nep-des New Economics Papers
on Economic Design
Issue of 2019‒05‒13
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Marketing Agencies and Collusive Bidding in Online Ad Auctions By Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio
  2. Obviousness around the clock By Breitmoser, Yves; Schweighofer-Kodritsch, Sebastian
  3. Conflict-free and Pareto-optimal Allocations in the One-sided Assignment Game: A Solution Concept Weaker than the Core By David Pérez-Castrillo; Marilda Sotomayor
  4. Coalition Formation and History Dependence By Bhaskar Dutta; Hannu Vartiainen
  5. Analysis of Approval Voting in Poisson Games By François Durand; Antonin Macé; Matias Nunez
  6. Spherical Preferences By Christopher P. Chambers; Federico Echenique

  1. By: Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio
    Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.
    Keywords: Collusion; Digital Marketing Agencies; Facebook; Google; GSP; Internet Auctions; Online Advertising; VCG.
    JEL: C72 D44 L81
    Date: 2019–04–23
  2. By: Breitmoser, Yves; Schweighofer-Kodritsch, Sebastian
    Abstract: Li (2017) supports his theoretical notion of obviousness of a dominant strategy with experimental evidence that bidding is closer to dominance in the dynamic ascending clock than the static second-price auction (private values). We replicate his experimental study and add three intermediate auction formats to decompose this behavioral improvement into cumulative effects of (1) seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock and (3) getting drop-out information. Li's theory predicts dominance to become obvious through (2) dynamic bidding. We find no significant behavioral effect of (2). However, both (1) and (3) are highly significant.
    Keywords: strategy proofness,experiments,private value auction
    JEL: C91 D44 D82
    Date: 2019
  3. By: David Pérez-Castrillo; Marilda Sotomayor
    Abstract: In the one-sided assignment game any two agents can form a partnership and decide how to share the surplus created. Thus, in this market, an outcome involves a matching and a vector of payoffs. Contrary to the two-sided assignment game, stable outcomes often fail to exist in the one-sided assignment game. We introduce the idea of conflict-free outcomes: they are individually rational outcomes where no matched agent can form a blocking pair with any other agent, neither matched nor unmatched. We propose the set of Pareto-optimal (PO) conflict-free outcomes, which is the set of the maximal elements of the set of conflict-free outcomes, as a natural solution concept for this game. We prove several properties of conflict-free outcomes and PO conflict-free outcomes. In particular, we show that each element in the set of PO conflict-free payoffs provides the maximum surplus out of the set of conflict-free payoffs, the set is always non-empty and it coincides with the core when the core is non-empty. We further support the set of PO conflict-free outcomes as a natural solution concept by suggesting an idealized partnership formation process that leads to these outcomes. In this process, partnerships are formed sequentially under the premise of optimal behavior and two agents only reach an agreement if both believe that more favorable terms will not be obtained in any future negotiations.
    Keywords: matching, assignment game, core, Pareto-optimal outcome, conflict-free outcome
    JEL: C78 D78
    Date: 2019–04
  4. By: Bhaskar Dutta (Department of Economics, Ashoka University); Hannu Vartiainen (Department of Economics, Ashoka University)
    Abstract: Farsighted formulations of coalitional formation, for instance by Harsanyi (1974) and Ray and Vohra(2015), have typically been based on the von NeumannMorgenstern (1944) stable set. These farsighted stable sets use a notion of indirect dominance in which an outcome can be dominated by a chain of coalitional 'moves' in which each coalition that is involved in the sequence eventually stands to gain. Dutta and Vohra(2016) point out that these solution concepts do not require coalitions to make optimal moves. Hence, these solution concepts can yield unreasonable predictions. Dutta and Vohra (2016) restricted coalitions to hold common, history independent expectations that incorporate optimality regarding the continuation path. This paper extends the Dutta-Vohra analysis by allowing for history dependent expectations. The paper provides characterization results for two solution concepts corresponding to two versions of optimality. It demonstrates the power of history dependence by establishing nonemptyness results for all finite games as well as transferable utility partition function games. The paper also provides partial comparisons of the solution concepts to other solutions.
    Keywords: Coalition
    Date: 2018–07
  5. By: François Durand (Nokia Bell Labs [Espoo], LINCS - Laboratory of Information, Network and Communication Sciences - Inria - Institut National de Recherche en Informatique et en Automatique - Institut Mines-Télécom [Paris] - SU - Sorbonne Université); Antonin Macé (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - La plante et son environnement - CNRS - Centre National de la Recherche Scientifique - INA P-G - Institut National Agronomique Paris-Grignon - UP11 - Université Paris-Sud - Paris 11 - INRA - Institut National de la Recherche Agronomique); Matias Nunez (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We analyze Approval Voting in Poisson games endowing voters with private values over three candidates. We firsts how that any stable equilibrium is discriminatory: one candidate is commonly regarded as out of contention. We fully characterize stable equilibria and divide them into two classes. In direct equilibria, best responses depend only on ordinal preferences. In indirect equilibria, preference intensities matter. Counter-intuitively, any stable equilibrium violates the ordering conditions, a set of belief restrictions used to derive early results in the literature. We finally use Monte-Carlo simulations to estimate the prevalence of the different sorts of equilibria and their likelihood to elect a Condorcet winner.
    Keywords: Approval voting,Poisson games,Stable equilibria,Monte-Carlo simulations
    Date: 2019–03
  6. By: Christopher P. Chambers; Federico Echenique
    Abstract: We introduce and study the property of orthogonal independence, a restricted additivity axiom applying when alternatives are orthogonal. The axiom requires that the preference for one marginal change over another should be preferred after each marginal change has been shifted in a direction that is orthogonal to both. We show that continuous preferences satisfy orthogonal independence if and only if they are spherical: their indifference curves are spheres with the same center, with preference being "monotone" moving away from the center. Spherical preferences include linear preferences as a special (limiting) case. We discuss different applications to economic and political environments. Our result delivers Euclidean preferences in models of spatial voting, quadratic welfare aggregation in social choice, and expected utility in models of choice under uncertainty. As an extension, we consider an endogenous notion of orthogonality.
    Date: 2019–05

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