planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

on the analysis of asymmetric first price auctions we provide a new set of tools for studying asymmetric rst price auctions connecting their equilibria to the concavity of the underlying type distributions and showing how one can use surplus expressions related to symmetric auctions to bound equilibrium behavior in asymmetric auctions we apply these tools to studying procurement auctions in which as is common in practice one seller is given an advantage re ecting for example better reliability or quality we show conditions under which for any given rst price handicap auction there is a second price auction with bonuses that outperforms it with most of our results involving ex post dominance

jamming a rival s learning abstract can a firm f cause a rival r to learn less about r does f care i explore f s ability and incentive to affect or jam r s private learning about r the model developed does not have unobserved actions or ex ante asymmetric information which previous jamming models require i find the f wants r not to learn and the more uncertain f believes r is the more f wants to jam r s learning entry deterrence increases with an entrant s uncertainty causing r to want f to believe that r is more certain about r s beliefs than r really is journal of economic literature d82 d83 l13

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

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

endogenous stackelberg leadership abstract we consider a linear quantity setting duopoly game and analyze which of the players will commit when both players have the possibility to do so to that end we study a two stage game in which each player can either commit to a quantity in stage 1 or wait till stage 2 we show that committing is more risky for the high cost firm and that consequently risk dominance considerations as in harsanyi and selten 1988 allow the conclusion that only the low cost firm will choose to commit hence the low cost firm will emerge as the endogenous stackelberg leader journal of economic literature classification numbers c72 d43

product differentiation and location decisions under demand uncertainty we investigate hotelling s duopoly game of location then price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand we characterize the unique equilibrium and the socially optimal locations contrary to the individual level random utility models location uncertainty is a differentiation force in equilibrium increases in the variance of the uncertainty lead to greater differentiation higher expected equilibrium prices and profits and a greater welfare loss

tough negotiations bilateral bargaining with durable commitments abstract we offer a tractable model of tough negotiations and delayed agreement the setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers commitments decay stochastically but uncommitted negotiators can make new commitments the game s unique markov perfect equilibrium outcome takes the form of a war of attrition negotiators initially commit to incompatible offers but agreement occurs once a negotiator s commitment decays if commitments decay more quickly the terms of the agreement become more equal in expectation more patient committed and less risk averse negotiators obtain a larger fraction of the surplus

stackelberg versus cournot equilibrium we reconsider stackelberg s classical critique of the cournot duopoly in the framework of endogenous timing for two player games for quantity duopoly we provide different sets of minimal conditions directly on the demand and cost functions yielding respectively the simultaneous and the two sequential modes of play while our findings essentially confirm the predominance of the former they also indicate that the latter is natural under some robust but restrictive conditions no extraneous assumptions such as concavity existence or uniqueness of equilibria are needed and the analysis makes crucial use of the basic results from the theory of supermodular games classification numbers b21 c72 d43 l13 c 1999 academic press

endogenous sequencing of firm decisions abstract when firms are symmetrically informed a stackelberg leader prefers to be leader rather than a cournot duopolist however when the leader has superior information about demand the leader may earn lower ex ante profits than it would earn if it was choosing quantities simultaneously with the follower in this paper i give the firm with superior information the option of delaying its quantity decision until the decision period of the less informed firm so that decisions are made simultaneously surprisingly in the unique stable outcome the informed firm moves first regardless of its private information journal of economic literature classification numbers c72 c73 d82 l10

experimentation and learning in a differentiated products duopoly abstract this paper explores price setting behavior in the context of a duopoly in which firms are uncertain about the degree of product differentiation firms learn from the difference in their realized demands in light of the price differential the informativeness of this market experiment is shown to be increasing in size of the price differential in markets with highly substitutable products price dispersion is enhanced as firms adjust their prices so as to generate more information in markets with highly differentiated products firms compress their prices as they prefer to reveal less about the extent of product differentiation journal of economic literature classification numbers d43 d83 l13

technical change and full employment the result of a major research project which assesses the effects of technical change on employment levels the structure of employment and the nature of work itself this study concludes that social changes must accompany and even precede technical innovation

learning and strategic pricing we consider the situation where a single consumer buys a stream of goods from different sellers over time the true value of each seller s product to the buyer is initially unknown additional information can be gained only by experimentation for exogeneously given prices the buyer s problem is a multi armed bandit problem the innovation in this paper is to endogenize the cost of experimentation to the consumer by allowing for price competition between the sellers the role of prices is then to allocate intertemporally the costs and benefits of learning between buyers and sellers we examine how strategic aspects of the oligopoly model interact with the learning process all markov perfect equilibria mpe are efficient we identify an equilibrium which besides its unique robustness properties has a strikingly simple seemingly myopic pricing rule prices below marginal cost emerge naturally to sustain experimentation intertemporal exchange of the gains of learning is necessary to support efficient experimentation we analyze the asymptotic behavior of the equilibria

an empirical model of optimal dynamic product launch and exit under demand uncertainty this paper considers the decision problem of a firm that is uncertain about the demand and hence profitability of a new product we develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales based on the current information the decision maker decides whether to scrap the product central to this decision problem are sequential information gathering and the option value of scrapping the product at any point in time the model predicts the optimal demand for information e g in the form of test marketing and it predicts how the launch or exit policy depends on the firm s demand uncertainty furthermore it predicts what fraction of newly developed products should be launched on average and what fraction of these products will fail i e exit the model is solved using numerical dynamic programming techniques we present an application of the model to the case of the u s ready to eat breakfast cereal industry simulations show that the value of reducing uncertainty can be large and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched even if their point estimate of profits is negative alternative simpler decision rules are shown to lead to large profit losses compared to our method finally we find that the high observed exit rate in the u s ready to eat cereal industry is optimal and to be expected based on our model

a bargaining model based on the commitment tactic abstract this paper studies a one shot simultaneous move bargaining game each bargainer makes a partial commitment a share of the unit size cake that she would like to get which can later be revoked at some cost to the player the payoffs are defined in part by the nash bargaining solution where the feasible utility set is affected by the players partial commitments under certain assumptions on the two cost of revoking functions we establish that the model has a unique nash equilibrium it is shown that a player s equilibrium share of the cake is strictly increasing in her marginal cost of revoking a partial commitment an application of our model selects a unique equilibrium in nash s demand game journal of economic literature classification number c78

pre commitment and flexibility abstract this paper considers several related strategic duopoly settings in which uncertainty creates an option value from retaining flexibility by delaying investment or output decisions until after uncertainty is resolved this value of flexibility must be weighed against the strategic value of pre commitment yielding a trade off between flexibility and pre commitment we obtain a simple characterization of the timing of output decisions as a consequence of the degree of uncertainty particular attention is paid to the implications for entry deterrence by an incumbent firm and to the possible flexibility enhancing effects of investment in capital

reputation and survival learning in a dynamic signalling model we consider the impact of reputation on the survival of a monopolist selling single units in discrete time periods whose quality is learned slowly if the seller learns her own quality at the same rate as customers a sufficiently bad run of luck could induce her to stop selling when she knows her quality a good seller never stops selling though at low reputations a bad seller does with some probability furthermore a seller with positive though imperfect information sells for the same number of periods whether her information is private or public we further consider the robustness of the central result when the seller s opportunities for strategic behaviour are limited

commitment and conflict in bilateral bargaining building on crawford 1982 we study a model of bilateral bargaining in which negotiators can make binding commitments at a low positive cost c our primary solution concept is iterated strict dominance if commitment attempts never fail there are three solutions in two solutions all the surplus goes to one player in the third solution there is a high probility of con ict if commitment attempts succeed with probability q 1 the unique solution entails con ict with probability q 2 when c 0 analogous results hold if the requirement of iterated strict dominance is replaced by iterated weak dominance

climate policy negotiations with incomplete information we analyse bargaining over international climate agreements in a setting with incomplete information about abatement costs incomplete information is known as one of the key reasons why negotiations may fail more generally and why efficiency gains cannot be exploited we ask whether unilateral commitment to high abatement reduces or increases the likelihood for an efficient negotiation outcome we find that such commitment behaviour reduces the gains from global cooperation and that in turn this reduces the probability of reaching efficient international environmental agreements

consumer learning brand loyalty and competition in several markets consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase this could then generate loyalty for the products tried first this paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products given what they learned in the first period the paper finds that if the distribution of valuations for each product is negatively positively skewed a firm benefits is hurt in the future from having a greater market share today the brand loyalty characteristic with negative skewness two effects are identified on one hand marginal forward looking consumers are less price sensitive than myopic consumers and this is a force toward higher prices on the other hand forward looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices for similar discount factors for consumers and firms the latter effect dominates the paper also characterizes the importance of consumer learning effects on the market outcome

collective risk taking in the commons abstract the management of natural commons is typically subject to threshold effects if individuals are risk averse some of the recent economic literature holds that uncertainty on the threshold may have a positive impact by lowering incentives to over consume the paper shows that this intuitive result may unravel when uncertainty is modeled as a discrete or multimodal distribution using a variant of the nash demand game with two thresholds two types of nash equilibria typically coexist cautious respectively dangerous equilibria in which agents coordinate on the low threshold resp the high threshold when both types of equilibria coexist the symmetric dangerous equilibrium is always pareto dominated by the symmetric cautious equilibrium and the latter is always pareto efficient we use an experimental setting to assess the severity of the coordination and equilibrium selection problem while cautious resp dangerous play is decreasing resp increasing in the probability that the threshold is high coordination failures are salient for intermediate probabilities where the likelihood of coexistence of both type of equilibria is high we find that there is a u shaped relationship between overall coordination and the probability that the threshold is high

firm scale and the endogenous timing of entry a choice between commitment and flexibility abstract this paper presents a model of stochastic oligopoly with demand uncertainty where firms endogenously choose entry timing we examine two extreme types of market structure and show that the equilibrium correspondence that connects them is continous with two identically sized firms there are symmetric cournot type equilibria where the probability of early entry declines with greater uncertainty and for low uncertainty two asymmetric equilibria with one large firm with a continuum of nonatomic firms there is a unique stackelberg equilibrium we conclude that the behavior of a dominant firm with a finite fringe can be approximated by stackelberg equilibrium journal of economic literatureclassification numbers d21 l11

incentives and ratcheting in a multiproduct firm a field experiment we develop a model and derive behavioral predictions for a multiproduct sales force subject to goals set based on past performance we test these predictions using a field experiment in which 53 salespersons from a chilean beverage company face exogenous variations in monthly sales goals confirming our predictions we found that 1 absent strategic considerations no goal ratcheting salespersons increase decrease sales in the product category for which the return to effort increases decreases 2 including strategic considerations behavior reverses salespersons who expect high goal ratcheting decrease increase sales in the category for which the return to effort increases decreases 3 sales did not change for the average salespersons reflecting heterogeneity in the expectations of goal ratcheting rather than unresponsiveness to incentives our study points at the importance of the dynamics of incentive design in particular the importance of understanding the dynamics of goal setting in fir

on the nash bargaining solution with noise abstract suppose two parties have to share a surplus of random size each of the two can either commit to a demand prior to the realization of the surplus as in the nash demand game or remain silent and wait until the surplus was observed adding the strategy to wait results in two strict equilibria in each of which one player takes almost the whole surplus provided uncertainty is small if commitments concern only who makes the first offer the more balanced nash bargaining solution is approximately restored in all cases commitment occurs in equilibrium despite the risk of breakdown of negotiations