a theory of commerce abstract the theory of commerce advanced here captures prominent features of retail trade large employment congestion effects anonymous posted prices and quantity discounts this theory is built around a directed search model where buyers preferences are private information the analytical solution is easily inserted in a neoclassical growth framework in this framework the parameters of retail trade are calibrated using commercial margins and employment welfare properties depend on the sellers ability to charge two tier prices with two tier prices the directed search equilibrium is efficient otherwise it is not this contrasts with the full information benchmark where directed search is always efficient

efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

more on estimation risk and simple rules for optimal portfolio selection for the risk averse investor consideration of estimation risk is important in selecting an expected utility maximizing portfolio it has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the full covariance model is used alternatively if the market model is used the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk however as is demonstrated in this paper the effect will generally not be as substantive as previously believed and in many situations can be safely ignored in order to determine the composition and location of an efficient frontier from which an optimal portfolio will be selected the investor must employ estimates of expected returns variances and covariances for the set of securities under consideration if the investor simply treats the estimated parameter values for the securities as true parameter values then estimation risk will have been ignored and as shown by barry 1 and klein and bawa 14 15 a suboptimal portfolio will most likely have been selected bawa brown and klein 6 and klein and bawa 14 discuss the effects of estimation risk on the selection of an optimal portfolio from a set of risky assets and note that the location but not the composition of the efficient frontier changes when estimation risk is recognized if security returns are generated by a stationary multivariate normal distribution for which the investor has a diffuse prior furthermore brown 8 has shown these results to be robust for severe misspecification of the underlying multivariate distribution of returns e g assuming it to be normal when in actuality it is student t with small degrees of freedom this paper is concerned with the effects of estimation risk on the composition of the tangency portfolio derived from a set of risky assets and a risk free asset under the assumption that the investor has a diffuse prior 1 barry 2 bawa and brown 4 and brown 7 have shown analytically that the composition of the tangency portfolio is unaffected by estimation risk if the full covariance model is used chen and brown 10 have expanded upon the work of brown 9 and have argued that if security returns are generated by the market model then the composition of the tangency portfolio will be substantively different when estimation risk is recognized

competing through information provision this paper studies the symmetric equilibria of a two buyer two seller model of directed search in which sellers commit to information provision more informed buyers have better differentiated private valuations and extract higher rents from trade when sellers cannot commit to sale mechanisms information provision is higher under competition than under monopoly in contrast when sellers commit to both information provision and sale mechanisms i identify simple conditions under which sellers post auctions and provide full information in every equilibrium ensuring that all equilibrium outcomes are constrained efficient sellers capture the efficiency gains from increased information and compete only over non distortionary rents offered to buyers

collateral and credit rationing a review of recent empirical studies as a guide for future research abstract the relationship between firms and banks often suffers from informational opacity that may result in credit rationing in theory providing collateral to the bank can have a mitigating effect on these informational asymmetries and thus solve the credit rationing problem even though collateral is already a widespread debt contract feature recent trends predict that in the future collateral will become even more important for informationally opaque firms the aim of this paper is twofold first we provide a review of the recently growing empirical research on collateral as a remedy for credit rationing second we would like to pinpoint gaps and limitations in current empirical research most studies contend with a flawed research design by not distinguishing between business and personal collateral and excluding other information opaqueness reducing tools such as the strength of the relationship between borrower and lender loan maturity and covenants we also discuss the limitations of using a single equation estimation method and the usefulness of incorporating interaction effects into the estimation models finally we provide suggestions for fruitful research avenues that would fill these gaps and enrich the empirical knowledge in this research domain

limits of exact equilibria for capacity constrained sellers with costly search abstract this paper studies finite versions of competitive matching models in which sellers announce prices and buyers understand the relationship between price and probability of trade two equilibrium concepts are studied for finite games subgame perfect equilibrium and rational expectations equilibrium it is shown that the distribution of prices offered by sellers under both equilibrium concepts converges weakly to the same competitive equilibrium distribution of prices furthermore the payoffs that sellers face in both kinds of equilibrium have the market utility property in the limit journal of economic literature classification numbers c78 d41 d45

the role of collateral in credit markets with imperfect information abstract the paper analyzes the structure of credit market equilibrium under imperfect information collateralization and credit rationing are compared as alternative means to cope with problems of adverse selection and moral hazard it is shown that lenders may use collateral as a self selection and incentive mechanism rationing occurs only if the borrowers collaterizable wealth is too small to allow perfect sorting or to create sufficiently strong incentives whenever there is rationing in an equilibrium some borrowers are charged the maximum amount of collateral

competition among contests when several contests compete for the participation of a common set of players a contest s allocation of prizes not only induces incentive effects but also participation effects our model predicts that an increase in the sensitivity with which contest outcomes depend on players efforts makes flatter prize structures more attractive to participants in equilibrium contests that aim to maximize the number of participants will award multiple prizes if and only if this sensitivity is sufficiently high moreover the prize awarded to the winner is decreasing in the contests sensitivity we provide empirical evidence from professional road running using race distance as a measure of sensitivity we show that steeper prize structures are more attractive to top ranked runners in longer that is less sensitive races in line with our theory longer races do in fact offer steeper prize structures

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

efficient competition through cheap talk the case of competing auctions we consider a large market where auctioneers with private reservation values compete for bidders by announcing cheap talk messages if auctioneers run efficient first price auctions then there always exists an equilibrium in which each auctioneer truthfully reveals her type the equilibrium is constrained efficient assigning more bidders to auctioneers with larger gains from trade the choice of the trading mechanism is crucial for the result most notably the use of second price auctions equivalently ex post bidding leads to the nonexistence of any informative equilibrium we examine the robustness of our finding in various dimensions including finite markets and equilibrium selection

on competing mechanisms under exclusive competition abstract we study games in which several principals design mechanisms in the presence of privately informed agents competition is exclusive each type of each agent can participate with at most one principal and meaningfully communicate only with him exclusive competition is at the center stage of recent analyses of markets with private information economic models of exclusive competition restrict principals to use standard direct mechanisms which induce truthful revelation of agents exogenous private information this paper investigates the rationale for this restriction we provide two results first we construct an economic example showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria second we show that truth telling strongly robust equilibrium outcomes survive against principals unilateral deviations toward arbitrary mechanisms

competition among auctioneers in large markets we analyse a multistage game of competition among auctioneers first the auctioneers commit to some reserve prices second the bidders enter one auction if any and finally the auctions take place we show that for any finite set of feasible reserve prices each auctioneer announces a reserve price equal to his production cost if the numbers of auctioneers and bidders are sufficiently large though finite our result supports the idea that optimal auctions may be quite simple our model also confirms previous results for some limit versions of the model by mcafee econometrica 61 1993 1281 1312 peters rev econ stud 64 1997 97 123 and peters and severinov j econ theory 75 1997 141 179

mean field equilibria of dynamic auctions with learning we study learning in a dynamic setting where identical copies of a good are sold over time through a sequence of second price auctions each agent in the market has an unknown independent private valuation that determines the distribution of the reward she obtains from the good for example in sponsored search settings advertisers may initially be unsure of the value of a click though the induced dynamic game is complex we simplify analysis of the market using an approximation methodology known as mean field equilibrium mfe the methodology assumes that agents optimize only with respect to long run average estimates of the distribution of other players bids we show a remarkable fact in a mean field equilibrium the agent has an optimal strategy where she bids truthfully according to a conjoint valuation the conjoint valuation is the sum of her current expected valuation together with an overbid amount that is exactly the expected marginal benefit of one additional observation about her true pri

how much is a dollar worth tipping versus equilibrium coexistence on competing online auction sites theory models of platform competition predict that prices and buyer seller ratios should be approximately equal on coexisting auction sites using field experiments on ebay and yahoo auctions we find evidence that is inconsistent with equilibrium hypotheses and suggest that the market is tipping prices on ebay are consistently 20 70 percent higher than those on yahoo and ebay attracts two additional buyers per seller on yahoo prices and bidders counts are unaffected by the auction ending rule various differences between the sites cannot account for the magnitude of these disparities however a model of imitation dynamics can rationalize our findings

market structure and discrimination the case of small businesses this paper examines bank market structure to draw inferences concerning the role of discrimination in credit markets for small businesses the authors analyze credit application and denial rates loans outstanding and interest rates across demographic groups this set of variables in combination with information on local bank market structure helps them distinguish among borrower preferences lender tastes and inadequate lender information as likely causes of differences in credit market experiences of small business operators from distinct demographic groups the authors find that white men and women can expect similar treatment in credit markets with some benefits to female owned firms located in concentrated banking markets minorities by contrast fare worse than whites moreover by appealing to becker s 1957 classic theories we find some clear evidence to support the view that prejudicial discrimination is at least partly to blame

economic insights from internet auctions this paper surveys recent studies of internet auctions four main areas of research are summarized first we survey several studies that document and attempt to explain the frequently observed sniping or last second bidding behavior in these auctions second we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets most notably due to the winner s curse third we explore research about the role of reputation mechanisms installed to help combat these distortions finally we discuss what internet auctions have to teach us about auction design

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

surplus extraction and competition a competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations in contrast to the monopoly case where sellers charge entry fees and extract all buyers surplus it is shown that in the unique symmetric equilibrium with competition sellers hold second price auctions with reserve prices set equal to their cost most important it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus even though it is feasible for them to do so

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

on the welfare gains of price dispersion can price dispersion be associated with higher levels of welfare to answer we compare two economies that differ only in the way prices are formed in the first sellers post a unique price quantity pair with no price dispersion in the second sellers post a quantity only and let prices be determined ex post by realized demand resulting in price dispersion we show that while agents trade lower quantities when prices are dispersed an intensive margin effect they also trade more often an extensive margin effect at low inflation the extensive margin dominates making agents better off with price dispersion

imperfect competition in auction designs we study the competition between two owners of identical goods who wish to sell them to a pool of potential buyers the sellers compete simultaneously setting reserve prices for their second price sealed bid auctions upon observing the set reserve prices the buyers decide simultaneously in which auction to bid we show that this game has at least one equilibrium and that all equilibria are inefficient reserve prices are not driven to zero cost we also discuss where and why the parallel between optimal auction design and optimal pricing in the case of monopoly breaks down for oligopoly

optimal portfolio selection under institutional procedures for short selling abstract this study presents and formally justifies a simple ranking approach for optimal portfolio selection under institutional procedures for short selling it also provides economic insights of the explicit solution of the portfolio problem the analysis is applicable to different treatments of the short sale proceeds and any margin deposits in contrast to previous approaches it does not require assumptions that overstate short sale benefits for maintaining analytical tractability and it can easily identify and filter out securities that are undesirable for investing or for short selling thus this study can enhance the usefulness of portfolio modeling for assisting practical investment decisions

a note on peters and severinov competition among sellers who offer auctions instead of prices abstract we consider a market in which sellers compete for buyers by advertising reserve prices for second price auctions applying the limit equilibrium concept developed in peters and severinov 1997 1 we show that the competitive matching equilibrium is characterized by a reserve price of zero this corrects a result in peters and severinov 1997 1

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

portfolio optimization with factors scenarios and realistic short positions this paper presents fast algorithms for calculating mean variance efficient frontiers when the investor can sell securities short as well as buy long and when a factor and or scenario model of covariance is assumed currently fast algorithms for factor scenario or mixed factor and scenario models exist but except for a special case of the results reported here apply only to portfolios of long positions factor and scenario models are used widely in applied portfolio analysis and short sales have been used increasingly as part of large institutional portfolios generally the critical line algorithm cla traces out mean variance efficient sets when the investor s choice is subject to any system of linear equality or inequality constraints versions of cla that take advantage of factor and or scenario models of covariance gain speed by greatly simplifying the equations for segments of the efficient set these same algorithms can be used unchanged for the long short portfolio selection problem provided a certain condition on the constraint set holds this condition usually holds in practice

robust competitive auctions a competitive distribution of auctions peters 1997 is robust to the possibility of a seller s deviation to any arbitrary mechanisms let alone direct mechanisms because the sufficient condition for the robustness is embedded in its notion of equilibrium

capital asset prices with and without negative holdings prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

competitive search markets with heterogeneous workers abstract this paper extends the concept of competitive search markets to the case with heterogeneous workers if offers can condition on workers productivity as this depends on some formal qualification the equilibrium is separating and efficient though there is wage compression if offers cannot condition on workers productivity the nature of the equilibrium depends on the size of the workers productivity difference for intermediate values of the productivity difference separation is achieved only by paying high types an efficiency wage premium we discuss several implications for wage dispersion and efficiency

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

common values and low reserve prices i show that the benefit of a high reserve price in a common values ascending auction is lower than in the observationally equivalent private values setting put another way when bidders have common values empirical estimation based on a private values model will overstate the value of a high reserve price via numerical examples i show this same ranking typically applies to the level of the optimal reserve price as well and often to the benefit of any reserve price not just high ones with common values the optimal reserve can even be below the seller s valuation which is impossible with private values

discrimination in the small business credit market we use data from the 1993 and 1998 national surveys of small business finances to examine the existence of racial discrimination in the small business credit market we conduct an econometric analysis of loan outcomes by race and find that black owned small businesses are about twice as likely to be denied credit even after controlling for differences in creditworthiness and other factors a series of specification checks indicates that this gap is unlikely to be explained by omitted variable bias these results indicate that the racial disparity in credit availability is likely caused by discrimination

efficient club formation in a frictional environment we study the assignment of agents to clubs in a frictional market environment club entry is endogenous and clubs compete by posting reserve prices in a competing auctions game prior to the agents decisions regarding which club to visit the competing auctions equilibrium is constrained efficient and the reserve price in general will not be zero

sorting through search and matching models in economics toward understanding assortative matching this is a self contained introduction to research on search and matching we first explore the nontransferable and perfectly transferable utility matching paradigms and then a unifying imperfectly transferable utility matching model motivated by some unrealistic predictions of frictionless matching we flesh out the foundational economics of search theory we then revisit the original matching paradigms with search frictions we finally allow informational frictions that often arise such as in college student sorting

internet auctions with many traders abstract we study a multi unit auction environment similar to ebay sellers each with a single unit of a homogeneous good set reserve prices at their own second price auctions each buyer has private value for the good and wishes to acquire a single unit buyers can bid as often as they like and move between auctions we characterize a perfect bayesian equilibrium for this decentralized dynamic mechanism in which conditional on reserve prices an efficient set of trades occurs at a uniform price in a large but finite market the sellers set reserve prices equal to their true costs under a very mild distributional assumption so ex post efficiency is achieved buyers strategies in this equilibrium are simple and do not depend on their beliefs about other buyers valuations or the number of buyers and sellers

relationship lending and sme financing in the continental european bank based system this paper analyzes the relationship between banks and smes in the continental european bank based system we find that smes with longer bank relationships have enhanced access to loans but at the same time they bear a higher cost for their debt we also find that firms maintaining two bank relationships get the cheapest debt which establishes a limit for the degree of concentration of bank relationships our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs whereas it increases the likelihood that guarantees will have to be provided as a consequence it seems that a relationship based on trust is a better strategy to improve smes access to finance than the establishment of longer or more concentrated relationships

auctions with contingent payments an overview i survey a literature on auctions with contingent payments that is auctions in which payments are allowed to depend on an ex post verifiable variable such as revenues in oil lease auctions based on demarzo et al 2005 i describe a partial ranking of auction revenues for auctions that differ in terms of contract forms pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup i discuss models that incorporate adverse selection moral hazard competition between auctioneers common values and the sale of multiple units

constrained efficiency with adverse selection and directed search abstract this paper studies constrained efficiency in guerrieri et al s 2010 model of adverse selection and directed search buyers post contracts and sellers with private information about their type direct their search toward their preferred contract buyers and sellers then match bilaterally and trade if the guerrieri shimer wright equilibrium fails to achieve the first best then the planner subject to the frictions of the environment achieves strictly higher welfare than the equilibrium i e the equilibrium is not ex ante constrained efficient under certain conditions the planner achieves an allocation that even pareto dominates the equilibrium i e the equilibrium is not interim constrained efficient under other conditions the planner can completely undo the effects of adverse selection and achieves the first best cross subsidization is the key to these results

efficient and competitive rationing abstract the contracts that interest us here are called priority service contracts the salient feature of such contracts is that they specify each customer s priority in obtaining service that is they specify the tank order in which a customer is served out of the available supply until all customers are served or supply is exhausted such contracts essentially establish queues for customers in section 1 the author provides some background about priority service section 2 formulates a basic model and offer several illustrations also describes two main examples that motivate the theoretical development section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self select efficient service orders in section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently in section 5 we study the operation of competitive markets for priority service section 6 concludes with some summary remarks two themes are emphasized one is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets the other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity consequently allocative efficiency depends on entry of numerous firms even so dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies

equilibrium mechanisms in a decentralized market abstract a large decentralized market where buyers have private information about the idiosyncratic value of an exchange opportunity with a seller is studied the seller offers the buyer a contract or mechanism as soon as he is matched it is shown that if the discount factor is high enough there will be a symmetric market equilibrium in which all sellers offer simple fixed price mechanisms along the equilibrium path these mechanisms will be ex ante inefficient prices will be too high and the extent of search by buyers too low journal of economic literature classification numbers d82 d83 d44

sorting versus screening search frictions and competing mechanisms in a market where sellers compete by posting trading mechanisms we allow for a general search technology and show that its features crucially affect the equilibrium mechanism price posting prevails when meetings are rival i e when a meeting by one buyer reduces another buyer s meeting probability under price posting buyers reveal their type by sorting ex ante only if the meeting technology is sufficiently non rival price posting is not an equilibrium multiple buyer types then visit the same sellers who screen ex post through auctions

relationships and rationing in consumer loans we empirically examine how relationships between individual households and their creditors affect the probability of being credit rationed using a data set where the credit rationing of individual households is observed directly we show that relationship duration and the number of activities between a family and a potential lender significantly lower the probability of being credit rationed additionally we examine the relative role of relationships in determining the interest rates of two consumer loans a mortgage loan and a special purposes loan and show that mortgage loan rates are driven less by relationship factors than the special purposes loan rates copyright 1999 by university of chicago press

bank interest rates and credit relationships in italy abstract when evaluating the performance of a financial system in supporting the investment activity of the corporate sector a distinction is usually drawn between banking economies and market economies the former being characterized by long term relations between banks and the industrial sector although theoretical studies and empirical results seem to agree that lending relationships increase the available quantity of capital to firms they have little to say on the cost of bank credit it is not clear whether a close relationship with a main bank would allow the borrower to pay a lower interest rate or expose him to a monopolistic rent using a unique data set reporting detailed information on the evolution over time of individual bank borrower relationships in italy we show evidence that a main bank provides credit at a lower cost and that some competition helps to reinforce the commitment between the borrower and the bank

unfair credit allocations this article investigates the impact of credit allocation on heterogeneous wealth entrepreneurs we show that with decreasing risk aversion and unobservable wealth poorer borrowers exert more effort as a consequence of endogenous adverse selection they are either excluded from the market or necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution alternatively a less likely separating equilibrium may occur in which poor types bear the entire weight of separation in the form of excess risk taking

competition among sellers who offer auctions instead of prices abstract in this paper we study a large market in which sellers compete by offering auctions to buyers instead of simple fixed price contracts two variants of the model are studied one extends a model first analyzed by wolinsky rev econ stud 55 1988 71 84 in which buyers learn their valuations only after meeting sellers the other variant extends the model of mcafee econometrica61 1993 1281 1312 in which buyers know their valuations before they choose among available auctions the equilibrium array of auctions is characterized for each case and the efficiency properties of the equilibria are analyzed journal of economic literatureclassification numbers d41 d44 d82

bidding behavior in competing auctions evidence from ebay much of the existing auction literature treats auctions as running independently of one another with each bidder choosing to participate in only one auction however in many online auctions a number of substitutable goods are auctioned concurrently and bidders can bid on several auctions at the same time recent theoretical research shows how bidders can gain from the existence of competing auctions the current paper providing the first empirical evidence in support of competing auctions theory using online auctions data from ebay our results indicate that a significant proportion of bidders do bid across competing auctions and that bidders tend to submit bids on auctions with the lowest standing bid as the theory predicts the paper also shows that winning bidders who cross bid pay lower prices on average than winning bidders who do not

on the optimal selection of portfolios under limited diversification abstract we address the problem of selecting portfolios which maximize the ratio of the average excess return to the standard deviation among all those portfolios which comprise at most a pre specified number k of securities under the assumptions of constant pairwise correlations and no short selling we argue that the simple ranking procedure of elton gruber and padberg effectively solves the problem for all values of k and that as a function of k the optimal ratio increases at a decreasing rate we also clarify why further generalization or extension of our results to other situations is improbable

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

short interest explanations and tests cross sectional and time series tests are performed to explain levels and changes in short interest explanatory variables and tests are chosen based on tax arbitrage and speculative reasons for going short short interest is found to follow a seasonal pattern that is weakly consistent with tax based trading stocks with high betas and the existence of convertible securities or options tend to have higher levels of short interest which is con sistent with arbitrage efforts for firms with traded options there is a positive association between the month to month changes in option open interest and short interest prior months returns and changes in short interest are positively related but there is no rela tionship between changes in short interest and returns in the subsequent month

competitive screening under heterogeneous information we study the interplay between informational frictions and second degree price discrimination our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers which leads to dispersion over price quality menus in equilibrium while firms are ex ante identical we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations we explore the cross section of equilibrium menus and variations in market conditions to generate empirical predictions on prices qualities and markups across firms and within a firm s product line for instance more competition may raise prices for low quality goods yet consumers are better off as the qualities they receive also increase the predictions of our model illuminate empirical findings in many markets such as those for cell phone plans yellow pages advertising cable tv and air travel

dynamic markets with competitive bidding the model features a dynamic market in steady state in which prices are determined in first price auctions it combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition it inquires how different properties of the model determine the relative importance of these two aspects of the competition and in particular how the non market clearing price result of the matching and bargaining models is affected by the

efficient entry in competing auctions in this paper we consider the efficiency of seller entry into a large market in which sellers post and commit to terms of trade and buyers then allocate themselves across sellers buyers differ in their valuations for the good being sold in this mar ket and sellers are heterogeneous with respect to their reservation values in this environment a second price auction is a simple mechanism which allows the buyers who interact with a particular seller to compete for that seller s good the competing auctions literature e g mcafee 1993 and peters and severinov 1997 considers the characteristics of these auctions as the market gets large and it is now well understood that competition leads each seller to post an efficient mechanism e g a second price auction with reserve price equal to seller reservation value the implications of a large market for seller entry are less well understood in this environment when goods are auctioned buyers extract an information rent from sellers one might therefore expect that the equilibrium level of seller entry into the market would be below the level that a social planner would choose there is however a counterbalancing force namely that when a seller enters the market that seller steals buyers from the sellers who were already there and so potentially reduces the surpluses associated with these sellers our main result is that in a large market when sellers are free to choose their preferred mechanisms these two effects information rent versus business stealing exactly offset each other leading to the socially efficient level of seller entry in addition we show that the equilibrium and social planner allocation of buyers across seller types coincide the model we present is one of competitive search sellers compete for buyers by posting and committing to selling mechanisms and buyers direct their search based on these posted mechanisms moen 1997 and shimer 1996 demonstrate the efficiency of entry in a model of competitive search that has two special features first meetings between buyers and sellers are one on one that is each seller interacts with at most one buyer second there is complete information in the sense that once

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

optimal auction design in two sided markets a key feature of online markets for advertising e g sponsored links is that clicking rates depend on the searchers expectations that the platform selects relevant advertisers this article studies auction design by a platform that maximizes profits in the long run where clicking rates are mechanism dependent in line with the practice of the major search engines the revenue maximizing mechanism is a scoring auction that combines the willingness to pay and the relevance to searchers of advertisers by trading off rent extraction and clicking volume this mechanism works as a cross subsidization device between searchers and advertisers

a note on simple criteria for optimal portfolio selection using sharpe s 7 single index model elton gruber and padberg egp 4 5 have established some simple ranking criteria for optimal portfolio selection a further extension has been made by chen and brown 2 and alexander and resnick 1 to incorporate the risk associated with the estimation of input parameters this note explores the economic rationale underlying the portfolio formation process based on the single index model in so doing we seek to enhance the intuitive appeal of the simplified portfolio criteria developed in the above studies to practitioners to this end we restate the egp solution with short sales allowed as

on absolute auctions and secret reserve prices from a theory viewpoint the use of auctions with zero public reserve prices also called absolute auctions or of auctions with secret reserve prices is somewhat puzzling despite being common by allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret we show in a competitive environment that these auction formats may endogenously emerge we also analyze how buyers with various sophistications and sellers with various costs sort into the different formats thereby offering a range of testable predictions alternative approaches are reviewed

the role of demographics in small business loan pricing demographic change influences the structure of the entrepreneurially active population which may affect credit risk and financing conditions of small firms using bank internal data of small business loans in germany we find that the lending relationship plays a larger role for loan prices than demographics loan rates decrease with soft information gained through longer loan processing time and a larger number of accounts at the same bank they increase with hard information about repayment arrears and reminders late payments have the largest influence on loan prices older entrepreneurs do not seem to be discriminated rather the younger have to pay more because their loans and businesses are smaller and they lack liquidity to pay in time marital status and population density of the business district do not matter this is good news for aging economies with a rising share of elderly and singles and growing disparities between peripheral and agglomerated regions

long lasting bank relationships and growth of firms a puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank independent firms in this paper we reconsider the link between relationship lending and firm growth distinguishing firms by size and expansion contraction conditions the idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture risk and externality effects which make relational banks reluctant to support long term growth projects of client firms and that the strength of these compensating effects varies with firm size and health status we explore the influence of long lasting bank relationships on employment and asset growth of a large sample of italian firms the main finding is that relationship lending hampers the efforts of small firms to increase their size while it mitigates the negative growth of troubled medium large enterprises

competing trade mechanisms and monotone mechanism choice abstract we investigate the choice between posted prices and auctions of competing sellers with private valuations assuming that buyers face higher hassle costs in auctions we show the existence of monotone pure strategy equilibria where sellers offer posted prices rather than auctions if and only if they have a sufficiently high reservation value posted prices sell with lower probability but yield a larger revenue in case of trade using an empirical strategy to compare revenues of posted prices and auctions that takes selling probabilities explicitly into account we find our theoretical predictions supported by data from ebay auctions on ticket sales for the euro 2008 european football championship

the effects of information and competition on racial discrimination evidence from a field experiment abstract we study racial discrimination by simultaneously selling identical products on ebay in pairs of auctions posted under different racially identifying names we detect significant price differences which are indicative of in group biases white names receive higher prices for distinctively white products and black names receive higher prices for distinctively black products but price differences only emerge for sellers who have low ebay feedback scores in less competitive markets because the price differences dissipate as sellers accumulate credible reputations the patterns in the data are indicative of statistical discrimination overall the results suggest that mechanisms designed to reduce informational asymmetries and increased competition are both effective at reducing discrimination in online auctions

competition among sellers in securities auctions we study simultaneous security bid second price auctions with com petition among sellers for potential bidders the sellers compete by designing ordered sets of securities that the bidders can offer as payment for the assets upon observing auction designs potential bidders decide which auctions to enter we characterize all symmet ric equilibria and show that there always exist equilibria in which auctions are in standard securities or their combinations in large markets the unique equilibrium is auctions in pure cash we extend the model for competition in reserve prices and show that binding reserve prices never constitute equilibrium as long as equilibrium security designs are not call options jel d44 d82 g10 in economic and financial markets rights to control and exploit assets with the potential to generate cash flows are often sold through auctions while in some auc tions the winner s future profits from the asset cannot be used as a basis for payment so only cash bids are possible in many cases it is possible to observe and verify the ex post cash flows this means that bidders can submit their bids in the form of securities the values of which are contingent on future cash flows from the asset securities auctions are common in the real world examples include government sales of oil leases lead plaintiff wireless spectrum and highway building auctions many other transactions though not formally auctions are similar to securities auc tions in nature examples include corporate takeovers intercorporate asset sales book publishing advertising and venture capital markets 1 in this paper we analyze equilibrium auction mechanisms when sellers compete for potential bidders by altering security designs of their auctions rather than reserve prices as in the prior literature specifically we consider an environment in which

on discrimination in auctions with endogenous entry abstract when entry is exogenous strong buyers should be discriminated against weak buyers to maximize revenues myerson 1981 when entry is endogenous so that entrants expected payoffs do not depend on the proposed mechanism optimal discrimination takes a completely different form the revenue maximizing equilibrium requires that there should be no discrimination with respect to entrants irrespective of their ex ante characteristics besides those buyers who always participate should be discriminated against entrants independently of their strength these predictions are independent of the equilibrium selection when the number of potential entrants grows large the optimality of first price auctions is also discussed jel d44 h57

the ponds dilemma is it better to be a big fish in a small pond or a small fish in a big pond to find out we study self selection into contests our simple model predicts that 1 entry into the big pond in terms of show up fees number or value of prizes is non monotonic in ability 2 entry into the more meritocratic pond is likewise non monotonic exhibiting two interior extrema and disproportionately attracting very low ability types and 3 changes in rewards can produce unexpected effects e g higher show up fees may lower entry while higher prizes or more meritocracy may lower the average ability of entrants this article is protected by copyright all rights reserved

the role of collateral in a model of debt renegotiation this paper studies the effect of debt renegotiation on the design of optimal loan arrangements in a model of borrowing and lending with asymmetric information renegotiation may occur because bankruptcy involves costly asset liquidation which is ex post inefficient the author shows that the extent of the entrepreneur s liabilities in the optimal loan contract depends upon the creditor s commitment to impose bankruptcy should default ever occur a limited liability arrangement is optimal whenever the creditor is precommited not to forgive any portion of the outstanding debt otherwise debt may efficiently be secured by outside collateral copyright 1994 by ohio state university press

budget constrained sequential auctions with incomplete information i study a budget constrained private valuation sealed bid sequential auction with two incompletely informed risk neutral bidders in which the valuations and income may be non monotonic functions of a bidder s type multiple equilibrium symmetric bidding functions may exist that differ in allocation efficiency and revenue the sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders the sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods if a particular good say is allocated to a strong bidder independent of the sequence of sale then auction revenue and the price of good are higher when good is sold first

relationship banking and escalating commitments to bad loans the relationship banking literature suggests that business relationships play an important role in the loan decisions of small banks we test one aspect of this hypothesis using a cross sectional panel dataset of small banks located in texas from 1994 to 2002 our results suggest that small banks located in smaller counties escalate their commitment to bad loans when compared with those located in larger counties even after controlling for psychological and social factors that influence escalation tendencies these results highlight the need for small banks to trade off the positive benefits of adopting a relationship banking strategy against its unintended negative consequence we provide some suggestions on how small banks may lessen their escalation tendencies despite adopting a relationship banking strategy the results of this study also suggest that small and medium sized enterprises smes that develop strong relational bonds with small banks may benefit from continued access to credit facilities especially during periods when they experience financial distress

a note on market neutral portfolio selection abstract long short equity strategies allow investors to benefit potentially from both undervalued and overvalued securities the present study develops a normative portfolio model under the practical conditions that a market neutral strategy entails the offsetting long and short equity holdings are established jointly and without any constraints by the underlying market index while accurately capturing institutional procedures for short selling the model contains the analytical and economic properties as required for a ranking approach to filter out any undesirable securities under consideration in view of its practical features the analysis should be of interest to practitioners for assisting their long short investment decisions

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

portfolio analysis using single index multi index and constant correlation models a unified treatment in this study a simple common algorithm which is applicable to seven models is proposed for optimal portfolio selection disallowing short sales of risky securities the models considered in the analysis consist of a single index model four multi index models and two constant correlation models unlike the previous approach the proposed algorithm does not require explicit ranking of securities therefore it is particularly useful for two multi index models with orthogonal indices which do not provide any ranking criterion also because of its algorithmic efficiency as demonstrated in a simulation study on models with multiple groups the approach here can enhance their usefulness in portfolio analysis in a series of publications elton and gruber 2 and elton gruber and padberg hereafter egp 3 8 have considered extensively portfolio optimization problems using a variety of index models and constant correlation models these models are sharpe s 12 single index model cohen and pogue s 1 multi index model in the diagonal form a multi index model with orthogonal indices 8 a constant correlation model with a single group 3 and a constant correlation model with multiple groups 7 hereafter sim mim di mim or ccm s and ccm m respectively using these models egp have developed some ranking procedures to reach optimal portfolios disallowing short sales of risky securities all securities in each group are ranked according to their performance as measured by a ratio of excess return to risk they are sequentially added to feasible portfolios following the ranking hierarchy until the optimal portfolio is reached for models where explicit ranking criteria can be established the egp approach is easy to implement and it clearly explains why a security belongs or does not belong to a portfolio besides the above models it is also applicable to cohen and pogue s 1 multi index model in the covariance form hereafter mim co however it does not work well for models lacking appropriate criteria to rank securities in order to overcome ranking difficulties in mim or egp 8 have introduced a market portfolio with zero residual risk to establish an alternative ranking criterion unfortunately as egp have indicated this causes internal inconsistency in the analysis in the present study a simple algorithm for optimal portfolio selection disal

financial constraints and firm dynamics this study analyzes the effect of financial constraints fcs on firm dynamics we measure fcs with an official credit rating which captures availability and cost of external resources we find that fcs undermine average firm growth induce anti correlation in growth patterns and reduce the dependence of growth volatility on size fcs are also associated with higher volatility and asymmetries in growth shock distributions preventing young fast growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow growing firms particularly if old the sub diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution

contingent prices and money price posting with directed search is a widely used trading mechanism coles and eeckhout showed that if sellers are allowed to post prices contingent on realized demand instead of one price then there is real market indeterminacy in this article we fit this contingent price posting protocol into a monetary economy we show that as long as holding money is costly there exists a unique equilibrium rather than a continuum in this equilibrium sellers post a low price for when the buyer is alone a high price for when several buyers show up and buyers randomize between sellers and money holdings

competition small business financing and discrimination evidence from a new survey we analyze credit applications loan denials and interest rates paid by small businesses across owner gender race and ethnicity in addition we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down after controlling for a rich set of explanatory variables including personal and business credit histories substantial differences in denial rates between firms owned by african americans and white males remain moreover consistent with becker s classic theories 1957 we find evidence that increases in competition in the firm s local banking market reduces these differences

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices

pricing and signaling with frictions abstract we study a market where each seller chooses the quality and price of goods and the number of selling sites observing sellers choices of prices and sites but not quality buyers choose which site to visit a seller s choices of prices can direct buyers search and signal quality a unique equilibrium exists and is separating when the quality differential is large the equilibrium implements the efficient allocation with public information otherwise the quality of goods and or the number of sites created is inefficient due to a conflict between the search directing and signaling roles of prices