96 research outputs found
Journal of Mechanism and Institution Design / Dream teams and the Apollo effect
No full textAlex Gershkov and Paul Schweinze
Learning about the Future and Dynamic Efficiency
No full textWe study an allocation problem where a set of objects needs to be allocated to agents arriving over time. The basic model is of the private, independent values type. The dynamically efficient allocation is implementable if the distribution of agents' values is known. Whereas lack of knowledge about the distribution is inconsequential in the static case, endogenous informational externalities arise if the designer gradually learns about the distribution by observing present values. These externalities may prevent the implementation of the dynamically efficient allocation. We provide necessary and sufficient conditions for the efficient allocation to be implementable. (JEL D11, D82)
Dynamic allocation and pricing: A mechanism design approach
No full textThis paper illustrates the benefits of applying mechanism design techniques to questions in revenue management, in particular to dynamic allocation and pricing problems. It is demonstrated that the solution to a sequential stochastic assignment problem under complete information can also be implemented under incomplete information by a variation of the Vickrey–Clarke–Groves mechanism. More generally, we argue that the mechanism design focus on implementable allocations rather than on prices yields many valuable insights about dynamic RM models. Finally, we also briefly survey some of the recent literature on dynamic mechanism design.Highlights► We apply mechanism design tools to sequential assignment problems. ► We compare welfare in static and dynamic environments. ► We construct payoffs that sustain the optimal allocation. ► We draw parallels to revenue maximization and consider learning. ► We survey the recent literature
Gainers and losers in priority services
No full textWe analyze the implications of priority service (PS) on customers’ welfare. In monopoly markets, PS can often decrease consumer surplus and can even yield a loss of welfare to all consumers. This happens despite its efficiency gains, as monopolists levy in revenue more than the total efficiency gains. PS can increase consumer surplus if it expands the consumption coverage—that is, if it introduces new customers who would not purchase the service otherwise. In duopoly markets, the price competition over PS can be severely eroded. Under homogeneity, firms act as if they were monopolists serving half of the market
Dynamic revenue maximization with heterogeneous objects: a mechanism design approach
No full textWe study the revenue-maximizing allocation of several heterogeneous, commonly ranked objects to impatient agents with privately known characteristics who arrive sequentially. There is a deadline after which no more objects can be allocated. We first characterize implementable allocation schemes, and compute the expected revenue for any implementable, deterministic and Markovian allocation policy. The revenue-maximizing policy is obtained by a variational argument which sheds more light on its properties than the usual dynamic programming approach. Finally, we use our main result in order to derive the optimal inventory choice, and explain empirical regularities about pricing in clearance sales. (JEL C61, D21, D82
Efficient sequential assignment with incomplete information
No full textWe study the welfare maximizing assignment of several heterogeneous, commonly ranked objects to impatient agents with privately known characteristics who arrive sequentially according to a Poisson or renewal process. There is a deadline after which no more objects can be allocated. We first show that the dynamically efficient allocation, characterized by Albright [Albright, S.C., 1974. Optimal sequential assignments with random arrival times. Manage. Sci. 21 (1), 60–67], is implementable by the dynamic version of VCG mechanism. We then obtain several properties of the welfare maximizing policy using stochastic dominance measures of increased variability and majorization arguments. We also propose redistribution mechanisms that 1) implement the efficient allocation, 2) satisfy individual rationality, 3) never run a budget deficit, 4) may run a budget surplus that vanishes asymptotically
On seller estimates and buyer returns
No full textThis paper revisits recent empirical research on buyer credulity in arts auctions and auctions for assets in general. We show that elementary results in auction theory can fully account for some stylized facts on asset returns that have been held to suggest that sellers of assets can exploit buyers by providing biased estimates of asset values. We argue that, rather than showing that buyers are credulous, the existing evidence can serve as an indirect test of the rationality assumptions underlying auction theory
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