David A. Malueg

Parallel imports, demand dispersion, and international price discrimination

Parallel imports, goods imported by unauthorized resellers, are advocated worldwide for undermining international price discrimination. For a continuum of markets, we find that uniform pricing by a monopolist yields lower global welfare than third-degree discrimination if demand dispersion across markets is ‘large’: though uniform pricing avoids output misallocation, too many markets go unserved. Mixed systems, permitting discrimination across but not within designated groups of markets, yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination, and can Pareto dominate uniform pricing. Thus, while parallel imports might benefit some countries, our results weaken the (multilateral) case for allowing them.

Collusive behavior and partial ownership of rivals

Abstract Others have shown in static models that increasing cross ownership among rival firms leads to more collusive outcomes. In contrast, this paper shows that if firms interact repeatedly, then increasing cross ownership may reduce the likelihood of collusion. A high level of cross ownership may even entail a lower likelihood of collusion than would no cross ownership.

Testing Contest Theory: Evidence from Best-of-Three Tennis Matches

We study strategic choice of effort in best-of-three contests between equally skilled players. Economic theory predicts such contests are more likely to end in two rounds than in three. If, however, a contest reaches a third round, each player is equally likely to win. We test these predictions with data from professional tennis matches, using betting odds to identify equally skilled opponents. The empirical results support the theoretical predictions, suggesting players strategically adjust efforts during a best-of-three contest.

Duopoly information exchange: The case of unknown slope

Abstract We model information exchange between duopolists facing a common random demand. The slope of the common demand curve facing the firms is assumed unknown, and firms observe private signals about this slope. We show that, for sufficiently large variation in the demand slope, firms earn strictly higher profit when they share their information rather than keeping it private-even with constant marginal costs and homogeneous goods. In this case, it is a Nash equilibrium for the duopolists to share their information in a quid pro quo information exchange. Consistent with earlier models, information exchange raises welfare.

A Note on Welfare in the Durable-Goods Monopoly

Depending upon the shape of the rental demand curve facing a durable-goods monopolist, social welfare may be raised or lowered by requiring the monopolist to sell, rather than rent, its output. Indeed, the equilibrium under rentals may Pareto-dominate the equilibrium under sales. Copyright 1989 by The London School of Economics and Political Science.

Monopoly Production of Durable Exhaustible Resources

We examine monopoly production of a durable exhaustible resource. Previous authors have implicitly assumed that the monopolist is able to make binding commitments about future decisions. We consider the more plausible case in which the monopolist lacks this ability and must choose from dynamically consistent plans. Two models are considered: a discrete-time model, in which there is a strictly finite initial stock of the resource, and a continuous-time model, in which costs are an increasing function of cumulative production. We find that, as a general result, monopoly leads to overconservation. The monopolist who cannot precommit produces the efficient quantity ultimately, but does so too slowly. By contrast, the monopolist who can precommit produces less than the efficient stock even in the limit. We also find that increased importance of exhaustibility hastens the extraction of the resource. Copyright 1990 by The London School of Economics and Political Science.

On requiring the durable goods monopolist to sell

Abstract Requiring a monopolist to sell its output (rather than renting it) my lead to beneficial output adjustments or harmful quality adjustments. In a durable goods model, we show that requiring sales decreases welfare in only a small fraction of cases, but it strictly increases welfare in a majority of cases.

Group Efforts When Performance Is Determined by the 'Best Shot'

We investigate the private provision of a public good whose level is determined by the maximum effort made by a group member. Costs of effort are either commonly known or privately known. For symmetric perfect-information games, any number of players may be active and we characterize the unique (mixed-strategy) equilibrium in which active contributors use the same strategy. Increasing the number of active players leads to stochastically lower individual efforts and level of the public good. When information is private, the symmetric equilibrium is in pure strategies. Increasing the number of players yields a pointwise reduction in the equilibrium contribution strategy but an increase in equilibrium payoffs. Comparative statics with respect to costs and levels of risk aversion are derived. Finally, whether information is public or private, equilibria are inefficient—we provide mechanisms that improve efficiency.

Endogenous information quality: A job-assignment application

This paper investigates the optimal acquisition of information in a model of job assignment within a firm. We consider a firm with two types of jobs, skilled and unskilled. The firm draws workers randomly from the general population, and a worker is either talented or untalented. Initially, a workers productivity in the firm is unknown to the worker and the firm. Workers are equally productive in the unskilled job, but talented workers are more productive in the skilled job than in the unskilled job, and untalented workers are more productive in the unskilled job than in the skilled job. Before assigning a worker to a job, the firm can test whether the employee is talented, and the firm is able to choose the accuracy of this test. We assume that the cost of a test is increasing and convex in test accuracy. We show that (1) the accuracy of the firms test increases with the cost of a mismatched worker; (2) increased optimism about the workers ability need not lead to less rigorous testing; (3) the probability that a worker is assigned to the skilled job need not increase as the gain from assigning a talented worker to a skilled job increases, or the loss from assigning an untalented worker to a skilled job decreases, or the fraction of the population that is skilled increases; and (4) a longer testing period, allowing as many as two tests of workers, leads the firm to use a less expensive, and less accurate, test initially than when there is only one opportunity to gather information.

Equilibrium and revenue in a family of common-value first-price auctions with differential information

We study a discrete common-value auction environment with two asymmetrically informed bidders. Equilibrium of the first-price auction is in mixed strategies, which we characterize using a doubly recursive solution method. The distribution of bids for the ex post strong player stochastically dominates that for the ex post weak player. This result complements Maskin and Riley’s (Rev Econ Stud 67:413–438, 2000) similar result for asymmetric private-value auctions. Finally, comparison with the dominance-solvable equilibrium in a second-price auction shows the Milgrom–Weber (Econometrica 50:1089–1122, 1982a) finding that the second-price auction yields at least as much revenue as the first-price auction fails with asymmetry: in some cases the first-price auction provides greater expected revenue, in some cases less.