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Experimental work in monetary economics is usually based on theory that incorporates an infinite horizon. Yet, hard constraints on laboratory sessions lead to finite times when the game must (with probability 1) end, and then simple backward induction implies monetary equilibria cannot exist. Hence, these experiments cannot evaluate subjects’ ability to settle on the use of money as a medium of exchange, that ameliorates trading frictions, as an equilibrium outcome. To address this, we present some finite-horizon games where monetary exchange is an equilibrium outcome, and report some experimental results using these games.

We consider a single-item single-period joint inventory management and pricing problem of a retailer selling an item that has selling price uncertainties. Unlike most of the literature on the newsvendor problem, we assume that price-dependent demand arrives randomly according to a stochastic arrival process whose rate depends on the fluctuating market input price process. The retailer’s problem is to choose the order quantity and a proportional price markup over the input price to maximize the expected profit. This setting is mostly encountered by retailers that trade in different currencies or have to purchase and convert commodities for seasonal sales. For this setting, we characterize both the optimal inventory and markup levels. We present monotonicity properties of the expected profit function with respect to each decision variable. We also show that more volatile input price processes lead to lower expected profits.

Based on the research and development (R&D) state of prefabricated buildings, this paper establishes an evolutionary game model involving such three parties as latecomer prefabricated building firm (LPBF), related firm, and university-research institute, and simulates the evolutionary results of the game to determine the evolutionarily stable strategy (ESS) of the game. The results show that: In the tripartite system evolution, the evolution and trend of each party are closely related with the strategies chosen by the other two parties; eventually, the LPBF strategy always converges to R&D, while the strategies of related firm, and university-research institute always converge to cooperation in R&D. Whether the game system converges to the desired equilibrium state hinges on the R&D profit and cost of, and opportunistic profit from subsequent cooperation with the LPBF. During the development of prefabricated buildings, the game parties should promote the high-quality development of the industry by stepping up technological R&D, forging a complete industrial chain, and implementing industry-university-research cooperation.

We introduce risk-averse bidders in a security-bid auction to analyze how the security design affects bidders’ equilibrium behavior and, as a result, the revenue and efficiency of the auction. We show that steeper securities provide more insurance because they allow bidders to smooth payoffs across realizations. Such insurance levels the playing field for more-risk-averse bidders, inducing them to bid more aggressively. As a consequence, the auction’s allocative efficiency weakly increases when the seller switches from a flatter to a steeper security. Furthermore, we prove that when bidders are homogeneously and sufficiently risk averse, the only security that guarantees Pareto efficiency is the steepest, that is, a call option. We also determine the relationship between the security design and the auction format. In particular, we show that for convex and superconvex families of securities, the first-price auction yields higher expected revenues, provided a technical condition, whereas for subconvex families, the second price yields higher expected revenues, provided that bidders are moderately risk averse. Finally, we show that steeper securities also attract higher entry from an ex ante perspective, when entry is costly, and discuss the effects that the presence of risk aversion has on informal auctions. This paper was accepted by Gustavo Manso, finance.

In recent years, a trend in retail pricing has been to give consumers greater autonomy in setting their own prices, be it through auctions or other forms of participative pricing. Such consumer pricing autonomy often requires the seller to set limits in the form of price floors and price ceilings. Price floors and ceilings in our auction settings are referred to as reserve prices (RP) and Buy It Now (BIN) prices, respectively. We examine the effect of RP and BIN presence and magnitude on the number of bidders and ending price. Using auctions, we uncover consumers’ willingness to pay (WTP) through bids. WTP is malleable through reference cues. Our focus is on two such cues: BINs and RPs. Results of two field studies, augmented with a laboratory study, show that both BINs and RPs result in lower bidder entry, but have an overall positive effect on ending price. Furthermore, results show that RP is more effective than a comparable BIN magnitude and that these two pricing cues are substitutes. The study design allows the authors to rule out alternative explanations. Open RP and BIN's effect on ending price is due to a reference point effect rather than a price truncation effect. Thus, retailers can increase WTP through changing these reference cues and exploit a richer choice set over which to shape a malleable WTP. The quantification of the interaction between RP and BIN gives managers the ability to jointly take advantage of both RP and BIN.

We study a competitive partial equilibrium in markets where risk-averse agents solve multistage stochastic optimization problems formulated in scenario trees. The agents trade a commodity that is produced from an uncertain supply of resources. Both resources and the commodity can be stored for later consumption. Several examples of a multistage risked equilibrium are outlined, including aspects of battery and hydroelectric storage in electricity markets, distributed ownership of competing technologies relying on shared resources, and aspects of water control and pricing. The agents are assumed to have nested coherent risk measures based on one-step risk measures with polyhedral risk sets that have a nonempty intersection over agents. Agents can trade risk in a complete market of Arrow-Debreu securities. In this setting, we define a risk-trading competitive market equilibrium and establish two welfare theorems. Competitive equilibrium will yield a social optimum (with a suitably defined social risk measure) when agents have strictly monotone one-step risk measures. Conversely, a social optimum with an appropriately chosen risk measure will yield a risk-trading competitive market equilibrium when all agents have strictly monotone risk measures. The paper also demonstrates versions of these theorems when risk measures are not strictly monotone.

This chapter presents a discussion on the general production rules in a second-best environment. The chapter analyzes a set of assumptions regarding government activity and the underlying structure of the private sector. Regarding the government sector, the government is making a set of production decisions under two constraints: it must buy inputs and sell outputs at the established private sector producer prices, and it must cover any resulting deficit (surplus) with distorting commodity taxes levied on the consumer. The government may buy or sell any inputs or outputs, including those traded in the private sector. There are no restrictions on the form of the aggregate government production function other than the exclusion of externalities. Regarding the private sector, all markets are assumed to be perfectly competitive and private production exhibits general technology with constant returns to scale (CRS). There can be no pure profits or losses from private production.

I present a tractable international trade model of monopsonistic competition and heterogeneous firms, in which markups and markdowns are increasing with the size of firms. The model sheds new light on the effects of trade on the aggregate profit share. In a standard model with a Pareto distribution of firm characteristics, the profit share is constant; by augmenting the model with the assumption of monopsonistic competition, trade can increase the profit share under reasonable assumptions for the parameter values. Monopsonistic competition is, thus, a contributing factor to the documented decline in the labor share and rise in corporate profits.

The popularity of open ascending auctions is often attributed to the fact that openly observable bidding allows to aggregate dispersed information. Another reason behind the frequent utilization of open auction formats may be that they activate revenue enhancing biases. In an experiment, we compare three auctions that differ in how much information is revealed and in the potential activation of behavioral biases: (i) the ascending Vickrey auction, a closed format; and two open formats, (ii) the Japanese–English auction, and (iii) the Oral Outcry auction. Even though bidders react to information conveyed in others' bids, information aggregation fails in both open formats. In contrast, the Oral Outcry raises higher revenue than the other two formats by stimulating bidders to submit unprofitable jump bids and triggering a quasi‐endowment effect.

We compare the profit of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave profit functions (in the price space) and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly profits. This profit bound holds for any number of segments and prices that the seller might use under third-degree price discrimination. We establish that these conditions are tight and that weakening either common support or concavity can lead to arbitrarily poor profit comparisons even for regular or monotone hazard rate distributions., Comment: 26 pages, 5 figures

We study a bargaining model in which players compete for the right to propose in every period, hence the bargaining protocol is determined endogenously. This model admits multiple equilibria, including many with delayed agreements and costly competition. We develop a general self-generating technique to characterize the extreme equilibria, and hence, the entire set of equilibrium payoffs. Our technique resembles an optimal contract design problem with all the sequential rationality conditions being treated as the incentive constraints. By means of an example, we show that as the discount factor goes to one, a player could obtain almost the entire surplus in his best equilibrium, while players’ competition efforts diminish to zero. We also find that some asymmetric equilibria are more efficient than the stationary equilibrium.

We consider a two-player game of war of attrition under complete information. It is well-known that this class of games admits equilibria in pure, as well as mixed strategies, and much of the literature has focused on the latter. We show that if the players' payoffs whilst in "war" vary stochastically and their exit payoffs are heterogeneous, then the game admits Markov Perfect equilibria in pure strategies only. This is true irrespective of the degree of randomness and heterogeneity, thus highlighting the fragility of mixed-strategy equilibria to a natural perturbation of the canonical model. In contrast, when the players' flow payoffs are deterministic or their exit payoffs are homogeneous, the game admits equilibria in pure and mixed strategies., Comment: 36 pages

We analyze the endogenous choice of competition mode when asymmetric retailers engage in price discrimination and uniform pricing with upstream monopoly via a linear wholesale contract. In contrast to previous results, if the cost difference is sufficiently large between asymmetric retailers, choosing a price contract for the efficient retailer and choosing a quantity contract for the inefficient retailer are implemented under both price discrimination and uniform pricing rules, while Cournot competition is sustained if the cost difference is sufficiently small. Although similar endogenous choice of (a)symmetric competition in equilibrium can be achieved in both pricing rules, social welfare, producer and consumer surpluses are higher under price discrimination than under uniform pricing unless the cost difference is small.

We consider a large population of firms in a market environment. The firms are divided into a finite set of types, with each type being characterized by a distinct private cost function. Moreover, the firms generate an external cost like pollution in the production process. As a result, the Nash equilibrium outcome is not socially optimal. We propose an evolutionary implementation mechanism to achieve the socially optimal outcome. In contrast to the classical VCG mechanism, evolutionary implementation does not require the planner to know or elicit any private information from firms. By imposing a tax equal to the current external damage being imposed by a firm, the planner can guide the evolution of the society toward the social optimum. The imposition of the tax generates a potential game whose potential function is the social welfare function of the model. Evolutionary dynamics converge to the maximizer of this function thereby evolutionarily implementing the social welfare maximizer.

We use an experiment to compare a theory of risk-aversion and a theory of spite as an explanation for overbidding in auctions. As a workhorse we use the second-price all-pay auction. Both risk and spite are used to rationalize deviations from risk-neutral equilibrium bids. We exploit that equilibrium predictions in the second-price all-pay auctions for spite are different than those for risk-aversion. We find that spite is a convincing explanation for bidding behavior for the second-price all-pay auction. Not only can spite rationalize observed bids, also our measure for spite is consistent with observed bids.

We consider an auction market in which market makers fill the order book during a given time period while some other investors send market orders. We define the clearing price of the auction as the price maximizing the exchanged volume at the clearing time according to the supply and demand of each market participants. Then we derive in a semi-explicit form the error made between this clearing price and the fundamental price as a function of the auction duration. We study the impact of the behavior of market takers on this error. To do so we consider the case of naive market takers and that of rational market takers playing a Nash equilibrium to minimize their transaction costs. We compute the optimal duration of the auctions for 77 stocks traded on Euronext and compare the quality of price formation process under this optimal value to the case of a continuous limit order book. Continuous limit order books are found to be usually sub-optimal. However, in term of our metric, they only moderately impair the quality of price formation process. Order of magnitude of optimal auction durations is from 2 to 10 minutes.

We explore how taste projection—the tendency to overestimate how similar others’ tastes are to one’s own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others’ information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions. (JEL D11, D44, D82, D83)

Published online: 28 September 2022 We study minimal conditions for competitive behavior with few agents. We adapt a price-quantity strategic market game to the indivisible commodity environment commonly used in double auction experiments, and show that all Nash equilibrium outcomes with active trading are competitive if and only if there are at least two buyers and two sellers willing to trade at every competitive price. Unlike previous formulations, this condition can be verified directly by checking the set of competitive equilibria. In laboratory experiments, the condition we provide turns out to be enough to induce competitive results, and the Nash equilibrium appears to be a good approximation for market outcomes. Subjects, although possessing limited information, are able to act as if complete information were available in the market. This article was published Open Access with the support from the EUI Library through the CRUI - Springer Transformative Agreement (2020-2024)

We consider a seller’s dynamic pricing problem with demand learning and reference effects. We first study the case in which customers are loss-averse: they have a reference price that can vary over time, and the demand reduction when the selling price exceeds the reference price dominates the demand increase when the selling price falls behind the reference price by the same amount. Thus, the expected demand as a function of price has a time-varying “kink” and is not differentiable everywhere. The seller neither knows the underlying demand function nor observes the time-varying reference prices. In this setting, we design and analyze a policy that (i) changes the selling price very slowly to control the evolution of the reference price and (ii) gradually accumulates sales data to balance the trade-off between learning and earning. We prove that, under a variety of reference-price updating mechanisms, our policy is asymptotically optimal; that is, its T-period revenue loss relative to a clairvoyant who knows the demand function and the reference-price updating mechanism grows at the smallest possible rate in T. We also extend our analysis to the case of a fixed reference price and show how reference effects increase the complexity of dynamic pricing with demand learning in this case. Moreover, we study the case in which customers are gain-seeking and design asymptotically optimal policies for this case. Finally, we design and analyze an asymptotically optimal statistical test for detecting whether customers are loss-averse or gain-seeking. This paper was accepted by Omar Besbes, revenue management and market analytics.

This study aims to show that the low bid price survey standard has lower limit price characteristics and analyzes the behavior of firms in the public procurement market where the lower price limit is set. This study uses regression analysis to investigate the effects of exogenously determined low-price survey standards and predetermined prices on the winning bid ratio, the number of participants, the participants’ bid ratio, the difference between the second-place price and the winning bid, the second bid, and the single bidder’s bid. The results show that the winning bid ratio increased with a rise in the low-price survey standard, thereby indicating that the low-price survey standard has the characteristics of a lower limit price. The results also suggest that the low-price survey standard causes oversupply, which encourages firms to carefully set prices higher than the lower price limit, and intensify competition at levels higher than the lower limit price.

International audience; Recent empirical research in accounting and finance shows that the magnitudeof stock prices influences analysts’ price forecasts (Roger, Roger et Schatt [2018]).In this paper, we report the results of a novel experiment where some subjects areasked to forecast future prices in a continuous double auction market. In this expe-riment, two successive markets take place: one where the fundamental value is asmall price and one where the fundamental value is a large price. Although marketprices are higher (compared to fundamental value) in small price markets than inlarge price markets, our results indicate that analyst subjects’ forecasts are moreoptimistic in small price markets compared to large price markets. Analyst subjectsstrongly anchor on past price trends when building their price forecasts and donot mitigate subject traders’ bias. Overall, our experimental findings support theexistence of a small price bias deeply rooted in the human brain.; La littérature récente en comptabilité et en finance montre que le niveau des cours des actions influence les prévisions de prix des analystes (Roger, Roger et Schatt [2018]). Dans le présent article, nous montrons que ce résultat reste valide dans le cadre contrôlé du laboratoire quand des sujets doivent prévoir les prix futurs sur un marché expérimental auquel ils ne participent pas. Chaque sujet fait des prévisions lors de deux marchés successifs : l’un pour lequel la valeur fondamentale est faible et l’autre pour lequel la valeur fondamentale est élevée. Bien que les prix de marché soient plus élevés (par rapport à la valeur fondamentale) sur les marchés à petits prix du fait du biais de « petit prix » des sujets traders, nos résultats indiquent que les prévisions des analystes sont plus optimistes sur les marchés à petits prix que sur les marchés à prix élevés. Les sujets analystes ancrent leurs prévisions sur les prix de marché passés et n’atténuent pas le biais des sujets traders. Nos résultats montrent ainsi que l’existence de ce biais de « petit prix » reflète l’utilisation par les sujets de deux échelles mentales différentes pour traiter petits et grands nombres.

We examine auctions for identical items with different surcharges. We find an inverted U-shape relationship between the surcharge amount and the price premium for the auction with the higher surcharge. To explain this pattern, we fit an empirical model with a two-stage process for the consideration of surcharges. In the first stage, consumers choose between two identical auctions, and in the second stage, they determine whether to place a bid. Using a novel online auction dataset that includes search and bids, we find the determinants of both search and bid, and map the relationship between surcharge and expected revenue. We note that the optimal surcharge changes inversely with bidders’ level of experience and the expected number of bidders. The findings show conditions under which consumers fail to accurately process price and surcharge differences.

Institutions are often modeled as Nash equilibria. The puzzle is how an institution can change endogenously, given that all players choose mutually best responses. To address this issue, the present paper proposes a framework that explicitly models players’ goals. It argues that the probabilities of attainment of players’ goals affect the stability of Nash equilibrium. If players fail to attain their goals in a Nash equilibrium, then this equilibrium is goal-unstable, as players are motivated to displace it. This goal-instability represents a push factor of institutional change. Since the goal-instability does not need to presuppose players’ knowledge of the desired outcome, the approach is consistent with the notion of entrepreneurial institutional innovation. It is shown that the proposed framework can provide micro-foundations for existing theories and extends the analysis to include open-endedness and the creative aspects of institutional change. This framework is applied to account for a change from coins to banknotes as a medium of exchange.

We consider an environment in which bidders decide whether to jump bids in a simple two-bidder ascending auction with independent private values. We compare two types of equilibria, one that involves jump bidding and another that does not. We show that the revenue in the jump bidding equilibrium dominates that in the no-jump equilibrium when bidders are risk averse. Isolating the revenue impact of jump bidding from that of overbidding, our experimental design allows us to demonstrate that sellers’ revenue increases due to jump bidding but only insignificantly so.

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link. This study proposes a model to make concurrent decisions on dynamic pricing and advertising to maximise firms' profitability over an infinite time horizon in a duopoly market. To this end, the Nerlove-Arrow pricing and advertising model is designed in the presence of shifting costs in a dynamic duopolistic competition as a differential game. The Nash equilibrium solution is defined based upon a set of Hamilton–Jacobi–Bellman. Four scenarios are applied for economic interpretations and the efficacy of the model.

This study aims to test the impact of price preciseness on compromise and decoy effects, analyze the different presentation styles of price information (a precise price presentation vs. a rounded one), and investigate the moderating role of individual differences (i.e., lay rationalism) and decision situations (i.e., time pressure) in travel decision making. It uses a series of empirical tests in which only people with high lay rationalism can distinguish the difference between precise and rounded price information. Major findings show that compromise and decoy effects are salient when a price cue exists, as price information helps the trade-off among options. This study also finds that significant context effects prevail irrespective of price preciseness. Respondents with high lay rationalism or under high time pressure conditions show a tendency to acknowledge discrepancies among options for precise pricing in decision making but not for rounded pricing, thereby resulting in high decoy effects.

This paper develops an approach for identifying and estimating the distribution of valuations in ascending auctions where an indeterminate number of bidders have an unknown number of bidding opportunities. To finesse the complications for identification and estimation due to multiple equilibria, our empirical analysis is based on the fact that bidders play undominated strategies in every equilibrium. We apply the model to a monthly financial market in which local banks compete for deposit securities. This market features frequent jump bidding and winning bids well above the highest losing bid, suggesting standard empirical approaches for ascending auctions may not be suitable. We find that frictions are costly both for revenue and allocative efficiency.

This paper derives a liquidity cost process in a non-cooperative cost competition game among market makers and discusses its implication for the structure of a dealer market. The main result shows that there does not exist an equilibrium supporting both multiple market makers earning strictly positive profits and a well-behaved liquidity cost process (i.e. strictly increasing and convex) as documented in the price impact literature. Bertrand price competition arises as an equilibrium phenomenon, which naturally leads to the dominance of a cost-efficient market maker in the dealer market.

We study disappointment and platform exit among new bidders in an online auction marketplace. In particular, we study a hybrid auction format with a “Buy-It-Now” option, which, when executed, will abruptly end the auction and cancel any standing bids. When this happens, if the formerly leading bidder is new to the platform, then they are 6 percentage points more likely to exit the marketplace for every additional day they spent in the lead. This is rationalized by disappointment-averse bidders with outside options and rational expectations about the likelihood of winning. Our explanation is validated by three ancillary predictions: when expectations are lowered by higher competing bids, there is no effect; sensitivity of exit is declining in prior experience; and, for bidders who do not exit, time in the lead during the first experience predicts a subsequent preference for fixed-price, rather than auction, listings.

The ratio estimator of the markup is the ratio of the output elasticity for a flexible input to that input’s cost share in total revenue. We highlight identification and estimation issues pertaining to this ratio estimator, when firm-level output prices are not observed. If the revenue elasticity for a flexible input is used in place of the output elasticity, then profit maximization implies that the ratio estimator is identically equal to one, and thus is uninformative about markups. Concerning estimation of output elasticities: with only revenue data, profit maximization also implies that the output elasticity is not identified non-parametrically from estimation of the revenue production function, if firms have market power. Even with separate output price and quantity data, it is challenging to estimate the output elasticity consistently if there are non-linear productivity dynamics and firms face heterogeneous demand schedules, with unobserved variation in a demand shifter.

We extend the classical asset-selling problem to include debt repayment obligation, selling capacity constraint, and Markov price evolution. Specifically, we consider the problem of selling a divisible asset that is acquired through debt financing. The amount of asset that can be sold per period may be limited by physical constraints. The seller uses part of the sales revenue to repay the debt. If unable to pay off the debt, the seller must go bankrupt and liquidate the remaining asset. Our analysis reveals that in the presence of debt, the optimal asset-selling policy must take into account two opposing forces: an incentive to sell part of the asset early to secure debt payment and an incentive to delay selling the asset to capture revenue potential under limited liability. We analyze how these two forces, originating from debt financing, will distort the seller’s optimal policy.

Using choice data to infer an individual’s strategic reasoning ability is challenging since a sophisticated player may form non-equilibrium beliefs about others and thus exhibit non-equilibrium behavior. We conduct an experiment to identify individual rationality bound by matching human subjects with computer players that are known to be fully rational. By introducing robot players, we can disentangle the effect of limited reasoning ability from belief formation and social preferences.

We draw buy and sell valuations uniformly at random from integers between 0 to 1000. There is private information to the realization of the draws, but common knowledge regarding the distributions, the market rules and market sizes. We follow a 3*4 design. We run 3 types of market sizes. -Small: 1 buyer 1 seller -Medium: 5 and 5 -Large: 50 and 50 We run 4 versions of Walrasian Double Auctions (DAs) with different market rules (i.e. different fee structures): -Classical DA: buyers and sellers submit bids and asks. clearing at competitive equilibrium. in case of multiple CE prices middle is chosen. no fees. -Price Fee: as classical DA with clearing at competitive equilibrium but a 10% fee of the price is charged to both parties -Half-Margin Fee: variant of classical DA whereby half of absolute difference between successful bid/ask and Competitive Equilibrium clearing price is charges as fee. -Name Your Own Price: you pay what you bid and you get what you ask. bid-ask spread is kept by marketmaker. The Bayesian Nash equilibria of these games differ. We test the following predictions related to them: H1. Efficiency increases in the Classical DA and in the 10% Price Fee auction as market grows H2. Efficiency does not increase for Name Your Own Price and Half-Margin Fee H3. Given a market size, bidding becomes more strategic (more shading) moving from Classical DA to Half-Margin Fee to Name Your Own Price H4. Given a market size, bidding is comparably (same order) strategic in Classical DA and in 10% Price Fee Further, we will investigate and compare the platform earnings from the different fee structures depending on market size. Note: in order to incentivize traders and to make sure no subject can loose money, bids and asks are required to fulfill individual rationality constraints, i.e. we forbid bids and asks on the "wrong" side of reservation prices.

Revenue, cost, tuition, and scholarship data at private liberal arts colleges from 2003–2013 are used to estimate how each college's net revenue per student varies with student enrollment. Our empirical specification assumes that colleges simultaneously pick their optimal net tuition and cost of instruction. The estimates allow us to identify the enrollment level that maximizes the return on the college's provision of educational services. Thirty‐seven percent of the colleges have enrollments within one standard deviation of their profit maximizing enrollment. Another 11% are more than one standard deviation above the profit maximizing level; they increase access to students but not revenue. Compared to the profit maximizing colleges, the institutions with enrollments beyond their profit maximum have stronger endowments and enroll more low‐income students. Although no schools were below their shut‐down enrollment, 13% were within one standard deviation of their minimum enrollment and may be vulnerable to tuition revenue shock.

In Japan, newspapers enjoy a special exemption from antimonopoly prohibitions against resale price maintenance (suppliers' stipulations that bar downstream firms from price discounting), but are each required to set uniform prices throughout Japan. In fact, the newspapers have rarely changed their subscription prices in recent years, and the three leading national dailies, together accounting for about half the total industry circulation, and thirteen other papers accounting for another one eighth of industry circulation, all have set exactly the same price (3,925 yen per month for combined morning-and-evening editions, and 3,007 yen per month for morning-only). The remaining local papers all set lower prices. The authorized resale price maintenance, and prohibition against prices that vary geographically, arguably have allowed collusive price increases, but by precisely how much it is difficult to judge. I here estimate that if the coordinated pricing of the leading national and local newspapers is inflating their prices by 340 yen per month (about a 10 percent increase in their prices), it entails economic waste of 86-billion yen ($1-billion) per year but is adding only around 5-billion yen per year to newspaper industry profit. The estimate is based on an econometric model of newspaper demand, estimated for 47 Japanese newspapers using March 2007 micro-data. The paper also estimates the demand and supply of newspaper advertising and a newspaper subscription price equation using 2007 cross-section data. The subscription pricing equation reflects the interdependence of demand between morning-only subscriptions and morning-and-evening subscriptions offered by the same newspaper.

We show that in finite settings with identical firms and consumers, asymmetric pure price equilibria with positive profits exist. We consider a price competition duopoly for a homogeneous product. Demand stems from a second-stage consumption game at posted prices, with consumers’ behavior impacted by negative network effects. We characterize equilibrium prices and demand. In all subgame-perfect pure price equilibria, both firms have positive profits, and in some, firms charge different prices. info:eu-repo/semantics/publishedVersion

This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption and wealth shares of the agents. This time variation can resolve several asset-pricing puzzles, including the large countercyclical variation of expected risk premia, the volatility of the price-dividend ratio, the predictability of cash flows and returns, and the large predictability of returns in recessions. These findings show that belief differences, a widely observed attribute of investors, significantly improve the explanatory power of long-run risk asset-pricing models.

The definition of best response for a player in the Nash equilibrium is based on maximizing the expected utility given the strategy of the rest of the players in a game. In this work, we consider stochastic games, that is, games with random payoffs, in which a finite number of players engage only once or at most a limited number of times. In such games, players may choose to deviate from maximizing their expected utility. This is because maximizing expected utility strategy does not address the uncertainty in payoffs. We instead define a new notion of a stochastic superiority best response. This notion of best response results in a stochastic superiority equilibrium in which players choose to play the strategy that maximizes the probability of them being rewarded the most in a single round of the game rather than maximizing the expected received reward, subject to the actions of other players. We prove the stochastic superiority equilibrium to exist in all finite games, that is, games with a finite number of players and actions, and numerically compare its performance to Nash equilibrium in finite-time stochastic games. In certain cases, we show the payoff under the stochastic superiority equilibrium is 70% likely to be higher than the payoff under Nash equilibrium.

In this paper, we propose a simple and intuitive model to investigate the efficiency of the two-party election system, especially regarding the nomination process. Each of the two parties has its own candidates, and each of them brings utilities for the people including the supporters and non-supporters. In an election, each party nominates exactly one of its candidates to compete against the other party's. The candidate wins the election with higher odds if he or she brings more utility for all the people. We model such competition as a two-party election game such that each party is a player with two or more pure strategies corresponding to its potential candidates, and the payoff of each party is a mixed utility from a selected pair of competing candidates. By looking into the three models, namely, the linear link, Bradley-Terry, and the softmax models, which differ in how to formulate a candidate's winning odds against the competing candidate, we show that the two-party election game may neither have any pure Nash equilibrium nor a bounded price of anarchy. Nevertheless, by considering the conventional egoism, which states that any candidate benefits his/her party's supporters more than any candidate from the competing party does, we prove that the two-party election game in both the linear link model and the softmax model always has pure Nash equilibria, and furthermore, the price of anarchy is constantly bounded.

Procurement auctions for renewable energy support have become a standard policy instrument to stimulate investment in clean energy. Winning bidders have the right but not the obligation to realize their projects during a grace period following the auction. Currently, the nexus of award prices and the realization rate is not well understood in the literature. We combine auction theory and real options theory to model bidders who view the right to build subsidized renewable capacity as real option. Using asymptotic theory for multi-unit auctions, we derive optimal bidding strategies and analyze how auction design and bidder characteristics impact equilibrium bids, award prices, and realization rates. In particular, we show that bidders who value the flexibility of non-realization higher bid more aggressively and exhibit lower realization rates. We analyze determinants of these effects and illustrate how auction design can trade-off procurement cost and realization rates by adjusting pre-qualification payments and the grace period for construction. Finally, we test our results on real-world auctions in UK and Germany and show that our model explains auction outcomes and observed realization rates.

Pricing algorithms are computerized procedures a seller may use to adapt instantaneously its price to market conditions, including to prices quoted by its rivals. These algorithms are related to the extensive use of web-collectors which contribute in many industries to identifying the best price. In such settings, price competition operates between algorithms, no longer between executives of brick and mortar companies. In this context, the question is to know how implicit forms of collusion may arise between the sellers. This paper is aimed at discussing this conceptual issue in a price-setting homogeneous product oligopoly with decreasing returns to scale where algorithms implement matching policies. Using fixed point argument, we find a family of equilibrium prices encompassing Cournot and Pareto efficient solutions, if matching is allowed upward and downward. Dynamical stability is studied in the linear demand constant return case. When matching operates only for price undercutting, this family is extended up to a bottom value of the market price, close to the Walrasian price. Pricing algorithms may solve the Bertrand–Edgeworth paradox.

Local governments forecast revenues and expenditures as part of their budget process. Despite growing evidence of biased revenue forecasts, there is limited research on expenditure forecast bias. T...

In this paper, the uniform price and discriminative price methods are compared in the carbon auction market using multi-agent Q-learning. The government and different firms are considered as agents. The government as auctioneer allocates initial permits in the carbon auction market, and the firms as bidders compete with each other to obtain a larger share of the auction. The carbon trading market, penalty, reserve price, and bidding volume limitation are considered. The simulation analysis demonstrates that bidders have different behavior in two pricing methods under different amounts of carbon permits. In the uniform price, the value of bidding volume, firms’ profit, and the trading volume for low permits and the value of the government revenue, clearing price, the trading price, and auction efficiency for high permits are greater than ones in the discriminative price method. Bidding prices have a higher dispersion in the uniform price than the discriminative price method for different amounts of carbon permits.

In this paper, we study N -player Colonel Blotto games with incomplete information about battlefield valuations. Such games arise in job markets, research and development, electoral competition, security analysis, and conflict resolution. For M ≥ N + 1 battlefields, we identify a Bayes-Nash equilibrium in which the resource allocation to a given battlefield is strictly monotone in the valuation of that battlefield. We also explore extensions such as heterogeneous budgets, the case M ≤ N , full-support type distributions, and network games.

Empirical results about the effect of open reserve price on ending prices in auctions are mixed, with some researchers finding a positive effect on ending price and others reporting a negative or no effect. The objective of this research is to propose a new theoretical framework. First, without an open reserve price, auctions attract more bidders, resulting in increased competition and higher ending prices—a so-called competition effect. Second, a high open reserve price may serve as a price floor or a reference price, influencing bidders' valuations and increasing ending prices. Quantile regression is used, which has the advantage of providing robust parameter estimates of the effect of open reserve prices on ending prices for different levels of the reserve price. Estimates of a longitudinal data set for four products collected over a period of one year show an u-shaped relationship between open reserve prices and ending prices, where either no reserves or high reserves results in higher ending prices. By comparing ending prices of auctions with an open reserve versus a secret reserve, it is shown that open reserve prices have a reference-price effect rather than a price-floor effect.

According to economics, prices are determined by the relationship between supply and demand: they correspond to the equilibrium in which supply is exactly equal to the demand, i.e., for which the optimal amount that the seller is willing to sell at this price is exactly equal to the optimal amount that the buyer is willing to pay. In many situations, the corresponding prices are indeed uniquely determines by the supply-demand relation. From the purely mathematical viewpoint, there are situations when the equilibrium is not unique, but most economists believe that in practical situations, equilibrium prices are usually uniquely determined. In this paper, we provide a simple but realistic example in which the equilibrium is not unique.

With the privatization of the internet in 1995, capital managed to contain the digital common, to classify it as private property, and to generalize and extend the digital common of the private int...

We derive the revenue maximizing allocation of m units among n symmetric agents who have unit demand, and who take costly actions that in uence their values before participating in the mechanism. The allocation problem with costly actions can be represented by a reduced form model where agents have convex, non-expected utility preferences over the interim probability of receiving an object. Both the uniform m+1 price auction and the discriminatory pay-your-bid auction with reserve price constitute symmetric revenue maximizing mechanisms. Contrasting the case with exogenous valuations, the optimal reserve price reacts to both demand and supply. We also identify a condition under which the optimal mechanism is indeed symmetric, and illustrate the structure of the optimal asymmetric mechanism when the condition fails. The main tool in our analysis is an integral inequality, due to Fan and Lorentz (1954), involving majorization, super-modularity and convexity.

In this model, an inventory model for deteriorating products with dynamic demand is developed under time-dependent selling price. The selling price is supposed to be a time-dependent function of initial price of the products and the permissible discount rate at the time of deterioration. The object is sold with the constant rate in the absence of deterioration and is the exponential function of discount rate at the time; deterioration takes place. Here, the demand not only dependent on the selling price but also on the cumulative demand that represents the saturation and diffusion effect. First, an inventory model is formulated to characterize the profit function. The Classical optimization algorithm is used to solve the optimization problem. The objective is to maximize the total profit of the retailers with respect to the initial selling price and cycle time. Concavity of the objective function is discussed through graphs. At last, a sensitivity analysis is performed by changing inventory parameters and their impact on the decision variables i.e. (initial price, cycle time) together with the profit function.

We consider the long-run outcomes of bargaining games when players obey prospect theory. We extend the evolutionary bargaining model of Young (1993) to a two-stage Nash demand game. Two players simultaneously choose whether to exercise an outside option in the first stage and play the Nash demand game in the second stage, which will be reached only if neither player exercises the outside option. We address the influence on the stochastically stable division of reference-dependent preferences where the reference point is the value of the outside option. We show that the division consistently differs from the Nash bargaining solution under expected utility theory. Inspired by this, we propose a prospect theory Nash bargaining solution, which coincides with the stochastically stable division.