“Competing Auctions with Informed Sellers” (with Zizhen Ma) (Job Market Paper)
Abstract: We study competing auctions where each seller has private information about the quality of his object and chooses the reserve price of a second-price auction. Buyers observe the reserve prices and decide which auction to participate in. For a class of primitives, we show that a perfect Bayesian equilibrium exists for any finite market. In any such PBE, higher quality is signaled through higher reserve price at the expense of trade opportunities. But there might be bunching regions causing inefficiencies. In fact, in the large-market limit characterized by a directed search model, the interaction of adverse selection and search frictions entail distortion at the bottom: when either the buyer-seller ratio is sufficiently large or a regularity condition is met, there is no separating PBE in which the lowest-quality seller sets reserve price equal to his opportunity cost. This finding carries over to large finite markets and is consistent with observed behavior in auctions for used cars in UK (Choi, Nesheim and Rasul, 2016).
Abstract: This paper studies games where a group of privately informed principals design mechanisms to a common agent. The agent has private information (exogenous) and, after observing principals’ mechanisms, may have information (endogenous) about feasible allocations and private information from each principal. Thus, each principal may be interested in designing a mechanism to screen all this information, for which a potentially complicated message space to convey this information might be needed. In this paper, we provide sufficient conditions on the agent’s payoff such that any equilibrium in this setup has an output-equivalent equilibrium using only mechanisms with simple message spaces (direct mechanisms). Depending on the conditions, we propose two different notions of direct mechanisms and discuss their applicability with some examples.
Abstract: Sharing information is one of the proposed rationales for international delegation. But why would information exchange outside international organizations not be as efficient? To study the potential signaling benefits from delegation, we develop a formal model where multiple principals use costly signals to transmit information in the presence and absence of an uninformed agent. States face a trade-off in delegating: Moderate international organizations allow states to waste fewer resources in signaling, but the higher stakes of centralized policies leads to stronger signaling incentives – especially if little weight is placed on policies made by other states. We provide an informational rationale for delegation even if international organizations are uninformed.
Abstract: We study the design of horizontal merger regulation in a Cournot competition setting, where firms are privately informed about production technology. More specifically, a consumer-surplus-maximizer regulator designs a mechanism which determines whether the merger is blocked or accepted, and sets structural remedies (divestitures). This problem does not have the usual quasi-linear structure commonly assumed in the mechanism design literature. We first characterize incentive compatible mechanisms and then find the optimal one. The complete information case is also presented as a benchmark. Asymmetric information induces important distortions in regulatory decisions. First, every rejected merge would improve consumer surplus. Second, every merge that decreases consumer surplus would be approved. And third, every merge rightly approved would be asked fewer divestitures than the optimal one (under-fixing effect). These results seem consistent with recent empirical evidence on the ineffectiveness of the merger regulation.
Work in Progress
“Dynamic Contracting and Entry of Agents with Limited Commitment”
Abstract: We study long-term relations between a principal and an agent with limited commitment and entry of new agents. Each agent has private information (fully-persistent over time) related to her characteristics. I focus on the principal’s optimal perfect Bayesian equilibrium. The possibility of future entrants helps the principal to learn agent’s private information. Thus, even though the principal cannot fully commit to a contract (and learn agent’s private information immediately), he can use the threat of exclusion in the future to do it. If the difference in characteristics is low enough, as both parties are more patient, principal’s payoffs converge to his first-best. Inspired by the government and procurement firms example, I study the incentives for firms to innovate. I show that the government may prefer to pay more to the incumbent to give incentives to outsider firms to innovate. This contract makes credible that in case an innovation arises, the government would replace the incumbent by the new entrant.