen |
| Abstract: | We consider demand function competition with a finite number of agents and private information. We analyze how the structure of the private information shapes the market power of each agent and the price volatility. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across agents across all information structures, hence we can provide sharp and robust bounds on some but not all equilibrium statistics. We then compare demand function competition with a different uniform price trading mechanism, namely Cournot competition. Interestingly, in Cournot competition, the market power is uniquely determined while the price volatility cannot be bounded by the variance of the aggregate shock. |
| JEL: | C72 C73 D43 D83 G12 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13295&r=des |
| By: | Anqi Li; Yiqing Xing |
| Abstract: | Many real-world problems such as sales and healthcare regulation involve a principal, multiple intermediaries, and agents with hidden characteristics. In these problems, intermediaries compete through offering menus of multifaceted consumption bundles to agents, whereas the principal is limited to regulating sub-aspects of the sold bundles by legal, informational and administrative barriers. We study how the principal can implement through intermediaries any social choice rule that is incentive compatible and individually rational for agents. When intermediaries have private values, intermediated implementation can be achieved by a per-unit fee schedule that allows intermediaries to break even under the target social choice rule. When intermediaries have interdependent values, per-unit fee schedules cannot generally be used to achieve implementation, whereas regulating the distribution over sub-aspects can under general conditions about the target allocation. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.11475&r=des |
| By: | Moser, Johannes |
| Abstract: | There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue – also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information. |
| Keywords: | Hypothetical thinking,cursed equilibrium,winner's curse |
| JEL: | D03 D44 D82 D83 C91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc18:181506&r=des |