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on Contract Theory and Applications |
| By: | Dirk Bergemann (Yale University); Michael C. Wang (Yale University) |
| Abstract: | We consider a seller who offers services to a buyer with multi unit demand. Prior to the realization of demand, the buyer receives a noisy signal of their future demand, and the seller can design contracts based on the reported value of this signal. Thus, the buyer can contract with the service provider for an unknown level of future consumption, such as in the market for cloud computing resources or software services. We characterize the optimal dynamic contract, extending the classic sequential screening framework to a nonlinear and multi-unit setting. The optimal mechanism gives discounts to buyers who report higher signals, but in exchange they must provide larger fixed payments. We then describe how the optimal mechanism can be implemented by two common forms of contracts observed in practice, the two-part tariff and the committed spend contract. Finally, we use extensions of our base model to shed light on policy-focused questions, such as analyzing how the optimal contract changes when the buyer faces commitment costs, or when there are liquid spot markets. |
| Date: | 2025–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2424 |
| By: | Dirk Bergemann (Yale University); Rahul Deb (Boston College) |
| Abstract: | We study the robust sequential screening problem of a monopolist seller of multiple cloud computing services facing a buyer who has private information about his demand distribution for these services. At the time of contracting, the buyer knows the distribution of his demand of various services and the seller simply knows the mean of the buyerÕs total demand. We show that a simple Òcommitted spend mechanismÓ is robustly optimal: it provides the seller with the highest profit guarantee against all demand distributions that have the known total mean demand. This mechanism requires the buyer to commit to a minimum total usage and a corresponding base payment; the buyer can choose the individual quantities of each service and is free to consume additional units (over the committed total usage) at a fixed marginal price. This result provides theoretical support for prevalent cloud computing pricing practices while highlighting the robustness of simple pricing schemes in environments with complex uncertainty. |
| Date: | 2025–02–10 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2423 |
| By: | Aksoy, Yunus; Daripa, Arup; Samiri, Issam |
| Abstract: | Questions about market power have become salient in macroeconomics. We consider the role of institutional structures in addressing these within a dynamic general equilibrium framework. Standard models account for monopoly profits as a lump-sum transfer to the representative agent. We label this an "incentive leakage, " and show this to be a general characteristic of firm-optimal arrangements. We show that shareholder-operated or worker-operated firms that eliminate leakage can generate within-firm incentives that effectively reduce monopoly distortion in equilibrium. When all firms operate similarly, an additional general equilibrium effect arises through internalization of an aggregate demand externality. We characterize steady-state welfare across structures, and show how zero-leakage institutions lead to improvements towards the Golden Rule benchmark. Overall, our paper takes the first step towards an analysis of the macroeconomics of institutions without incentive leakage. JEL Classification: E10, E22, E24, E25 |
| Keywords: | aggregate demand externality, Golden Rule, incentive leakage, monopolistic competition, monopoly gap, patience gap |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253033 |