Research

Abstract: This paper studies the intricacies of optimal selling mechanisms for incremental products, with a particular emphasis on scenarios where agents' private information profoundly influences their preferences across periods. To mitigate their intertemporal information rent, the manufacturer uses the optimal sales mechanism which encourages upgrades through refunds rather than payments, introducing inefficiencies but maximizing profits. Our findings reveal that even without commitments, the manufacturer prefers innovative upgrades in the iterated products. Importantly, consumers bear all efficiency loss due to innovative upgrades. Additionally, we reveal that per-consumer information disclosure allows the manufacturer to strategically tailor disclosures about innovation, enhancing incentives for truthful reporting and extracting more surplus from specific consumer segments.

Abstract: This study examines markets in which one party ”sells” their talent to the other party, yet the true value of this talent is not easily quantifiable by either side. How to submit a paper to a journal, for instance, becomes a strategic task for authors, and whether to accept a seemingly good paper is equally challenging for editors. In equilibrium, the seller adjusts her strategy by learning (rejection). Recognizing that the “talent” could have been previously rejected by others, the buyer corrects his selection bias by raising the threshold of acceptance. Furthermore, in the induced dynamic game with incumbent and entrant buyers, the competition is unfair for the latter because at the time of entry, the latter will also receive the “talent” previously rejected by the former. This finding brings a new insight into the formation of entry barriers in such markets.

Abstract: This study introduces a search model to examine how information asymmetry evolves in a labor market where Graduates search for jobs and Employers make offers. The model shows that while the market can be efficient initially, as low-type Graduates remain in the market, Employers lower their offers to correct for selection bias. However, in large markets, where search costs are low, these effects dissipate, leading to more efficient outcomes. The presence of noise in the market and graduate’s belief that she can receive a better offer than her outside option enhance employer competition. The results show that the presence of noise in the market has a significant impact on market efficiency. The study also considers the impact of bounded rationality on agents’ behavior. It finds that coarse Employers tend to overbid if information asymmetry is exacerbated, and they tend to underbid if they expect Graduate behavior to be stationary conditional on her type. Overall, the study provides insights into the role of information asymmetry and bounded rationality in labor market outcomes.

Abstract: This paper studies the partial advertising decision of a multi-product retailer in the vertical supply chain. Although it sells the upstream manufacturer's product as well as its own, it only advertises itself. Under the scheme of Bayesian persuasion, consumers get signals from the retailer of whether their match with its product is above some threshold or not. We find that the retailer uses this threshold to partition the market and sells its own product only to high-match consumers. Compared to the monopoly case, the existence of the manufacturer's product has two opposite effects on the retailer. On one hand, it causes competition and depresses the retail prices, but on the other hand it enables the retail to also get profit from low-match consumers. The latter effect overwhelms the former one and makes the retailer share more market with the manufacturer. These two effects differ in the two profit sharing mechanisms discussed in the research, but result in the same profit of the manufacturer. Benefiting from its first-mover advantage, the manufacturer is indifferent not only between two mechanisms, but also between whether to sell its product directly to consumers or through the retailer. Unlike the Agency Pricing mechanism where the manufacturer decides its own price, Wholesale Pricing mechanisms endow this pricing power to the retailer. It reduces the externality caused by competition and benefits the retailer with a higher profit.

Abstract: This paper investigates the effects of jump bidding between two bidders in the context of the war of attrition and its implications for market efficiency. The war of attrition is a common phenomenon where firms compete to remain in the market by investing aggressively in advertising or research. Jump bidding is a strategy that allows a firm to bypass the costly period of attrition by making a commitment to remain in the market. We first identify the dominant bidder 1 with the highest valuation for the object, and all other types will follow her strategy. This bidder faces the problems of whether to jump bid or not and when to jump bid. The shape of bidder 2's valuation distribution determines the cost of excluding bidder 2 during the war of attrition and thus answers the above two questions. We find that when bidder 2's cumulative density function is of a convex shape, bidder 1 will jump bid. Furthermore, the paper examines the inefficiencies that arise from the introduction of jump bidding in the auction.