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on Economic Design |
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Issue of 2023‒05‒08
six papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT Sloan School of Management); Nicholas Wu (Cowles Foundation, Yale University) |
| Abstract: | We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in a socially efficient allocation on the platform, but the advertisers increase their product prices off the platform to be more competitive on the platform. In consequence, the allocation off the platform is inefficient due to excessively high product prices. The managed campaign mechanism allows advertisers to submit budgets that are then transformed into matches and prices through an autobidding algorithm. Compared to the data-augmented second-price auction, the optimal managed campaign mechanism increases the revenue of the digital platform. The product prices off the platform increase and the consumer surplus decreases. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2359&r=des |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti |
| Abstract: | We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenueoptimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers. |
| Keywords: | Data, Data, Privacy, Data Governance, Digital Advertising, Competition, Digital Platforms, Digital Intermediaries, Personal Data, Matching, Price Discrimination, Automated Bidding, Algorithmic Bidding, Managed Advertising Campaigns, Showrooming |
| JEL: | D18 D44 D82 D83 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2343r&r=des |
| By: | Max Resnick |
| Abstract: | Many early order flow auction designs handle the payment for orders when they execute on the chain rather than when they are won in the auction. Payments in these auctions only take place when the orders are executed, creating a free option for whoever wins the order. Bids in these auctions set the strike price of this option rather than the option premium. This paper develops a simple model of an order flow auction and compares contingent fees with upfront payments as well as mixtures of the two. Results suggest that auctions with a greater share of the payment contingent on execution have lower execution probability, lower revenue, and increased effective spreads in equilibrium. A Reputation system can act as a negative contingent fee, partially mitigating the downsides; however, unless the system is calibrated perfectly, some of the undesirable qualities of the contingent fees remain. Results suggest that designers of order flow auctions should avoid contingent fees whenever possible. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.04981&r=des |
| By: | Mikhail Golosov; Ilia Krasikov |
| Abstract: | We consider optimal joint nonlinear earnings taxation of couples. We use multi-dimensional mechanism design techniques to study this problem and show that the first-order approach – that restricts attention to only local incentive constraints – is valid for a broad set of primitives. Optimal taxes are characterized by the solution to a certain second-order partial differential equation. Using the Coarea Formula, we solve this equation for various conditional averages of optimal tax rates and identify key forces that determine the optimal tax rates; show how these rates depend on earnings of each spouse, correlation in spousal earnings, and redistributive objectives of the planner; compare optimal rates for primary and secondary earners; identify both the conditions under which simple tax systems are optimal and the sources of welfare gains from more sophisticated taxes when those conditions are not satisfied. Under realistic assumptions, optimal tax rates for married individuals are increasing in correlation of spousal earnings. However, they remain lower than the tax rates for single individuals, and the marginal rates for one spouse increase (decrease) in the earnings of the other if both spouses have low (high) earnings. |
| JEL: | D82 H21 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31140&r=des |
| By: | Franz Ostrizek (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Elia Sartori |
| Abstract: | We propose a tractable framework to introduce externalities in a screening model. Agents differ in both payoff-type and influence-type (ranking how beneficial their actions are for others). Applications range from pricing network goods to regulating industries that create externalities. Inefficiencies arise only if the payoff-type is unobservable. When both dimensions are unobserved, the optimal allocation satisfies lexicographic monotonicity: increasing along the payoff-type to satisfy incentive compatibility, but tilted towards influential agents to move the externality in the socially desirable direction. In particular, the allocation depends on a private characteristic that is payoff-irrelevant for the agent. We characterize the solution through a two-step ironing procedure that addresses the nonmonotonicity in virtual values arising from the countervailing impact of payoffand influence-type. Rents from influence can emerge but only indirectly, i.e. when the observed level of influence is used as a signal of the unobserved payoff-type. |
| Keywords: | Multidimensional Screening, Externality, Ironing, Network Goods, Influence |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04023835&r=des |
| By: | Warut Suksompong; Nicholas Teh |
| Abstract: | We study the problem of fairly allocating indivisible goods to agents with weights corresponding to their entitlements. Previous work has shown that, when agents have binary additive valuations, the maximum weighted Nash welfare rule is resource-, population-, and weight-monotone, satisfies group-strategyproofness, and can be implemented in polynomial time. We generalize these results to the class of weighted additive welfarist rules with concave functions and agents with matroid-rank (also known as binary submodular) valuations. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.14454&r=des |