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Full-Text Articles in Economics
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient …
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
Cowles Foundation Discussion Papers
We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platform’s data advantage to improve match quality, with managed campaign mechanisms, where advertisers’ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off-platform product prices to boost their competitiveness on-platform. This leads to socially efficient …
How Do Digital Advertising Auctions Impact Product Prices?, Dirk Bergemann, Alessandro Bonatti, Nick Wu
How Do Digital Advertising Auctions Impact Product Prices?, Dirk Bergemann, Alessandro Bonatti, Nick Wu
Cowles Foundation Discussion Papers
We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platform’s data advantage to improve match quality, with managed campaign mechanisms, where advertisers’ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off-platform product prices to boost their competitiveness on-platform. This leads to socially efficient …
Managed Campaigns And Data-Augmented Auctions For Digital Advertising, Dirk Bergemann, Alessandro Bonatti, Nicholas Wu
Managed Campaigns And Data-Augmented Auctions For Digital Advertising, Dirk Bergemann, Alessandro Bonatti, Nicholas Wu
Cowles Foundation Discussion Papers
We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in …
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and o§ the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenueoptimal mechanism is a managed advertising campaign that matches products and preferences e¢ ciently. In equilibrium, sellers o§er higher qualities at lower unit prices on than o§ the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers.
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We propose a model of intermediated digital markets where data and heterogeneity in tastes and products are deÖning features. A monopolist platform uses superior data to match consumers and multiproduct advertisers. Consumers have heterogenous preferences for the advertisers' product lines and shop on- or o§-platform. The platform monetizes its data by selling targeted advertising space that allows advertisers to tailor their products to each consumer's preferences. We derive the equilibrium product lines and advertising prices. We identify search costs and informational advantages as two sources of the platform's bargaining power. We show that privacy-enhancing data-governance rules, such as those corresponding …
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of …
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
We study personalized pricing in a general oligopoly model. When the market structure is fixed, the impact of personalized pricing relative to uniform pricing hinges on the degree of market coverage. If market conditions are such that coverage is high, personalized pricing harms firms and benefits consumers, whereas the opposite is true if coverage is low. However, when the market structure is endogenous, personalized pricing benefits consumers because it induces socially optimal firm entry. Finally, when only some firms have data to personalize prices, consumers can be worse off compared to when either all or no firms personalize prices.
Competing For Talent, Yuhta Ishii, Aniko Öry, Adrien Vigier
Competing For Talent, Yuhta Ishii, Aniko Öry, Adrien Vigier
Cowles Foundation Discussion Papers
In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two firms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant’s arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across firms.
Common Ownership, Competition, And Top Management Incentives, Miguel Antón, Florian Ederer, Mireia Giné, Martin Schmalz
Common Ownership, Competition, And Top Management Incentives, Miguel Antón, Florian Ederer, Mireia Giné, Martin Schmalz
Cowles Foundation Discussion Papers
Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over …
Three Lectures On The Theory Of Money And Financial Institutions: Lecture 1: A Nontechnical Overview, Martin Shubik
Three Lectures On The Theory Of Money And Financial Institutions: Lecture 1: A Nontechnical Overview, Martin Shubik
Cowles Foundation Discussion Papers
This is a nontechnical retrospective paper on a game theoretic approach to the theory of money and financial institutions. The stress is on process models and the reconciliation of general equilibrium with Keynes and Schumpeter’s approaches to non-equilibrium dynamics.
Three Essays On The Theory Of Money And Financial Institutions: Essay 1: A Nontechnical Overview, Martin Shubik
Three Essays On The Theory Of Money And Financial Institutions: Essay 1: A Nontechnical Overview, Martin Shubik
Cowles Foundation Discussion Papers
This is a nontechnical retrospective paper on a game theoretic approach to the theory of money and financial institutions. The stress is on process models and the reconciliation of general equilibrium with Keynes and Schumpeter’s approaches to non-equilibrium dynamics.