Monopoly with Resale

This paper examines the intricacies associated with the design of revenue-maximizing mechanisms for a monopolist who expects her buyers to resell. We consider two cases: resale to a third party who does not participate in the primary market and inter-bidder resale, where the winner resells to the losers. To influence the resale outcome, the monopolist must design an allocation rule and a disclosure policy that optimally fashion the beliefs of the participants in the secondary market. Our results show that the revenue-maximizing mechanism may require a stochastic selling procedure and a disclosure policy richer than the simple announcement of the decision to trade.information linkage between primary and secondary markets, optimal disclosure policy, stochastic allocations, mechanism design.

On the Use of Menus in Sequential Common Agency

We illustrate, by means of two examples, why assuming the principals offer simple menus (i.e. collections of payoff-relevant alternatives) as opposed to more general mechanisms may preclude a complete characterization of the set of equilibrium outcomes in certain sequential contracting environments. We then discuss how refinements of the solution concept, or enrichments of the menus that allow for recommendations, may restore the possibility of using menus to obtain a complete equilibrium characterization.Sequential contracting, mechanism design, menus theorems.

On the Optimality of Privacy in Sequential Contracting

This paper considers an environment where two principals sequentially contract with a common agent and studies the exchange of information between the two bilateral relationships. We show that when (a) the upstream principal is not personally interested in the decisions taken by the downstream principal, (b) the agent’s exogenous private information has a "vertical" structure in the sense that the sign of the single crossing condition is the same for upstream and downstream decisions, and (c) preferences in the downstream relationship are separable, then the upstream principal optimally commits to full privacy, whatever price the downstream principal is willing to pay to receive information. On the contrary, when any of the above conditions is violated, the upstream principal may find it strictly optimal to disclose a (noisy) signal of the agent’s exogenous type and/or the result of his upstream contractual activity, even if she can not make the downstream principal pay for the information she receives. We also show that disclosure does not necessarily reduce the equilibrium payoff of the agent and may lead to a Pareto improvement for the three players.contractual and informational externalities, mechanism design, optimal disclosure policy, sequential common agency, exogenous and endogenous private information

On the Optimality of Privacy in Sequential Contracting

This paper studies the exchange of information between two principals who contract sequentially with the same agent, as in the case of a buyer who purchases from multiple sellers. We show that when (a) the upstream principal is not personally interested in the downstream level of trade, (b) the agent’s valuations are positively correlated, and (c) preferences in the downstream relationship are separable, then it is optimal for the upstream principal to offer the agent full privacy. On the contrary, when any of these conditions is violated, there exist preferences for which disclosure is strictly optimal, even if the downstream principal does not pay for the information. We also examine the effects of disclosure on welfare and show that it does not necessarily reduce the agent’s surplus in the two relationships and in some cases may even yield a Pareto improvement. The paper describes this condition and its implications.contractual and informational externalities, mechanism design, optimal disclosure policies, sequential common agency games, exogenous and endogenous private information.

Regulation of multinational banks: a theoretical inquiry

This paper examines prudential regulation of a multinational bank (MNB hereafter) and shows how regulatory intervention depends on the liability structure and insurance arrangements for non local depositors (i.e. on the representation form for foreign units). Shared liability among the MNB’s units gives higher incentives for regulatory intervention than when units are legally separate entities. Cross-border deposit insurance provides lower incentives to intervene than when the regulator only has to compensate local depositors. We study the impact of shared liability and deposit insurance arrangements on regulators’ incentives to monitor and acquire information on MNB’s activities. Furthermore, by describing regulatory intervention and monitoring we also draw implications on the MNB’s preferences over the form representation for foreign units, and discuss the effects of regulators’ behavior on both MNB’s lobbying and international resources shifting. JEL Classification: L51, F23, G21, G28Branch, multinational banks, Prudential Regulation, Representation Form, Subsidiary

Truthful Revelation Mechanisms for Simultaneous Common Agency Games

This paper considers games in which multiple principals contract simultaneously with the same agent. We introduce a new class of revelation mechanisms that, although it does not always permit a complete equilibrium characterization, it facilitates the characterization of the equilibrium outcomes that are typically of interest in applications (those sustained by pure-strategy profiles in which the agent's behavior in each relationship is Markov, i.e., it depends only on payoff-relevant information such as the agent's type and the decisions he is inducing with the other principals). We then illustrate how these mechanisms can be put to work in environments such as menu auctions, competition in nonlinear tariffs, and moral hazard settings. Lastly, we show how one can enrich the revelation mechanisms, albeit at a cost of an increase in complexity, to characterize also equilibrium outcomes sustained by non-Markov strategies and/or mixed-strategy profiles.Mechanism design, contracts, revelation principle, menus, endogenous payoff-relevant information

Monopoly with Resale

This paper studies revenue-maximizing mechanisms for a monopolist who expects her buyers to resell in a secondary market. We consider two modes of resale: the first is to a third party who does not participate in the primary market; the second is inter-bidders resale, where the winner in the primary market resells to the losers. We show that resale to third parties is revenue-enhancing for the initial monopolist, whereas inter-bidders resale is revenue-decreasing compared to the case where resale is prohibited. The revenue-maximizing mechanisms in the primary market are obtained by investigating the optimal informational linkage with the secondary market. The results show that to sustain higher resale prices the monopolist may find it optimal (a) to induce stochastic allocations in the primary market, and (b) to design a disclosure policy that optimally controls for the information revealed to the participants in the secondary market. The optimal allocation rule and disclosure policy maximize the expected sum of the bidders’ resale-augmented virtual valuations, taking into account the effect of information disclosure on the price formation process in the secondary market.Monopoly, information linkage between primary and secondary markets, optimal auction with resale, resale-augmented virtual valuations

On Regulation and Competition: Pros and Cons of a Diversified Monopolist

We study the regulation of a firm which supplies a regulated service while also operating in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose size is the firm’s private information, unknown either to the regulator or to the rival firms. We characterize the unregulated market outcome (with price and quantity competition) and optimal regulation that involves an informational externality to the competitors. Although joint conduct of the activities generates scope economies, it also entails private information, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the firm to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope.Regulation, Competition, Asymmetric Information, Conglomerate Firms, Multiutility, Scope Economies, Informational Externality

Truthful Revelation Mechanisms for Simultaneous Common Agency Games

In games in which multiple principals contract simultaneously and non-cooperatively with the same agent, standard direct revelation mechanisms in which the agent reports his type(i.e. his exogenous private information) have been proven inadequate to characterize the entire set of equilibrium outcomes. This paper introduces a more general class of revelation mechanisms in which the agent reports also the contractual decisions he is inducing with the principals. We …rst show that such a class has the same nice properties as the class of all unrestricted menus: (i) for any equilibrium of any indirect game with arbitrary communication space for the principals, there exists a truthful equilibrium in the game in which the principals are restricted to o¤er revelation mechanisms that sustains the same outcomes; (ii) any truthful equilibrium is robust in the sense that it remains an equilibrium in any game in which the principalsstrategy space is enlarged. We next show how revelation mechanisms can be put to work in applications such as menu auctions, moral hazard settings, and competition in non-linear tariffs to identify necessary and sufficient conditions for the sustainability of outcomes as common agency equilibria.mechanism design, contracts, Revelation Principle.

Export Restraints in a Model of Trade with Capital Accumulation.

This paper examines the impact of voluntary export restraints (VERs) in an international duopoly modelled as a differential game. We employ two well known capital accumulation dynamics for firms, due to Herlove and Arrow and to Ramsey, respectively. First we investigate Cournot behavour, showing that, in both models, a VERs cannot ne “voluntarily” employedby the foreign firms. Our analysis therefore suggests that the empirical observation of VERs corresponds to their use either as coordinating or as quasi-collusive devices in markets where firms are price setters and sales are not capacity-constrained. This is confirmed by our analysis of price competition. The Bertrand steady state of the Solow-Nerlove-Arrow model coincides with the Cournot equilibrium, and therefore the foreign firm cannot be expected to voluntarily adopt an export restraint. However, the opposite holds in the case of price behavior in the ramsey setting, where the adoption of anexport restraint may increase the profits of both firms