prices and the winner s curse we usually assume that increases in supply allocation by rationing and exclusion of potential buyers reduce prices but all these activities raise the expected price in an important set of cases when common value assets are sold furthermore when we make the assumptions needed to rule out these anomalies for symmetric buyers small asymmetries among the buyers necessarily cause the anomalies to reappear our results help explain rationing in initial public offerings and outcomes of spectrum auctions we illustrate our results in the wallet game and in another new game we introduce the maximum game

price coherence and excessive intermediation suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary s technology we develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates with this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary we show that this leads to inflated retail prices excessive adoption of the intermediaries services over investment in benefits to buyers and a reduction in consumer surplus and sometimes welfare competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise we discuss applications to payment card systems travel reservation systems rebate services and various other intermediaries jel codes d40 l11 l14 l42

competition risk and managerial incentives this paper examines how the degree of competition among firms in an industry affects the optimal incentives that firms provide to their managers a central assumption is that there is free entry and exit in the industry which implies that changes in the nature of competition lead to changes in the equilibrium market structure the main result is that as the intensity of product market competition increases as a result of greater product substitutability or greater market size principals unambiguously provide stronger incentives to their agents to reduce costs at the same time more intense competition also leads to more volatile firm level profits consequently managers incentives are positively correlated with firm level risk consistent with empirical evidence a decrease in the cost of entering the market has the opposite effect on incentives but still induces a positive correlation between risk and incentives

intelligent agents for negotiations in market games 2 application for part i see ibid vol 13 no 5 p 1103 8 1998 in competitive markets human decision makers need assistance to determine potential coalitions that they can be part of note that such coalitions are legal provided market power is not monopolized we present an approach for designing specialized intelligent software agents that perform negotiations on behalf of their human counterparts and then suggest market strategies that the human can adopt our negotiation protocol is derived from cooperative game theory however it differs from the game theory literature in requiring virtually no trustworthy information exchange between the potential coalition partners in the part i we presented the negotiation model in this paper we apply it to power markets

first party content and coordination in two sided markets the strategic use of first party content by two sided platforms is driven by two key factors the nature of buyer and seller expectations favorable versus unfavorable and the nature of the relationship between first party content and third party content complements or substitutes platforms facing unfavorable expectations face an additional constraint their prices and first party content investment need to be such that low zero participation equilibria are eliminated this additional constraint typically leads them to invest more less in first party content relative to platforms facing favorable expectations when first and third party content are substitutes complements these results hold with both simultaneous and sequential entry of the two sides with two competing platforms incumbent facing favorable expectations and entrant facing unfavorable expectations and multi homing on one side of the market the incumbent always invests weakly more in first party content relative to the case in which it is a monopolist this paper was accepted by bruno cassiman business strategy

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

platform intermediation in a market for differentiated products we study a two sided market where a platform attracts firms selling differentiated products and buyers interested in those products in the subgame perfect equilibrium of the game the platform fully internalises the network externalities present in the market and firms and consumers all participate in the platform with probability one the monopolist intermediary extracts all the economic rents generated in the market except when firms and consumers can trade outside the platform in which case consumers obtain a rent that corresponds to the utility they would get if they did trade outside the platform the market allocation is constraint efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers an increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition as a result the platform lowers the firm fees and raises the consumer charges in contrast an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition in this case the platform raises both the charge to the consumers and the fee for the firms

price and variety in the spokes model the spokes model of nonlocalized spatial competition provides a new analytical tool for dierentiated oligopoly and a representation of spatial monopolistic competition an increase in the number of rms leads to lower equilibrium prices when consumers have relatively high product valuations but surprisingly to higher equilibrium prices for in termediate consumer valuations new entry alters consumer and social welfare through price market expansion and matching eects with free entry the market may pro vide too many or too few varieties from a social welfare perspective and the equilibrium price remains above marginal cost even when the number of rms is arbitrarily large

monopolistic competiton on the pyramid the purpose of this paper is to develop a model of monopolistic competition that has a simple locational interpretation and which allows for multifirm competition one of the major weaknesses of the standard circular road model is the fact that it allows only localized competition this creates problems when one wishes to analyze problems of international trade where one often has to work with firms with different production costs one of the major advantages of the pyramid model presented here is that one can easily compute the firms equilibrium profits even when their production costs differ copyright 1991 by blackwell publishing ltd

using game theory to analyze electric transmission pricing policies in the united states abstract us public policy towards the private electric power industry is moving away from restrictive regulation and towards promotion of competition alternative policies concerning access to and pricing of transmission are now being discussed similar issues may arise in europe as trade barriers fall our purpose is to show how game theory can help illuminate that debate and identify desirable policies game theory models are used to estimate the possible effects of various policies upon productive efficiency and the distribution of gains among sellers transmitters and buyers of power static cooperative models are used to calculate the possible outcomes of short run transmission games long run games in which the amount of transmission capacity is a decisition variable are modeled as dynamic noncooperative stackelberg games one conclusion is that under some conditions price regulation and mandatory access could hurt power buyers by removing incentives for building transmission capacity another conclusion is that under a system of voluntary access and price regulation it may be better to allow wheeling prices to exceed the marginal cost of transport rather than to risk losing the benefits of cooperation

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

equilibrium with product differentiation tive consumer formulations is used to examine the properties of single and multiple price equilibria conditions under which decreases in the intensity of consumer preferences reduce price are given it is shown that with certain types of demand curves entry can eliminate price cost markups even given product differentiation if competition is localized it is demonstrated that entry does not affect the markup finally the effect of spurious product differentiation on price is examined

game theory approach to use of noncommercial power plants under time of use pricing the authors use the game theory approach for evaluating the impact of the introduction of customer owned noncommercial power plants ncp when time of use pricing is used various results from this analysis are derived some of which are that the conflict between ncp customer and the supplier forces the supplier to reduce the price of ncp customers perception of the situation in which they are involved in plays an important role in this conflict the game model analysis presented provides a detailed quantitative information on electricity prices and on the ways of using ncp

platform competition and seller investment incentives many products and services are not sold on open platforms but on competing for profit platforms which charge buyers and sellers for access what is the effect of for profit intermediation on seller investment incentives since for profit intermediaries reduce the available rents in the market one might naively suspect that sellers have weaker investment incentives with competing for profit platforms however we show that for profit intermediation may lead to overinvestment when free access would lead to underinvestment because investment decisions affect the strength of indirect network effects and thus access prices we characterize the effect of for profit intermediation on investment incentives depending on the nature of the investment and on which side of the market singlehomes

competition foreign direct investment and welfare in contrast to the usual belief we show that a lower product market competition may make the consumers better off and increase welfare when foreign firms strategically choose between export and foreign direct investment fdi a lower product market competition may increase consumer surplus and welfare by inducing fdi the higher welfare stems from the increased production efficiency under fdi compared to export by the foreign firm

competition through commissions and kickbacks in markets for retail financial products and health services consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs product providers in turn compete to influence the intermediaries advice through hidden kickbacks or disclosed commissions motivated by the controversial role of these widespread practices we formulate a model to analyze competition through commissions from a positive and normative standpoint the model highlights the role of commissions in making the advisor responsive to supply side incentives we characterize situations when commonly adopted policies such as mandatory disclosure and caps on commissions have unintended welfare consequences jel d21 d82 d83 g21 l15 l25

transaction analysis in deregulated power systems using game theory the electric power industry is in transition to a deregulated marketplace for power transactions in this environment all power transactions are made based on price rather than cost a regional power pool is noted as the most straightforward path to a deregulated electricity marketplace however many questions remain unanswered regarding the economics of power pool participation in a deregulated energy marketplace participants are interested in maximizing their own profits regardless of the system wide profits it is perceived that competition will reduce the price of electricity for retail customers however the key issue for participants is related with the price definition to remain competitive in this paper the authors use game theory to simulate the decision making process for defining offered prices in a deregulated environment the outcome of this study may be used by power pool coordinators to discourage unfair coalitions a modified ieee 30 bus power system is used as a deregulated power pool to illustrate the main features of the proposed method

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

cooperation among competitors some economics of payment card associations we analyze platforms in two sided markets with network externalities using the specific context of a payment card association we study the cooperative determination of the interchange fee by member banks the interchange fee is the access charge paid by the merchants banks the acquirers to cardholders banks the issuers we develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card after drawing the welfare implications of a cooperative determination of the interchange fee we describe in detail the factors affecting merchant resistance compare cooperative and for profit business models and make a first cut in the analysis of system competition

on the dynamic efficiency of bertrand and cournot equilibria abstract this paper compares bertrand and cournot equilibria in a differentiated duopoly with r d research and development competition it shows that cournot competition induces more r d effort than bertrand competition however the price is lower and output is larger in bertrand than in cournot competition furthermore the bertrand equilibrium is more efficient than the cournot equilibrium if either r d productivity is low or spillovers are weak or products are very different if r d productivity is high spillovers are strong and goods are close substitutes then the bertrand equilibrium islessefficient than the cournot equilibrium journal of economic literatureclassification number l13

missed sales and the pricing of ancillary goods firms often sell a basic good as well as ancillary ones hold up concerns have led to ancillary good regulations such as transparency and price caps the hold up narrative however runs counter to evidence in many retail settings where ancillary good prices are set below cost e g free shipping or limited card surcharging in countries where the no surcharge rule was lifted we argue that the key to unifying these conflicting narratives is that the seller may absorb partly or fully the ancillary good s cost so as not to miss sales on the basic good a supplier with market power on the ancillary good market then takes advantage of cost absorption and jacks up its wholesale price hold ups occur only when consumers are initially uninformed or naive about the drip price and shopping costs are high the price of the basic good then acts as a signal of the drip price since a high markup on the basic good makes the firm more wary of missed sales regardless of whether consumers are informed uninformed but rational or naive mandating price transparency and banning loss making on the ancillary good leads to i an efficient consumption of the ancillary good and ii a reduction of its wholesale price generating strict welfare gains

the agency model and mfn clauses i provide an analysis of vertical relations in markets with imperfect competition at both layers of the supply chain and where exchange is intermediated either with wholesale prices or revenue sharing contracts revenue sharing is extremely attractive to firms that are able to set the revenue shares but often makes the firms that set retail prices worse off this is so whether revenue sharing lowers or raises industry profits these results are strengthened when a market moves from the wholesale model of sales to the agency model of sales which results in retailers setting revenue shares and suppliers setting retail prices i also show that retail price parity restrictions raise industry prices these results provide a potential explanation for why many online retailers have adopted the agency model and retail price parity clauses

the study of the impacts of potential coalitions on bidding strategies of gencos the paper studies the impacts of potential coalitions on bidding strategies of gencos in a pool based power market the generator under consideration can form any potential coalition with other generators subgroups are then formed and each of these subgroups consists of some members which coordinate their bidding strategies to achieve a common goal noncooperative gaming applies among all the subgroups while cooperative gaming applies among the members in each subgroup by implementation of bids sensitivities the paper presents an algorithm for the members in each coalition subgroup to obtain optimal bids which essentially is based on interior point optimal power flow ipopf model a priority list produced after optimal bids are found for all the potential combinations of coalition is used by the generator under consideration to bargain with members on the list the algorithm and model are tested by the ieee 30 bus system and numerical results are presented

two sided network effects a theory of information product design how can firms profitably give away free products this paper provides a novel answer and articulates trade offs in a space of information product design we introduce a formal model of two sided network externalities based in textbook economics a mix of katz and shapiro network effects price discrimination and product differentiation externality based complements however exploit a different mechanism than either tying or lock in even as they help to explain many recent strategies such as those of firms selling operating systems internet browsers games music and video the model presented here argues for three simple but useful results first even in the absence of competition a firm can rationally invest in a product it intends to give away into perpetuity second we identify distinct markets for content providers and end consumers and show that either can be a candidate for a free good third product coupling across markets can increase consumer welfare even as it increases firm profits the model also generates testable hypotheses on the size and direction of network effects while offering insights to regulators seeking to apply antitrust law to network markets

must take cards merchant discounts and avoided costs antitrust authorities often argue that merchants cannot reasonably turn down payment cards and therefore must accept excessively high merchant discounts the paper attempts to shed light on this must take cards view from two angles first the paper gives some operational content to the notion of must take card through the avoided cost test or tourist test would the merchant want to refuse a card payment when a non repeat customer with enough cash in her pocket is about to pay at the cash register it analyzes its relevance as an indicator of excessive interchange fees second it identifies four key sources of potential social biases in the payment card systems determination of interchange fees internalization by merchants of a fraction of cardholder surplus issuers per transaction markup merchant heterogeneity and extent of cardholder multi homing it compares the industry and social optima both in the short term fixed number of issuers and the long term in which issuer offerings and entry respond to profitability

consumer surplus enhancing collusion and trade that collusion among sellers hurts buyers is a central tenet in economics we provide an oligopoly model in which collusion can raise consumer surplus a differentiated product duopoly operates in two geographically separated markets each market is home to a single firm but can import at a cost from the foreign firm under some circumstances a perfect cartel relative to duopolistic competition raises the price of the imported good and lowers the price of the home good this raises welfare for most consumers and increases aggregate consumer surplus a similar possibility result applies to autarky our analysis applies beyond the spatial setting

transmission analysis by nash game method this paper describes an open access transmission method for maximizing profits in a power system the proposed method is based on the nash bargaining game for power flow analysis in which each transaction and its optimal price are determined to optimize the interests of individual parties transmission losses are considered by the proposed method and test cases and results are discussed to present the merits of the proposed method

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

application of actor critic learning algorithm for optimal bidding problem of a genco the optimal bidding for generation companies genco in the deregulated power market is an involved task the problem is formulated in the framework of the markov decision process mdp a discrete stochastic optimization method when the time span considered is 24 hours the temporal difference method becomes attractive for application the cumulative profit over the span is the objective function to be optimized the temporal difference technique and actor critic learning algorithm is employed an optimal strategy is devised to maximize the profit a market clearing system is included in the formulation simulation cases of three seven and ten participants are considered and the results obtained are discussed

intelligent agents for negotiations in market games i model in competitive markets human decision makers need assistance to determine potential coalitions that they can be part of note that such coalitions are legal provided market power is not monopolized we present an approach for designing specialized intelligent software agents that perform negotiations on behalf of their human counterparts and then suggest market strategies that the human can adopt our negotiation protocol is derived from cooperative game theory however it differs from the game theory literature in requiring virtually no trustworthy information exchange between the potential coalition partners in this paper we present the negotiation model