I am a game theorist with particular interest in market/mechanism design, industrial organization, and especially strategic interactions between buyers and sellers. See my CV (publications current as of September 2008) and, for more detail, my research statement.
I am best known for my research within auction theory but, recently, I have begun work to challenge / test some of its core assumptions. In particular, two fundamental assumptions of auction theory are that (i) the seller can credibly commit to auction rules and (ii) each bidder plays a best response to the strategies of others. Recent work on "credible sales mechanisms" with Schwarz endogenizes the ability to commit to an auction, while work with Paarsch and Chapman presents evidence that bidders do not play best responses in auctions, but may come close to doing so. I have also contributed to the econometric theory of auctions, most notably in a recent paper with Hu and Shum on identication of auction models with unobserved heterogeneity.
Separately, supported by NSF grant #SES-0820051 ("Endogenous Exit from a Stochastic Partnership"), I am exploring the dynamics of cooperation in a stochastic environment. This work has a wide variety of potential applications, from macroeconomics and labor to organizational economics.
"Performance and Turnover in a Stochastic Partnership". November 2009 talk (.tex, .pdf) Submitted.
Abstract: This paper characterizes the welfare-maximizing equilibrium performance and duration of stochastic partnerships, in an economy in which partners choose each period costly observable efforts, voluntary wages, and whether to leave the relationship to be re-matched. Individuals' lives in this economy tend to transition between a few qualitatively distinct phases: "dating" at birth or between relationships; "honeymoon"; "hard times"; "good times"; and "golden years", from which partners are parted only by death. Given an exogenous stochastic process, higher states are associated with higher stage-game and continuation payoffs, as well as longer-lasting relationships.
(with Yingyao Hu and Matthew Shum) "Nonparametric Identification of Auction Models with Non-Separable Unobserved Heterogeneity". Submitted.
Abstract: We propose a novel methodology for nonparametric identification of first-price auction models with independent private values, which accommodates auction-specific unobserved heterogeneity and bidder asymmetries, based on recent results from the econometric literature on nonclassical measurement error in Hu and Schennach (2008). Unlike Krasnokutskaya (2009), we do not require that equilibrium bids scale with the unobserved heterogeneity. Our approach accommodates a wide variety of applications, including settings in which there is an unobserved reserve price, an unobserved cost of bidding, or an unobserved number of bidders, as well as those in which the econometrician fails to observe some factor with a non-multiplicative effect on bidder values.
1. "Isotone Equilibrium in Games of Incomplete Information". Econometrica, August 2003, 71(4), pp 1191-1214.
Some results from the theory of strategic complementarity can still apply when strategic complementarity fails in games having multi-dimensional actions and multi-dimensional private information. For example, the paper sheds light on oligopolistic competition among firms that compete on several dimensions, allowing one to address questions such as, "Should my firm raise or lower its price when others invest more heavily in research?" See "Monotone Equilibrium in Multi-Unit Auctions" for work that builds on this paper.
2. "Monotone Equilibrium in Multi-Unit Auctions". Review of Economic Studies, October 2006, 73(4), pp 1039 - 1056.
Job-market paper (in 2001). Powerful tools from lattice theory vastly simplify the analysis of multi-unit auctions (e.g. procurement and stock IPOs). In particular, when bidders are risk-neutral with independent types, I show that every mixed-strategy equilibrium is "equivalent" to a monotone pure strategy equilibrium. See "On the Failure of Monotonicity in Uniform-Price Auctions" for related work.
3. "Monotonicity in Asymmetric First-Price Auctions with Affiliation". International Journal of Game Theory, February 2007, 35(3), pp 427-453.
Every bidder must bid more given more favorable private information (in any mixed strategy equilibrium). Previously, this was only known for the two-bidder case or for the independent private values case. See "Uniqueness in Symmetric First-Price Auctions with Affiliation" for a companion paper.
4. (with Michael Schwarz) "Credible Sales Mechanisms and Intermediaries". American Economic Review, March 2007, 97(1), 260-276. Web Appendix that accompanies the paper. (A previous version of this paper circulated under the title "Bargaining with and without Intermediaries".)
The auction paradigm has dominated the academic analysis of real-world sales mechanisms for over twenty years, despite the fact that buyers and sellers in many transactions conspicuously lack the ability to commit to an orderly sales process. In this paper, we consider a seller who lacks access to an institution to credibly close a sale, i.e. the seller can not resist "haggling" with buyers. A sealed-bid auction arises endogenously when the cost is haggling is very high and an open ascending-price auction arises when this cost is very low, but the seller can suffer significant losses due to delay in the intermediate case. This creates a niche for intermediaries who can help the seller commit to hard rules. See "Who Pays When Auction Rules are Bent?" (also with Schwarz) for work that builds on this paper.
5. "Adjustable Supply in Uniform Price Auctions: Non-Commitment as a Strategic Tool". Economics Letters, April 2007, 95(1) 48-53. (See a working-paper version for results in a somewhat more general model.) Previous versions circulated under names such as "Adjustable Supply and Collusive-Seeming Equilibria in Uniform Price Auctions". First draft: Fall 1998.
Waiting until after the bidding to decide how much to sell has strategic advantages.
6. (with Michael Schwarz) "Perverse Incentives in the Medicare Prescription Drug Benefit", Inquiry, Summer 2007, 44(2), 157-166. Featured in NBER Bulletin on Aging and Health, Spring 2006, "Incentives in the Medicare Prescription Drug Benefit" (edited by Courtney Coile).
Identifies and explores incentives that may shape the future of Medicare Part D.
7. "Uniqueness in Symmetric First-Price Auctions with Affiliation". Journal of Economic Theory, September 2007, 136, 144-166.
The first uniqueness result when there are more than two bidders with affiliated private information. Uniqueness proven among class of equilibria in monotone pure strategies (without assuming differentiability of player strategies). See "Monotonicity in Asymmetric First-Price Auctions with Affiliation" for a companion paper.
8. (with Michael Schwarz) "Who Pays When Auction Rules are Bent?". International Journal of Industrial Organization, October 2007, 25(5), 1144-1157.
In many negotiations, rules are soft in the sense that the seller and/or buyers may break them at some cost. All such costs (even those paid by buyers) are ultimately passed through to the seller in equilibrium. Examples include hiring shill (fake) bidders and trying to learn others' bids before making one's own.
9. "On the Failure of Monotonicity in Uniform-Price Auctions". Journal of Economic Theory, November 2007, 137, 729-732.
Equilibria of the uniform-price auction be may non-monotone when (i) bidders are risk-neutral with affiliated private values or (ii) bidders are risk-averse with independent private values.
10. "Partial Identification and Testable Restrictions in Multi-Unit Auctions". Journal of Econometrics, September 2008, 74-85. Spreadsheets with computations verifying the computations in the main Example. Last revision: October 2007. A previous working-paper version has additional results.
Unlike in single-object auctions, bidder values are not point-identified when multiple identical objects are sold. This paper characterizes the set of value distributions that can generate any given bid distribution in equilibrium, provides tight bounds on inferred bidder values, and allows one to test the joint assumption of non-increasing marginal values and equilibrium bidding. For work that builds on this paper, see "Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market" with Ali Hortacsu and "Bounding Best Response Violations in Discriminatory Auctions with Private Values" and "Bounding Revenue Comparisons across Multi-Unit Auction Formats under epsilon-Best Response", each with James Chapman and Harry Paarsch.
11. (with Yuzo Fujishima and Yoav Shoham) "Speeding Up the Ascending-Price Auction, Proceedings, Int. Journal Conf. in Artificial Intelligence, 1999, pp 554-559 .
How to make internet auctions robust to network communication breakdown.
12. (with James Chapman and Harry Paarsch) "Bounding Revenue Comparisons across Multi-Unit Auction Formats under epsilon-Best Response", American Economic Review, Papers and Proceedings, May 2007, 97(2), 455-458.
Leveraging techniques developed in my paper, "Partial Identification in Multi-Unit Auctions", we argue that the Bank of Canada would gain little were it to run its Receiver-General auctions using a Vickrey format rather than the current discriminatory format.
(with Ali Hortacsu) "Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market". Revise-and-resubmit requested at Econometrica.
(with James Chapman and Harry Paarsch) "Bounding Best Response Violations in Discriminatory Auctions with Private Values". First draft: July 2006.
Using data from daily Bank of Canada cash reserve auctions, we argue that some bidders frequently fail to play a best response. However, equilibrium play may be a reasonable approximation of actual bidder behavior.
"Monopoly Pricing with Information Disclosure". A previous (preliminary) version of this paper is "A Theory of Sticker Prices".
How to maximize profit when buyers may "qualify" for a discount (e.g. college tuition). (Note: I am working a version that allows for any noisy signal about buyer, i.e. I generalize third-degree price discrimination. The older posted version only generalizes perfect price discrimination.)
(with Steven L. Puller) "The Cost of Strategic Participation in Multi-Unit Auctions: Evidence from the Texas Electricity Market".
Much of the existing literature on optimal auction design has explored the efficiency properties of equilibrium bidding behavior under alternative auction formats. These analyses implicitly assume that it is costless for bidders to “learn how to play” in an auction of a particular format. However, it may be problematic to assume that firms can acquire the strategic sophistication to optimally bid into, say, a uniform-price auction just as easily as in a discriminatory or Vickrey multi-unit auction. Anecdotal evidence from treasury bill and electricity auctions confirms this. Some recent work has discussed the possibility that particular auction formats may induce larger participation by reducing the costs of calculating strategic bids. The goal of this project is to estimate bounds on such participation costs by analyzing bidding behavior into the Texas electricity spot market. We also investigate whether mergers between small firms, while increasing market concentration, can increase efficiency if there are scale economies to strategic bidding.