on the robustness of equilibrium refinements abstract the philosophy of equilibrium refinements is that the analyst if he knows things about the structure of the game can reject some nash equilibria as unreasonable the word know in the preceding sentence deserves special emphasis if in a fixed game the analyst can reject a particular equilibrium outcome but he cannot do so for games arbitrarily close by then he may have second thoughts about rejecting the outcome we consider several notions of distance between games and we characterize their implications for the robustness of equilibrium refinements

an experiment on the value of structural information in a 2 2 repeated game abstract in a repeated 2 2 cooperation game providing subjects with little information impedes cooperation providing subjects with little more information prior to playing the game leads to almost sure cooperation this result stands in contrast to predictions from adaptive as well as almost optimal learning rules

stochastic stability in a double auction abstract in a k double auction a buyer and a seller must simultaneously announce a bid and an ask price respectively exchange of the indivisible good takes place if and only if the bid is at least as high as the ask the trading price being the bid price with probability k and the ask price with probability 1 k we show that the stable equilibria of a complete information k double approximate an asymmetric nash bargaining solution with the seller s bargaining power decreasing in k note that ceteris paribus the payoffs of the seller of the one shot game increase in k nevertheless as the stochastically stable equilibrium price decreases in k choosing the seller s favorite price with a relatively higher probability in individual encounters makes him worse off in the long run

can time preference be an instrument for price discrimination abstract it is shown that contrary to some claims in the literature a monopolist cannot use heterogeneous time preferences as an instrument for price discrimination

the benefits of advance booking discount programs model and analysis consider a retailer who sells perishable seasonal products with uncertain demand due to the short sales season and long replenishment lead times associated with such products the retailer is unable to update demand forecasts by using actual sales data generated from the early part of the season and to respond by replenishing stocks during the season to overcome this limitation we examine the case in which the retailer develops a program called the advance booking discount abd program that entices customers to commit to their orders at a discount price prior to the selling season the time between placement and fulfillment of these precommitted orders provides an opportunity for the retailer to update demand forecasts by utilizing information generated from the precommitted orders and to respond by placing a cost effective order at the beginning of the selling season in this paper we evaluate the benefits of the abd program and characterize the optimal discount price that maximizes the retailer s expected profit

the role of demand in land re development abstract vacant previously developed land in cities can generate negative externalities on surrounding areas and is often the target of policies to promote re development this paper provides estimates of the price sensitivity of land re development a crucial parameter for the success of these policies my estimates measure how prices affect long run conversion of unused or underused previously developed land in england the empirical strategy uses school test scores and admission district boundaries in a boundary discontinuity design to generate variation in housing demand that is orthogonal to re development costs results show that the probability of re development is effectively sensitive to housing prices estimates indicate that a 1 increase in prices leads to a 0 07 percentage point reduction in the fraction of hectares containing brownfield land price differences or substantial subsidies could lead to a significant amount of re development in the long run this is confirmed by observed land use changes between 2007 and 2011 being disproportionately concentrated in high price areas

robustness of equilibria in anonymous local games this paper studies the robustness of symmetric equilibria in anonymous local games to perturbations of prior beliefs two priors are strategically close on a class of games if players receive similar expected payoffs in equilibrium under the priors for any game in that class i show that if the structure of payoff interdependencies is sparse in a well defined sense the conditions for strategic proximity in anonymous local games are strictly weaker than the conditions for general bayesian games of kajii and morris 1998 11 when attention is restricted to symmetric equilibria hence by exploiting the properties of anonymous local games it is possible to obtain stronger robustness results for this class

product line design we characterize the product line choice and pricing of a monopolist from the upper envelope of net marginal revenue curves to the individual product demand functions the equilibrium product line constitutes those varieties yielding the highest upper envelope in a generalized vertical differentiation framework the equilibrium line is exactly the same as the first best socially optimal line these upper envelope and first best optimal line findings extend to symmetric cournot oligopoly

redevelopment and the urban land price gradient abstract this paper presents the first careful test of an equilibrium model of urban redevelopment in addition it demonstrates a new methodology for recovering vacant urban land prices in areas that have already been developed using data on single family detached homes sold in vancouver b c we estimate the price of vacant land based on properties that were sold and redeveloped the price of developed land is also estimated based on properties that were sold and not redeveloped various tests overwhelmingly support the hypothesis that housing is redeveloped when the price of vacant land exceeds the price of land in its current use this result provides support for various theoretical models of urban spatial growth and indicates that one can recover vacant urban land prices by examining redeveloped properties

valuation in the lab experimental methods have proven useful to explore the power and limits to nonmarket valuation through stated preference methods we now understand better how people learn about and react to the incentives institutions and information created by surveys this paper briefly reviews topics in experimental valuation including ex ante bias corrections ex post bias calibration and examining the circumstances that strengthen or weaken the economist s presumption of rational valuation

redevelopment decisions for commercial and industrial properties abstract the empirical work in this study serves as a test of the principle that redevelopment of a property will occur when the value of the existing bundle plus demolition costs is less than or equal to the price of vacant land the probability of a commercial or industrial property being redeveloped is predicted using the difference in the estimated value of a parcel in its redeveloped state and its current use correcting for sample selection bias the empirical results support the hypothesis that land is redeveloped when its value in the redeveloped state is high relative to its value in the current use

why do manufacturers issue coupons an empirical analysis of breakfast cereals we explore the relationship between shelf prices and manufacturers coupons for 25 readyto eat breakfast cereals we find that shelf prices are lower during periods when coupons are available this result is inconsistent with static monopoly price discrimination under a broad range of assumptions we present evidence that is inconsistent with both dynamic theories of price discrimination and explanations of couponing based on the vertical relationship between manufacturers and retailers we find support for models of price discrimination in oligopoly settings as well as suggestions that firmwide incentives may induce managers to use coupons and price cuts simultaneously finally lagged coupons have a positive effect on current sales suggesting that coupons are used to induce repurchase

product variety and the inefficiency of monopoly in this note the authors extend earlier work that examined the distortions in product quality created by a monopolist selling to consumers with different and unobservable tastes when consumers have differing absolute and marginal willingness to pay for quality they demonstrate that the monopolist may find it profitable to distort quality either at the low end or at the high end of a quality array this latter result has not previously been demonstrated the authors also provide intuitive comparative statics and discuss policy implications copyright 1988 by the london school of economics and political science

credit card debt and default over the life cycle this paper solves an empirically parameterized model of life cycle consumption which allows for uncollaterized borrowing and the possibility of default the simulation results show that i social stigma and credit limit have a very large impact on default rates ii education level also has a significant effect on the probability of default namely through differences in the shape of lifetime labor income profiles and iii the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty temporary versus permanent additionally the model generates simultaneous consumer holdings of credit card debt and liquid assets

consumer durables and risky borrowing the effects of bankruptcy protection abstract there exist substantial differences in the generosity of bankruptcy protection across u s states this paper exploits cross state variation in exemption levels to assess the dual role of durable goods as informal collateral for unsecured debt and self insurance against bad shocks to earnings the generosity of bankruptcy protection is found to change both the incentives and the ability of households to accumulate durable wealth the gains from a high level of insurance are reduced by the effect of tighter credit constraints so that the net effects of a change in exemption are very small a more generous bankruptcy regulation reduces net durable wealth in the first half of the life cycle in addition the optimal level of exemption is positive but low

using yield management to shift demand when the peak time is unknown traditional peak load and stochastic peak load models assume firms have prior information about when peak demand occurs however price dispersion such as is typically used by firms practicing yield management can achieve some of the same efficient demand shifting even when the peak time is unknown equilibrium price dispersion arises because of stochastic demand and price rigidities but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting the model also suggests how yield management now more commonly called revenue management might actually benefit business travellers contrary to the popular prejudice

intertemporal price discrimination with two products we study the two product monopoly profit maximization problem for a seller who can commit to a dynamic pricing strategy we show that if consumers valuations are not strongly ordered then optimality for the seller can require intertemporal price discrimination the seller offers a choice between supplying a complete bundle now or delaying the supply of a component of that bundle until a later date for general valuations we establish a sufficient condition for such dynamic pricing to be more profitable than mixed bundling so we show that the established no discrimination across time result does not extend to two product sellers under standard taste distributions

monopoly and product quality abstract this paper points out that without restrictions on the cost function distribution of consumer types and on the extent of market coverage the standard parameterization of preferences cannot by itself guarantee that a monopolist would choose a separating menu moreover there may not be any quality distortion

are private markets and filtering a viable source of low income housing estimates from a repeat income model while filtering has long been considered the primary mechanism by which markets supply low income housing direct estimates of that process have been absent this has contributed to doubts about the viability of markets and to misplaced policy i fill this gap by estimating a repeat income model using 1985 2011 panel data real annual filtering rates are faster for rental housing 2 5 percent than owner occupied 0 5 percent vary inversely with the income elasticity of demand and house price inflation and are sensitive to tenure transitions as homes age for most locations filtering is robust which lends support for housing voucher programs jel r21 r31 r38

complementary goods creating capturing and competing for value this paper studies the strategic interaction between firms producing strictly complementary products with strict complements a consumer derives positive utility only when both products are used together we show that value capture and value creation problems arise when such products are developed and sold by separate firms nonintegrated producers although the firms tend to price higher for given quality levels their provision of quality is so low that in equilibrium prices are set well below what an integrated monopolist would choose when one firm can mandate a royalty fee from the complementor producer as often occurs in arrangements between hardware and software makers we find that the value capture problem is mitigated to some extent and consumer surplus rises however because royalty fees greatly reduce the incentives of the firm paying them to invest in quality the arrangement exacerbates the value creation problem and leads to even lower total quality surprisingly this result can reverse with competition specifically when the firm charging the royalty fee faces a vertically differentiated competitor the value creation problem is greatly reduced opening the door for the possibility of a pareto improving outcome in which all firms and consumers benefit it is worth noting that this outcome cannot be achieved by giving firms the option of introducing a line of product variants competition serves as a necessary commitment ingredient

optimal best price policy abstract a best price policy bp is a promise by a seller to give her customer a refund if she reduces her price after the customer has already purchased the product we characterize the optimal bp policy as when the seller can control both the policy length when the promise expires and the refund scale what portion of the price difference is refunded we explain why the policy length is finite and varies across industries in a setting where consumers valuations decline over time we show that a finite length bp allows the seller to commit to not lowering her price too soon while at the same time letting her capture some of the benefits of intertemporal price discrimination however because the decline in consumers valuations is uncertain a bp does not allow the monopolist to achieve the profit she could earn with a full commitment

optimal design of social comparison effects setting reference groups and reference points in this paper we study how social planners should exploit social comparisons to pursue their objectives we consider two modes of social comparison referred to as behind averse and ahead seeking behaviors depending on whether individuals experience a utility loss from underperforming or a utility gain from overperforming relative to their peers modeling social comparison as a game between players we find that ahead seeking behavior leads to output polarization whereas behind averse behavior leads to output clustering a social planner can mitigate these effects in two ways i by providing the full reference distribution of outputs instead of an aggregate reference point based on the average output and ii by assigning players into uniform rather than diverse reference groups social planners may thus need to tailor the reference structure to the predominant mode of social comparison and their objective a performance focused social planner may set the reference structure so as to maximize the output of either the top or the bottom player depending on whether she puts greater marginal weight to larger or smaller outputs when the social planner also cares about utility she faces a dilemma because performance optimization may not be aligned with utility maximization inevitably the social planner will have to confront equity issues because better performance may not reflect greater effort or greater ability this paper was accepted by serguei netessine operations management

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

uncertainty about uncertainty and delay in bargaining we study a one sided offers bargaining game in which the buyer has private information about the value of the object and the seller has private information about his beliefs about the buyer s valuation we show that this uncertainty about uncertainties dramatically changes the set of outcomes in particular second order beliefs can lead to a delay in reaching agreement even when the seller makes frequent offers we show that not all types of second order beliefs lead to a delay when the buyer assigns positive probability to the seller knowing the buyer s value then delay not only can occur but it must occur for a class of equilibria however in all other cases delay will never occur

revenue management by sequential screening abstract using a mechanism design approach we consider a firm s optimal pricing policy when consumers are heterogeneous and learn their valuations at different times we show that by offering a menu of advance purchase contracts that differ in when and for how much the product can be returned a firm can more easily price discriminate between privately informed consumers in particular we show that screening on when the return option can be exercised increases firm profits relative to screening on the size of the refund alone only if the expected gains from trade are higher for consumers who learn later we show that in some settings mean preserving spread the firm can achieve the complete information profits and analyze the optimal contract in other settings first order stochastic dominance in which the first best allocation is not always feasible

damaged durable goods i analyze a durable goods monopolist s incentives to introduce a damaged good a stripped down version of the original good in an infinite horizon framework the damaged good helps the monopolist to mitigate the coasian time inconsistency problem however it may lead to a welfare reduction low valuation buyers are induced to purchase the low quality damaged good early rather than buy the high quality original good later and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions this welfare result contrasts with the previous literature based on a static framework

the robustness of equilibria to incomplete information a number of papers have shown that a strict nash equilibrium action profile of a game may never be played if there is a small amount of incomplete information see for example carlsson and van damme 1993a we present a general approach to analyzing the robustness of equilibria to a small amount of incomplete information a nash equilibrium of a complete information game is said to be robust to incomplete information if every incomplete information game with payoffs almost always given by the complete information game has an equilibrium which generates behavior close to the nash equilibrium we show that many games with strict equilibria have no robust equilibrium and examine why we get such different results from existing refinements if a game has a unique correlated equilibrium it is robust a natural many player many action generalization of risk dominance is a sufficient condition for robustness

correlated equilibrium as an expression of bayesian rationality if it is common knowledge that the players in a game are bayesian utility maximizers who treat uncertainty about other players actions like any other uncertainty then the outcome is necessarily a correlated equilibrium random strategies appear as an expression of each player s uncertainty about what the others will do not as the result of willful randomization use is made of the common prior assumption according to which differences in probability assessments by different individuals are due to the different information that they have where information may be interpreted broadly to include experience upbringing and genetic makeup copyright 1987 by the econometric society

teardowns and land values in the chicago metropolitan area an empirical model of residential housing demolitions and the redevelopment process in the chicago metropolitan area supports the theoretical prediction that the sales price of teardown property is approximately equal to its land value we control for sample selection bias associated with non random demolition permit applications using a probit model that accounts for misclassification of the dependent variable the probit models provide statistically significant evidence of misclassification and suggest that prime teardown candidates are small older homes near public transportation and traditional village centers

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

hedonic pricing with redevelopment options a new approach to estimating depreciation effects abstract the standard hedonic model of durable assets is a special case of a more general model that contains two additive terms 1 use value of the existing hedonic vector and 2 the value of the option to reconfigure hedonic characteristics one empirical implication is that the two parts of value are related e g use value increases with interior area whereas option value decreases with intensity the ratio of structure value divided by land value increases in building age reduce use value but increase option value data from greenwich connecticut indicate that intensity has the expected negative effect coefficients on building age are shown to be better measures of depreciation when intensity variables are included in the regression

old homes externalities and poor neighborhoods a model of urban decline and renewal abstract this paper investigates urban decline and renewal in the united states using three panels that follow neighborhoods on a geographically consistent basis over extended periods of time findings indicate that change in neighborhood economic status is common averaging roughly 13 percent per decade roughly two thirds of neighborhoods studied in 1950 were of quite different economic status fifty years later panel unit root tests for 35 msas indicate that neighborhood economic status is a stationary process consistent with long running cycles of decline and renewal in philadelphia county a complete cycle appears to last up to 100 years aging housing stocks and redevelopment contribute to these patterns as do local externalities associated with social interactions lower income neighborhoods appear to be especially sensitive to the presence of individuals that provide social capital many of the factors that drive change at the local level have large and policy relevant effects

advance booking discount programs under retail competition we model a situation in which two retailers consider launching an advance booking discount abd program in this program customers are enticed to precommit their orders at a discount price prior to the regular selling season however these precommitted orders are filled during the selling season while the abd program enables the retailers to lock in a portion of the customer demand and use this demand information to develop more accurate forecasts and supply plans the abd price reduces profit margin we analyze the four possible scenarios wherein each of the two firms offer an abd program or not and establish conditions under which the unique equilibrium calls for launching the abd program at both retailers

language fluency and earnings estimation with misclassified language indicators we use panel data to analyze the determinants of speaking fluency and wages of immigrants our model takes account of two problems that may bias ols estimates of the impact of speaking fluency on earnings first subjective variables on an ordinal discrete scale such as self reported language ability can suffer from misclassification errors the model decomposes misclassification errors into a time persistent and a time varying component second the model accounts for correlated unobserved heterogeneity in language and earnings equation the main finding is that these two generalizations of the standard model both lead to substantial changes in the estimated effect of speaking fluency on earnings

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

price stickiness empirical evidence of the menu cost channel abstract a leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices using a unique database of cost and retail price changes we find that variation in menu costs results in up to 13 3 fewer price increases we confirm that these effects are allocative and have a persistent impact on both prices and unit sales we provide evidence that the menu cost channel operates only when cost increases are small in magnitude which is consistent with theory and provides the first empirical evidence of boundary conditions

optimal price lead time menus for queues with customer choice segmentation pooling and strategic delay how should a firm design a price lead time menu and scheduling policy to maximize revenues from heterogeneous time sensitive customers with private information about their preferences we consider a queueing system with multiple customer types that differ in their valuations for instant delivery and their delay costs the distinctive feature of our model is that the ranking of customer preferences depends on lead times patient customers are willing to pay more than impatient customers for long lead times and vice versa for speedier service we provide necessary and sufficient conditions in terms of the capacity the market size and the properties of the valuation delay cost distribution for three features of the optimal menu and segmentation pricing out the middle of the delay cost spectrum while serving both ends pooling types with different delay costs into a single class and strategic delay to deliberately inflate lead times this paper was accepted by assaf zeevi stochastic models and simulation

coordinating price reductions and coupon events abstract in this article the authors use an economic model to show that it may be optimal to lower the retail price during a coupon event when marginal consumers have moderate hassle costs of coupon redemption results from the model offer predictions on the relationships among coupon redemptions shelf price and coupon face value the authors test these predictions on a large data set of hundreds of coupon events across six packaged goods categories the data show that when a small coupon face value is offered the shelf price is likely to be reduced they also find that coupon efficiency increases when there is a lower retail price the results are of interest to managers planning a promotion calendar and deciding whether to coordinate price promotions with coupon events and they contribute to economic theory when a firm moves from uniform pricing e g no coupons to second degree price discrimination e g coupons all consumers may face a lower price this finding has public policy implication

optimal monetary policy with imperfect common knowledge we study optimal nominal demand policy in a flexible price economy with monopolistic competition where firms have imperfect common knowledge about the shocks hitting the economy information imperfections emerge endogenously because firms are assumed to have finite shannon capacity to process information we then ask how policy that minimizes a quadratic objective in output and prices depends on firms processing capacity when price setting decisions of firms are strategic complements we find that policy should nominally accommodate white noise mark up shocks for a large range of capacity values this fi nding is robust to the policy maker observing shocks imperfectly or being uncertain about firms processing capacity when mark up shocks are persistent accommodation may even have to increase in the medium term but has to decrease in the long run thereby generating a hump shaped price response and a slow reduction in output instead when prices are strategic substitutes policy tends to react with nominal demand contractions to mark up shocks in addition there might exist discontinuities between common knowledge equilibria and equilibria with small amounts of imperfect common knowledge

correlated equilibrium in games with type dependent strategies abstract this paper extends aumann s definition of correlated equilibrium to games with incomplete information a strategy correlated equilibrium is defined to be a correlated equilibrium of the game in behavioral strategies it is shown that this equilibrium concept is robust with respect to misspecifications of the uncertainty in the game and the equilibrium correspondence is upperhemicontinuous with respect to the players payoff functions and information this implies the existence of strategy correlated equilibria without assumptions on the structure of players information none of these results have been proven for bayesian nash equilibria

incomplete information higher order beliefs and price inertia the question that motivates this paper is how incomplete information impacts the response of prices to nominal shocks our baseline model is a variant of the calvo model in which firms observe the underlying nominal shocks with noise in this model the response of prices is pinned down by three parameters the precision of available information about the nominal shock the frequency of price adjustment and the degree of strategic complementarity in pricing decisions this result synthesizes the broader lessons of the pertinent literature however this synthesis provides only a partial view of the role of incomplete information once one allows for more general information structures than those used in previous work one cannot quantify the degree of price inertia without data on the dynamics of higher order beliefs or of the agents forecasts of inflation we highlight this with three extensions of our baseline model all of which break the tight connection between the precision of information and higher order beliefs featured in previous work

p dominance and equilibrium selection under perfect foresight dynamics this paper studies equilibrium selection based on a class of perfect foresight dynamics and relates it to the notion of p dominance a continuum of rational players are repeatedly and randomly matched to play a symmetric n n game there are frictions opportunities to revise actions follow independent poisson processes the dynamics has stationary states each of which corresponds to a nash equilibrium of the static game a strict nash equilibrium is linearly stable under the perfect foresight dynamics if independently of the current action distribution there exists a consistent belief that any player necessarily plays the nash equilibrium action at every revision opportunity it is shown that a strict nash equilibrium is linearly stable under the perfect foresight dynamics with a small degree of friction if and only if it is the p dominant equilibrium with p 1 2 it is also shown that if a strict nash equilibrium is the p dominant equilibrium with p 1 2 then it is uniquely absorbing and globally accessible for a small friction but not vice versa set valued stability concepts are introduced and their existence is shown journal of economic literature classication numbers c72 c73

understanding gentrification an empirical analysis of the determinants of urban housing renovation abstract the back to the city phenomenon presented an unpredicted countercurrent in the prevalent tide of suburbanization and this process of upper income resettlement in the inner city has been thoroughly analyzed in the urban economic literature housing renovation a process that always accompanies gentrification and constitutes a significant portion of residential housing investment has been studied much less contrary to the expectation that location matters the existing empirical studies have concluded that most neighborhood amenities and structural attributes are insignificant as determinants of renovation using a detailed parcel level data set that documents all residential renovation activity in chicago between 1995 and 2000 this paper establishes that the characteristics of a building and its neighborhood do indeed influence the likelihood that it will be renovated

the efficiency of advance purchase discounts in the presence of aggregate demand uncertainty abstract the pricing behavior of two airlines is examined one is operated by a welfare maximizing social planner the other by an unregulated monopolist total capacity is fixed and aggregate demand is uncertain it is shown that advance purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight it is further shown that the planner may offer larger or smaller discounts than the monopolist

noise independent selection in multidimensional global games abstract this paper examines many player many action global games with multidimensional state parameters it establishes that the notion of noise independent selection introduced by frankel morris and pauzner d frankel s morris a pauzner equilibrium selection in global games with strategic complementarities j econ theory 108 2003 1 44 for one dimensional global games is robust when the setting is extended to the one proposed by carlsson and van damme h carlsson e van damme global games and equilibrium selection econometrica 61 1993 989 1018 more precisely our main result states that if an action profile of some complete information game is noise independently selected in one dimensional global games then it is also noise independently selected in all multidimensional global games

public information private information and the multiplicity of equilibria in coordination games abstract i study coordination games with incomplete public and private information and relate equilibrium convergence to convergence of higher order beliefs as the players signals become more and more precise the equilibrium manifold converges to the correspondence of common knowledge equilibria whenever the variance of the public signal converges to 0 at a rate faster than one half the rate of convergence of the variance of private signals the same condition also determines the convergence of common p belief to common knowledge which leads to a simple intuition for its origin and an immediate generalization of the former results about equilibrium convergence journal of economic literature classification numbers c72 d82

a theory of channel price promotions manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer a rebate directed toward consumers or a combination of both the trade offs between these price promotions are analyzed providing insights about their roles profitability and welfare properties retailers rebates are also studied while price discrimination is a common explanation for rebates to consumers when a product is sold through a distribution channel the manufacturer may also use rebates to motivate retail participation in the promotion this explains why rebates may be offered even when all consumers use them and price discrimination does not occur copyright 1991 by american economic association

rational behavior with payoff uncertainty abstract the iterated deletion of weakly dominated strategies has been advanced as a necessary requirement for rational play however this requirement relies on the assumption that the players have no doubts about their opponents payoffs we show that once such doubts are introduced all that can be justified by an appeal to rationality is one round of deletion of weakly dominated strategies followed by iterated deletion of strategies that are strongly dominated this extends the fudenberg kreps and levine j econ theory 12 1988 354 380 study of the robustness of nash equilibrium refinements to the robustness of solution concepts based only on rationality our results also clarify the relationship between various notions of what it means for payoff uncertainty to be small

informational robustness of competitive equilibria abstract consider an exchange economy with complete information we perturb this economy by assuming that each agent s observation about the true state of the world is noisy the paper investigates the robustness of equilibria of the complete information economy with respect to incomplete information we provide conditions under which complete information equilibria are limits of equilibria of the economies with incomplete information as the noise in the signal converges to zero journal of economic literature classification numbers d51 d82

optimal product line pricing the influence of elasticities and cross elasticities the authors focus on the determination of optimal prices for products in a product line most firms offer more than a single brand and ultimately are concerned with the overall results of the enti

second price auction tournament abstract we compare bidding behavior in a standard second price auction and a second price auction tournament without information on relative rankings our results suggest that people bid more sincerely in the tournament setting with a non linear payoff schedule and incomplete information

option value and the price of teardown properties abstract the introduction of uncertainty over the future price of structural capital into a model of teardowns implies a value to delaying the demolition vs preservation decision and that the market price of a redeveloped property may increase with its quantity of structural capital using data from an active teardown market we test the model s prediction that hedonic price function coefficients depend on the expected time between sale and demolition as predicted structural variables have significant effects on the sales prices of both teardown and non teardown properties and the effects are generally much larger the lower the estimated teardown probability

the household bankruptcy decision personal bankruptcy filings have risen from 0 3 percent of households per year in 1984 to around 1 35 percent in 1998 and 1999 transforming bankruptcy from a rare occurrence to a routine event lenders lost about 39 billion in 1998 due to personal bankruptcy filings but economists have little understanding of why households file for bankruptcy or why filings have increased so rapidly until very recently studying the household bankruptcy decision was very difficult because no household level data set existed that included information on bankruptcy filings in this paper we use new data from the panel study of income dynamics which includes information on bankruptcy filings to estimate a model of households bankruptcy decisions we find support for the strategic model of bankruptcy which predicts that households are more likely to file when their financial benefit from filing is higher our model predicts that an increase of 1 000 in households financial benefit from bankruptcy would result in a 7 percent increase in the number of bankruptcy filings our model also predicts that if the 1997 national bankruptcy review commission s proposed changes in bankruptcy exemption levels were implemented there would be a 16 percent increase in the number of bankruptcy filings each year but if the 100 000 cap on homestead exemptions recently passed by the u s senate were adopted our model predicts that there would be only a negligible effect on the number of filings we find little support for the nonstrategic model of bankruptcy which predicts that households file when adverse events occur which reduce their ability to repay finally controlling for state and time fixed effects our model shows that households are more likely to file for bankruptcy if they live in districts with higher aggregate filing rates

segmenting the market the monopolist s optimal product mix abstract in an industry producing products which differ in quality to consumers who vary in their willingness to pay it may happen that only a bounded number of producers can coexist at noncooperative price equilibrium in other words the industry is a natural oligopoly we are here concerned with a special example in which only one producer can survive our focus of interest in the present paper is to examine this monopolist s optimal product range depending on the dispersion of consumers willingness to pay income either i the monopolist will find it optimal to segment the market completely offering the maximum number of products permitted or ii the monopolist will offer only a single product the precise nature of this switch of policy which occurs at a certain critical distribution of consumer incomes willingness to pay is explored fully

inequality in minimum effort coordination abstract successful coordination is key for economic and societal wealth the rich literature on the minimum effort game meg has provided valuable insights into coordination both theoretically and empirically yet although real world scenarios often involve asymmetric benefits and or costs from coordination most previous studies rely on symmetric megs we investigate the effect of unequal equilibrium payoffs in the meg in two experiments we observe that players are better able to coordinate on an equal rather than an unequal pareto dominant equilibrium we find that the ability to coordinate on the unequal pareto dominant equilibrium critically hinges on the costs of miscoordination for the player who benefits most from successful coordination when her costs are low she seems able to stabilize the pareto dominant equilibrium even if payoffs are highly unequal whereas coordination success worsens substantially when her costs are high

when is price discrimination profitable we consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable we show that an important condition for profitable price discrimination is that the percentage change in surplus i e consumers total willingness to pay less the firm s costs associated with a product upgrade is increasing in consumers willingness to pay we refer to this as an increasing percentage differences condition and relate it to many known results in the marketing economics and operations management literatures

characterising equilibrium selection in global games with strategic complementarities abstract global games are widely used to predict behaviour in games with strategic complementarities and multiple equilibria we establish two results on the global game selection first we show that for any supermodular complete information game the global game selection is independent of the payoff functions chosen for the game s global game embedding second we give a simple sufficient criterion to derive the selection and establish noise independence in many action games by decomposing them into games with smaller action sets to which we may often apply simple criteria we also report in which small games noise independence may be established by counting the number of players or actions

electronic tickets smart cards and online prepayments when and how to advance sell advance selling occurs when sellers allow buyers to purchase at a time preceding consumption shugan and xie 2000 electronic tickets smart cards online prepayments and other technological advances make advance selling possible for many if not all service providers these technologies lower the cost of making complex transactions at a greater distance from the seller s site they also give sellers more control over advance selling by decreasing arbitrage as technology enhances the capability to advance sell more academic attention is vital this paper strives to exploit these technologies by developing advance selling strategies until recently advance selling research focused on the airline industry and specific characteristics of that industry these characteristics included the price insensitivity of late arrivals e g business travelers compared with early arrivals e g leisure travelers demand uncertainty across flights on the same day and capacity constraints recent findings by shugan and xie 2000 show that advance selling is a far more general marketing tool than previously thought it does not require these industry specific characteristics it only requires the existence of buyer uncertainty about future valuations moreover sellers without the ability to price discriminate can use advance selling to improve profits to the level of first degree price discrimination this finding is important because buyers are nearly always uncertain about their future valuations for most services e g the utility of next year s vacation or a future college education in this paper we take the next step from shugan and xie 2000 we show that advance selling profits do not come from buyer surplus but from more buyers being able to purchase we determine when and how to advance sell in a variety of situations including situations with limited capacity second period arrivals refunds buyer risk aversion exogenous credibility continuous preference distributions and premium pricing we determine when advance selling improves profits and when it does how to set advance prices we ask and answer seven questions first when should sellers advance sell second how much can advance selling improve profits compared with only spot selling third what factors impact the profitability of advance selling and how fourth should advance prices be higher or lower or the same as spot prices fifth how do capacity constraints impact advance selling strategies sixth should sellers limit the number of advance sales finally what is the possible impact of buyer risk aversion first we provide precise conditions when sellers should advance sell for example without capacity constraints we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price second we find that advance selling can almost double the profits from optimal spot selling to early arrivals we also show that advance selling has no impact on consumer surplus in markets with homogenous consumers and no capacity constraints therefore advance selling can increase social welfare because seller profits increase third we find that two very important factors impacting the profitability of advance selling are seller credibility and marginal costs buyers only advance buy when they expect an advantage from advance buying over spot buying without capacity constraints sellers must credibly convince buyers that the advance price is at a discount to the spot price we show that this condition is met under different circumstances for example large marginal costs can create credibility because buyers believe that these costs will lead to high spot prices fourth we find although optimal advance prices can be at a discount to the spot price that sometimes a premium is optimal premiums are optimal when capacity is large but limited and marginal costs are not too large buyers advance purchase at a premium to spot prices when capacity is limited and spot prices are low note that this is not a risk premium and risk aversion is not required no prior research has suggested this strategy because that research relies on the assumption that early arrivals are more price sensitive than later ones without that assumption premium advance pricing is sometimes optimal fifth we find that binding capacity constraints can impact the profitability of advance selling in opposite ways on one hand capacity constraints create seller credibility buyers believe that spot prices will be high when they know spot capacity is limited and perhaps more limited by advance sales on the other hand when capacity is limited the need to increase sales from discounted advance prices diminishes sixth consistent with desiraju and shugan 1999 we find that limiting advance sales can be profitable but only under restrictive conditions these conditions are 1 selling to all early arrivals would leave insufficient capacity in the spot period to sell to all second period arrivals with high valuations 2 the optimal spot price is high and 3 marginal costs are sufficiently small to make advance selling profitable finally we find that buyer risk aversion can sometimes increase the profitability of advance selling our findings provide precise guidelines for a large number of service providers that will have the technical capability to advance sell for those service providers advance selling provides a creative pricing strategy that can potentially provide substantial improvements in profits

contagion and uninvadability in local interaction games the bilingual game and general supermodular games abstract in a setting where an infinite population of players interact locally and repeatedly we study the impacts of payoff structures and network structures on contagion of a convention beyond 2 2 coordination games first we consider the bilingual game where each player chooses one of two conventions or adopts both i e chooses the bilingual option at an additional cost for this game we completely characterize when a convention spreads contagiously from a finite subset of players to the entire population in some network and conversely when a convention is never invaded by the other convention in any network we show that the pareto dominant risk dominant resp convention is contagious if the cost of bilingual option is low high resp furthermore if the cost is in a medium range both conventions are each contagious in respective networks and in particular the pareto dominant convention is contagious only in some non linear networks second we consider general supermodular games and compare networks in terms of their power of inducing contagion we show that if there is a weight preserving node identification from one network to another then the latter is more contagion inducing than the former in all supermodular games

informationally robust trade and limits to contagion abstract two agents can each accept or reject a proposed deal whose value for each agent depends on an unknown state and may be positive or negative the deal takes place only if both accept each agent can be imperfectly informed in an arbitrary way about both her own value and the other agent s in such environments contagious adverse selection may prevent the deal from being reached even when it is mutually beneficial ex post we give an upper bound on the ex ante expected welfare loss in equilibrium due to such contagion valid for any information structure the welfare loss is small if negative values are unlikely ex ante and under an assumption of known aggregate gains from the deal our bound is sharp the bound has a succinct description even though the equilibrium itself in any given information structure may be hard to describe explicitly

intertemporal price discrimination and sales strategy under incomplete information this article examines intertemporal price variations to provide a theoretical explanation for them when firms have only incomplete information about consumers reservation prices for the commodity we contend that some intertemporal price variations can result from attempts by firms to discriminate among consumers we demonstrate that such price discrimination is the optimal policy for a seller if consumers have a higher time discount rate than producers

advance purchase discounts and monopoly allocation of capacity optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied the existence of capacity constraints means that in order to expand output the airline must divert demand from the peak period to the off peak period a particular advance purchase discount policy is shown to be the profit maximizing method of selling tickets if the advance purchase requirement were infeasible output and total surplus would both be lower jel l12 substantial discounts for air travel are generally available to travelers who are willing to purchase tickets a week or more in advance of the departure date this paper demonstrates why the imposition of an advance purchase requirement may be a profit maximizing strategy for a monopoly airline facing capacity constraints during times of peak demand 1 the practice of imposing an advance purchase requirement on discount tickets is also placed in a favorable light in terms of its impact on social

risk dominance and perfect foresight dynamics in n player games abstract in perfect foresight dynamics an action is linearly stable if expectation that people will always choose the action is self fulfilling a symmetric game is a pim game if an opponent s particular action maximizes the incentive of an action independently of the rest of the players this class includes supermodular games games with linear incentives and so forth we show that in pim games linear stability is equivalent to u dominance a generalization of risk dominance and that there is no path escaping a u dominant equilibrium existing results on n player coordination games games with linear incentives and two player games are obtained as corollaries

the properties of product line prices abstract we study multi product cournot suppliers a monopoly is a special case who offer menus of differentiated qualities under conditions that include linear and constant elasticity demand specifications the equilibrium price for each quality is equal to its price in a single product cournot market a corollary is this a monopolist who naively ignores the substitutability of her products by choosing the standalone monopoly price for each quality successfully implements the optimal discriminatory scheme under other reasonable specifications the equilibrium prices are close to the single product prices we also evaluate the impact of minimum quality standards

the profit benefits of category management the practice of category management i e empolying a single decision maker who is responsible for a firm s product line has been advocated as a superior alternative to brand management i e in

communication and coordination in social networks i model people in a coordination game who use a communication network to tell each other their willingness to participate the minimal sufficient networks for coordination can be interpreted as placing people into a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we then consider two examples first we show that low dimensional networks can be better for coordination even though they have far fewer links than high dimensional networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad although collective action depends on both social structure and individual incentives these integral aspects have been formalized separately in the fields of social network theory and game theory by considering them together this paper engages the classic question of which structures are conducive to coordination and shows that structure and strategy are related in a mutually interesting way here we consider a coordination game in which each person wants to participate only if others participate social structure is thought of as a communication network by which people tell each other their willingness to participate each person knows whether her neighbours in the network are willing but does not know about anyone else our model is thus a game of incomplete information in which each person given his local knowledge decides whether to participate the main result is a characterization of the minimal sufficient networks for coordination in terms of a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters for example a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we also consider two simple examples first we show that low dimension or strong link networks can be better for coordination even though they have far fewer links than high dimension or weak link networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad this paper is built on the assumption that the most basic and common mechanism for coordination is the i ll go if you go mechanism individuals first communicate with each other about their preferences and then each individual chooses whether to participate or not hence a person s participation depends on what he knows about his neighbours it does not depend solely on their participation itself either through learning adaptation or social influence the physical analogies of contagion or diffusion are not

quality distortion by a discriminating monopolist the standard model of monopolistic imperfect quality discrimination involving consumer self selection has shown that no distortion occurs at the highest quality level while all lower quality levels are degraded in order to maintain profitable market segmentation this result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality the paper develops a reasonable model in which the standard assumption is not satisfied and this alternative model yields vastly different conclusions regarding the form of quality distortion in particular quality may be enhanced not degraded to maintain profitable market segmentation copyright 1989 by american economic association

non linear pricing and optimal shipping policies abstract a monopolist produces a good for sale to a buyer with uncertain valuation the seller seeks to implement a profit maximizing non linear pricing scheme which includes the time at which the good is shipped to the consumer if the buyer discounts future payoffs and the seller does not then delayed shipments act as an almost perfect substitute for complete information and the monopolist can extract almost all of the surplus from trade shipping policies thus serve as a powerful tool of enhancing price discrimination however if the seller is as patient as or even only slightly more patient than the buyer then she cannot benefit from delaying allocations

p dominance and perfect foresight dynamics abstract we investigate stability of p dominant equilibria under perfect foresight dynamics we show that a strict p dominant equilibrium with i p i 1 is globally accessible and absorbing in perfect foresight dynamics we also investigate robustness and extensions of this result we apply our proof method to games with u dominant equilibria and unanimity games

research note when is versioning optimal for information goods this paper provides insights about when versioning is an optimal strategy for information goods our characterization of this class of goods is that variable costs are invariant with quality including the special case of zero variable costs our analysis assumes a monopoly firm that has an existing product in the market and has an opportunity to segment the market by introducing additional lower quality versions we derive a simple decision rule for determining the optimality of versioning based on the solution to a single product maximization problem versioning is optimal when the optimal market share of the lower quality version offered alone is greater than the optimal market share of the high quality version offered alone a firm can profitably employ versioning for an information good if it can design the lower quality in a way that relative to their valuations for the high end version high type consumers have a lower relative valuation for the lower quality than do low type consumers when variable costs increase a firm that offered only one product version need not consider adding another version when variable costs decrease the firm should explore adding a lower quality version

changes in the distribution of house prices over time structural characteristics neighborhood or coefficients quantile hedonic house price function estimates imply that appreciation rates were higher between 1995 and 2005 for high priced homes in chicago decompositions of temporal changes in the house price distribution suggest that the types of homes sold and their location do not account for the change in the price distribution rather higher appreciation rates for high priced homes are explained by differences in the quantile regression coefficients over time

co ordination spillovers and cheap talk abstract we analyze the role of cheap talk in two player games with one sided incomplete information we identify conditions under which 1 players can fully communicate and coordinate on efficient nash equilibria of the underlying complete information game and 2 players cannot communicate so cheap talk does not alter the equilibrium set of the bayesian game we present examples that illustrate several issues that arise when there is two sided incomplete information journal of economic literature classification numbers c72 d82

loans on sale credit market seasonality borrower need and lender rents abstract the market for corporate credit is characterized by significant seasonal variation both in interest rates and the volume of new lending firms borrowing from banks during seasonal sales in late spring and fall issue at 19 basis points cheaper than winter and summer borrowers issuers during cheap seasons appear to have less immediate needs but are enticed by low rates to engage in precautionary borrowing high interest rate periods capture borrowers with unanticipated non deferrable investment needs consistent with models of intertemporal price discrimination seasonality is strongly associated with market concentration among a few large banks with repeated interactions

estimation with response error and nonresponse error in survey data originates from failure to contact the sample and from false answers to verifiable questions these errors may be systematic and associated with uncooperative or unreliable respondents zabel modeled attrition in the survey of income and program participation and found systematic demographic and design effects bollinger and david modeled response error and identified correlations to income per capita in this analysis we link missing interviews in a panel and response error through a trivariate probit analysis robustness of the correlation between attrition and response error is examined by comparing variants of the model the joint model of response error and attrition becomes the first stage of a pseudolikelihood estimate of a model of food stamp participation the model is significantly different from naive probit on the survey data

rationalizable foresight dynamics abstract this paper proposes and studies the rationalizable foresight dynamics a normal form game is repeatedly played in a random matching fashion by a continuum of agents who make decisions at stochastic points in time a rationalizable foresight path is a feasible path of action distribution along which each agent takes an action that maximizes his expected discounted payoff against another path which is in turn a rationalizable foresight path we consider a set valued stability concept under this dynamics and compare it with the corresponding concept under the perfect foresight dynamics

sincere voting in large elections abstract austen smith and banks 1996 showed that sincere informative voting is not typically an equilibrium of the condorcet voting model when the size of the electorate is large here we reverse their finding by adding a third type of voter one that receives no information in favor of either of the alternatives as well as global uncertainty about the probability that each voter is such a no evidence type the expected number of no evidence type voters can be arbitrarily small nevertheless if the electorate is large enough then each of the two standard condorcet types votes sincerely in every nondegenerate type symmetric equilibrium