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on Microeconomics |
| By: | Seungjin Han |
| Abstract: | This paper studies competing mechanism problems in directed search markets in which multiple principals (e.g., sellers) simultaneously offer trading mechanisms to multiple agents (e.g., buyers) to compete for trading opportunities, and agents select any particular principal for trading via directed search. A principal's mechanism can be sufficiently general to make his terms of trade contingent on agents' messages, which may reflect not only their types but also changes in others' terms of trade. This paper is interested in an equilibrium with dominant strategy implementable punishment (DSIP) where principals punish the deviating principal with dominant strategy incentive compatible (DIC) direct mechanisms when a principal's deviation becomes evident from agents' messages. This DIC property of punishment off the path makes equilibrium analysis tractable. This paper provides the greatest lower bound of a principal's payoff supportable in an equilibrium with DSIP in terms of incentive compatible direct mechanisms. It also provides implications of the results. |
| Keywords: | click stream pricing, on-line markets, competing mechanisms, market information, implicit collusion, robust equilibrium |
| JEL: | C72 D82 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2015-07&r=mic |
| By: | Fulghieri, Paolo; Garcia, Diego; Hackbarth, Dirk |
| Abstract: | We study a security design problem under asymmetric information, in the spirit of Myers and Majluf (1984). We introduce a new condition on the right tail of the firm-value distribution that determines the optimality of debt versus equity-like securities. When asymmetric information has a small impact on the right-tail, risky debt is preferred for low capital needs, but convertible debt is optimal for larger capital needs. In addition, we show that warrants are the optimal financing instruments when the firm has already pre-existing debt in its capital structure. Finally, we provide conditions that generate reversals of the standard pecking order. |
| Keywords: | asymmetric information; debt-equity choice; pecking order; security design |
| JEL: | D82 G32 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10660&r=mic |
| By: | Fan, Cuihong; Jun, Byoung Heon; Wolfstetter, Elmar G. |
| Abstract: | The present paper reconsiders the inside innovators’ licensing problem under incomplete information. Employing an optimal mechanism design approach, we show that, contrary to what is claimed in the literature, the optimal mechanism may prescribe fixed fees, royalty rates lower than the cost reduction, and even negative royalty rates. |
| Keywords: | Innovation; licensing; industrial organization. |
| JEL: | D21 D43 D44 D45 |
| Date: | 2015–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:510&r=mic |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | We consider endogenous choice of the strategic variables, price and quantity, in a horizontally differentiated duopoly market, assuming network effects and product compatibility (hereafter, network compatibility effects). We demonstrate the following. If the degree of network compatibility effects of the other rival firm is smaller (larger) than the degree of product substitutability, then choosing quantity (price) is a dominant strategy for the firm. In this case, the Cournot (Bertrand) equilibrium arises. If there are asymmetric network compatibility effects between the firms, the firm with larger (smaller) network compatibility effects than the degree of product substitutability chooses quantity (price). In this case, the Cournot−Bertrand equilibrium arises. |
| Keywords: | Bertrand equilibrium; Cournot equilibrium; Cournot−Bertrand equilibrium; product compatibility; network effect; fulfilled expectation; horizontally differentiated duopoly |
| JEL: | C72 D01 D43 L13 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:128&r=mic |
| By: | Pollrich, Martin |
| Abstract: | I study the optimal audit mechanism when the principal cannot commit to an audit strategy. Invoking a relevation principle, the agent reports her type to a mediator whi assigns contracts and recommends the principla whether to audit. For each reported type the mediator randomizes over a base-contract and the audit contract, accompanied by a recommendation to audit. For large penalties the optimal mechanism uses strictly more contracts than types and cannot be implemented via offering a menu of contracts. The analysis provides a proper benchmark for studying auditing under limited commitment and sheds new light on the usefulness of mediation in contracting and on the design of optimal mechanisms. |
| Keywords: | Auditing; limited commitment; mediation; contract theory |
| JEL: | D82 D86 C72 |
| Date: | 2015–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:809&r=mic |