6,543 research outputs found
Multidimensional Mechanism Design: Revenue Maximization and the Multiple-Good Monopoly
The seller of N distinct objects is uncertain about the buyers valuation for those objects. The sellers problem, to maximize expected revenue, consists of maximizing a linear functional over a convex set of mechanisms. A solution to the sellers problem can always be found in an extreme point of the feasible set. We identify the relevant extreme points and faces of the feasible set. With N = 1, the extreme points are easily described providing simple proofs of well-known results. The revenue-maximizing mechanism assigns the object with probability one or zero depending on the buyers report. With N > 1, extreme points often involve randomization in the assignment of goods. Virtually any extreme point of the feasible set maximizes revenue for a well-behaved distribution of buyers valuations. We provide a simple algebraic procedure to determine whether a mechanism is an extreme point
Updating the Reserve Price in Common Value Auctions
We consider a common value auction model with bidder participation determined jointly by nature and by bidder optimization. In this framework, an increase in the reserve price as two effects: it deters marginal bidders and it deters bidders from becoming informed. We then derive a test statistic for establishing when it is optimal to raise the reserve price. This statistic is independent of the distribution of valuations. We then apply the analysis to U.S. offshore oil sales and find evidence that the reserve price is dramatically too low.
Detecting collusion in timber auctions : an application to Romania
Romania was one of the first transition countries in Europe to introduce auctions for allocating standing timber (stumpage) in public forests. In comparison with the former system in the country-administrative allocation at set prices-timber auctions offer several potential advantages: greater revenue generation for the government, a higher probability that tracts will be allocated to the firms that value them most highly, and stronger incentives for technological change within industry and efficiency gains in the public sector. Competition is the key to realizing these advantages. Unfortunately, collusion among bidders often limits competition in timber auctions, including in well-established market economies such as the United States. The result is that tracts sell below their fair market value, which undermines the advantages of auctions. This paper examines the Romanian auction system, with a focus on the use of econometric methods to detect collusion. It begins by describing the historical development of the system and the principal steps in the auction process. It then discusses the qualitative impacts of various economic and institutional factors, including collusion, on winning bids in different regions of the country. This discussion draws on information from a combination of sources, including unstructured interviews conducted with government officials and company representatives during 2003. Next, the paper summarizes key findings from the broader research literature on auctions, with an emphasis on empirical studies that have developed econometric methods for detecting collusion. It then presents an application of such methods to timber auction data from two forest directorates in Romania, Neamt and Suceava. This application confirms that data from Romanian timber auctions can be used to determine the likelihood of collusion, and it suggests that collusion reduced winning bids in Suceava in 2002 and perhaps also in Neamt. The paper concludes with a discussion of actions that the government can take to reduce the incidence of collusion and minimize its impact on auction outcomes.Forestry,Wildlife Resources,Markets and Market Access,Access to Markets,Technology Industry
Principals and Partners: The Structure of Syndicates
This paper analyzes conditions, which help to determine the optimal organization of a syndicate when the input of members of the syndicate is not observable. If the cost of monitoring agents' actions is free or if a principal will agree to operate an optimal incentive scheme at no cost, then well-known results tell us that a principal-based hierarchy is optimal. However, when all members of a syndicate share equally in the surplus generated by the syndicate including the principal, this cost must be borne in mind in forming the optimal organization. Sometimes it is preferable to bear the costs of shirking rather than to share the gains of the enterprise with another agent. This paper shows that the bias towards such partnerships varies in a predictable manner determined by the parameters of the environment. In particular, it shows that while growth of an enterprise might provide an incentive to form a hierarchy, increased efficiency of the agents through learning for instance provide countering biases favouring the formation of a partnership.
Modeling Competitive Behavior
A single seller of an indivisible object wishes to sell the good to one of many buyers. The seller has zero value for the good; the buyers have a commonly known identical value of one. This paper attempts to determine strategic environments, which ensure the seller's ability to exploit the competitive behavior of the buyers to extract all the surplus in the game. It is shown that in many simple dynamic games, there are subgame perfect equilibria, which involve the seller giving up the good for free. Even if the seller has an informational advantage which allows him to keep bidders from learning the bidding behavior of their opponents, there still exist (perfect Bayesian) equilibria which involve a sale at the price of zero. However, in this case, a simple refinement in the spirit of sequential equilbria can be used to rule out such collusive behavior in the spirit of sequential equilibria can be used to rule out such collusive behavior and to show that the unique equlibrium outcome satisfying this refinement involve a price of one.
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