nep-des New Economics Papers
on Economic Design
Issue of 2021‒12‒20
seven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Maximizing revenue in the presence of intermediaries By Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
  2. Coexistence of Centralized and Decentralized Markets By Berk Idem
  3. Bid Coordination in Sponsored Search Auctions: Detection Methodology and Empirical Analysis By Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio; Shakhgildyan, Ksenia
  4. Optimal bidding strategies for digital advertising By M\'ed\'eric Motte; Huy\^en Pham
  5. Empirical Perspectives on Auctions By Ali Hortaçsu; Isabelle Perrigne
  6. An Outcome Test of Discrimination for Ranked Lists By Jonathan Roth; Guillaume Saint-Jacques; YinYin Yu
  7. Obstacles to Redistribution Through Markets and One Solution By Roy Allen; John Rehbeck

  1. By: Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
    Abstract: We study the mechanism design problem of selling $k$ items to unit-demand buyers with private valuations for the items. A buyer either participates directly in the auction or is represented by an intermediary, who represents a subset of buyers. Our goal is to design robust mechanisms that are independent of the demand structure (i.e. how the buyers are partitioned across intermediaries), and perform well under a wide variety of possible contracts between intermediaries and buyers. We first study the case of $k$ identical items where each buyer draws its private valuation for an item i.i.d. from a known $\lambda$-regular distribution. We construct a robust mechanism that, independent of the demand structure and under certain conditions on the contracts between intermediaries and buyers, obtains a constant factor of the revenue that the mechanism designer could obtain had she known the buyers' valuations. In other words, our mechanism's expected revenue achieves a constant factor of the optimal welfare, regardless of the demand structure. Our mechanism is a simple posted-price mechanism that sets a take-it-or-leave-it per-item price that depends on $k$ and the total number of buyers, but does not depend on the demand structure or the downstream contracts. Next we generalize our result to the case when the items are not identical. We assume that the item valuations are separable. For this case, we design a mechanism that obtains at least a constant fraction of the optimal welfare, by using a menu of posted prices. This mechanism is also independent of the demand structure, but makes a relatively stronger assumption on the contracts between intermediaries and buyers, namely that each intermediary prefers outcomes with a higher sum of utilities of the subset of buyers represented by it.
    Date: 2021–11
  2. By: Berk Idem
    Abstract: In this paper, I introduce a profit-maximizing centralized marketplace into a decentralized market with search frictions. Agents choose between the centralized marketplace and the decentralized bilateral trade. I characterize the optimal marketplace in this market choice game using a mechanism design approach. In the unique equilibrium, the centralized marketplace and the decentralized trade coexist. The profit of the marketplace decreases as the search frictions in the decentralized market are reduced. However, it is always higher than the half of the profit when the frictions are prohibitively high for decentralized trade. I also show that the ratio of the reduction in the profit depends only on the degree of search frictions and not on the distribution of valuations. The thickness of the centralized marketplace does not depend on the search frictions. I derive conditions under which, this equilibrium results in higher welfare than either institution on its own.
    Date: 2021–11
  3. By: Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio; Shakhgildyan, Ksenia
    Abstract: Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. This study develops a methodology to detect bid coordination, and presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. Using proprietary data from auctions held on a major search engine, coordination is detected in 55 percent of the cases of delegated bidding that we observed, and the associated upper bound on the search engine’s revenue loss ranges between 5.3 and 10.4 percent.
    Keywords: Online Advertising; Sponsored Search Auctions; Delegation; Common Agency
    JEL: C72 D44 L81
    Date: 2021–12–03
  4. By: M\'ed\'eric Motte (LPSM); Huy\^en Pham (LPSM)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Date: 2021–11
  5. By: Ali Hortaçsu; Isabelle Perrigne
    Abstract: The empirical analysis of auction data has become a thriving field of research over the past thirty years. Relying on sophisticated models and advanced econometric methods, it addresses a wide range of policy questions for both public and private institutions. This chapter offers a guide to the literature by stressing how data features and policy questions have shaped research in the field. The chapter is organized by types of goods for sale and covers auctions of timber, construction and services procurement, oil and gas leases, online auctions, internet advertising, electricity, financial securities, spectrum, as well as used goods. It discusses the idiosyncrasies of each applied setting and the respective empirical findings.
    JEL: G2 L11 L4 L71 L73 L74 L86 L94 L96
    Date: 2021–11
  6. By: Jonathan Roth; Guillaume Saint-Jacques; YinYin Yu
    Abstract: This paper extends Becker (1957)'s outcome test of discrimination to settings where a (human or algorithmic) decision-maker produces a ranked list of candidates. Ranked lists are particularly relevant in the context of online platforms that produce search results or feeds, and also arise when human decisionmakers express ordinal preferences over a list of candidates. We show that non-discrimination implies a system of moment inequalities, which intuitively impose that one cannot permute the position of a lower-ranked candidate from one group with a higher-ranked candidate from a second group and systematically improve the objective. Moreover, we show that that these moment inequalities are the only testable implications of non-discrimination when the auditor observes only outcomes and group membership by rank. We show how to statistically test the implied inequalities, and validate our approach in an application using data from LinkedIn.
    Date: 2021–11
  7. By: Roy Allen; John Rehbeck
    Abstract: Dworczak et al. (2021) study when certain market structures are optimal in the presence of heterogeneous preferences. A key assumption is that the social planner knows the joint distribution of the value of the good and marginal value of money. This paper studies whether relevant features of this distribution are identified from choice data. We show that the features of the distribution needed to characterize optimal market structure cannot be identified when demand is known for all prices. While this is a negative result, we show that the distribution of good value and marginal utility of money is fully identified when there is an observed measure of quality that varies. Thus, while Dworczak et al. (2021) abstract from quality, we show how including quality is crucial for potential applications.
    Date: 2021–11

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