165 research outputs found
Fixed Price Approximability of the Optimal Gain From Trade
Bilateral trade is a fundamental economic scenario comprising a strategically
acting buyer and seller, each holding valuations for the item, drawn from
publicly known distributions. A mechanism is supposed to facilitate trade
between these agents, if such trade is beneficial. It was recently shown that
the only mechanisms that are simultaneously DSIC, SBB, and ex-post IR, are
fixed price mechanisms, i.e., mechanisms that are parametrised by a price p,
and trade occurs if and only if the valuation of the buyer is at least p and
the valuation of the seller is at most p. The gain from trade is the increase
in welfare that results from applying a mechanism; here we study the gain from
trade achievable by fixed price mechanisms. We explore this question for both
the bilateral trade setting, and a double auction setting where there are
multiple buyers and sellers. We first identify a fixed price mechanism that
achieves a gain from trade of at least 2/r times the optimum, where r is the
probability that the seller's valuation does not exceed the buyer's valuation.
This extends a previous result by McAfee. Subsequently, we improve this
approximation factor in an asymptotic sense, by showing that a more
sophisticated rule for setting the fixed price results in an expected gain from
trade within a factor O(log(1/r)) of the optimal gain from trade. This is
asymptotically the best approximation factor possible. Lastly, we extend our
study of fixed price mechanisms to the double auction setting defined by a set
of multiple i.i.d. unit demand buyers, and i.i.d. unit supply sellers. We
present a fixed price mechanism that achieves a gain from trade that achieves
for all epsilon > 0 a gain from trade of at least (1-epsilon) times the
expected optimal gain from trade with probability 1 - 2/e^{#T epsilon^2 /2},
where #T is the expected number of trades resulting from the double auction
Product market competition with differentiated goods and social welfare in the presence of an industry-wide union
Mainstream locus communis indicates that a more competitive product market leads to higher social welfare levels. Using a Conjectural Variation (CV) model, this research note analyzes the effects on welfare of different degrees of product market competition in a duopoly with differentiated goods. Bargaining between the firms and the industry-wide union occurs under the Efficient Bargaining (EB) model. The work indicates that, with close substitute goods, social welfare is maximized for the inter- mediate levels of market competition, whereas more independent goods lead to the standard result of a high welfare level under competitive markets.info:eu-repo/semantics/publishedVersio
Value Creation from Big Data: Looking Inside the Black Box
The advent of big data is fundamentally changing the business landscape. We open the âblack boxâ of the firm to explore how firms transform big data in order to create value and why firms differ in their abilities to create value from big data. Grounded in detailed evidence from China, the worldâs largest digital market, where many firms actively engage in value creation activities from big data, we identify several novel features. We find that it is not the data itself, or individual data scientists, that generate value creation opportunities. Rather, value creation occurs through the process of data management, where managers are able to democratize, contextualize, experiment and execute data insights in a timely manner. We add richness to current theory by developing a conceptual framework of value creation from big data. We also identify avenues for future research and implications for practicing managers
Rationality, Irrationality and Escalating Behavior in Lowest Unique Bid Auctions
Information technology has revolutionized the traditional structure of markets. The removal of geographical and time constraints has fostered the growth of online auction markets, which now include millions of economic agents worldwide and annual transaction volumes in the billions of dollars. Here, we analyze bid histories of a little studied type of online auctions â lowest unique bid auctions. Similarly to what has been reported for foraging animals searching for scarce food, we find that agents adopt LĂ©vy flight search strategies in their exploration of âbid spaceâ. The LĂ©vy regime, which is characterized by a power-law decaying probability distribution of step lengths, holds over nearly three orders of magnitude. We develop a quantitative model for lowest unique bid online auctions that reveals that agents use nearly optimal bidding strategies. However, agents participating in these auctions do not optimize their financial gain. Indeed, as long as there are many auction participants, a rational profit optimizing agent would choose not to participate in these auction markets
Efficient allocations in economies with asymmetric information when the realized frequency of types is common knowledge
We consider a general economy, where agents have private information about their types. Types can be multidimensional and potentially interdependent. We show that, if the realized frequency of types (the exact number of agents for each type) is common knowledge, then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique equilibrium. The result requires the single-crossing property on utility functions and the anonymity of the Pareto correspondence
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The Effects of MiFID II on Sell-Side Analysts, Buy-Side Analysts, and Firms
This paper provides early but broad empirical evidence on a major new investor protection regulation in Europe, MiFID II, which requires investment firms to unbundle investment research from other costs they charge to clients. We predict that the price separation resulting from unbundling and a hard-dollar system leads to a shrinking of the market for sell-side investment research, manifested in lower quantity of sell-side coverage that is of higher quality than before the regulation. We test our predictions in difference-in-differences matched-sample research designs with firm fixed effects. We find a decrease in the number of sell-side analysts covering European firms after MiFID II implementation, particularly for firms that are less important to the sell-side. However, research quality improves; specifically, individual analyst forecasts are more accurate and stock recommendations garner greater market reactions. In addition, sell-side analysts seem to cater more to the buy-side after MiFID II by providing industry recommendations along with stock recommendations. Importantly, we predict and find evidence that buy-side investment firms turn to more in-house research after MiFID II implementation. Equally interesting, buy-side analysts increase their participation and engagement in earnings conference calls compared to the control group. Finally, we find some evidence that stock-market liquidity decreases post-MiFID II. Our findings have implications beyond Europe, as investors are currently pressuring the U.S. Securities and Exchange Commission to adopt a similar regulation
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