Competition and Efficiency in Markets with Quality Uncertainty

This paper addresses the following question: Does competition enhance efficiency in markets with quality uncertainty? Using the mechanism design methodology, we characterize the maximal achievable level of efficiency in such markets, and then use this characterization to analyze how maximal efficiency varies with the degree of market competition. We show that the relationship between them is in general a non-trivial function of the main market parameters. In particular we show: (i) for some set of parameter values maximal efficiency is strictly increasing in the degree of market competition (although it never attains the first-best), but only until competition is sufficiently intense; thereafter, maximal efficiency is strictly decreasing in the degree of competition; (ii) for some set of parameter values maximal efficiency is strictly decreasing in the degree of market competition, attaining the first-best when there is no competition; and (iii) for some set of parameter values maximal efficiency is strictly increasing in the degree of market competition, attains the first-best once competition is sufficiently intense, and then remains at the first-best thereafter.

Imperfect Competition and Efficiency in Lemons Markets

This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored. JEL Classification: C7 ; D4 ; D61 ; D82

Stable Networks

A network is a graph where the nodes represent agents and an arc exists between two nodes if the corresponding agents interact bilaterally. An exogeneous value function gives the value of each network, while an allocation rule describes how the value of any graph is distributed amongst the agents. We explore the possibility of constructing allocation rules which will ensure that efficient networks of agents will form when the individual agents decide to form or severe links amongst themselves

On the coincidence of the Prenucleolus and the Shapley Value

We identify a sufficient class of coalitional form games with transferable utility for which prenucleolus coincides with the Shapley value. We then apply our result to simple games and to generalized queueing games.

Competition and Efficiency in Markets with Quality Uncertainty

This paper addresses the following question: Does competition enhance efficiency in markets with quality uncertainty? Using the mechanism design methodology, we characterize the maximal achievable level of efficiency in such markets, and then use this characterization to analyze how maximal efficiency varies with the degree of market competition. We show that the relationship between them is in general a non-trivial function of the main market parameters. In particular we show: (i) for some set of parameter values maximal efficiency is strictly increasing in the degree of market competition (although it never attains the first-best), but only until competition is sufficiently intense; thereafter, maximal efficiency is strictly decreasing in the degree of competition; (ii) for some set of parameter values maximal efficiency is strictly decreasing in the degree of market competition, attaining the first-best when there is no competition; and (iii) for some set of parameter values maximal efficiency is strictly increasing in the degree of market competition, attains the first-best once competition is sufficiently intense, and then remains at the first-best thereafter

Imperfect Competition and Efficiency in Lemons Markets

This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored

Bidding for the Surplus: Realizing Efficient Outcomes in General Economic Environments

In this paper, we consider two classes of economic environments. In the first type, agents are faced with the task of providing local public goods that will benefit some or all of them. In the second type, economic activity takes place via formation of links. Agents need both to both form a network and decide how to share the output generated. For both scenarios, we suggest a bidding mechanism whereby agents bid for the right to decide upon the organization of the economic activity. The subgame perfect equilibria of this game generate efficient outcomes.Bidding, Implementation, Networks, Public goods

On the coincidence of the Prenucleolus and the Shapley Value

We identify a sufficient class of coalitional form games with transferable utility for which prenucleolus coincides with the Shapley value. We then apply our result to simple games and to generalized queueing game