endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

two sided uncertainty and up or out contracts a bilateral moral hazard problem provides a rationale for up or out employment contracts the employer sets a wage higher than opportunity cost to induce the worker to invest in firm specific capital if the individual does not make the grade it is in the firm s interest ex post to fire him had the initial arrangement not included provisions for firing individuals the firm would underreport the value of the employee wrecking the incentive scheme the basic model permits both firm and worker to be risk neutral therefore it admits a straightforward multiperiod extension which we also investigate

dynamic entry and exit with uncertain cost positions abstract we study the dynamics of entry and exit based on firms learning about their relative cost positions each firm s marginal cost of production is its own private information thereby facing ex ante uncertainty about its cost position the inelastic market demand can accommodate only a fraction of firms to operate and thus only firms with relatively lower costs are viable in the long run some firms in the market will exit if excessive entry or overshooting occurs we derive the unique symmetric sequential equilibrium the equilibrium properties are consistent with empirical observations i entry occurs gradually over time with lower cost firms entering earlier than higher cost firms ii exiting firms are among the ones that entered later indeed in the last period moreover equilibrium overshooting probability is shown to always be positive and decreasing over time

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

appropriate design of auctions for renewable energy support prequalifications and penalties abstract auctions are a promising tool to accomplish renewable energy support res however they involve diverse risks for the auctioneer and the bidders the major risk for the auctioneer with respect to the expansion target and the acceptance of auctions for res in general is the risk of non realization awarded bidders do not realize their projects the main reasons are bidders uncertainties concerning their project costs the auctioneer can reduce the non realization risk by taking various measures the most discussed and implemented measures are financial and physical prequalifications and penalties an evaluation of these measures has relevant implications for an appropriate auctions design for res the non realization option induces lower bids a suitable combination of financial and physical prequalifications can reduce the non realization risk significantly however involves sunk costs counterintuitively first price auction and second price auction lead to different expected award prices and different realization probabilities penalties bear a high risk of inefficient auction outcomes the appropriate parametrization and combination of the measures is challenging under consideration of all implications we recommend high financial and adjusted physical prequalifications to achieve a sufficiently high realization rate while maintaining efficiency

investment dynamics with common and private values abstract we study a dynamic investment game with two dimensional signals where each firm observes its continuously distributed idiosyncratic cost of investment and a discrete signal correlated with common investment returns we demonstrate that the one step property holds and provide an equilibrium existence characterization result reversals are possible where a large number of firms investing in a given round becomes bad news about investment returns welfare is compared to static and rigid timing benchmarks and computed for large economies

optimal auctions revisited in symmetric privately known values oral auctions with costly entry for bidders the seller can do no better than by committing ex ante to a reservation price and entry fees or subsidies which result in no fewer and at most one more bidders than a reservation price equal to the seller s value would in the absence of entry fees or subsidies journal of economic literature classification numbers d44 c72

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

on entry exit and coordination with mixed strategies abstract a dynamic entry and exit game is studied where following dixit and shapiro 1986 the economics of strategic planning lexington books pp 63 79 firms play symmetric mixed strategies coordination among entrants improves and creates a tendency for the value of incumbency to increase as the number of incumbent firms increases up to the point of excess capacity this feature implies that when considering mixed strategies the relevant payoffs are not monotonic as the probability of entry increases expected profit for a given firm conditional on entry increases over some initial range it is shown that the payoffs have an interesting dynamic structure which allows the complete characterization of the equilibrium

technology uncertainty sunk costs and industry shakeout i propose a novel explanation for new industry shakeouts because of capacity sunk costs and the fear of backing the wrong technology firms initially invest up to a small capacity leading to a large number of initial entrants as the dust settles and a dominant technology emerges surviving firms expand to their long term optimal capacity which results in a reduction in the number of competitors notwithstanding the increase in total market output copyright 2012 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

the lifeboat problem abstract we study an all pay contest with multiple identical prizes lifeboat seats prizes are partitioned into subsets of prizes lifeboats players play a two stage game first each player chooses an element of the partition a lifeboat then each player competes for a prize in the subset chosen a seat we characterize and compare the subgame perfect equilibria in which all players employ pure strategies or all players play identical mixed strategies in the first stage the partitioning of prizes can lead to coordination failure when players employ nondegenerate mixed strategies in these equilibria some rents are sheltered and rent dissipation is reduced

simultaneous entry and welfare abstract i examine the welfare properties of free entry under conditions of simultaneous entry specifically i consider the second best problem of influencing the number of entrants while taking as given firm behavior upon entry i consider two alternative models of simultaneous entry grab the dollar entry and war of attrition entry i show that if entry costs are low then the results from previous models of sequential entry are fairly robust to the possibility of simultaneous entry if however entry costs are high then the welfare effects of free entry depend delicately on the nature of the entry game being played

alternative common value auction procedures revenue comparisons with free entry the logic of revenue comparisons for different types of common value auctions is substantially altered if the number of participants rather than being fixed responds endogenously to the expected profitability from participating in a thoroughly symmetric model a seller may prefer that competition be indirect an auction procedure in which fewer participants are needed to drive the expected profitability from participating down to the level obtainable in other auctions in the economy can attain higher expected revenue if a sale is sufficiently likely this insight allows a complete revenue ranking of standard auction procedures with endogenous entry

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

auctions with an inexpert bidder abstract we consider an auction in which the behavior of one potential bidder departs mildly from full rationality we show that the presence of such an inexpert bidder can be enough to discourage all of an infinitely large population of fully rational potential bidders from entering an auction furthermore this departure from full rationality does not reduce the inexpert bidder s payoff

entry fixed costs and the aggregation of private information we investigate the ability of the price system to aggregate private information in a market of uncertain size and where set up costs are incurred by entrants it is shown that the equilibrium is random even when the totality of private information is so large that aggregate uncertainty is virtually non existent in particular the limiting equilibrium does not approach the full information walrasian outcome hence the model identifies a technological factor increasing returns which gives rise to informational losses

to grab for the market or to bide one s time a dynamic model of entry we consider a simultaneous move dynamic entry game the fixed cost of entry is private information entering earlier increases the likelihood of being the monopolist but also increases the likelihood of coordination failure and simultaneous entry we consider general continuous distributions for the fixed cost and we characterize the unique symmetric sequential equilibrium in pure strategies comparative statics results are derived as the time between rounds approaches zero all of the action occurs during an arbitrarily small amount of time for the bertrand model we extend the analysis to allow for n firms

on optimal reservation prices in auctions the theory of auction design examines how various factors affect the outcome of an auction most of the existing literature focuses on how varying the amount of information available to each bidder affects the bid taker s expected revenue when all other factors remain constant this paper studies how the bid taker s expected revenue varies with changes in the auction format when such changes affect the number of bidders and in turn the bidders maximum value for the object being sold specifically we examine how varying the reservation price or screening level affects the bid taker s expected revenue though its effect on the number of bidders for two simple examples the losses associated with a reduced number of bidders outweighs any benefits that nontrivial reservation prices might have had in models with an exogonously set number of bidders

corporate contributions altruistic or for profit existing literature has focused on three rationales for corporate philanthropy through the firm giving corporate statesmanship and profit motivated giving the profit motivation argument was exa

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

corporate philanthropy in the united kingdom the increasing demands placed on private welfare services and calls for business to fulfil its social responsibilities have heightened interest in corporate charitable donations in the united kingdom adjustments to the corporation tax system have been made to encourage companies to give more the article outlines the legal and fiscal background to company giving examines its magnitude and reports on a survey of company practice

trading uncertainty and the cash in advance constraint abstract it is argued that when money and bonds are distinct and money yields a lower rate of return the quantity of private bonds that is exchanged for money is a signal for demand in the near future therefore competitive price setters who observe transactions in the capital market will find it easier to quote prices when money and bonds are distinct relative to the case in which money and bonds are perfect substitutes in the example analyzed imposing a cash in advance constraint leads to fewer price setting mistakes and to a pareto improvement

imperfect duties and corporate philanthropy a kantian approach nonprofit organizations play a crucial role in society unfortunately many such organizations are chronically underfunded and struggle to meet their objectives these facts have significant implications for corporate philanthropy and kant s notion of imperfect duties under the concept of imperfect duties businesses would have wide discretion regarding which charities receive donations how much money to give and when such donations take place a perceived problem with imperfect duties is that they can lead to moral laxity that is a failure on the part of businesses to fulfill their financial obligations to nonprofit organizations this article argues the problem of moral laxity rests on a misinterpretation of kantian ethics and therefore is really not a problem at all as such we argue corporate philanthropy while an imperfect duty should be interpreted more akin to perfect duties and as a consequence moral laxity does not arise for those corporations committed to acting on the basis of the moral law more specifically firms have duty based obligations on the basis of benevolence and as good corporate citizens to help fund non profit organizations

bid preference programs and participation in highway procurement auctions we use data from highway procurement auctions subject to california s small business preference program to study the effect of bid preferences on auction outcomes our analysis is based on an estimated model of firms bidding and participation decisions which allows us to evaluate the effects of current and alternative policy designs we show that incorporating participation responses significantly alters the assessment of preferential treatment policies

trading uncertainty enforcement and labor unions it is shown that when contracts can be perfectly enforced trading uncertainty leads to discrimination among workers with the same skills and experience in this case anti discrimination laws lead to inefficiencies in the absence of perfect enforcement anti discrimination practices may be used as enforcement devices and need not lead to inefficiencies in particular firms may wish to precommit to an anti discrimination policy say by inviting in a labor union in order to offer credible insurance to its workers this leads to an equilibrium in which union workers get a higher wage than non union workers but unions do not have monopoly power

the management nexus of imperfect duty kantian views of virtuous relations reasoned discourse and due diligence a nexus of imperfect duty defined as positive commitments that have practical limits describes business behavior toward building affable and virtuous relations maintaining reasoned social discourse and performing the due diligence necessary for making knowledgeable business decisions a theory of the development and extent of the limits of these imperfect managerial duties is presented here a theory that in part explains the activities and personnel included under the firm s umbrella as a result the nexus of imperfect duty is shown to complement the perfect duty based nexus of contracts theory of the firm the existence of flexible trade offs involving these duties trade offs limited by contractual arrangements whether explicit or implicit is shown to be one of the advantages of imperfect duty for developing business relations

why stakeholder and stockholder theories are not necessarily contradictory a knightian insight the normative foundations of the investor centered model of corporate governance represented in mainstream economics by the nexus of contracts view of the firm have come under attack mainly by proponents of normative stakeholder theory we argue that the nexusof contracts view is static and limited due to its assumption of price output certainty we attempt a synthesis of the nexus of contracts and the knightian views which provides novel insights into the normative adequacy of the investor centered firm implications for scholarship and management practice follow from our discussion

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

strategic entry before demand takes off in developing industries firms have to decide whether and when to enter the market depending on the state of demand existing firms in the industry and the firm s capabilities this paper investigates a model of increasing demand in which firms decide when to enter the market anticipating the strategic behavior of other potential entrants and the effects of entry on future potential entrants this paper shows that the ability of early entry to deter future competitors entry leads firms to enter the market at a rate faster than demand is expanding if there is the potential for many firms to enter the market firms may be less likely to enter because of future competitor entry to correct any market opportunities if firms enter the market depending on their fixed capabilities rather than depending on the firm s circumstances at each moment in time firms end up entering the market at a faster rate in the early periods

strategic ignorance in a second price auction abstract suppose that bidders may publicly choose not to learn their values prior to a second price auction with costly bidding all equilibria with truthful bidding exhibit bidder ignorance when the number of bidders is sufficiently small ignorance considerations also affect the optimal reserve price

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

auctions with heterogeneous entry costs it is well known that if bidders have independent private values and homogeneous entry costs a rst or second price auction with a reserve price equal to the seller s value maximizes social surplus and seller revenue and leaves bidders with no surplus further in mixed strategy entry equilibria social surplus and seller revenue decrease with the number of bidders we show that when entry costs are heterogeneous and private information the revenue maximizing reserve price is above the seller s value a positive inspection fee and a reserve price equal to the seller s value generates even more revenue and in either case bidders capture informational rents further seller revenue and social surplus may either increase or decrease with the number of bidders nevertheless seller revenue is asymptotically the same whether entry costs are homogeneous or heterogeneous our results are framed in terms of screening values rather than reserve prices and apply to any standard auction

shareholder theory and kant s duty of beneficence this article draws on the moral philosophy of immanuel kant to explore whether a corporate duty of beneficence to non shareholders is consistent with the orthodox shareholder theory of the firm it examines the ethical framework of milton friedman s argument and asks whether it necessarily rules out the well being of non shareholders as a corporate objective the article examines kant s distinction between duties of right and duties of virtue the latter including the duty of beneficence and investigates their consistency with the shareholder theory the article concludes that it is possible within the ethical framework of shareholder theory for managers to pursue directly the happiness of non shareholders furthermore shareholders have a duty to hold management to account for the moral consequences of the firm s activities on non shareholding stakeholders

aggressive tax avoidance by managers of multinational companies as a violation of their moral duty to obey the law a kantian rationale managers of multinational companies often favour an aggressive tax avoidance strategy that pushes the legal limits onto the advantage of shareholders and the disadvantage of the spirit of democratically legitimized tax laws the public and media debate whether such aggressive behaviour is immoral aggressive tax avoidance is a subset of the aggressive legal interpretations potentially observable in all fields which places little weight on the will of a democratically legitimized legislation a thorough ethical analysis based on the deontological approach of kant demonstrates that aggressive tax avoidance as a special case of operating on the edge of legal boundaries is potentially immoral applying the kantian contradiction of conception or will test shows that this maxim might not be conceived or willed as a general law of nature if all natural or legal persons aggressively interpret laws on all subjects and in every imaginable situation then central principles of the system of law we all rely upon would be severely compromised therefore aggressive tax avoidance by managers of multinational companies may violate the managers moral duty to obey not only the letter but also the intention or spirit of the law the validity of the argumentation depends critically on the formulation and interpretation of the respective maxims and on assumptions about the legal system preserving central elements of kantian philosophy the article demonstrates the complexity of a philosophical argumentation which tries to justify the moral intuitions that underpin the common negative evaluation of aggressive legal strategies in business

why do corporations give to charity this paper explores whether corporate contributions should be tax dedu ctible within the more general context of an examination of the profi t and utility maximization motives driving contributions the theoret ical section develops a formal structural model of the contributions process illustrates comparative statics and derives a set of empiri cally testable hypotheses using a new source of firm data the empir ical results indicate that profit maximization is an important motive driving contributions this finding supports the current tax deducti ble status of contributions up to a seldom encoun tered ceiling and favors a reform that allows firms to treat contributions as ordinary business expenses copyright 1988 by the university of chicago

behavioral models for first price sealed bid auctions with the one shot decision theory abstract we build an auction model with the one shot decision theory which describes the process of a bidder deciding his her bidding price in first price sealed bid auctions the decision making procedure involves two steps first for each of his her possible bidding prices the bidder examines every possible highest bidding price provided by the other bidders and chooses one as a focus point of this bidding price of him her then the bidder determines such a bidding price as the optimal one that generates the best outcome when its focus point occurs the optimal bidding price can be obtained and two common phenomena in auction markets throwing away and overbidding are well explained

a social contract account for csr as an extended model of corporate governance i rational bargaining and justification this essay seeks to give a contractarian foundation to the concept of corporate social responsibility csr meant as an extended model of corporate governance of the firm it focuses on justification according to the contractarian point of view leaving compliance and implementation problems to a related article sacconi 2004b forthcoming in the journal of business ethics it begins by providing a definition of csr as an extended model of corporate governance based on the fiduciary duties owed to all the firm s stakeholders then by establishing the basic context of incompleteness of contracts and abuse of authority it analyses how the extended view of corporate governance arises directly from criticism of the contemporary neo institutional economic theory of the firm thereafter an application of the theory of bargaining games is used to deduce the structure of a multi stakeholder firm on the basis of the idea of a constitutional contract which satisfies basic requirements of impartial justification and accordance with intuitions of social justice this is a sequential model of constitutional bargaining whereby a constitution is first chosen and then a post constitutional coalition game is played on the basis of the unique solution given to each step in the bargaining model the quest for a prescriptive theory of governance and strategic management is accomplished so that i am able to define an objective function for the firm consistent with the idea of csr finally a contractarian potential explanation for the emergence of the multi fiduciary firm is provided

evaluating stakeholder theory this paper is the third in a series of four that is directed at understanding and assessing stakeholder theory for the purposes of business ethics it addresses the suitability and viability of the theory rejecting objections of a moral and efficiency sort based respectively on claims about property rights and the economic superiority of the alternative stockholder approach but accepting that implementation problems require limiting both the number of groupings admitted to stakeholder status and the degree of responsibility towards them the conclusion looks forward to the construction of a suitably limited version of the stakeholder approach in a fourth paper drawing upon this one and the previous two