Daniel Müller

Price Discrimination in Input Markets: Downstream Entry and Efficiency

The extant theory on price discrimination in input markets takes the structure of the downstream industry as exogenously given. This paper endogenizes the structure of the downstream industry and examines the effects of permitting third-degree price discrimination on market structure and welfare. We identify situations where permitting price discrimination leads to either higher or lower wholesale prices for all downstream firms. These findings are driven by upstream profits being discontinuous due to costly entry. Moreover, permitting price discrimination fosters entry which often improves welfare. Nevertheless, entry can also reduce welfare because it may lead to a severe inefficiency in production.

Rater Bias and Incentive Provision

type=main> The tendency of supervisors to judge an employee as either good or bad and then to seek out evidence supporting that earlier established opinion is regarded as one of the major problems of performance appraisal. We investigate the implications of this rater bias in a dynamic moral hazard model with a wealth-constrained agent. Although rater bias weakens the agents incentives to exert effort in late periods, at the same time it strengthens implicit incentives in early periods. Under the optimal contract, as long as rater bias is not overly strong, its adverse effect on late-period incentives is fully offset by exploitation of stronger early-period incentives and thereby leaves the principals profits unchanged.

Expectation-Based Loss Aversion and Strategic Interaction

By extending the equilibrium concepts of Kőszegi and Rabin (2006, 2007), this paper analyzes the strategic interaction of expectation-based loss-averse players. For loss-averse players with choice-acclimating expectations, the utility from playing a mixed strategy is not linear but convex in the probabilities they assign to their pure strategies. As a consequence, they are generally unwilling to randomize and an equilibrium may fail to exist. For players with choice-unacclimating expectations, by contrast, randomizing over their pure strategies may indeed constitute a credible best response and an equilibrium always exists. Building upon these insights, we delineate how expectation-based loss-averse players differ in their strategic behavior from their counterparts with standard expected-utility preferences, derive novel strategic effects, discuss equilibrium selection, and derive equilibrium play for some simple games.

Asymmetric employer information, promotions, and the wage policy of firms

This paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information. Building on the seminal work by Waldman (1984a) and Milgrom and Oster (1987), we first present a model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions. Using experimental labor markets, we find evidence consistent with asymmetric employer information being a causal factor for both inefficient promotions and large wage increases upon promotion. Furthermore, we analyze the effect of asymmetric employer information on profits and turnover.

Vertragstheorie: Zum Nobelpreis 2016 für Oliver Hart und Bengt Holmström

Oliver Hart and Bengt Holmstrom have been awarded the 2016 Nobel Prize in Economic Sciences for their contributions to contract theory. In this paper, we provide a brief introduction to the field of contract theory and we discuss some of the laureates central contributions.