Essays on mechanism design

This thesis is a collection of three essays on mechanism design. In Chapter 1, we consider a general Informed Principal Problem in the context of procurement. Both the potential suppliers and the buyer hold some private information: each supplier knows his cost of production, the buyer knows how much each supplier's product fits her technical requirements. We derive the optimal auction in this environment, and analyze the implementation problem with special emphasis on three aspects that are particularly relevant in real practice: privacy protection, dynamic consistency, and simplicity. We design a dynamic mechanism, the Modified English Auction, that implements the optimal auction outcome, is privacy preserving, dynamically consistent, and simple. Chapter 2 is a joint work with Joao Leao. How do mechanisms like hotwire.com work? What is their economic impact on the existing markets of hotel rooms, airplane tickets, and rental cars? We address these questions by investigating whether lotteries over the basic goods can be profitably used by any of the market participants. We consider lotteries in which the buyers win a prize for sure, but they do not know which one. Our main finding is that the perfect cartel always uses lotteries to maximize its profits. Moreover, under specific conditions, the entry of a lottery provider in a competitive market may bring the existing firms closer to the cartel solution. The introduction of lotteries has two effects. First, the firms can use them to price-discriminate their consumers. Second, the firms can use lotteries to cover a larger part of the market. Indeed, the consumers who find the basic goods too expensive may still want to buy cheaper lottery tickets.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2008

Author dc:creator

• Balestrieri, Filippo

Advisor dc:contributor.advisor

• Sergei Izmalkov and Bengt Holmstrom.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/43763

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/43763