34 research outputs found
The Power of Two-sided Recruitment in Two-sided Markets
We consider the problem of maximizing the gains from trade (GFT) in two-sided
markets. The seminal impossibility result by Myerson shows that even for
bilateral trade, there is no individually rational (IR), Bayesian incentive
compatible (BIC) and budget balanced (BB) mechanism that can achieve the full
GFT. Moreover, the optimal BIC, IR and BB mechanism that maximizes the GFT is
known to be complex and heavily depends on the prior. In this paper, we pursue
a Bulow-Klemperer-style question, i.e. does augmentation allow for
prior-independent mechanisms to beat the optimal mechanism? Our main result
shows that in the double auction setting with i.i.d. buyers and i.i.d.
sellers, by augmenting buyers and sellers to the market, the GFT of a
simple, dominant strategy incentive compatible (DSIC), and prior-independent
mechanism in the augmented market is least the optimal in the original market,
when the buyers' distribution first-order stochastically dominates the sellers'
distribution. Furthermore, we consider general distributions without the
stochastic dominance assumption. Existing hardness result by Babaioff et al.
shows that no fixed finite number of agents is sufficient for all
distributions. In the paper we provide a parameterized result, showing that
agents suffice, where is the probability that the buyer's
value for the item exceeds the seller's value
Price Discrimination in Many-to-Many Matching Markets
We study second-degree price discrimination in markets where the product traded by the monopolist is access to other agents. We derive necessary and sufficient conditions for the welfareand the profit-maximizing mechanisms to employ a single network or a menu of non-exclusive networks. We characterize the optimal matching schedules under a wide range of preferences, derive implications for prices, and deliver testable predictions relating the structure of the optimal pricing strategies to conditions on the distribution of match qualities. Our analysis sheds light on the distortions associated with the private provision of broadcasting, health insurance and job matching services. JEL Classification Numbers:D82matching, two-sided markets, networks, adverse selection, incentives, mechanism design
Imperfect Platform Competition: A General Framework
We propose a general model of imperfect competition among multi-product
firms, the consumption of whose goods yields externalities from one
consumer to another. We extend the allocation approach of Weyl (2010)'s
monopoly model, proposing a solution concept, Insulated Equilibrium,
that allows for tractable analysis of competition. In such an
equilibrium each firm's price on one side of the market adjusts to all
firms' participation levels on the other side, so as to insulate its own
allocation. This eliminates both the indeterminacy of consumer reactions
once platforms have set their tariffs and the multiplicity of reaction
functions that platforms can have to one another's tariffs. Our approach
allows us to derive intuitive first-order conditions characterizing
equilibrium without restrictive assumptions and to analyze the effects
of competition, mergers and regulation
Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration
This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents just before they lose patent protection. The approach involves looking at a cross-section of markets and examining whether behavior is nonmonotonic in the size of the market. Under certain conditions, investment levels will be monotone in market size if firms are not influenced by a desire to deter entry. Strategic investments, however, may be nonmonotone because entry deterrence is unnecessary in very small markets and impossible in very large ones, resulting in overall nonmonotonic investment. The pharmaceutical data contain advertising, product proliferation, and pricing information for a sample of drugs which lost patent protection between 1986 and 1992. Among the findings consistent with an entry deterrence motivation are that incumbents in markets of intermediate size have lower levels of advertising and are more likely to reduce advertising immediately prior to patent expiration.
Imperfect Platform Competition: A General Framework
We propose a general model of imperfect competition among multi-product
firms, the consumption of whose goods yields externalities from one
consumer to another. We extend the allocation approach of Weyl (2010)'s
monopoly model, proposing a solution concept, Insulated Equilibrium,
that allows for tractable analysis of competition. In such an
equilibrium each firm's price on one side of the market adjusts to all
firms' participation levels on the other side, so as to insulate its own
allocation. This eliminates both the indeterminacy of consumer reactions
once platforms have set their tariffs and the multiplicity of reaction
functions that platforms can have to one another's tariffs. Our approach
allows us to derive intuitive first-order conditions characterizing
equilibrium without restrictive assumptions and to analyze the effects
of competition, mergers and regulation
Interactive Communication in Bilateral Trade
We define a model of interactive communication where two agents with private types can exchange information before a game is played. The model contains Bayesian persuasion as a special case of a one-round communication protocol. We define message complexity corresponding to the minimum number of interactive rounds necessary to achieve the best possible outcome. Our main result is that for bilateral trade, agents don\u27t stop talking until they reach an efficient outcome: Either agents achieve an efficient allocation in finitely many rounds of communication; or the optimal communication protocol has infinite number of rounds. We show an important class of bilateral trade settings where efficient allocation is achievable with a small number of rounds of communication
Strongly Budget Balanced Auctions for Multi-Sided Markets
In two-sided markets, Myerson and Satterthwaite's impossibility theorem
states that one can not maximize the gain-from-trade while also satisfying
truthfulness, individual-rationality and no deficit. Attempts have been made to
circumvent Myerson and Satterthwaite's result by attaining
approximately-maximum gain-from-trade: the double-sided auctions of McAfee
(1992) is truthful and has no deficit, and the one by Segal-Halevi et al.
(2016) additionally has no surplus --- it is strongly-budget-balanced. They
consider two categories of agents --- buyers and sellers, where each trade set
is composed of a single buyer and a single seller. The practical complexity of
applications such as supply chain require one to look beyond two-sided markets.
Common requirements are for: buyers trading with multiple sellers of different
or identical items, buyers trading with sellers through transporters and
mediators, and sellers trading with multiple buyers. We attempt to address
these settings. We generalize Segal-Halevi et al. (2016)'s
strongly-budget-balanced double-sided auction setting to a multilateral market
where each trade set is composed of any number of agent categories. Our
generalization refines the notion of competition in multi-sided auctions by
introducing the concepts of external competition and trade reduction. We also
show an obviously-truthful implementation of our auction using multiple
ascending prices.Comment: Preliminary version accepted to AAAI 2020. This version adds (1)
External competition auction for arbitrary recipe vectors; (2)
Obvious-truthfulness proof; (3) Simulation experiment
Simple vs. Optimal Mechanism Design
Mechanism design has found various applications in today\u27s economy, such as ad auctions and online markets. The goal of mechanism design is to design a mechanism or system such that a group of strategic agents are incentivized to choose actions that also help achieve the designer’s objective. However, in many of the mechanism design problems, the theoretically optimal mechanisms are complex and randomized, while mechanisms used in practice are usually simple and deterministic. The focus of this thesis is to resolve the discrepancy between theory and practice by studying the following questions: Are the mechanisms used in practice close to optimal? Can we design simple mechanisms to approximate the optimal one? In this thesis we focus on two important mechanism design settings: multi-item auctions and two-sided markets. We show that in both of the settings, there are indeed simple and approximately-optimal mechanisms. Following Myerson\u27s seminal result, which provides a simple and revenue-optimal auction when a seller is selling a singleitem to multiple buyers, there has been extensive research effort on maximizing revenue in multi-item auctions. However, the revenue-optimal mechanism is proved to be complex and randomized. We provide a unified framework to approximate the optimal revenue in a fairly general setting of multi-item auctions with multiple buyers. Our result substantially improves the results in the literature and applies to broader cases. Another line of works in this thesis focuses on two-sided markets, where sellers also participate in the mechanism and have their own costs. The impossibility result by Myerson and Satterthwaite shows that even in the simplist bilateral trade setting (1 buyer, 1 seller, 1 item), the full welfare is not achievable by a truthful mechanism that does not run a deficit. In this thesis we focus on a more challenging objective gains from trade --- the increment of the welfare, and provide simple mechanisms that approximate the optimal gains from trade, in bilateral trade and many other two-sided market settings