uniform vs discriminatory auctions with variable supply experimental evidence in the variable supply auction considered here the seller decides how many customers with unit demand to serve after observing their bids bidders are uncertain about the seller s cost we experimentally investigate whether a uniform or a discriminatory price auction is better for the seller in this setting exactly as predicted by theory it turns out that the uniform price auction produces substantially higher bids and consequently yields higher revenues and profits for the seller furthermore again as predicted by theory the uniform price auction yields a higher number of transactions which makes it also the more efficient auction format

information effects in uniform price multi unit dutch auctions we design a multi unit descending price dutch auction mechanism that has applications for resource allocation and pricing problems we address specific auction design choices by theoretically and experimentally determining optimal information disclosure along two dimensions bidders are either informed of the number of bidders in the auction or know that it is one of two possible sizes they also either know the number of units remaining for sale or are unaware of how many units have been taken by other bidders we find that revealing group size decreases bids and therefore revenue if units remaining are not shown when group size is unknown the price also falls if the number of units remaining is revealed the most efficient and largest revenue outcome occurs when bidders are not provided information on either group size or units remaining these laboratory results conform to some directional predictions from our theory although overbidding is common

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

is the linkage principle valid evidence from the field we present field evidence involving experienced bidders tha t supports the linkage principle specifically the prediction that in affiliat ed values auction environments the expected revenues generated at open outcry ascending bid english auctions are higher than those under other auction formats that reveal less information to participants using field data from a large seller of automobiles whi ch experimented with different selling formats we find that the seller s average r evenues were significantly higher under an english auction than under a dynamic internet auction that revealed far less information to bidders 1 introduction and motivation in an influential and classic paper milgrom and weber 1982 derived a powerful result and coined the term linkage principle to describe it simply put in auction environments having affiliated values the linkage principle state s that a seller can expect to increase revenues by providing more information to bidders both before and during the auction an implication of the linkage principle is that open outcry ascending price auctions often referred to as english auctions will on average earn more revenue for the seller than sealed bid auctions under which no information is released or similar auction formats that reveal less information to pot ential buyers according to perry and reny 1999 the linkage principle has come to be considered one of the fundamental lessons provided by auction theory well known exceptions to the linkage principle exist for example within independent private values environments the celebrated revenue equivalence theorem first outlined by vickrey 1961 1962 and then proven by riley and samuelson 1981 as well as myerson 1981 states that any auction format that has the same probability of assigning a winning bidder generates the same expected revenue to the seller in particular the revenue equivalence theorem predicts that the expected revenues earned by the seller at sealed bid auctions will be the same as those earned at english auctions at least when the distribution from which the values are drawn is the same for all potential buyers who are also risk neutral thus the presence of some degree of dependence or a common value component in the signals of potential buyers is critical to the validity of the linkage princi ple the affiliated values model is a generalization of the common value model developed by wilson 1977 under affiliation the conditional expectation of any monotonic function of the signals of all bidders is an increasing function of any individual bidder s own signal when the signals of bidders are dependent in this manner information released by the seller or information the seller provides concerning the bids made by other participants by virtue of the seller s choice of auction format helps bidders refine their beliefs concer ning the true value of the object for sale which in turn induces them to bid more aggressively than they would in the absence of such information while one can imagine circumstances under which the release of information could adversely affect the outcome at an auction for example if the seller released information concerning problems with the object for sale or when low bids by some bidders convince other bidders that the item is worth less than they originally thought the remarkable feature of the linkage principle i s that ex ante providing more information raises the expected revenues to the seller milgrom and weber 1982 have summarized the implications of the linkage principle succinctly honesty is the best policy

on some myths about sequenced common value auctions abstract equilibria are constructed for classes of game models of sequenced second price auctions having identical common valued objects in some of these the equilibrium price falls on average and in others the seller loses on average by committing to announce publicly something that he knows both of these possibilities are surprises journal of economic literature classification number d44

dynamic discrete mixtures for high frequency prices the tick structure of the financial markets entails discreteness of stock price changes based on this empirical evidence we develop a multivariate model for discrete price changes featuring a mec

some empirical dimensions of countertrade this paper discusses some of the recent theories of why countries impose countertrade obligations and compares some of the implications of these theories with data obtained from a comprehensive database of countertrade transactions

incentives for motivated agents under an administrative constraint consider an agent who has an expertise in producing a non marketable good this good is valued by a single principal and there is a verifiable measure of the agent s performance crucially the agent is intrinsically motivated due to warm glow altruism in addition the agent s budget which is controlled by the principal must not be less than the monetary performance cost faced by the agent this gives rise to a limited liability constraint it also restricts the agent s ability to under report costs in such environment we determine the link between the agent s budget and performance our results come in contrast to the received solution of the principal agent problem and to most in the literature on mission motivated organisations and public services provision

the shill bidding effect versus the linkage principle abstract the analysis of second price auctions with externalities is utterly modified if the seller is unable to commit not to participate in the mechanism for the general symmetric model introduced by milgrom and weber p milgrom r weber a theory of auctions and competitive bidding econometrica 50 1982 1089 1122 we characterize the full set of separating equilibria that are symmetric among buyers and with a strategic seller being able to bid in the same way as any buyer through a so called shill bidding activity the revenue ranking between first and second price auctions is different from the one arising in milgrom and weber the benefits from the highlighted linkage principle are counterbalanced by the shill bidding effect

east west joint ventures and buyback contracts abstract contractual joint ventures cjvs and the buyback form of countertrade are popular methods that socialist countries use to attract foreign investment in this paper we explore some reasons why this is so and also explain two predominant characteristics of these contracts the existence of sharing rules and minimum standard requirements on inputs the model stresses the incentive problems involved when a socialist host country which does not allow foreign direct investment uses a cjv to obtain the fruits of some knowledge based production process from a multinational enterprise

conservation auctions should information about environmental benefits be made public most bid evaluation systems in conservation auctions consider both the proposed payment and the environmental attributes when auctioneers have a more comprehensive understanding of the conservation benefits than bidders do information becomes a central element of the auction design concealing information about conservation benefits may be the optimal strategy when entry decisions are not relevant however disclosing information may motivate landholders whose lands are associated with high environmental benefits to participate in an auction the present study demonstrates that revealing information about conservation benefits can be an optimal strategy if it enhances an auction s participation rate when bid acceptance rates are high copyright 2013 oxford university press

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

on the value of competition in procurement auctions it is commonly stated that ascending price or second price auctions allocate goods e ciently to those who value them most this implies that the more bidders at the auction stage the more e cient the nal allocation we review this statement when bidders have private information both on a private element and a common element while the nal allocation need not be ex post e cient we show that when bidders are ex ante symmetric more competition at the auction yields higher e ciency on expectation when bidders are ex ante asymmetric in particular with respect to the information on the common element the statement need no longer be true

price competition for an informed buyer abstract this paper investigates price competition with private information on the demand side two sellers each offer a different variety of a good to a buyer endowed with a private binary signal on their relative quality the model provides an informational foundation to differentiation in hotelling s price competition game equilibrium comparative statics is performed with respect to the prior belief and the precision of the private information competition is fierce when the prior strongly favors one seller and private signals are relatively uninformative sellers equilibrium profits may fall with the revelation of public information and are nonmonotonic in the prior belief journal of economic literature classification numbers c72 d43 d82 l15

economic incentives for countertrade this paper examines countertrade using standard economic theory we show that in many circumstances countertrade is a rational response to transaction costs information asymmetry moral hazard agency problems and other market imperfections this paper also integrates countertrade into international business theories some preliminary hypotheses that may be empirically testable after refinement are developed as reports of countertrade arrangements have become frequent academic interest has increased many popular explanations have been advanced among them shortage of foreign exchange balance of payments difficulties exercise of monopsony power and imposition of trade barriers it has also been alleged that countertrade is an inefficient form of international trade and that iitepresents a retrograde development most of these arguments have not been established theoretically nor have they been tested empirically

the value of public information in monopoly the logic of the linkage principle of milgrom and weber 1982 extends to price discrimination a non linear pricing monopolist who sells to a single buyer always prefers to commit to publicly reveal information a liated to the valuation of the buyer

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

gifts as economic signals and social symbols gift giving has often puzzled economists especially because efficient gifts like cash or giving exactly what a person asks for seem crass or inappropriate it is shown in a formal game theoretic model that gifts serve as signals of a person s intentions about future investment in a relationship and inefficient gifts can be better signals other explanations for the inefficiency of gift giving are advanced and some stylized facts about gift giving practices are described many of which are consistent with the signaling view of gifts

information disclosure as a matching mechanism theory and evidence from a field experiment market outcomes depend on the quality of information available to its participants we measure the effect of information disclosure on market outcomes using a large scale field experiment that randomly discloses quality information in wholesale automobile auctions we argue that buyers in this market are horizontally differentiated across cars that are vertically ranked by quality this implies that information disclosure helps match heterogeneous buyers to cars of varying quality causing both good and bad news to increase competition and revenues the data confirm these hypotheses these findings have implications for the design of other markets including e commerce procurement auctions and labor markets jel c93 d44 d82 l15

effects of seller s information disclosure in equity auctions requiring post auction investment abstract we consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers after the auction the winning bidder decides whether to make follow up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome before the auction the seller holds private information about the possible returns on that investment and must decide whether to disclose it larger equity payments undermine incentives to invest reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder thus information disclosure makes bids less aggressive in expectation expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad

on the failure of the linkage principle in multi unit auctions it is shown that the linkage principle milgrom and weber 1982 does not extend to the multi unit auction setting an analysis of the equilibium bidding strategies is carried out for the general two agent two unit vickrey auction in order to provide economic insight into the nature of the failure in addition an explicit counterexample is provided both authors acknowledge support from the binational science foudation grant 9500023 1 reny also acknowledges support from the national science foundation grant sbr 970932 and the university of pittsburgh s faculty of arts and sciences

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

product quality market signaling and the development of east west trade countertrade a contractual form in which there is a two way flow of goods occupies a position of significance in east west trade in this paper it is shown that countertrade can solve problems which arise when the quality of eastern european products is unknown using the market signaling literature a theory is formulated in order to make predictions concerning the use of countertrade countertrade will be particularly useful when quality information is important but cannot be obtained directly and when a country has a poor quality reputation these predictions are supported by empirical tests

asset auctions information and liquidity a model is presented of a uniform price auction where bidders compete in demand schedules the model allows for common and private values in the absence of exogenous noise it is shown how private information yields more market power than the levels seen with full information results obtained here are broadly consistent with evidence from asset auctions may help explain the response of central banks to the crisis and suggest potential improvements in the auction formats of asset auctions jel d44 d82 g14 e58

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

nonsynchronous security trading and market index autocorrelation the theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model this estimated level is found to be substantially less than that observed empirically the theoretical and empirical relationship between portfolio size and autocorrelation also is investigated the results of this study suggest that other price adjustment delay factors in addition to nonsynchronous trading cause the high autocorrelations present in daily returns on stock index portfolios

a note on countertrade contractual uncertainty and transaction governance in emerging economies this paper develops a conceptual framework for analyzing organizational responses to contractual uncertainty in the context of emerging economies elaborating on hennart s 1989 transaction cost rationale for countertrade we develop a typology of exchange and transaction governance pertinent to the study of emerging economies contract trust and hostage notwithstanding the traditional explanation based on foreign exchange shortage we argue that the persistence of international countertrade illustrates organizational remedies to institutional deficiency in transaction governance

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

countertrade and food aid in support of structural adjustment and free market transitions abstract although food aid has been advocated for countries undertaking structural adjustment policies political support for increased aid expenditures is lacking countertrade is proposed herein as a method for expanding food aid without increasing expenditures countertrade allows developing countries and the formerly centrally planned economies to accelerate growth in their export sectors while financing increased food assistance

a dynamic multivariate heavy tailed model for time varying volatilities and correlations we propose a new class of observation driven time varying parameter models for dynamic volatilities and correlations to handle time series from heavy tailed distributions the model adopts generalized autoregressive score dynamics to obtain a time varying covariance matrix of the multivariate student t distribution the key novelty of our proposed model concerns the weighting of lagged squared innovations for the estimation of future correlations and volatilities when we account for heavy tails of distributions we obtain estimates that are more robust to large innovations we provide an empirical illustration for a panel of daily equity returns

information acquisition under uncertainty in credit markets this article studies information acquisition through investment in improved risk assessment technology in competitive credit markets a technology has two attributes its ability to screen in productive borrowers and its ability to screen out unproductive borrowers the two attributes have fundamentally different effects on acquisition incentives and the structure of equilibrium informational externalities between lenders the article also studies how uncertainty associated with the quality of superior technology affects information acquisition incentives uncertainty influences information acquisition even with risk neutral banks increased uncertainty may raise or dampen incentives depending on whether uncertainty is respectively about screening out or screening in quality this article studiesinformation acquisition through investment inimproved risk assessment technology in competitive credit markets information acquisition or screening by banks facilitates the rating of creditworthiness and drives the ability to compete in deregulated financial markets 1 although improvements in information technology have augmented the ability to screen borrowers and manage risk the adoption of enhanced screening technologieshas been uneven 2 the centralityand continuation of the information technology revolution forces closer scrutiny of the decision to adopt new technology it is generally argued that more widespread use of better information processing technology will benefit borrowers improve credit allocation and enhance banks competitive positions but will new information processing products or platforms be necessarily adopted if they are costly

multiproduct price discrimination with quantity limits an application to zero rating abstract zero rating is a recent practice that allows internet providers to discriminate among contents focusing on the consumer side we show that a monopolist provider may implement zero rating in order to extract more surplus from consumers who have heterogeneous tastes for content this is akin to the practice of quantity discounts with one difference the monopolist screens consumer types by distorting not only the total consumption but also the composition of consumption zero rating may lead to an increase in network capacity and improve welfare

the impact of reserve prices on the perceived bias of expert appraisals of fine art we examine whether the expert appraisals provided to bidders before major art auctions are unbiased indicators of market value despite a strong grounding in theory this aspect of optimal auction design has been frequently challenged in previous empirical research particularly in the market for fine art we adopt a valuation benchmark that incorporates sellers reservation prices as well as high bids and recognize latent censoring due to works that fail to make reserve although the auction houses never divulge sellers reserve prices which are therefore unobservable we exploit the fact that they can be observed indirectly via their impact on buy in rates using the set of french impressionist paintings brought to auction from 1985 to 2001 we estimate the distribution of seller reserve prices establish their link to a proper valuation benchmark and isolate the selection bias due to bought in works on the perceived market value of fine art works brought to auction after controlling for the impact of reservation prices and considering all works brought to auction and therefore all works appraised we find no evidence of bias in the experts pre sale estimates

hierarchical markov normal mixture models with applications to financial asset returns motivated by the common problem of constructing predictive distributions for daily asset returns over horizons of one to several trading days this article introduces a new model for time series this model is a generalization of the markov normal mixture model in which the mixture components are themselves normal mixtures and it is a specific case of an artificial neural network model with two hidden layers the article uses the model to construct predictive distributions of daily s p 500 returns 1971 2005 and one year maturity bond returns 1987 2007 for these time series the model compares favorably with arch and stochastic volatility models the article concludes by using the model to form predictive distributions of one to ten day returns during volatile episodes for the s p 500 and bond return series copyright 2010 john wiley sons ltd

ignorance promotes competition an auction model with endogenous private valuations we study a situation in which an auctioneer wishes to sell an object toone of n risk neutral bidders with heterogeneous preferences theauctioneer does not know bidders preferences but has private informationabout the characteristics of the ob ject and must decide how muchinformation to reveal prior to the auction we show that the auctioneerhas incentives to release less information than would be efficient andthat the amount of information released increases with the level ofcompetition as measured by the number of bidders furthermore in aperfectly competitive market the auctioneer would provide the efficientlevel of information

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

the value of an informed bidder in common value auctions abstract i compare two information structures in a common value first price auction with two bidders in one each of the two bidders knows only his own signal about the value of the object and in the other one of the bidders learns his opponent s signal as well gaining the additional information in the second information structure makes the informed bidder worse off if the value is submodular in the bidders signals and better off if it is supermodular if the value is supermodular then the seller s revenue tends to be lower with the informed bidder than without

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices