Working Papers
Daniel R. Vincent
Downloadable Papers (Abstracts)
Daniel R. Vincent
Department of Economics
University of Maryland
College Park,
MD 20742
(301)-405 3485
(301)-405-3542 (FAX)
Daniel R. Vincent(e-mail)
Manelli, Alejandro M.
and Daniel R. Vincent “Bayesian
and Dominant Strategy Implementation in the Independent Private Values Model”
Abstract:
We prove---in the standard independent
private-values model---that the outcome, in terms of expected probabilities of
trade and expected transfers, of any Bayesian mechanism, can also be obtained
with a dominant strategy mechanism.
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Marius Schwartz and
Daniel Vincent: Quantity
“Forcing” and Exclusion: Bundled Discounts and Nonlinear Pricing
Abstract:
Quantity “forcing” refers to
pricing schemes that reward a buyer for purchasing some threshold quantity from
a firm. When there are significant scale economies and buyers are unable to
coordinate, economic theory shows that a firm can profitably use quantity
forcing to exclude rivals, reducing overall welfare and harming some
buyers. Inducements to reach the
quantity threshold may be provided through nonlinear pricing of the target
product alone or through bundled discounts on that firm’s other
“monopoly” product(s). Open questions remain about whether bundled
discounts are the most effective way to achieve exclusion. Alternatively, bundled discounts can be used
to extract rent from a monopoly market but again, single-good nonlinear pricing
schemes seem superior. Cost-based rules
for detecting predation are problematic when applied to bundled
discounts or to single-good nonlinear pricing.
A workable policy rule that recognizes also the efficiency potential of
such pricing practices should combine structural screens with a more detailed
conduct inquiry.
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Manelli, Alejandro M. and Daniel R. Vincent "Multi-Dimensional Mechanism Design: Revenue Maximization and the Multiple Good Monopolist", August, 2004.
Abstract:
The seller of $N$ distinct
objects is uncertain about the buyer's valuation for those objects. The
seller's problem, to maximize expected revenue, consists of
maximizing a linear functional over a convex set of mechanisms. A solution to
the seller's problem can always be found in an extreme point of the feasible
set.
We identify the relevant extreme points and faces and exposed points of the feasible set. With N=1, the extreme points are
easily described providing simple proofs of well-known results. The
revenue-maximizing mechanism assigns the object with probability one or zero
depending on the buyer's report. With N>1, extreme points often involve
randomization in the assignment of goods. Virtually any extreme point of the
feasible set maximizes revenue for a well-behaved distribution of buyer's
valuations. We provide a simple algebraic procedure to determine whether a mechanism is an extreme point.
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Manelli, Alejandro M. and Daniel R. Vincent "Bundling as an Optimal Mechanism for a Multiple-Good Monopolist", June, 2004.
Abstract:
Multiple objects may be sold by posting a schedule consisting of one price for each possible bundle, and permitting the buyer to select the price-bundle pair of his choice.We identify conditions that must be satisfied by any price schedule that maximizes revenue within the class of all such schedules. We then provide conditions under which a price schedule maximizes expected revenue within the class of all incentive compatible and individually rational mechanisms in the $n$-object case.
We use these results to characterize a class of environments, mainly distributions of valuations, where bundling is the optimal mechanism in the two and three good cases.
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Manelli, Alejandro M. and Daniel R. Vincent "Duality in Procurement Design", November, 2003.
Abstract:
Finding an optimal mechanism in a standard adverse selection model is
equivalent to solving an infinite dimensional linear program. We begin with certain feasible mechanisms--- those
implemented by auctions, take-it-or-leave-it offers, and combinations of these
polar mechanisms---and search for the environments that make them optimal. We
prove the optimality of each mechanism using the dual program.
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Schwartz, Marius and Daniel R. Vincent "The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network", October 2003.
Abstract:
The no-surcharge rule (NSR) prohibits merchants from charging different prices to consumers that use credit cards instead of cash. We show that, while an NSR raises card company profits, it may reduce both cash and card transactions. If the card company can offer rebates to its cardholders, it will do so. Rebates benefit card users and harm cash users; they raise total surplus if and only if the proportion of cash users relative to card users exceeds some threshold. A similar condition determines whether total surplus rises under the NSR with rebates compared to no NSR; aggregate consumer surplus moves in opposite direction to total surplus. If the card company cannot limit its member banks from competing vigorously, then an NSR, by cross-subsidizing card purchases, can still reduce total surplus.
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Vincent, Daniel R. "Repeated Signalling Games and Dynamic Trading Relationships," (Earlier version as "Bilateral Monopoly, Nondurable Goods and Dynamic Trading Relationships," CMSEMS DP No. 832, May 1989.) International Economic Review(1998),. (Adobe Acrobat (.pdf file))
Abstract:
A seller of a nondurable good repeatedly faces a buyer who is privately informed about the position of his demand curve. The seller offers a price in each period. The buyer chooses a quantity given the price. The quantity demanded reveals information about the buyer. An equilibrium is characterized with the feature that buyer types separate completely in the first period. This equilibrium uniquely satisfies a modified refinement of the Cho-Kreps criterion. Despite the immediate separation, the buyer distorts his behavior throughout the game. The requirements to signal types can raise the utility of all types of informed players.
Keywords: Repeated signalling games, refinements of equilibria, bilateral monopoly, bargaining, ratchet effect.
Journal of Economic Literature Classification Numbers: C73,D43,D82,L14.
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McAfee, R. Preston., and Daniel R. Vincent. "Sequentially Optimal Auctions." Games and Economic Behavior (1997).(Adobe Acrobat (.pdf file))
Abstract:
In auctions where a seller can post a reserve price but if the object fails to sell cannot commit never to attempt to resell it, revenue equivalence between repeated first price and second price auctions without commitment results. When the time between auctions goes to zero, seller expected revenues converge to those of a static auction with no reserve price. With many bidders, the seller equilibrium reserve price approaches the reserve price in an optimal static auction. An auction in which the simple equilibrium reserve price policy of the seller mirrors a policy commonly used by many auctioneers is computed.
Journal of Economic Literature Classifications: C78,D44,D82.
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McAfee, R. Preston., Wendy Takacs., and Daniel R. Vincent. "Tarrifying Auction Data." Rand Journal (Spring,1999).(Adobe Acrobat (.pdf file))
Abstract:
In trying to convert quotas to tariffs, a
strategy that has sometimes been proposed is to auction the quota rights, then use the realized auction prices as a guide to setting
tariffs. In the 1980's,
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McAfee, R. Preston., Daniel C. Quan., and Daniel R. Vincent. "How to Set Minimum Acceptable Bids with an Application to Real Estate Auctions." Journal of Industrial Economics, (December, 2002)
Abstract:
In a general auction model with correlated signals, common components to valuations and endogenous entry, we compute the equilibrium bidding strategies and outcomes, and derive a lower bound on the optimal reserve price. This lower bound can be computed using data on past sales. We compute the lower bound using data on real estate auctions, and we show that the optimal reserve for buildings is at least 95% of appraised value, which exceeds typical reserve prices.
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Vincent, Daniel R., and Motty Perry. "Optimal Timing of Procurement Decisions and Patent Allocations." International Economic Review, (November, 2002).
Abstract:
We illustrate by means of a dynamic research and development race that while at some points in the race social incentives and private incentives may coincide at other points they may diverge -- too many researchers remain in the race. If the social planner cannot determine what stage the researchers have achieved, this informational constraint poses difficulties in ensuring a socially optimal outcome. We show that there is a mechanism which allows the planner to exploit the researchers' private information to determine when and to whom to allocate the exclusive rights to pursue the final prize. This mechanism does not require any transfer of resources and, therefore, will not distort earlier incentives to invest. Furthermore, it is solvable by the iterative elimination of dominated strategies.
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