nep-des New Economics Papers
on Economic Design
Issue of 2018‒12‒03
three papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Auctions vs. Negotiations: Optimal Selling Mechanism with Endogenous Bidder Values By Mengxi Zhang
  2. Equilibrium in the Assignment Market under Budget Constraints By van der Laan, G.; Talman, Dolf; Yang, Z.
  3. Equivalence of Canonical Matching Models By John Kennes; Daniel le Maire; Sebastian Roelsgaard

  1. By: Mengxi Zhang
    Abstract: This paper studies the design of the revenue maximizing selling mechanism in a scenario where bidders can make costly investments upfront to enhance their valuations. Unlike the case where bidders’ values are exogenously fixed, here it may be profitable for the seller to discriminate among ex ante symmetric bidders. I first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. I further find that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In general, any threshold mechanism can be implemented by a dynamic selling scheme which alternately utilizes auctions and negotiations.
    Keywords: Mechanism Design; R&D Investment; Endogenous Bidder Values; Favoritism
    JEL: D44 D82
    Date: 2018–11
  2. By: van der Laan, G.; Talman, Dolf (Tilburg University, Center For Economic Research); Yang, Z.
    Abstract: We reexamine the well-known assignment market model in a more general and more practical environment where agents may be financially constrained. These constraints will be shown to have an important impact on the set of Walrasian equilibria. We prove that a price adjustment process will either find a unique minimal Walrasian equilibrium price vector, or exclusively validate the nonexistence of equilibrium
    Keywords: assignment; auction; budget constraint; Walrasian equilibrium
    JEL: C62 C68 C71 D44
    Date: 2018
  3. By: John Kennes (Department of Economics and Business Economics, Aarhus University, Denmark); Daniel le Maire (University of Copenhagen); Sebastian Roelsgaard (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This paper offers expected revenue and pricing equivalence results for canonical models of pricing and matching. The equivalence of these models is centered on the assumption that there are large numbers of buyers and sellers and the assignment of buyers within a submarket of sellers is random. Therefore, the distribution of buyers to sellers is approximated by the Poisson distribution. The list of canonical matching models includes the models developed by Burdett and Judd (1983), Shimer (2005), and McAfee (1993). In the Burdett and Judd (1983) model, buyers post prices and the equilibrium features price dispersion because identical buyers play mixed strategies. In the Shimer (2005) model, sellers post a vector of prices corresponding to different buyer types. In equilibrium, all identical buyers pay the same price. In the McAfee (1993) model, equilibrium pricing is determined by simple second price auctions. McAfee’s model also features price dispersion, because the number of bidders at each auction is stocastic.
    Keywords: Directed search, price dispersion, competing auctions, Poisson distribution
    JEL: D83 J64
    Date: 2018–11–19

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