Discussion Papers

A7 - Auktionen, Anreizprobleme und Wettbewerb

SFB/TR 15 Discussion Paper No.

527

Roland Strausz
A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard

Abstract:

Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare.

 

Keywords: Crowdfunding, finance, marketing, demand, uncertainty, moral hazard

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527.pdf

SFB/TR 15 Discussion Paper No.

510

Cuihong Fan, Byoung Heon Jun, Elmar G. Wolfstetter
Licensing Innovations: The Case of the Inside Patent Holder

Abstract:

The present paper reconsiders the inside innovators’ licensing problem under incomplete information. Employing an optimal mechanism design approach, we show that, contrary to what is claimed in the literature, the optimal mechanism may prescribe fixed fees, royalty rates lower than the cost reduction, and even negative royalty rates.


Keywords: Innovation, licensing, industrial organization.

JEL Classification: D21, D43, D44, D45

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510.pdf

SFB/TR 15 Discussion Paper No.

509

Martin Pollrich
Mediated Audits

Abstract:

I study the optimal audit mechanism when the principal cannot commit to an audit strategy. Invoking a revelation principle, the agent reports her type to a mediator who assigns contracts and recommends the principal whether to audit. For each reported type the mediator randomizes over a base-contract and the audit contract, accompanied by a recommendation to audit. For large penalties the optimal mechanism uses strictly more contracts than types and cannot be implemented via offering a menu of contracts. The analysis provides a proper benchmark for studying auditing under limited commitment and sheds new light on the usefulness of mediation in contracting and on the design of optimal mechanisms.

 

JEL classification: D82, D86, C72
Keywords:
Auditing, limited commitment, mediation, contract theory

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509.pdf

SFB/TR 15 Discussion Paper No.

481

Martin Pollrich, Lilo Wagner
Informational opacity and honest certification

Abstract:

This paper studies the interaction of information disclosure and reputational concerns in certification markets. We argue that by revealing less precise information a certifier reduces the threat of capture. Opaque disclosure rules may reduce profits but also constrain feasible bribes. For large discount factors a certifier is unconstrained in the choice of a disclosure rule and full disclosure maximizes profits. For intermediate discount factors, only less precise, such as noisy, disclosure rules are implementable. Our results suggest that contrary to the common view, coarse disclosure may be socially desirable. A ban may provoke market failure especially in industries where certifier reputational rents are low.

 

Keywords: Certification; Bribery; Reputation

JEL Classification Numbers: L15; D82; L14; L11

Full text in pdf format:
481.pdf

SFB/TR 15 Discussion Paper No.

480

Martin Pollrich, Robert C. Schmidt
Optimal incentive contracts to avert firm relocation

Abstract:

A unilateral policy intervention by a country (such as the introduction of an emission price) can induce firms to relocate to other countries. We analyze a dynamic game where a regulator offers contracts to avert relocation of a firm in each of two periods. The firm can undertake a location-specific investment (e.g., in abatement capital). Contracts can be written on some contractible productive activity (e.g., emissions), but the firm's investment is not contractible. A moral hazard problem arises under short-term contracting that makes it impossible to implement outcomes with positive transfers in the second period. The regulator resorts to high-powered incentives in the first period. The firm then overinvests and a lock-in effect prevents relocation in both periods. Paradoxically, the distortion in the firstperiod contract can be so severe that higher transfers are needed to avert relocation compared to a (hypothetical) situation without the investment opportunity.

 

Keywords: moral hazard; contract theory; limited commitment; firm mobility; abatement capital

JEL classification: D82, D86, L51, Q58

Full text in pdf format:
480.pdf

SFB/TR 15 Discussion Paper No.

478

Cuihong Fan, Elmar G. Wolfstetter
The Merger-Paradox: A Tournament-Based Solution

Abstract:

According to the well-known “merger paradox”, in a Cournot market game mergers are generally unprofitable unless most firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable, more profitable than in other known mechanism, and in many cases welfare increasing. The proposed mechanism assumes that merged firms continue to operate as independent subsidiaries that are rewarded according to a simple and commonly observed relative performance measure.

 

Keywords: Mergers, multi-divisional firms, tournaments, industrial organization.

JEL Classifications: L00, D4

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478.pdf

SFB/TR 15 Discussion Paper No.

467

Cuihong Fan, Byoung Heon Jun, Elmar G. Wolfstetter
Optimal bid disclosure in license auctions with downstream interaction

Abstract:

The literature on license auctions for process innovations in oligopoly assumed that the auctioneer reveals the winning bid and stressed that this gives firms an incentive to signal strength through their bids, to the benefit of the innovator. In the present paper we examine whether revealing the winning bid is optimal. We consider three disclosure rules: full, partial, and no disclosure of bids, which correspond to standard auctions. We show that more information disclosure increases the total surplus divided between firms and the innovator as well as social surplus. More disclosure also increases bidders’ payoff. However, no disclosure maximizes the innovator’s expected revenue.

 

Keywords: Auctions, innovation, licensing, information sharing.

JEL Classifications: D21, D43, D44, D45

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467.pdf

SFB/TR 15 Discussion Paper No.

464

Raffaele Fiocco, Dongyu Guo
Mergers between regulated firms with unknown efficiency gains

Abstract:

In an industry where regulated firms interact with unregulated suppliers, we investigate the welfare effects of a merger between regulated firms when efficiency gains are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy trades off potential efficiency gains against regulatory distortions from informational problems. We show that, as a consequence of this trade-off, more intense competition in unregulated segments of the market induces a more lenient merger policy. However, the regulated firms' diversification into a competitive segment can lead to a more lenient merger policy when competition is weaker.

 

Keywords: asymmetric information, competition, efficiency gains, mergers, regulation.

JEL Classification: D82, L43, L51.

Full text in pdf format:
464_01.pdf

SFB/TR 15 Discussion Paper No.

406

Daniel Krähmer, Roland Strausz
Ex post information rents and disclosure in sequential screening

Abstract:

We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agent’s ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling.

 

Keywords: information rents, sequential screening, information disclosure

JEL codes: D82, H57

 

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406.pdf

SFB/TR 15 Discussion Paper No.

403

Byoung Heon Jun, Elmar G. Wolfstetter
Auctions with imperfect commitment when the reserve may serve as a signal

Abstract:

If bidders are uncertain whether the auctioneer sticks to the announced reserve, some bidders respond by not bidding, speculating that the auctioneer may revoke the reserve. However, the reserve inadvertently signals the auctioneer's type, which drives a unique separating and a multitude of pooling equilibria. If one eliminates belief systems that violate the "intuitive criterion'', one obtains a unique equilibrium reserve price equal to the seller's own valuation. Paradoxically, even if bidders initially believe that the auctioneer is bound by his reserve almost with certainty, commitment has no value.

 

Keywords: Auctions, signalling, mechanism design.

JEL Classifications: D21, D43, D44, D45.

Full text in pdf format:
403_01.pdf

SFB/TR 15 Discussion Paper No.

394

Luke Hu, Elmar G. Wolfstetter
License auctions with exit (and entry) options: Alternative remedies for the exposure problem

Abstract:

Inspired by some spectrum auctions, we consider a stylized license auction with incumbents and one entrant. Whereas the entrant values only the bundle of several units (synergy), incumbents are subject to non-increasing demand. The seller proactively encourages entry and restricts incumbent bidders. In this framework, an English clock auction gives rise to an exposure problem that distorts eciency and impairs revenue. We consider three remedies: a (constrained) Vickrey package auction, an English clock auction with exit option that allows the entrant to annul his bid, and an English clock auction with exit and entry option that lifts the bidding restriction if entry failed.


Keywords: Auctions, package auctions, combinatorial clock auctions,
spectrum auction, bundling, synergies.
2000 MSC: D21, D43, D44, D45G34.

Full text in pdf format:
394.pdf

SFB/TR 15 Discussion Paper No.

377

Luke Hu
Optimal Use of Rewards as Commitment Device When Bidding is Costly

Abstract:

This paper considers procurement auctions with costly bidding when the  auctioneer is unable to commit himself to restrict the number of bidders. The auctioneer can, however, o er a nancial reward to be paid to every short-listed bidders as an indirect commitment device. Rewards for short-listed bidders are costly. Nevertheless, it is generally optimal for the procurer to credibly implement the same restriction of the number of bidders that is optimal under full commitment.
Keywords: Procurement, auctions, industrial organization, mechanism design.
JEL classification: D21, D43, D44, D45.

Full text in pdf format:
377.pdf

SFB/TR 15 Discussion Paper No.

371

Byoung Heon Jun, Elmar G. Wolfstetter
Security bid auctions for agency contracts

Abstract:

A principal uses security bid auctions to award an incentive contract to one among several agents, in the presence of hidden action and hidden information. Securities range from cash to equity and call options. “Steeper” securities are better surplus extractors that narrow the gap between the two highest valuations, yet reduce effort incentives. In view of this trade-off, the generalized equity auction that includes a (possibly negative) cash reward to the winner tends to outperform all other auctions, although it cannot extract the entire surplus and implement efficient effort. Hence, profit sharing emerges without risk aversion or limited liability.
Keywords: Auctions, agency problems, licensing, innovation, mechanism design.
JEL classification: D21, D43, D44, D45.

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371_02.pdf

SFB/TR 15 Discussion Paper No.

352

Thomas Giebe, Paul Schweinzer
The efficient provision of public goods through non-distortionary tax contests

Abstract:

We use a simple balanced budget contest to collect taxes on a private good in order to finance a pure public good. We show that-with an appropriately chosen structure of winning probabilities-this contest can provide the public good efficiently and without distorting private consumption. We provide extensions to multiple public goods and private taxation sources, asymmetric preferences, and show the mechanism’s robustness across these settings.

 

Keywords: Taxation, Contests, Efficiency

JEL Classification: C7, D7

March 2011

 

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352.pdf

SFB/TR 15 Discussion Paper No.

351

Ludwig Ensthaler, Thomas Giebe
How to allocate Research (and other) Subsidies

Abstract:

A budget-constrained buyer wants to purchase items from a short-listed set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We find that simultaneous take-it-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-postcompetition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.

 

Keywords: Mechanism Design, Subsidies, Budget, Procurement, Knapsack Problem

JEL Classification: D21, D44, D45, D82

March 2011

 

Full text in pdf format:
351.pdf

SFB/TR 15 Discussion Paper No.

336

Wei Ding, Cuihong Fan and Elmar G. Wolfstetter
Horizontal mergers with synergies: first-price vs. profit-share auction

Abstract:

We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.


Keywords: Horizontal mergers, takeovers, auctions, externalities, oligopoly
JEL Classification: G34, D44, H23, L13, D43

October 2010

 

Full text in pdf format:
336.pdf

SFB/TR 15 Discussion Paper No.

331

Cédric Wasser
Existence of a pure-strategy Bayesian Nash equilibrium in imperfectly discriminating contests

Abstract:

We consider a general class of imperfectly discriminating contests with privately informed players. We show that findings by Athey (2001) imply the existence of a Bayesian Nash equilibrium in monotone pure strategies.

 

Keywords: contest, imperfectly discriminating, asymmetric information, equilibrium existence, interdependent values

JEL Classification: D72, D74, D82, C72

July 2010

 

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331.pdf

SFB/TR 15 Discussion Paper No.

321

Sjur Didrik Flåm, Elmar Wolfstetter
On Liability Insurance for Automobiles

Abstract:

Car owners are liable for property damage inflicted on other motorists. In most countries such liability must be insured by law. That law may favor expensive or heavy vehicles, prone to suffer or inflict large losses. This paper explores links between liability rules and vehicle choice. It presumes cooperative insurance, but non-cooperative acquisition of vehicles. Thus, the Nash equilibrium and its degree of efficiency depend on the liability regime. 

 

Keywords: liability, mutual insurance, core, pure Nash equilibrium, anonymous games, non-atomic measure

JEL Classification: C71, C72, D61, K13

May 2010

 

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321.pdf

SFB/TR 15 Discussion Paper No.

311

Cédric Wasser
Rent-seeking Contests under Symmetric and Asymmetric Information

Abstract:

We consider a variant of the Tullock rent-seeking contest. Under symmetric information we determine equilibrium strategies and prove their uniqueness. Then, we assume contestants to be privately informed about their costs of effort. We prove existence of a pure-strategy equilibrium and provide a sufficient condition for uniqueness. Comparing different informational settings we find that if players are uncertain about the costs of all players, aggregate effort is lower than under both private and complete information. Yet, under additional assumptions, rent dissipation is still smaller in the latter settings. Numerical examples illustrate that there is no general ranking between private and complete information. The results depend on the distribution costs are drawn from and on the exact specification of the contest success function.

 

Keywords: Rent-seeking, Contest, Asymmetric Information, Private values

JEL Classification: D72, D74, D82, C72

March 2010

 

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311.pdf

SFB/TR 15 Discussion Paper No.

310

Ludwig Ensthaler, Thomas Giebe
A dynamic auction for multi-object procurement under a hard budget constraint

Abstract:

We present a new dynamic auction for procurement problems where payments are bounded by a hard budget constraint and money does not enter the procurer's objective function.

 

Keywords: Auctions, Mechanism Design, Knapsack Problem, Dominant Strategy, Budget, Procurement

JEL Classification: D21, D44, D45, D82

March 2010

 

Full text in pdf format:
310.pdf

SFB/TR 15 Discussion Paper No.

307

Thomas Giebe
Innovation Contests with Entry Auction

Abstract:

We consider procurement of an innovation from heterogeneous sellers. Innovations are random but depend on unobservable effort and private information. We compare two procurement mechanisms where potential sellers first bid in an auction for admission to an innovation contest. After the contest, an innovation is procured employing either a fixed prize or a first-price auction. We characterize Bayesian Nash equilibria such that both mechanisms are payoff-equivalent and induce the same efforts and innovations. In these equilibria, signaling in the entry auction does not occur since contestants play a simple strategy that does not depend on rivals' private information.

 

Keywords: Contest, Auction, Innovation, Research, R\&D, Procurement, Signaling

JEL Classification: D21, D44, D82, H57, O31, O32

February 2010

 

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307.pdf

SFB/TR 15 Discussion Paper No.

296

Igor Sloev
Strategic Vertical Separation

Abstract:

The paper explores incentives for strategic vertical separation of firms in a framework of a simple duopoly model. Each firm chooses either to be a retailer of its own good (vertical integration) or to sell its good through an independent exclusive retailer (vertical separation). In the latter case a two-part tariff is applied. Retailers compete in quantities, goods are perfect substitutes and firms' cost functions are quadratic. I show that the equilibrium outcome crucially depends on the degree of (dis)economies of scale and asymmetry of costs. Two asymmetric equilibria arise, in which one firm separates while another integrates, under conditions that both firms' cost functions exhibit a sufficiently high diseconomies of scale, or extreme asymmetry of costs. Under a moderate asymmetry of costs a unique equilibrium exists in which the firm with the lower degree of diseconomies of scale separates, while its rival integrates. With the degree of diseconomies of scale low for both firms in the unique equilibrium both firms separate.

 

Keywords: Vertical oligopoly; Vertical Separation; Vertical Integration, Delegation

JEL Classification: L22; L42

September 2009

 

Full text in pdf format:
296.pdf

SFB/TR 15 Discussion Paper No.

295

Radosveta Ivanova-Stenzel and Timothy C. Salmon
The High/Low Divide: Self- Selection by Values in Auction Choice

Abstract:

Most prior theoretical and experimental work involving auction choice has assumed bidders only find out their value after making a choice of which autcion to enter. In this paper we examine whether or not subjects knowing their value prior to making an auction choice impacts their choice decision and/or the outcome of the auctions. The results show a strong impact. Subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often. The average numbers of bidders in both formats ended up being on average the same, but due to the self-selection bias the ascending auction raised as much revenue on average as the first sealed bid auction. The two formats also generate efficiency levels that are roughly equivalent though the earnings of bidders are higher in the ascending auction.

 

Keywords: bidder preferences, private values, sealed bid auctions, ascending auctions, endogenous entry

JEL Classification: C91, D44

January 2010

 

Full text in pdf format:
295.pdf

SFB/TR 15 Discussion Paper No.

294

Tim Grebe, Radosveta Ivanova-Stenzel and Sabine Kröger
Buy-It-Now prices in eBay Auctions - The Field in the Lab

Abstract:

Electronic commerce has grown extraordinarily over the years, with online auctions being extremely successful forms of trade. Those auctions come in a variety of different formats, such as the Buy-It-Now auction format on eBay, that allows sellers to post prices at which buyers can purchase a good prior to
the auction. Even though, buyer behavior is well studied in Buy-It-Now auctions, as to this point little is known about how sellers set Buy-It-Now prices. We investigate into this question by analyzing seller behavior in Buy-It-Now auctions. More precisely, we combine the use of a real online auction market (the eBay platform and eBay traders) with the techniques of lab experiments. We find a striking link between the information about agents provided by the eBay market institution and their behavior. Information about buyers is correlated with their deviation from true value bidding. Sellers respond strategically to this information when deciding on their Buy-It-Now prices. Thus, our results highlight potential economic consequences of information publicly available in (online) market institutions.


Keywords: electronic markets, experience, online auctions, BIN price, buyout
price, single item auction, private value, experiment

JEL Classification: C72, C91, D44, D82

January 2010

 

Full text in pdf format:
294.pdf

SFB/TR 15 Discussion Paper No.

293

Benedikt von Scarpatetti and Cédric Wasser
Signaling in Auctions among Competitors

Abstract:

We consider a model of oligopolistic firms that have private information about their cost structure. Prior to competing in the market a competitive advantage, i.e., a cost reducing technology, is allocated to a subset of the firms by means of a multi-object auction. After the auction either all bids or only the prices to be paid are revealed to all firms. This provides an opportunity for signaling. Whether there exists an equilibrium in which bids perfectly identify the bidders’ costs generally depends on the type and fierceness of the market competition, the specific auction format, and the bid announcement policy.

 

Keywords: Auction; Oligopoly; Signaling

JEL Classification: D44, L13, D43, D82, C72

January 2010

 

Full text in pdf format:
293.pdf

SFB/TR 15 Discussion Paper No.

292

Cuihong Fan, Byoung Heon Jun and Elmar Wolfstetter
Licensing a common value innovation when signaling strength may backfire

Abstract:

This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming a dual licensing scheme that combines a first-price license auction with royalty contracts for losers. Prior to bidding firms observe imperfect signals of the expected cost reduction; after the auction the winning bid is made public. Bidders may signal strength to their rivals through aggressive bidding, which may however backfire and mislead the innovator to set an excessively high royalty rate. We provide sufficient conditions for existence of monotone bidding strategies and for the profitability of combining auctions and royalty contracts for losers.

 

Keywords: Patents, licensing, auctions, royalty, innovation, R&D, mechanism design.
JEL Classification: D21, D43, D44, D45.

January 2010

 

Full text in pdf format:
292.pdf

SFB/TR 15 Discussion Paper No.

291

Cuihong Fan, Byoung Heon Jun and Elmar Wolfstetter
Auctioning Process Innovations when Losers’ Bids Determine Royalty Rates

Abstract:

We consider a licensing mechanism for process innovations that combines a license auction with royalty contracts to those who lose the auction. Firms’ bids are dual signals of their cost reductions: the winning bid signals the own cost reduction to rival oligopolists, whereas the losing bid influences the beliefs of the innovator who uses that information to set the royalty rate. We derive conditions for existence of a separating equilibrium, explain why a sufficiently high reserve price is essential for such an equilibrium, and show that the innovator generally benefits from the proposed mechanism.

 

Keywords: Patents, licensing, auctions, royalty, innovation, R&D, mechanism design.
JEL Classification: D21, D43, D44, D45.

December 2009

 

Full text in pdf format:
291.pdf

SFB/TR 15 Discussion Paper No.

262

Wei Ding and Elmar Wolfstetter
Prizes and Lemons: Procurement of Innovation under Imperfect Commitment

Abstract:

The literature on R&D contests implicitly assumes that contestants submit their innovation regardless of its value. This ignores a potential adverse selection problem. The present paper analyzes the procurement of innovations when the procurer cannot commit to never bargain with innovators who bypass the contest. We compare fixed-prize tournaments with and without entry fees, and optimal scoring auctions with and without minimum score requirement. Our main result is that the optimal fixed-prize tournament is more profitable than the optimal auction since preventing bypass is more costly in the optimal auction.


Keywords: innovation, contests, tournaments, auctions, bargaining, adverse
selection

JEL Classification: C70, D44, D89, L12, O32

June 2009

 

Full text in pdf format:
262_01.pdf

SFB/TR 15 Discussion Paper No.

261

Wei Ding, Thomas D. Jeitschko and Elmar Wolfstetter
Signal-Jamming in a Sequential Auction

Abstract:

In a recurring auction early bids may reveal bidders’ types, which in turn affects bidding in later auctions. Bidders take this into account and may bid in a way that conceals their private information until the last auction is played. The present paper analyzes the equilibrium of a sequence of first-price auctions assuming bidders have stable private values. We show that signal-jamming occurs and explore the dynamics of equilibrium prices.

 

Keywords: Auctions, Signaling, Price Competition

JEL Classification: D44, D02, D43

June 2009

 

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261_01.pdf

SFB/TR 15 Discussion Paper No.

254

Ludwig Ensthaler, Thomas Giebe
Subsidies, Knapsack Auctions and Dantzig’s Greedy Heuristic

Abstract:

A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by quality and sellers have private reserve prices for their items. Sellers quote prices strategically, inducing a knapsack game. The buyer’s problem is to select a subset of maximal quality. We propose a buying mechanism which can be viewed as a game theoretic extension of Dantzig’s greedy heuristic for the classic knapsack problem. We use Monte Carlo simulations to analyse the performance of our mechanism. Finally, we discuss how the mechanism can be applied to award R&D subsidies.


Keywords: Auctions, Subsidies, Market Design, Knapsack Problem

JEL Classification: D21, D43, D44, D45

Febuary 2009

 

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254.pdf

SFB/TR 15 Discussion Paper No.

237

Thomas Giebe, Oliver Gürtler (A7, B4)
Optimal Contracts for Lenient Supervisors

Abstract:

We consider a situation where an agent's effort is monitored by a supervisor who cares for the agent's well being. This is modeled by incorporating the agent's utility into the utility function of the supervisor. The first best solution can be implemented even if the supervisor's preferences are unknown. The corresponding optimal contract is similar to what we observe in practice: The supervisor's wage is constant and independent of his report. It induces one type of supervisor to report the agent's performance truthfully, while all others report favorably independent of performance. This implies that overstated performance (leniency bias) may be the outcome of optimal contracts under informational asymmetries.


Keywords: Subjective performance evaluation, leniency, supervisor, private infrmation
JEL Classification: D82, D86, J33, M52
June 2008

 

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237.pdf

SFB/TR 15 Discussion Paper No.

211

Jianpei Li, Yanhui Wu (A7, B5)
Allocation of Authority when a Person is not a Robot

Abstract:

We formalize a conception of authority, which is commonly defined as the right of controlling a person’s actions embedded in human assets in sociology. Due to the inalienable property of human assets, the contractible formal authority is hard to verify and enforce, while real authority usually diverges from formal authority. Inefficiency tends to arise when a task is not routine or can not be done by a robot. Using a framework of incomplete contract, we show that allocation of formal authority, as an instrument to mitigate the inefficiency, is determined by features of tasks and specificity of assets, and the relationship between the resources. Monitoring is then introduced to fine tune value of delegation.


Keywords: Transaction of human assets, real authority, formal authority, delegation, monitor
JEL Classification: D23, J24, J41, L22.
July 2007

 

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211.pdf

SFB/TR 15 Discussion Paper No.

210

Jianpei Li (A7)
Efficient Inequity–Averse Teams

Abstract:

This paper analyzes the efficiency of team production when agents exhibit other regarding preferences. It is shown that full efficiency can be sustained as an equilibrium through a budget-balancing mechanism that punishes some randomly chosen agents if output falls short of efficient level but distributes the output equally otherwise, provided that the agents are sufficiently inequity averse.


Keywords: moral hazard, team production, inequity aversion
JEL Classification: C7, D7, D63, L2
May 2007

 

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SFB/TR 15 Discussion Paper No.

199

Thomas Giebe, Elmar Wolfstetter (A7)
License Auctions with Royalty Contracts for (Winners and) Losers

Abstract:

This paper revisits the licensing of a non–drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed–fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant.

 

Keywords: patents, licensing, auctions, royalty, innovation, R&D, mechanism design
JEL Classification: D21, D43, D44, D45
April 2007

 

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199.pdf

SFB/TR 15 Discussion Paper No.

186

Alex Gershkov, Jianpei Li, Paul Schweinzer (A3, A7)
Collective Production and Incentives

Abstract:

We analyse incentive problems in collective production environments where contributors are compensated according to their observed and ranked efforts. This provides incentives to the contributors to choose first best efforts.


December 2006

 

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186.pdf

SFB/TR 15 Discussion Paper No.

181

Tim Grebe, Radosveta Ivanova-Stenzel, Sabine Kröger (A7)
How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab

Abstract:

In this paper we introduce a new type of experiment that combines the advantages of lab and field experiments. The experiment is conducted in the lab but using an unchanged market environment from the real world. Moreover, a subset of the standard subject pool is used, containing those subjects who have experience in conducting transactions in that market environment. This guarantees the test of the theoretical predictions in a highly controlled environment and at the same time enables not to miss the specific features of economic behavior exhibited in the field. We apply the proposed type of experiment to study seller behavior in online auctions with a Buy-It-Now feature, where early potential bidders have the opportunity to accept a posted price offer from the seller before the start of the auction. Bringing the field into the lab, we invited eBay buyers and sellers into the lab to participate in a series of auctions on the eBay platform. We investigate how traders' experience in a real market environment influences their behavior in the lab and whether abstract lab experiments bias subjects' behavior.


Keywords: online auctions, experiments, buyout prices
JEL Classification: C72, C91, D44, D82
November 2006

 

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181.pdf

SFB/TR 15 Discussion Paper No.

180

Tim Grebe, Julia Schmid, Andreas Stiehler (A7)
Do individuals recognize cascade behavior of others? An Experimental Study

Abstract:

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.


Keywords: information cascades, Bayes' Rule, decision under risk and uncertainty, experimental economics
JEL Classification: C91, D81, D82
October 2006

 

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180.pdf

SFB/TR 15 Discussion Paper No.

175

Radosveta Ivanova-Stenzel, Timothy C. Salmon (A7)
Revenue Equivalence Revisited

Abstract:

The conventional wisdom in the auction design literature is that first price sealed bid auctions tend to make more money while ascending auctions tend to be more efficient. We re-examine these issues in an environment in which bidders are allowed to endogenously choose in which auction format to participate. Our findings are that more bidders choose to enter the ascending auction than the first price sealed bid auction and this extra entry is enough to make up the revenue difference between the formats. Consequently, we find that both formats raise approximately the same amount of revenue. They also generate efficiency levels and bidder earnings that are roughly equivalent across mechanisms though the earnings in the ascending might be slightly higher. In expected utility terms though, we find that the expected utility of entering a first price sealed bid auction is greater than entering an ascending for any risk averse bidder suggesting that we are seeing “overentry” into the ascending auctions.


Keywords: bidder preferences, private values, sealed bid auctions, ascending auctions, endogenous entry
JEL Classification: C91, D44
October 2006

 

Full text in pdf format:
175.pdf

SFB/TR 15 Discussion Paper No.

174

Radosveta Ivanova-Stenzel, Timothy C. Salmon (A7)
Anomalies in Auction Choice Behavior

Abstract:

Ivanova-Stenzel and Salmon (2004a) established some interesting yet puzzling results regarding bidders’ preferences between auction formats. The finding is that bidders strongly prefer the ascending to the first price sealed bid auction on a ceteris paribus basis but they are not willing to pay up to an entry price for entering into an ascending auction instead of a first price that would equalize the profits between the two. While it was found that risk aversion on the part of the bidders could resolve this anomaly the claim that risk aversion drives overbidding in first price auctions is somewhat controversial. In this study we examine two competing explanations for the observed behavior; loss aversion and “clock aversion”, i.e. a dislike for some aspect of the clock based bidding mechanism. We find that neither alternative explanation can account for bidders’ auction choice behavior leaving risk aversion as the only un-falsified hypothesis.


Keywords: bidder preferences, private values, sealed bid auctions, ascending auctions
JEL Classification: C91, D44
October 2006

 

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174.pdf

SFB/TR 15 Discussion Paper No.

166

Cuihong Fan, Elmar Wolfstetter (A7)
Procurement with Costly Bidding, Optimal Shortlisting, and Rebates

Abstract:

We consider the procurement of a complex, indivisible good when bid preparation is costly, assuming a population of heterogeneous contractors. Shortlisting is introduced to implement the optimal number of bidders, and we explore whether the procurer should reimburse the nonrecoverable cost of preparing a bid in whole or in part. We find that a reimbursement policy is profitable for the procurer only if performance and bidding costs are negatively correlated. Moreover, negative rebates (entry fees) always dominate positive rebates.

 

Keywords: Procurement, Auctions, Entry
JEL classification: D44, D45
September 2006

 

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166.pdf

SFB/TR 15 Discussion Paper No.

165

Cuihong Fan, Elmar Wolfstetter (A7)
Research Joint Ventures, Optimal Licensing, and R&D Subsidy Policy

Abstract:

We reconsider the justifications of R&D subsidies by Spencer and Brander (1983) and others by allowing firms to pool R&D investments and license innovations. In equilibrium R&D joint ventures are formed and licensing occurs in a way that eliminates the strategic benefits of R&D investment in the subsequent oligopoly game. Nevertheless, governments subsidize their domestic firms in order to raise their bargaining position in the joint venture. This holds true regardless of whether governments offer either unconditional or conditional subsidies. This suggests an alternative explanation of the observed proliferation of R&D subsidies.

 

Keywords: patent licensing, industrial organization, R&D subsidies, research joint ventures, technology policy
JEL classification: L13, O34
September 2006

 

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165.pdf

SFB/TR 15 Discussion Paper No.

108

Thomas Giebe, Tim Grebe, Elmar Wolfstetter (A7)
How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation

Abstract:

This paper evaluates how R&D subsidies to the business sector are typically awarded. We identify two sources of ine_ciency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these ine_- ciencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation.


Keywords: Research, Subsidies, Experimental Economics
JEL classification: D44, D45, H25, O32, O38
October 2005

 

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108.pdf

SFB/TR 15 Discussion Paper No.

096

Thomas Giebe, Elmar Wolfstetter (A7)
License Auctions with Royalty Contracts for Losers

Abstract:

This paper revisits the standard analysis of licensing a cost reducing innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines elements of a license auction with royalty licensing by granting the losers of the auction the option to sign a royalty contract. The optimal new mechanism eliminates the losses from exclusionary licensing without reducing bidders’ surplus; therefore, it is more profitable than both standard license auctions and pure royalty licensing. We also take into account that the number of licenses must be an integer, which is typically ignored in the literature.
Keywords: Patents, Licensing, Auctions, Royalty, Innovation, R&D, Mechanism Design
JEL classification: D21, D43, D44, D45
January 2006

Full text in pdf format:
96.pdf

SFB/TR 15 Discussion Paper No.

093

Elmar Wolfstetter (A7)
Procurement of Goods and Services – Scope and Government

Abstract:

 

December 2005

 

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93.pdf

SFB/TR 15 Discussion Paper No.

092

Radosveta Ivanova-Stenzel, Sabine Kröger (A7)
Price formation in a sequential selling mechanism

Abstract:

This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second–price sealed–bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers’ behavior, but is not sufficient to explain sellers’ decisions. We discuss other behavioral explanations that could account for the observed deviations.


Keywords: auction, negotiation, combined mechanism, sequential mechanism, risk preferences, experiment
JEL Classification: C72, C91, D44, D82
October 2005

 

Full text in pdf format:
92.pdf

SFB/TR 15 Discussion Paper No.

091

Radosveta Ivanova-Stenzel, Dorothea Kübler (A7)
Courtesy and Idleness: Gender Differences in Team Work and Team Competition

Abstract:

Does gender play a role in the context of team work? Our results based on a real-effort experiment suggest that performance depends on the composition of the team. We find that female and male performance differ most in mixed teams with revenue sharing between the team members, as men put in significantly more effort than women. The data also indicate that women perform best when competing in pure female teams against male teams whereas men perform best when women are present or in a competitive environment.


Keywords: team incentives, gender, tournaments
JEL Classification: C72, C73, C91, D82
September 2005

 

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91.pdf

SFB/TR 15 Discussion Paper No.

090

Yvan Lengwiler, Elmar Wolfstetter (A7)
Corruption in Procurement Auctions

Abstract:

We review different kinds of corruption that have been observed in procurement auctions and categorize them. We discuss means to avoid corruption, by choice of preferable auction formats, or with the help of technological tools, such as secure electronic bidding systems. Auctions that involve some soft elements, such as complex bids consisting of technical and financial proposals, are particularly prone to corruption. We do not believe that it is possible to eradicate corruption altogether in such situations, but we discuss means to make it less likely.


January 2006

 

Full text in pdf format:
90.pdf

SFB/TR 15 Discussion Paper No.

089

Cuihong Fan, Elmar Wolfstetter (A7)
Research Joint Ventures, Licensing, and Industrial Policy

Abstract:

This paper reconsiders the explanation of R&D subsidies by Spencer and Brander (1983) and others by allowing firms to license their innovations and to pool their R&D investments. We show that in equilibrium R&D joint ventures are formed and licensing occurs in a way that eliminates the strategic benefits of R&D investment in the export oligopoly game. Nevertheless, national governments are driven to subsidize their own national firms in order to increase their strength in the joint venture bargaining game. Therefore, our analysis suggests an alternative explanation of the observed proliferation of R&D subsidies.


Keywords: patent licensing, industrial organization, R&D subsidies, research joint ventures, innovation policy
JEL Classification: L13, O34
October 2005

 

Full text in pdf format:
89.pdf

SFB/TR 15 Discussion Paper No.

039

Yvan Lengwiler, Elmar Wolfstetter (A7)
Bid Rigging. An Analysis of Corruption in Auctions

Abstract:

In many auctions, the auctioneer is an agent of the seller. This invites corruption. We propose a model of corruption in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. We characterize equilibrium bidding in first- and second-price auctions, show how corruption distorts the allocation, and why both the auctioneer and bidders may have a vested interest in maintaining corruption. Bid rigging is initiated by the auctioneer after bids have been submitted in order to minimize illegal contact and to realize the maximum gain from corruption.


Keywords: auctions, procurement, corruption, right of first refusal, numerical
JEL Classification: D44
May 2005

 

Full text in pdf format:
39.pdf

SFB/TR 15 Discussion Paper No.

036

Dirk Engelmann, Elmar Wolfstetter (A7)
A Proxy Bidding Mechanism that Elicits all Bids in an English Clock Auction Experiment

Abstract:

This paper reconsiders experimental tests of the English clock auction. We point out why the standard procedure can only use a small subset of all bids, which gives rise to a selection bias. We propose an alternative yet equivalent format that makes all bids visible, and apply it to a “wallet auction” experiment. Finally, we test the theory against various alternative hypotheses, and compare the results with those that would have been obtained if one had used the standard procedure. Our results confirm that the standard tests are subject to a significant selection bias.


Keywords: English Clock Auctions, Experimental Economics
JEL Classification: D44, D45, C91
February 2005

 

Full text in pdf format:
36.pdf

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