Filippo Balestrieri

Informed Seller in a Hotelling Market

We derive the optimal selling mechanism for a monopolist who is privately informed about the attributes of a horizontally differentiated good. To do so, we set up an informed principal problem in a Hotelling model where the buyers preferences are described in terms of a base consumption value and the distance between the buyers and the sellers locations. To represent different kinds of markets we consider linear, concave, and convex distance costs. We derive the optimal mechanism and offer ways to implement it. For instance, for low (high) base consumption values, it is optimal for the seller to disclose (do not disclose) her type and then set the optimal price. For intermediate values, the optimal mechanism may involve stochastic delivery and can be implemented by multi-item menus that involve selling information or refund options. Under linear distance costs, offering the following two-item menu is optimal: a good with undisclosed attributes (opaque good) or an option to learn information and buy the good later. Under convex and concave costs, the optimal mechanism may involve type-specific probabilistic allocations, which can also be implemented through private transmission of different information to different buyer types.

The Market for Surprises: Selling Substitute Goods Through Lotteries

In this paper we solve the revenue maximization problem of multi-product monopolist when the products are substitutes. We consider a Hotelling model with two horizontally differentiated goods located at the endpoints of the segment. Consumers are located uniformly on the segment, their valuations for each good are equal to base consumption value minus distance costs. We consider different specifications for the distance cost function: linear, concave, and convex. When base consumption value is high, the seller maximizes her expected profit by offering a menu of base and opaque goods. A continuum of type-specific opaque goods is optimal under convex costs, whereas a single half-half lottery over base goods is optimal under concave and linear costs. When base consumption value is low, only base goods are sold. Finally, when base-consumption value is intermediate, the optimal mechanism may entail the offering of lotteries with positive probability of no delivery. Our findings can explain the emergence of opaque goods sales (e.g. hotel bookings without complete description of the hotel by hotwire.com or priceline.com) as the outcome of the industries search for the optimal selling scheme.

An Imperfect Financial Union With Heterogeneous Regions

We analyze a union of financially-integrated yet politically-sovereign countries, where households in the Northern core of the union lend to those in the Southern periphery in a unified debt market subject to a borrowing constraint. This constraint generates sudden stops throughout the South, depresses the intra-union interest rate, and reduces Northern welfare below its unconstrained level, while having ambiguous effects on Southern welfare. During sudden stops, Pareto improvements can be achieved using North-to-South governmental loans if Southern governments have the capacity to commit to repay, or using a combination of Southern debt relief and budget-neutral taxes and subsidies if they do not. From the pre-crisis perspective, it is Pareto-improving to allow loans and debt relief to be negotiated in later sudden-stop periods as long as the regions in the union are sufficiently heterogeneous to begin with. We show that our results are robust to production and to limited financial openness of the union.

Heterogeneous Countries in a Financial Union

A financial union is a group of countries, each with its own nontradable goods sector, which can freely exchange tradable goods and debt contracts. In this paper, we establish the effects of shocks in a stylized financial union with heterogeneous regions -- a lender North and a borrower South -- and constraints on borrowing. We derive positive and normative results. First, when the degree of heterogeneity is high before the shock, the South is disproportionately hurt by the shock, no matter whether the shock strikes in the North or the South. Second, for a given value of the shock, when borrowing constraints bind in the South, the welfare of the North decreases while the welfare of the South may increase. Third, we characterize which policy interventions are able to generate Pareto improvements. Unconditional debt relief for the South fails to do so. Subsidized governmental loans succeed when Southern governments can commit to repay additional debt. Finally, whether or not Southern governments can commit to repay anything, a Pareto improvement is possible using a combination of conditional debt relief and a tax/subsidy package in the South.