Philippe Jehiel

Efficient Design with Interdependent Valuations

We study efficient, Bayes-Nash incentive compatible mechanisms in a social choice setting that allows for informational and allocative externalities. We show that such mechanisms exist only if a congruence condition relating private and social rates of information substitution is satisfied. If signals are multi-dimensional, the congruence condition is determined by an integrability constraint, and it can hold only in nongeneric cases where values are private or a certain symmetry assumption holds. If signals are one-dimensional, the congruence condition reduces to a monotonicity constraint and it can be generically satisfied. We apply the results to the study of multi-object auctions, and we discuss why such auctions cannot be reduced to one-dimensional models without loss of generality.

Analogy-based expectation equilibrium

In complex situations, agents use simplified representations to learn how their environment may react. I assume that agents bundle nodes at which other agents must move into analogy classes, and agents only try to learn the average behavior in every class. Specifically, I propose a new solution concept for multi-stage games with perfect information: at every node players choose best-responses to their analogy-based expectations, and expectations correctly represent the average behavior in every class. The solution concept is shown to differ from existing concepts, and it is applied to a variety of games, in particular the centipede game, and ultimatum/bargaining games. The approach explains in a new way why players may Pass for a large number of periods in the centipede game, and why the responder need not be stuck to his reservation value in ultimatum games. Some possible avenues for endogenizing the analogy grouping are also suggested. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.)

License Auctions and Market Structure

We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony.

Constitutional Rules of Exclusion in Jurisdiction Formation

The rules under which jurisdictions (nations, provinces) can deny immigration or expel residents are generally governed by a constitution, but there do not exist either positive or normative analyses to suggest what types of exclusion rules are best. We stylize this problem by suggesting four constitutional rules of admission: free mobility, admission by majority vote, admission by unanimous consent, admission by a demand threshold for public goods. In a simple model we characterize the equilibria that result from these rules, and provide a positive theory for which constitutional rules will be chosen.

NEGATIVE EXTERNALITIES MAY CAUSE DELAY IN NEGOTIATION

We study the strategic equilibria of a negotiation game where potential buyers are affected by identity-dependent, negative externalities. The unique equilibrium of long, finitely repeated generic games can either display delay-where a transaction can take place only in several stages before the deadline-or, in spite of the random element in the game, a well-defined buyer exists that obtains the object with probability close to one.

Product differentiation and price collusion

The paper analyzes the implications of price collusion (with or without monetary transfers) on the degree of horizontal product differentiation. We find that the principle of minimum differentiation holds (i.e., firms sell the same product) when there is no possibility of monetary transfers. On the contrary, we find that the presence of monetary transfers may induce some product differentiation. The reason is that when monetary transfers are possible, it is not essential per se to be well located in terms of relative market shares. The outcome is then shown to be driven by only two forces: (1) choosing a product closer to the competitors improves the bargaining power, (2) choosing a product closer to the one maximizing the joint profit improves the global firm-efficiency.

Gradualism in Bargaining and Contribution Games

This paper identifies a source of gradualism in bargaining and contribution games. In the bargaining games we examine, each party can opt out at any time, and the outside option outcome is assumed to depend on the offers made in the negotiation phase. Specifically, we assume that (1) making a concession in the negotiation phase increases the other partys outside option pay-off and (2) the outside option outcome induces an efficiency loss as compared with a negotiated agreement. The main finding is that the mere presence of such history-dependent outside options forces equilibrium concessions in the negotiation phase to be gradual, and the degree of gradualism is characterized. The model also applies to contribution games in which the outside option may be interpreted as the option to implement a partial project using the total contributions made so far. Copyright 2004, Wiley-Blackwell.

An economic perspective on auctions

The recent spectrum auctions in Europe have shown that serious problems can wise in auctions where multiple complementary objects are being sold (such as blocks of radio spectrum) that will subsequently be used by the wining bidders to compete against each other in downstream markets. Other important instances of such situations include take-off and landing slots at airports and rights for electricity and gas transmission. T I first review some of the theory describing multi-object auctions. I I next outline the importance of strategic effects arising,in auctions that are followed by competition between the bidders., and the tension arising between various goals such as efficiency and revenue maximization. Although more flexible auction formats can have virtues (particularly in taking into account complementarities), they, can also be manipulated by bidders to build market power to the detriment Of consumers. We next apply these insights to the recent European UMTS licence auctions. Finally, we draw the main conclusions and policy, implications.

Resale markets and the assignment of property rights

The consumption of an indivisible good causes identity-dependent externalities to non-consumers. We analyse resale markets where the current owner designs the trading procedure, but cannot commit to future actions. We ask the following questions: (1) Does the identity of the initial owner matter for the determination of the final consumer? (2) Is the outcome always efficient? The major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency. This result complements the Coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency.

Cyclical Delay in Bargaining with Externalities

Externalities between buyers are shown to induce delays in negotiations between a seller and several buyers. Delays arise in a perfect and complete information setting with random matching even when there is no deadline. While with a deadline we identify delays both for positive and negative externalities, without a deadline we find that (1) when externalities are positive, there exists no SPNE in pure strategies with bounded recall that exhibits delay; (2) when externalities are negative, it may happen that all SPNE with bounded recall have the property that long periods of waiting alternate with short periods of activity: This is the cyclical delay phenomenon.