testing for price anomalies in real estate auctions this paper reports on the results of an auction sale of 83 condominium apartment units in new jersey at the auction every unit was hammered down but unknown to the 2 348 registered bidders 40 of the sales fell through prices in the subsequent sale of condominium units in face to face negotiations resulted in identical units selling for 13 less than they fetched at auction and the discount was largest for those units hammered down early in the auction these results are inconsistent with the usual predictions from the theory of common value auctions and suggest that uninformed bidders in this auction may have been the subject of a winner s curse which generated considerable profit for the seller this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from ano this abstract was borrowed from another version of this item

explaining firm capital structure the role of agency theory vs transaction cost economics the study of capital structure has increasingly gained importance in strategic management research paradigms derived from organizational economics have also gained popularity in explaining firm actions agency theory and transaction cost economics represent two such paradigms that rely on the notion of market imperfections notwithstanding the similarities between them these two offer different explanations of the role of debt and equity in a firm the governance abilities of the financing structures and the nature of assets of the firm provide two key sources of differences viewing capital structure from transaction cost economics gives rise to predictions that are contradictory to those presented by agency theory it is argued that the extant evidence mainly supports the transaction cost viewpoint two organizational phenomena leveraged buyouts and product diversification are used to highlight the comparison

equivalence of auctions and posted prices abstract we determine the equilibrium in two transaction mechanisms auctions and posted prices agents choose whether to participate in markets where trades are consummated by auctions or in markets where sellers post prices we show that the selling mechanisms are practically equivalent previous studies have shown that auction markets emerge as a unique evolutionary stable equilibrium when compared to bargaining markets posted price markets dominate bargaining markets similarly journal of economic literature classification numbers c78 c73 d44

winner s curse without overbidding abstract we report the results of a series of second price auction experiments where each bidder s signal is given by a normally distributed value plus a normally distributed error while bidders values differ in one treatment they are the same in another which allows for a direct test of the winner s curse irrespective of confounding factors bidders may also fall prey to a news curse when they do not sufficiently take into account that signals and errors are correlated we find that the effects of the winner s curse are mitigated by a news curse and loss or risk aversion

the endogenous relationship between innovation and diversification and the impact of technological resources on the form of diversification abstract this research has endeavoured to build on earlier research on the relationship between a firm s technological resources and the direction of its diversification by trying to confirm the endogeneity of this relationship and by addressing the influence of innovation on the choice of the mode of diversification based on a sample of spanish firms our results suggest that innovation drives diversification but not the reverse the second important finding of this research is the empirical confirmation that knowledge assets are not related to the diversification mode

r d internationalization and growth of newly listed firms european evidence the initial public offering ipo is an important stage in the life cycle of privately held and entrepreneurial firms for innovative firms eager to capitalize on their technological advances an ipo represents a springboard for a rapid international expansion of sales however there is little research on the longer term post ipo strategic evolution of newly listed companies including their internationalization we build on international entrepreneurship and dynamic capabilities perspectives and examine interrelationships between r d exporting and growth of newly listed firms in the uk germany italy and france using panel data for 1110 ipos during the period 1985 2004 we found that r d intensity is an important antecedent factor for internationalization of sales both r d and export intensities have a positive effect on the sales growth of newly listed firms however r d intensity is path dependent and is determined by levels of accumulated intangible assets and debt in terms of time dynamics the growth of ipo firms is at its highest level just after the float whereas export intensity increases as ipo firms mature we conclude that managers and ipo investors need to take into account not only growth opportunities but also past innovation strategies and financial constraints on managers strategic choices

understanding overbidding in second price auctions an experimental study we present results from second price private value auction spa experiments where bidders may receive noisy signals about their opponentsvalue such signals change biddersperception about the strengthof their opponent and the relationship between biddersperception of their opponent and overbidding provides a novel channel to understand overbidding in spa we found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values supporting a modifiedjoy of winninghypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values consistent with thespite hypothesis second price private value auctions spas are the most easily understood auction format from a theoretical point of view 1 in standard private value auction models of fully rational bidders with standard preferences bidding one s own value is a weakly dominant strategy this theoretical prediction holds irrespective of biddersrisk atti tudes the number of rival bidders symmetry in the value distributions and so on in laboratory experiments however subjects are found to exhibit a consistent pattern of overbidding kagel et al 1987 found that the actual bids are on average 11 above the dominant strategy bids kagel and levin 1993 found that about 62 of all bids in their five bidder spa sessions exceed the bidder s value while only 8 of all bids were below it both kagel and levin 1993 and harstad 2000 further reported that experience has only a small effect in reducing overbidding in spa an important related finding is that overbidding in english auctions a mechanism that is strategically equivalent to the spa in the case of private values is known to be a short term phenomenon that subjects quickly learn not to undertake kagel and levin 1993 thus any explanation for the prevalence and persistence of overbidding in the spa must also explain its rarity in the english auction given the robustness of the findings of overbidding in spa it is surprising that economists have little understanding of why it happens kagel et al 1987 conjectured that bidding above one s own value in a spa is based on the illusion that it improves the probability of winning with little cost because the winner only pays the second highest bid 2 moreover they argue that overbidding is sustainable because bidders still on average earn positive profits and because the negative feedback from overbidding is a weak mechanism in the spa for example if a bidder overbids in a spa by 10 above her value it is quite possible that she does not win at all and thus does not experience

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

the effect of explicit reference points on consumer choice and online bidding behavior sellers often explicitly suggest to buyers that they compare one option to other reference options building on the notion that loss aversion is more pronounced when comparisons are explicit rather than implicit we propose that the mere fact that consumers are explicitly told to make particular comparisons induces more risk averse cautious choice and bidding behavior this proposition was supported in a field experiment involving real online auctions in which comparisons among listings either were done spontaneously by bidders or were encouraged using an explicit instruction to compare the focal auction with adjacent listings results showed that explicit reference points 1 diminished the influence of adjacent auction prices on the focal auction s price 2 led participants to submit fewer lower and later bids 3 increased the incidence of sniping 4 decreased bidding frenzy and 5 decreased the tendency to bid on multiple items simultaneously the impact of explicit comparisons on risk averse behavior was further tested in a very different context using a laboratory choice experiment in that study explicit instructions to compare option sets increased the tendency to choose the compromise low risk and all average alternatives we discuss the theoretical and practical implications of this research

linking corporate strategy to capital structure diversification strategy type and source of financing this study examines the relationship between corporate strategy and capital structure specifically the diversfication and financing strategies of a firm the results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financing additionally firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing using simultaneous equation estimation we found a reciprocal relationship between a firm s financial strategy and its corporate diversification strategy mode and nature of diversification are also reciprocally interrelated 1998 john wiley sons ltd

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

when rational sellers face nonrational buyers evidence from herding on ebay people often observe others decisions before deciding themselves using ebay data for dvd auctions we explore the consequences of neglecting nonsalient information when making such inferences we show that bidders herd into auctions with more existing bids even if these are a signal of no longer available lower starting prices rather than of higher quality bidders bidding a given dollar amount are less likely to win low starting price auctions and pay more for them when they do win experienced bidders are less likely to bid on low starting price auctions remarkably the seller side of the market is in equilibrium because expected revenues are nearly identical for high and low starting prices

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

nonstandard bidder behavior in real world auctions empirical work on auctions has found that bidders deviate from standard behavior in important ways we investigate a range of these behaviors including nonrational herding auction fever quasi endowment effect and escalation of commitment our innovations are to more completely control for unobservables by using new data from a field experiment on ebay and by accounting for censoring of bids below the starting price consistent with standard auction theory and in contrast to the predictions of the nonstandard behaviors we find that auction starting price has no effect on bidder willingness to pay in a private values setting we conclude that there is little evidence that these nonstandard behaviors are important in the field

auctions versus posted price selling two popular selling methods posted price selling and auctions are compared here in an independent private values model without auctioning costs auctioning is always optimal when auctioning is costly auctions are still preferable if the marginal revenue curve is sufficiently steep the global steepness of the marginal revenue curve is found to coincide with the dispersion around the mean for a number of standard distributions finally the prices of the monopoly seller and of the social optimum are compared copyright 1993 by american economic association

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

a structural model of competing sellers auctions and posted prices in an original data set of goods listed for sale online i observe that both auctions and posted prices are popular with buyers and sellers in the compact disc market to explain why these two mechanisms coexist i estimate a structural model of competing sellers who differ in the value of their outside options buyers are allowed to value auctioned and posted price goods differently but the estimated value distributions suggest that differences across buyers do not explain the mechanism coexistence that i observe in contrast differences across sellers outside options are important the value of the outside option segments the market with high outside option sellers choosing to post a fixed price there are two key forces at work that drive this empirical result first competition between sellers favors coexistence over an auction only or a posted price only marketplace because sellers prefer to be in a market with fewer rivals second sellers with more valuable outside options prefer the posted price mechanism because posted price goods sell less often than auctioned goods but at a higher price as a result a larger outside option reduces the loss from not selling and favors the posted price mechanism

contagious speculation and a cure for cancer a nonevent that made stock prices soar a sunday new york times article on a potential development of new cancer curing drugs caused entremed s stock price to rise from 12 063 at the friday close to open at 85 and close near 52 on monday it closed above 30 in the three following weeks the enthusiasm spilled over to other biotechnology stocks the potential breakthrough in cancer research already had been reported however in the journal nature and in various popular newspapers including the times more than five months earlier thus enthusiastic public attention induced a permanent rise in share prices even though no genuinely new information had been presented a central tenet of f inancial economics is that an asset should trade at the risk adjusted present value of its expected future cash f lows these expected future cash f lows exist in people s minds and do not normally lend themselves to direct observation an equilibrium price in a frictionless market does not tolerate disagreements among market participants if some people deem the price too low they will buy the asset if others think it is too high they will sell it short if necessary although the efficient markets hypothesis predicts that price changes are unpredictable it associates them with changes in traders beliefs about future cash f lows or the appropriate discount rate beliefs change with the arrival of new information thus in hindsight at least we should be able to ascribe price changes to the arrival of specific new information we examine this view in the context of a series of news reports in the media pertaining to entremed enmd a biotechnology company and other members of its sector the sunday may 3 1998 edition of the new york times reports on a recent breakthrough in cancer research and mentions enmd a company with licensing rights to the breakthrough kolata 1998 the story s impact on the stock prices was immediate huge and to a large extent permanent the new news content of the times story was nil though the substance of the story had been published as a scientific piece in nature boehm et al 1997 and in the popular press including the times itself wade 1997 more than five months earlier in november 1997

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

auctions with a buy price the case of reference dependent preferences abstract in an auction with a buy price the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price this paper develops a model of an auction with a buy price in which bidders use the auction s reserve price and buy price to formulate a reference price the model both explains why a revenue maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders reference price through the auction s reserve price and buy price than when she can affect the bidders reference price through the auction s reserve price only the comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction s buy price have no effect on bidding behavior

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

limited attention to search costs in the gasoline retail market evidence from a choice experiment on consumer willingness to search we conduct a choice experiment to investigate whether u s gasoline consumers exhibit limited attention to the costs of searching for lower prices when consumers search for prices as they drive the search cost is a function of the amount of gasoline consumed while driving and the time spent searching for prices we randomize the amount of information we provide the respondents to a survey about search costs in one of 3 ways time gasoline or both results indicate that cognitive costs cause inattention to time costs we also find that respondents overestimate the cost of the gasoline used while driving thus forgoing consumer surplus copyright 2013 oxford university press

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

something in the air pollution and the demand for health insurance we find that daily air pollution levels have a significant effect on the decision to purchase or cancel health insurance in a manner inconsistent with rational choice theory a one standard deviation increase in daily air pollution leads to a 7 2 increase in the number of insurance contracts sold that day conditional on purchase a one standard deviation decrease in air pollution during the cooling off i e cost free cancellation period relative to the order date level increases the return probability by 4 0 we explore a range of potential mechanism and find the most support for projection bias and salience

ebay s crowded evenings competition neglect in market entry decisions do firms neglect competition when making entry decisions this paper addresses this question analyzing the time of day at which ebay sellers set their auctions to end consistent with competition neglect it is found that i a disproportionate share of auctions end during peak bidding hours ii such hours exhibit lower selling rates and prices and iii peak listing is more prevalent among sellers likely to have chosen ending time strategically suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness the results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior

r d investment and financing choices a comprehensive perspective abstract we posit that the effects of r d investment on financing choices depend on the degree of intervention barriers and appropriation discrepancy between capital providers and the firm based on these two contingencies we categorize financing instruments into four types common equity common stock convertible securities preferred stock and convertible debt transactional debt corporate bonds and relational debt bank and commercial loans from the experiences of 39 petroleum firms during the period 1976 2005 we found r d investment has a positive effect on the use of common equity a u shaped effect on the use of convertible securities and an inverted u shaped effect on the use of relational debt to raise capital these effects are sustained over several years

adverse selection in electronic markets evidence from online stamp auctions we analyze adverse selection costs in online stamp auctions based on a comparison of prices on ebay with those of matched stamps at a specialty stamps auction site in the u s michael rogers inc mr which we know a priori has low quality uncertainty we find that buyer prices are 10 15 lower on ebay as compared to mr and the price difference increases with the value of the stamps consistent with this adverse selection discount we find that the seller reputation mechanism on ebay has an economically modest although statistically significant effect on auction price and probability of sale

predicting buyer seller pricing disparities numerous studies have shown that compensation demanded cd to give up a commodity often greatly exceeds willingness to pay wtp to obtain the same commodity even in incentive compatible experiments that penalize strategic misrepresentation observed cd wtp disparities are too large to be reconciled with traditional assumptions of economic rationality a prospect theory based behavioral framework for predicting cd and wtp is proposed which produces five distinct transaction encoding rules any one of which can in principle apply to a buyer or a seller according to this framework cd wtp gaps occur when buyers and sellers encode the prospective transaction differently and gaps can occur in multiple ways and vary in size depending on encoding the transaction encoding framework was tested in two experiments in experiment 1 model fits to subjects cd and wtp for lottery tickets were consistent with the hypothesis that buyers and sellers encode transaction problems differently moreover the quite large observed cd wtp gaps were explained fully by encoding when differences between buyers and sellers encoding processes were taken into account their estimated utility value and probability weighting functions did not differ the present framework and results show that the widely cited endowment effect is but one of several ways in which loss aversion can give rise to cd wtp gaps consistent with this broadened perspective experiment 2 demonstrated cd wtp gaps in the absence of an endowment effect and in the absence of rational economic causes the transaction encoding framework 1 provides a structured approach for predicting and testing the effects of a variety of task factors on pricing behavior and transaction outcomes and 2 reveals the useful property that in many cases the ratio cd wtp can be interpreted as a direct measure of the degree of loss aversion

debt and communications technology diffusion retrospective evidence this study has evaluated the relationship between debt in the capital structure of firms and the dynamics of broadband and digital technology adoption in the united states based on a large dataset on local exchange carriers in the united states over a contemporary historical fourteen year period from 1988 to 2001 using treatment effects modeling the impact of debt in impacting the levels of firms broadband deployment has been found to be negative and significant the primary source of debt in the sector has been in the form of arm s length corporate bonds and the assumptions of the monitoring hypothesis associated with such debt that lenders in the face of information and collective actions problems might not be able to control managers and hence invest less in highly technology intensive situations are supported by the data additionally the data set has been split into separate sets for two periods one between 1988 and 1995 for the period before the telecommunications act of 1996 came into force and the other set between 1996 and 2001 and the results have stayed consistent a test of the coefficients between the two periods has shown that the negative impact of leverage on broadband deployment has become stronger after the introduction of competition in the sector and this has suggested that the change in the institutional logics between the two periods has been of material impact in influencing lenders perceptions

price discontinuities in an online market for used cars we study the price setting behavior in a competitive market for used cars and provide empirical evidence for coarse information processing based on detailed field data from one of europe s largest online marketplaces for automotive vehicles we document systematic and sizable price discontinuities at salient car age and mileage thresholds the price difference between two otherwise identical cars across registration years where one was first registered in january and the other in december of the previous year is up to five times larger than that between two cars first registered in any two subsequent months within a registration year a similar pattern can be observed in the mileage dimension at 10 000 km odometer marks which is in line with earlier findings in the literature being able to study discontinuities along two dimensions of the same good allows us to further our understanding toward a more general notion of inattentive behavior while our results are compatible with a behavioral model of l

face value information and signaling in an illegal market author affiliation trevon d logan the ohio state university and nber 410 arps hall 1945 north high street columbus oh 43210 usa e mail logan 155 osu edu corresponding author manisha shah dagger university of california los angeles and nber 3250 public affairs building los angeles ca 91195 e mail manishashah ucla edu acknowledgment we would like to thank george akerlof rodney j andrews raj arunachalam andrea a cann lisa d cook brahima coulibaly scott cunningham angus deaton avinash dixit claudia d goldin karla hoff joseph kaboski simon loertscher joseph m newhard christina paxson john pepper ruth peterson patricia reagan seth sanders ebonya washington nathan woodfork three anonymous referees and numerous seminar participants who provided helpful suggestions the usual disclaimer applies 1 introductionformal enforcement is often seen as the cornerstone of contract design while information can overcome the problems of asymmetric information akerlof 1970 spence 1973 principals are unlikely to engage agents unless the information conveyed is credible and verifiable while the use of formal institutions such as courts is rare relative to the volume of transactions the standard argument is that the presence of formal institutions gives contracts their authority in schelling s 1960 classic terminology the power to sue and be sued gives parties the ability to make credible enforceable commitments a prerequisite to most transactions without means of redress the information that principals and agents share would a priori have little value numerous studies have documented how informal networks long term relationships and reputations overcome problems of asymmetric information indeed researchers have developed large literatures that look at limited contractibility hart 1995 tirole 1999 and situations in which formal enforcement is costly greif 1993 to consider the additional mechanisms that must be in place if existing institutions are lacking or unable to mediate disputes however the literature has not developed an empirical answer to whether the value of information without formal enforcement approaches its value when formal enforcement is present in this article we ask two questions i are formal enforcement mechanisms necessary for the information that principals and agents share to have value ii if not then what is the value of information in an environment without formal enforcement ideally we would like to analyze an illegal market to answer these questions illegal markets rule out the possibility that market function or variation in the information environment is due to the presence of formal enforcement similarly in an illegal market the information that principals and agents convey to one another may not be credible or verifiable and misrepresentation is not likely to be punished the problem is that most illegal markets have coarse information environments it is therefore challenging to obtain information on prices quantities and consumer and producer behavior making empirical answers to these questions especially difficult we overcome these problems by analyzing an illegal market with a rich information structure the online market for male sex work we begin with a general description of this seldom studied market we then document the ways in which the clients of male sex workers informally police the market by informing other clients of deceptive sex workers and by reviewing sex workers on independent client owned web sites the informal policing in the market raises the cost of misrepresentation for would be fraudulent escorts and rewards the truthful self disclosure of honest escorts encouraging truthful self disclosure we further exploit this institutional knowledge to identify the specific information clients treat as signals of escort quality

the valuation of complex derivatives by major investment firms empirical evidence this article examines the auction of a portfolio of collateralized mortgage obligations cmos to major broker dealers and institutional investors the unique data set allows us to analyze a number of important empirical questions related to the valuation of cmos by the bidders and the elasticity of demand for the securities the results reveal that the valuations differ substantially implying a significant elasticity of demand this article is designed to shed light on two related questions first it extends the work of bagwell 1991 1992 brown and ryngaert 1990 and bradley desai and kim 1988 among others on shareholder heterogeneity and the elasticity of the demand for financial assets to date the empirical research on investor heterogeneity has focused on common stock this article supplements previous work by examining an auction of another class of securities complex collateralized mortgage obligations cmos to major securities dealers and institutional investors second it provides perspective on fixed income valuation models in the spirit of cox ingersoll and ross 1985 and black derman and toy 1990 virtually all of these models even those that specify relatively complex interest rate processes assume homogeneous beliefs this implies that within the constraints imposed by estimation error sophisticated investors should place equal values on fixed income securities bagwell observes that investors can be heterogeneous along several dimensions first heterogeneity can be induced by tax rules to the extent that different investors are taxed in different ways their demand for securities will be affected second transaction costs can cause heterogeneity by driving a wedge between buyers sellers and owners of a security third investors can differ in their assessments of the value of a security either because they possess different information or because they analyze that information in different ways fourth investors can face different nontradeable risks and thus can have different assessments of the value of a security depending on how it interacts with these risks finally it has been suggested by lee shleifer and thaler 1991 among others that investors may differ for idio

the influence of unrelated and related diversification on fraudulent reporting this study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting the strength of the influence of these corporate level strategies is contingent on the moral character of the firm unrelated diversification provides opportunity for financial innovation within the firm s internal capital market which can result in fraudulent reporting this is more likely when the moral character of the firm is driven by a conscienceless financial self interest motive as implied by the firm s contempt toward the larger community in terms of damage inflicted on the interests of people outside the firm in contrast related diversification where product divisions focus on mutual sharing and monitoring of operational activities can reduce the probability of fraudulent reporting this is more likely when constituents within the firm view themselves as moral citizens as implied by the firm s benevolence toward the larger community hence while unrelated diversification focuses the energies of managers within the firm on financial manipulation related diversification focuses these energies on productive purposes

implementing efficient multi object auction institutions an experimental study of the performance of boundedly rational agents abstract we study three alternative implementations of the vickrey multi unit demand auction vickrey s original static sealed bid auction and two dynamic ausubel auctions with and without public dropout information reported during the auction although implemented by a weaker solution concept behavior in the dynamic vickrey auction with the public dropout information comes significantly closer to the theoretical prediction of sincere bidding bidding one s valuations than either the static vickrey auction or the dynamic auction without dropout information this suggests a possible tradeoff between the simplicity and transparency of a mechanism and the strength of its solution concept when agents are still learning and or when players are not fully rational drawing on results from related single unit and multi unit demand auctions and the results of a new single unit demand auction experiment we provide important insights into the behavioral mechanism underlying the superior performance of the ausubel auction with feedback information

are tradeoffs inherent in diversification moves a simultaneous model for type of diversification and mode of expansion decisions drawing on the premise that the diversification decisions are driven by antecedent factors such as a firm s existing resources teece 1982 and industry structural conditions this paper develops formal hypotheses for reciprocity between the type of diversification and mode of expansion decisions we consider the specificity of antecedent resources that affect these two decisions and conceptually demonstrate that there is a contradictory tension in trying to optimize the decisions jointly implying that one or both diversification decisions have to be sub optimized i e there has to be a trade off we make a conceptual argument that this sub optimization is likely to be in the form of subordination of the mode decision subject to constraints impo sed by resources that are highly specific to the mode decision following this we empirically investigate this contradictory tension by using a simultaneous equation model sem on a large sample of firms between 1981 and 1989 the results suggest that one antecedent factor internal funds act as the key mediating influence in the joint optimization and leads to a subordination of the mode decision in the joint optimization process however the existence of time compression economies and market power benefits are the exceptions to this subordination and trade off process

consumer default credit reporting and borrowing constraints why do negative credit events lead to long term borrowing constraints exploiting banking regulations in peru and utilizing currency movements we show that consumers who face a credit rating downgrade due to bad luck experience a three year reduction in financing consumers respond to the shock by paying down their most troubled loans but nonetheless end up more likely to exit the credit market for a set of borrowers who experience severe delinquency we find that the associated credit reporting downgrade itself accounts for 25 to 65 of their observed decline in borrowing at various horizons over the following several years

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

auction fever rising revenue in second price auction formats the prevalent term auction fever visualizes that ascending auctions inconsistent with theory are likely to provoke higher bids than one shot auctions to explore and isolate causes of auction fever experimentally we design four different strategy proof auction formats and order these according to expected rising bids based on pseudo endowment effect arguments psychological ownership and disparity between willingness to pay and willingness to accept observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values the private information of a bidder is the distribution of her value a control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory another control treatment with a procurement auction relates the auction fever bids to bids in a one shot auction with real endowments we conclude that when bidders are uncertain about their valuations auctions that foster pseudo endowment may raise bids and revenues

borrowing on the wrong credit card evidence from mexico abstract we establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in mexico we find that relative prices are weak predictors of the allocation of debt purchases and payments consumers allocate a large fraction of their debt to high interest cards incurring a cost of 31 percent above the minimum using an experiment we find that consumers do not substitute in the price margin although they respond to salient temporary low interest offers we conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market jel d14 g21 o12 o16

how not to run auctions the european 3g telecom auctions abstract there were enormous differences in the revenues from the european third generation 3g or umts mobile phone license auctions from 20 euros per capita in switzerland to 650 euros per capita in the uk though the values of the licenses sold were similar poor auction designs in some countries facilitated collusion between firms and failed to attract entrants the sequencing of the auctions was also crucial we discuss the auctions in the uk netherlands germany italy austria switzerland belgium greece and denmark

a memory based model of bounded rationality in order to investigate the impact of limited memory on human behavior i develop a model of memory grounded in psychological and biological research i assume that people take their memories as accurate and use them to make inferences the resulting model predicts both over and underreaction but provides enough structure to predict when each effect dominates i then use this framework to study the consumption decision the results match empirical work on consumption predictability as well as differences in the marginal propensity to consume from different income streams most importantly because it ties the extent of bias to a measurable aspect of the stochastic process being forecasted the model makes testable empirical predictions

a model of add on pricing this paper examines competitive price discrimination with horizontal and vertical taste differences consumers with higher valuations for quality are assumed to have stronger brand preferences two models are considered a standard competitive price discrimination model in which consumers observe all prices and an add on pricing game in which add on prices are naturally unobserved and firms may advertise a base good at a low price in hopes of selling add ons at high unadvertised prices in the standard game price discrimination is self reinforcing the model sometimes has both equilibria in which the firms practice price discrimination and equilibria in which they do not the analysis of the add on pricing game focuses on the chicago school argument that profits earned on add ons will be competed away via lower prices for advertised goods a conclusion is that add on practices can raise equilibrium profits by creating an adverse selection problem that makes price cutting unappealing although profitable when jointly adopted using add on pricing is not individually rational in a simple extension with endogenous advertising practices and costless advertising several models that could account for add on pricing are discussed

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

auctions versus negotiations which is the more profitable way to sell a company an auction with no reserve price or an optimally structured negotiation with one less bidder we show under reasonable assumptions that the auction is always preferable when bidders signals are independent for affiliated signals the result holds under certain restrictions on the seller s choice of negotiating mechanism the result suggests that the value of negotiating skill is small relative to the value of additional competition the paper also shows how the analogies between monopoly theory and auction theory can help derive new results in auction theory jel d44 g34 there are close analogies between standard price theory and the theory of auctions in an absolute english auction in which the price rises continuously until only one bidder remains and the seller is required to accept the final bid the sale price equals the lowest competitive price at which supply equals demand in the theory of optimal auctions the seller is treated as a monopolist who can choose any

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

vickrey auctions in practice from nineteenth century philately to twenty first century e commerce william vickrey 1961 proposed an auction mechanism in which bidders submit sealed bids and the highest bidder wins the good in return for payment of the second highest bid amount for decades economists have credited vickrey with inventing this auction format and have believed that the vickrey auction is rarely used in practice this paper presents evidence that vickrey auctions have long been the predominant auction format for mail sales of collectible postage stamps stamp auctioneers developed this auction format on their own as early as 1893 even before vickrey was born

outside options another reason to choose the first price auction abstract in this paper we study equilibrium and experimental bidding behaviour in first price and second price auctions with outside options we find that bidders do respond to outside options and to variations of common knowledge about competitors outside options however overbidding in first price auctions is significantly higher with outside options than without first price auctions yield more revenue than second price auctions this revenue premium is significantly higher with outside options in second price auctions the introduction of outside options has only a small effect

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