Investing in Outside Options in Bargaining
Abstract: I study bargaining between a buyer and a seller when the seller can invest in generating outside options at a cost, and the buyer cannot observe her investment choice. I model the negotiation phase as an incentive compatible and ex-post individually rational direct mechanism, which maximizes a weighted average of the buyer's and seller's expected payoff. When the weight on the seller is larger, trade happens with certainty, the price equals the buyer’s valuation, and the seller does not invest in generating outside options. When the weight on the buyer is larger, the optimal mechanism is a posted price mechanism at the lowest outside option that the seller could have, provided that the cost function of the seller is increasing in first order stochastic dominance. The probability of trade is strictly below 1, even if it would be socially efficient to trade.
Incomplete Preferences or Incomplete Information? On Rationalizability in Games with Private Values
Games and Economic Behavior, March 2024
Abstract: I propose a notion of Rationalizability, called Incomplete Preference Rationalizability, for games with incomplete preferences. Under an appropriate topological condition, the incomplete preference rationalizable set is non-empty and compact. I argue that incomplete orderings can be used to model incomplete information in strategic settings. Drawing on this connection, I show that in games with private values the sets of incomplete preference rationalizable actions, of belief-free rationalizable actions (Battigalli et al., 2011; Bergemann and Morris, 2017), and of interim correlated rationalizable actions (Dekel et al., 2007) of the universal type space coincide.
Information Design with Heterogeneous Priors
Abstract: I construct an Information Design model in a setting where players disagree on the relative likelihood of states, and thus violate the Common Prior Assumption. My construction builds upon the Universal Type Space of Mertens and Zamir (1985), and I study the decision problem of an Information Designer in such setting. I show that choosing a signal structure is equivalent to choose a profile of subjective distributions over types that satisfy a Bayes Consistency requirement, and a cross consistency requirement.
Bid Rigging and Umbrella Damages (with John Asker, El Hadi Caoui, and Vikram Kumar)
Competition Policy International's Antitrust Chronicles, October 2023 (link)