Harmful Signaling in Matching Markets

Some labor markets have recently developed formal signalling mechanisms, e.g. the signalling for interviews in the job market for new Ph.D. economists. We evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has “typical” commonly known preferences with probability close to one and “atypical” idiosyncratic preferences with the complementary probability close to zero. Firms have some commonly known preferences over workers. We show that the introduction of a signalling mechanism is harmful for this environment. Though signals transmit previously unavailable information, they also facilitate information asymmetry that leads to coordination failures. As a result, the introduction of a signalling mechanism lessens the expected number of matches when signals are informative.Signaling, Cheaptalk, Matching

Matching Markets with Signals

A costless signaling mechanism has been proposed as a device to improve welfare in decentralized two-sided matching markets. An example of such an environment is a job market for new Ph.D. economists. We study a market game of incomplete information between firms and workers and show that costless signaling is actually harmful in some matching markets. Specifically, if agents have very similar preferences, signaling lessens the total number of matches and the welfare of firms, as well as it affects ambiguously the welfare of workers. These results run contrary to previous findings that costless signaling facilitates match formation.Matching Markets, Signaling

Human Nature in the Adaptation of Trust

This chapter pleads for more inspiration from human nature, in agent-based modeling.As an illustration of an effort in that direction, it summarizes and discusses an agentbased model of the build-up and adaptation of trust between multiple producers and suppliers.The central question is whether, and under what conditions, trust and loyalty are viable in markets.While the model incorporates some well known behavioural phenomena from the trust literature, more extended modeling of human nature is called for.The chapter explores a line of further research on the basis of notions of mental framing and frame switching on the basis of relational signaling, derived from social psychology.trust;transaction costs;buyer-supplier relationships;social psychology

Not Quite up to Scratch: An Examination of Failure, Persistence, and ‘Living Dead’ Outcomes for Wireless Start-Ups

This dissertation analyzes why some VC-funded high-tech firms do not generate harvesting events for investors through a lucrative sale, either to another company or on the stock exchange. I investigate the effects of three signals of quality on failure and persistence. In the first essay, hypotheses are developed on the unintended consequences of patenting. Disclosure, through patents, exposes new firms to undesired spillovers. The second essay exploits asymmetric effects on success and failure to expose start-up persistence. It analyzes another signal of quality—technology breadth, the applicability across domains—and suggests that hazards of disclosure also varies with this breadth. Finally, the third essay examines the effects of signals related to founding team on a third outcome, ‘living dead’—a transitory state to which a start-up shifts when it persists beyond the norm without harvest or failure. I tested these hypotheses on a longitudinal dataset of 428 US VC-backed wireless firms founded between 1990 and 2009 using event history analysis and matched case-control study. I find that a start-up’s failure rate increases as its inventions are cited at a higher rate by others; in addition failure rate increases when the citing firms have a reputation of litigiousness. I show that the effect of signaling a specific technology while experiencing high rate of knowledge diffusion diminishes both the likelihood of failure and success—uncovering persistence. Loss of members in founding teams comprised of entrepreneurs with prior founding experience is found to be a shock that increases the odds of marginal performance

Imitative Follower Deception in Stackelberg Games

Information uncertainty is one of the major challenges facing applications of game theory. In the context of Stackelberg games, various approaches have been proposed to deal with the leader's incomplete knowledge about the follower's payoffs, typically by gathering information from the leader's interaction with the follower. Unfortunately, these approaches rely crucially on the assumption that the follower will not strategically exploit this information asymmetry, i.e., the follower behaves truthfully during the interaction according to their actual payoffs. As we show in this paper, the follower may have strong incentives to deceitfully imitate the behavior of a different follower type and, in doing this, benefit significantly from inducing the leader into choosing a highly suboptimal strategy. This raises a fundamental question: how to design a leader strategy in the presence of a deceitful follower? To answer this question, we put forward a basic model of Stackelberg games with (imitative) follower deception and show that the leader is indeed able to reduce the loss due to follower deception with carefully designed policies. We then provide a systematic study of the problem of computing the optimal leader policy and draw a relatively complete picture of the complexity landscape; essentially matching positive and negative complexity results are provided for natural variants of the model. Our intractability results are in sharp contrast to the situation with no deception, where the leader's optimal strategy can be computed in polynomial time, and thus illustrate the intrinsic difficulty of handling follower deception. Through simulations we also examine the benefit of considering follower deception in randomly generated games

INFORMATION SHARING AND PRICE DYNAMICS IN B2B DIGITAL SYSTEMS

While multiple studies have investigated the digital ecosystems in the B2C sectors, empirical research on the upstream of the supply chain is still underexplored. This paper examines the case when a digital platform is incorporated into the century-old auction systems. This work offers insights into B2B markets and at the same time, an interesting instance where different pricing mechanisms (online posted price and auctions) co-exit. We investigate how the information of the new digital posted price channel can influence buyers’ learning behaviors and consequently, the price dynamics in the auction market. Our empirical analysis reveals that multiple information signals can play a role. While sellers’ high price and high-volume sales signals can partially dimmish the existing declining price trend in the sequential auctions where the prices from the earlier auction rounds tend to be higher than from the latter, this information effect does not persist over time. These results highlight the potential benefit of cooperating e-commerce with an auction channel for sellers and the shift in buyers’ behaviors in responding to an additional platform in a B2B market

Endogenous Market Thickness and Honesty : A Quality Trap Model

Many emerging or transition economies lack institutional arrangements (like ISO certification) to credibly signal product quality. The absence of such institutions leads to low levels of market activity with poor quality products on sale. In this paper, we use a dynamic framework with asymmetric information to model this phenomenon. Sellers choose the quality they produce and face a trade-off between producing a high quality product, which gives low one period returns but leads to higher future profits, and a low quality product, which gives higher one period returns but bars the seller from future market activity. Sellers' differ in how they discount the future and thus in how they evaluate this trade-off. Demand is endogenous and the number of buyers that enter the market depends on the quality of the products they expect to find. Market thickness (the buyer-seller ratio), product quality, prices and the distribution of seller types are all endogenously determined and multiple steady states may emerge. In general, a sufficient number of sellers need to be patient for multiple steady states to exist. Technology that involves 'learning by doing' may cause market segregation. Importantly, sellers' expectations about market thickness matter in determining the quality only if sellers believe that market thickness will be less than one.market thickness, endogenous quality, multiple equilibria, price mechanism.