Negotiating cultures in corporate procurement, with Florian Mueller, Journal of Economic Behavior & Organization, 117, 259-280, 2015 (working paper version)
Abstract: In a repeated procurement problem, the incumbent can undertake a relationship-specific investment that generates opportunity costs of switching for the buyer. We investigate the impact of the negotiating culture on investment incentives, favoritism in the procurement contract allocation, and buyer profit. We compare a stylized competitive negotiating culture with a stylized protective culture. The cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent. Our main result is that the relative performance of the cultures depends non-monotonically on the importance of the investment.
Continuous decisions by a committee: median versus average mechanisms, Journal of Economic Theory, 159, 15-65, 2015 (working paper version)
Abstract: A group of strategic agents with diverse private information and interdependent preferences has to take a continuous collective decision. I study the design of the decision–making procedure from the viewpoint of a utilitarian social planner. For uniformly distributed information, the implementation of the average report as decision dominates the implementation of the median report for any number of agents and for any degree of interdependence when the set of admissible reports is optimally designed. The result extends to a general class of distributions when the number of agents is large.
Secret reserve prices in first-price auctions, International Journal of Industrial Organization, 37, 65-74, 2014 (working paper version)
Abstract: This paper offers a theoretical explanation for the use of secret reserve prices in auctions. I study first–price auctions with and without secret reserve price in an independent private values environment with risk–neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using using a secret reserve price to phantom bidding and non-commitment to sell.
Advance-purchase discounts as a price discrimination device, with Volker Nocke and Martin Peitz, Journal of Economic Theory, 146, 141-162, 2011
Abstract: In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We characterize the profit-maximizing pricing strategy of the monopolist. Furthermore, adopting a mechanism design perspective, we provide a necessary and sufficient condition under which advance-purchase discounts implement the monopolist’s optimal mechanism.
Test design under voluntary participation (supplementary material)
Abstract: An agent who is imperfectly informed about his binary quality can voluntarily participate in a test that generates a public signal. I study the design of the test that allows for optimal learning of the agent’s quality when the agent strives for a high perception of his quality but is averse towards perception risk. For a large class of reduced-form utility functions that reflect these properties, the optimal test is binary and not subject to false positives. I uncover the forces that drive this result and develop a method to derive it. Furthermore, for a non-reduced version of my model where the designer chooses a probabilistic estimate of the agent’s quality but suffers either more from false positives or from false negatives, I show that the same type of test is optimal.
(Older version with some additional results on non-binary quality types in Section 5: Test design under voluntary participation and conflicting preferences)
Strategic outsourcing and optimal procurement, revise and resubmit, International Journal of Industrial Organization.
Abstract: This article provides a rationale for outsourcing in situations where a seller's outsourcing decision can influence the other sellers' strategic behavior and the buyer's procurement strategy. I consider an independent private cost procurement auction design problem in which each seller can ex ante decide to become an intermediary by outsourcing production to a subcontractor. Outsourcing leads to a loss of information to the subcontractor and a need for subcontracting. Nevertheless, outsourcing can be beneficial for strategic reasons. In an industry with two sellers, the focal equilibrium can exhibit bilateral outsourcing. When a seller can extract his subcontractor's rent ex ante, the focal equilibrium does exhibit bilateral outsourcing. Yet multilateral outsourcing can only arise in industries with a sufficiently small number of sellers.
Authority and motivation in situations of open conflict, with Stefanie Brilon, revise and resubmit, Journal of Economics & Management Strategy.
Abstract: We study the allocation of the authority to select a project in a principal-agent-model with non-transferable utility where the implementation of the project requires effort by the principal and the agent. Although it is common knowledge that the two players prefer the implementation of different projects, each player is privately informed about his flexibility. The principal wants the agent to compromise on the project choice whenever he is flexible, but delegation of the project choice comes along with a discouraging effect. The organization of work on the project affects the players' willingness to compromise and their motivation. If the agent provides effort first and the principal finalizes the project, delegation is only optimal when the principal is flexible with an intermediate probability. If the principal can design the organization of work, delegation is generally optimal despite the open conflict.
(Non-)transparent (non-)mandatory tests with endogenous accuracy, with Elisabeth Schulte