"The Existence and Uniqueness of Monotone Pure Strategy Equilibrium in Bayesian Games", with Akos Valentinyi, 25 July 2010.
(This paper was previously called "Independence and Heterogeneity in Games of Incomplete Information". It is an updated version of CEPR discussion paper 4177.)
This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is in monotone pure strategies, in a broad class of Bayesian games. The argument requires that the incremental interim payoff---the expected payoff difference between any two actions, conditional on a player's realised type---satisfies two conditions. The first is uniform monotonicity with respect to own type. The second condition is Lipschitz continuity with respect to opponents' strategies. Our main result shows that, if these two conditions are satisfied, and the bounding parameters satisfy a particular inequality, then the best response correspondence is a contraction, and hence there is a unique equilibrium of the Bayesian game. Furthermore, this equilibrium is in monotone pure strategies. We characterize the uniform monotonicity and Lipschitz continuity conditions in terms of the model primitives. We also consider a number of examples to illustrate how the approach can be used readily in applications.
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"The Timing of Takeovers in Growing and Declining Markets", with Helen Weeds, 29 January 2010. CEPR discussion paper 7678.
Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. In this paper we develop a dynamic framework to analyze the timing of takeover which explains this pattern. Takeover may create value either by exploiting synergies or through fixed cost savings, the relative value of each approach being affected by shocks to an industry variable. With competing acquirers of different types, takeover occurs only when shocks are sufficiently large in either direction, with no activity taking place in between. We model both hostile takeover, for which the timing and terms are determined by competing bidders, and agreed takeover, where the target chooses when to open negotiations with one of the acquirers. We examine implications of our analysis for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.
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"Getting it done: dynamic incentives to complete a project", with Juuso Valimaki, Journal of the European Economic Association, 2015, 13(1).
Updated version of CEPR discussion paper 6857.
A principal wants an agent to complete a project. The agent undertakes un- observable effort, which affects in each period the probability that the project is completed. We characterise the contracts that the principal sets, with and with- out commitment. With full commitment, the contract involves the agent’s value and wage declining over time, in order to give the agent incentives to exert effort. The best sequentially rational equilibrium for the principal also involves the agent’s wage declining over time, while the worst sequentially rational equilibrium for the principal has a constant wage (and is in fact the unique stationary equilibrium). The best (weakly) renegotiation-proof equilibrium for the principal is achieved by a constant wage that maximizes the principals payoff, conditional on wages being constant. We compare these solution to the efficient outcome.
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“Merger Policy, Entry, and Entrepreneurship”, with Helen Weeds, European Economic Review, 2013, 57, 23-38.
We assess the impact of merger policy on entry and entrepreneurship. Facing uncertainty about its prospects and foreseeing that it may wish to quit should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition subsequently, lowering welfare in the short run, but also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which a merger is permitted despite its adverse impact on post-merger competition. This may be viewed as an extension of the "failing firm defense" to include ailing, low profitability firms as well as imminently failing ones. The implications of strategic firm behavior for the optimal policy are examined, and merger policy is compared with an entry subsidy.
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"Learning about the arrival of sales", with Juuso Valimaki. Journal of Economic Theory, 2011, 146(4), 1699-1711.
We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is the problem of how optimally to sell an asset, when the demand for that asset is initially uncertain. In the model that we consider, the seller learns about the arrival rate of buyers to the market. As time passes without a sale, the seller becomes more pessimistic about the arrival rate. When the seller does not observe the arrival of a buyer to the market, the rate at which the seller revises her beliefs is affected by the price she sets. We show that learning then leads to a higher posted price by the seller. When the seller does observe the arrival of buyers, she sets an even higher price.
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"Investment, Uncertainty and Pre-emption", with Helen Weeds. International Journal of Industrial Organization, 28(3), May 2010, 278-287. (An updated version of CEPR discussion paper 3013.) [PDF]
"Uncertainty, Co-ordination and Path Dependence", with In Ho Lee. Journal of Economic Theory, January 2008, 138(1), 262-287. [PDF]
"A Global Game with Strategic Substitutes and Complements", with Larry Karp and In Ho Lee. Games and Economic Behavior, July 2007, 60(1), 155-175. [PDF]
"A Year under Ofcom", Paper for the Beesley Lecture on Regulation, 4 November 2004. [PDF]
"Dividends, Safety and Liquidation when Liabilities are Long-term and Stochastic". European Economic Review, Dec 2004, 48(6), 1179-1210. [PDF]
"A Kuznets Curve Analysis of Ozone-depleting Substances and the Montreal Protocol", with Tim Swanson (University College London). Oxford Economic Papers, 2003, 55(1), 1-24. [PDF]
"Cost-raising Strategies in a Symmetric, Dynamic Duopoly". Journal of Industrial Economics, September 2002, 50(3), 317-336. [PDF]
"The Costs of Uncoordinated Regulation", with Tim Swanson (University College London). European Economic Review, 2002, 46(1), 143-167. [PDF]
"Competition in Communication Networks: Pricing and Regulation", Oxford Review of Economic Policy, with Tommaso Valletti (Imperial College), 17(3), Autumn 2001, 389-415. [PDF]
"The Economics and Regulation of the Internet", Oxford Review of Economic Policy, with Martin Cave (Brunel University), 17(2), Summer 2001, 188-210. The longer, and (I think) clearer version is available in [PDF]
"Market Structure in Congestible Markets", with In Ho Lee (University of Southampton), European Economic Review, 45(4-6), 2001, 809-818. [PDF]
"The Effects of Uncertainty on Optimal Consumption", with Stephen Wright (Faculty of Economics and Politics, University of Cambridge), Journal of Economic Dynamics and Control, 25(1-2), 2001, 185-212. [PDF]
"Simple Competitive Internet Pricing", European Economic Review, 44(4-6), 2000, 1045-1056. [PDF]
"Simple Competitive Internet Pricing", Philosophical Transactions of the Royal Society, A358, 2000, 2309-2318.
"Internet Service Classes under Competition", with Richard Gibbens (Stats. Lab., University of Cambridge) and Richard Steinberg (Judge Institute, University of Cambridge). IEEE Journal on Selected Areas in Communications, 18(12), December 2000, 2490-2498. [PDF]
"Network Externalities and the Coase Conjecture", European Economic Review, 44(10), November 2000, 1981-1992. [PDF]
"Internet Telephony and the International Accounting Rate System", Telecommunications Policy, 22(11), 1998, 931-944.
"An Options-Based Model of Equilibrium Credit Rationing", Journal of Corporate Finance, 4(1), 1998, 71-85.
Swanson, T. M. and R. A. Mason, "Non-bargaining in the Shadow of Law", International Review of Law and Economics, 18(2), June 1998, 121-140.
"A Game Theoretic Analysis of International Environmental Pollution", Risk, Decision and Policy, 1(1), 1996, 33-56.
Mason, R. A. and T. M. Swanson, "Long-term Liability and the Choice of Liquidation", Geneva Papers on Risk and Insurance, 21, April 1996, 204-223.
"Joint Implementation and the Second Sulphur Protocol", Review of European Community and International Environmental Law, 4(4), December 1995, 296-303.
Fries, S., R. A. Mason and W. Perraudin, "Evaluating Deposit Insurance for Japanese Banks", Journal of the Japanese and International Economy, 7, December 1993, 356-386.
"The Analysis of Market and Regulatory Failure", two chapters in Swanson, T. M. and M. Vighi (eds.), The Regulation of Persistent Chemicals: Economics, Institutions and Environmental Toxicology, Cambridge University Press, 1998.
"Market Failure and Environmental Degradation", in T. M. Swanson (ed.), The Socio-Economic Causes of Environmental Degradation, London: John Wiley, 1996.
Copies of papers are available on request.