Matt Elliott

Appears in: Online and Matching-Based Market Design. Editors: Federico Echenique, Nicole Immorlica and Vijay V. Vazirani. Cambridge University Press, 2023

Networks and Economics Fragility (joint with Ben Golub )

Annual Review of Economics, 2022

Working Papers

Market Segmentation through Information (Supplementary Appendix)

(with Andrea Galeotti, Andrew Koh and Wenhao Li, Draft Date: May 2024)

Revision Requested by the Journal of Political Economy

A short video intended for a general interest (non-economist) audience is here.

We explore the power that precise information about consumers’ preferences grants an intermediary in shaping competition. We think of an intermediary as an information designer who chooses what information to reveal to firms, which then compete a la Bertrand in a differentiated product market. We characterize the information designs that maximize consumer and producer surplus, showing how information can be used to segment markets to intensify or soften competition. We also show how the power of the intermediary is further enhanced when it has some control over which products consumers are aware of.

Supply Chain Disruptions, the Structure of Production Networks, and the Impact of Globalization

(with Matt Jackson, Draft Date: May 2024)

We introduce a parsimonious multi-sector model of international production and use it to study how a disruption in the production of intermediate goods propagates through to final goods, and how that impact depends on the goods' positions in, and overall structure of, the production network. We show that the short-run disruption can be dramatically larger than the long-run disruption. The short-run disruption depends on the value of all of the final goods whose supply chains involve a disrupted good, while by contrast the long-run disruption depends only on the cost of the disrupted goods. We use the model to show how increased complexity of supply chains leads to increased fragility in terms of the probability and expected short-run size of a disruption. We also show how decreased transportation costs can lead to increased specialization in production, with lower chances for disruption but larger impacts conditional upon disruption.

Bargaining foundations for price taking in matching markets

(with Eduard Talamas, Draft Date: May 2024)

Agents make non-contractible investments before bargaining over who matches with whom and their terms of trade. When an agent is a price taker—in the sense that her investments do not change her potential partners’ payoffs—she has incentives to make socially-optimal investments. Across a variety of non-cooperative bargaining models featuring dynamic entry, we show that everyone necessarily becomes a price taker as bargaining frictions vanish if there is a minimal amount of competition always present in the market. If this condition is not satisfied, dynamic entry need not create enough competition to guarantee price taking even if agents are arbitrarily patient.

I know best: Scepticism about the Knowledge of Experts and Peers on Economics Predictions

(with Marina Agranov and Pietro Ortoleva, Draft Date: May 2024)

Are individuals willing to change their minds when experts or their peers disagree with them? In an incentivized experiment on a representative sample, we collect binary predictions on unemployment and inflation. Then, we ask whether participants would like to change their predictions if the (vast) majority of experts (or peers) made the other choice. Very few participants are willing to change their predictions indicating a profound lack of trust in experts and the collective wisdom of peers. Nevertheless, there is variation by demographics. Further, scepticism in experts in this domain helps explain participants intention to vaccinate, providing some external validity.

Corporate culture and organizational fragility

(with Ben Golub and Matt Leduc, Draft Date: January 2023)

Complex organizations accomplish tasks through many steps of collaboration among workers. Corporate culture supports collaborations by establishing norms and reducing misunderstandings. Because a strong corporate culture relies on costly, voluntary investments by many workers, we model it as an organizational public good, subject to standard free-riding problems, which become severe in large organizations. Our main finding is that voluntary contributions to culture can nevertheless be sustained, because an organization’s equilibrium productivity is endogenously highly sensitive to individual contributions. However, the completion of complex tasks is then necessarily fragile to small shocks that damage the organization’s culture.

A capability approach to merger review

(with Iain Boa and David Foster, Draft date: October 2022)

Merger analysis typically focuses on possible strategic price effects in markets where there is existing competition between the merging firms. We refer to this as the product based approach. This paper proposes a complementary approach based on an assessment of the merging firms’ capabilities that can provide insights on potential merger effects, including in circumstances where the product based approach offers little practical guidance to antitrust authorities. Our approach is rooted in the resource-based view of business strategy that starts from the premise that it is a firm’s capabilities (sometimes called core competencies), which drive its competitive advantage across markets. We argue that mergers in which firms’ capabilities are less overlapping are more pro-competitive on several dimensions: immediate competition in overlapping markets, immediate competition in other markets, long-run competition and innovation.

Work in progress

Network Bottlenecks and Market Power (joint with Vasco Carvalho and John Spray)

Draft coming soon.

Completed Projects

European Research Council (ERC) Sponsored Research

Embedded Markets and the Economy (EMBED)

(Project ID: 757229)

Older Work

Ranking Agendas for Negotiations (with Ben Golub, Draft date: February 2015)

Consider a negotiation in which agents will make costly concessions to benefit others -- e.g., by implementing tariff reductions, environmental regulations or nuclear disarmament. An agenda specifies which issue or dimension agents will make concessions on; after an agenda is chosen, the negotiation comes down to the magnitude of each agent's contribution. We seek a ranking of agendas based on the marginal costs and benefits they each generate at the status quo, which are captured in a Jacobian matrix. In a transferable utility (TU) setting, there is a simple ranking based on the best available social return per unit of cost (measured in the numeraire). When transfers are not available, the problem of ranking agendas is more difficult, and we take an axiomatic approach. First, we require the ranking not to depend on economically irrelevant changes of units. Second, we require that the ranking be consistent with the TU ranking on problems that are equivalent to TU problems in a suitable sense. The unique ranking satisfying these axioms is represented by the spectral radius (Frobenius root) of a matrix closely related to the Jacobian, whose entries measure the marginal benefits per unit marginal cost agents can confer on one another.

Heterogeneities and the Fragility of Labor Markets (Draft date: Nov 2015)

Workers' labor market participation decisions and firms' vacancy creation decisions are studied in a model where different matches generate different surpluses. An immediate consequence of these heterogeneities is that better matches are possible in thicker markets. This creates a thick market externality: when additional workers and firms enter the market, they confer net benefits on the other workers and firms by improving the expected quality of their matches. As a consequence, there is always too little entry by both workers and firms. The thick market externality has further implications. Quite generally labor markets will be fragile. Considering shocks to average match productivities, there will be a critical threshold at which a labor market suddenly collapses from supporting multiple workers and multiple firms in equilibrium to supporting no workers or firms in any equilibrium. All but one agent will suffer discontinuous losses as this threshold is passed and the market collapses.