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General Competing Mechanisms with Frictions

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  • Seungjin Han

Abstract

This paper studies the class of robust equilibria in a general competing mechanism game for decentralized markets with frictions in which non-deviating sellers punish a deviator with dominant strategy incentive compatible (DIC) direct mechanisms. Given one-dimensional, independent, and private types, the lower bound of a seller's payoff in such equilibria is his minmax value over all DIC direct mechanisms if a seller can deviate to a contract that determines a menu of any complex mechanisms conditional on buyers' messages and he chooses a mechanism he wants from it. In applications, the number of sellers is endogenized given a number of buyers and fixed entry costs. As the number of buyer increases, a unique equilibrium emerges and the equilibrium ratio of buyers to sellers converges to the point where a seller's net profit is zero with the monopoly terms of trade.

Suggested Citation

  • Seungjin Han, 2019. "General Competing Mechanisms with Frictions," Department of Economics Working Papers 2019-09, McMaster University.
  • Handle: RePEc:mcm:deptwp:2019-09
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    File URL: http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2019-09.pdf
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    References listed on IDEAS

    as
    1. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    2. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
    3. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
    4. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    5. Simon Board & Jay Lu, 2018. "Competitive Information Disclosure in Search Markets," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 1965-2010.
    6. Takuro Yamashita, 2010. "Mechanism Games With Multiple Principals and Three or More Agents," Econometrica, Econometric Society, vol. 78(2), pages 791-801, March.
    7. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
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    Cited by:

    1. Nicolas, Floyid & Kamai, Tamir & Ben-Gal, Alon & Ochoa-Brito, Jose & Daccache, Andre & Ogunmokun, Felix & Kisekka, Isaya, 2023. "Assessing salinity impacts on crop yield and economic returns in the Central Valley," Agricultural Water Management, Elsevier, vol. 287(C).

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    More about this item

    Keywords

    competing mechanisms; dominant strategy incentive compatibility; frictions; implicit collusion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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