Philip Zilke

Working Papers

"Auctions of green shares - How labels on government bonds can shift investors' portfolios in same direction"
To finance green projects, public authorities can issue bonds with a green label instead of using conventional debt instruments. Before institutional investors bid in an auction for shares of a green government bond, they can make a costly commitment by shifting their portfolio towards green investments. I present a model in which such commitment can work as a signal for a more aggressive bidding behavior which yields those investors a more favorable outcome from the share auction. This provides an explanation on how incentives for a portfolio shift can be generated simply by labeling government bonds. Moreover, I can show that green bonds achieve a weakly higher price than brown bonds given this set up. The effect is strict whenever investors actually make use of the commitment device in equilibrium. It turns out that this is more likely if all investors strategically reduce their demand when bidding in the auction. The main implication is that public authorities should put labels on their debt instruments whenever it is eligible. However, whether or not this drives the green transition by incentivizing investors to commit – and thus generate a higher price – depends on the equilibrium selection in the auction. This can explain why some green bonds are sold with a greenium and others – although similar – are not.

"Endogenous Consideration Sets and Patterns of Competition"  with A. Atayev and J. Simon
In a homogeneous goods market, price differences can be explained by the presence of competitive advantages for some firms due to heterogeneity in the consumers' shopping behaviour - they take different firms into consideration and buy only from the cheapest within their consideration set. However, if consumers can learn over time about firms pricing behaviour on the whole market and base their decision which firms to consider on that observation, no firm can have a competitive advantage and there should be symmetric pricing. We study a market with informed consumers - who observe prices - and uninformed consumers - who observe only the prices of firms within their consideration set, but can decide which firms to consider after observing their price distributions. We show that differences in marginal production costs can explain asymmetric pricing behaviour in such settings of endogenous shopping behaviour. In equilibrium, all firms charge the same expected price, but use different price distributions. Particularly, in a duopoly market the price distribution of the cost-efficient firm is a mean-preserving spread of the other firm's distribution. Moreover, the cost-efficient firm attracts more uninformed consumers and makes higher expected profits.