Ruqu Wang

Bargaining versus posted-price selling

Abstract Two popular selling methods — bargaining and posted-price selling — are compared here in a dynamic model. When bargaining costs no more than posted-price selling, we find that bargaining is always optimal. When bargaining costs more, however, bargaining is still preferred if and only if the common cost for both selling methods is large enough. We also find that an increase in the discount rate or the sellers bargaining power favors bargaining. Finally, we find that if the distribution becomes more dispersed and the increase in a buyers valuation is sufficiently large, bargaining is more likely to be adopted.

Common-value auctions with discrete private information

Abstract A first-price, sealed-bid, common-value auction with finite-valued, conditionally independent private information is studied. We show that the equilibrium in this auction game is characterized by all bidders using a symmetric mixed-strategy in which bids are randomized over intervals that are successive and non-overlapping for consecutively indexed signals. We also show that as the number of bidders grows, the winning bid (conditional on the true value of the object) converges to a non-degenerate random variable that is affiliated with the true value. Therefore, only partial information revelation is achieved in the limit.

The Optimal Consumption and the Quitting of Harmful Addictive Goods

Abstract In this paper we study a model of rational consumption and quitting in the context of harmful addictive goods. We assume that a person has imperfect information about his ability to resist and terminate the addiction. We first characterize the optimal consumption path of a non-addicted person, along which his stock of the addictive substance is either always increasing (and thus addiction occurs stochastically), always decreasing, or always unchanged. We then characterize the optimal consumption path of an addicted person, along which he may attempt to quit the addiction for a period of time, and then resume his consumption if the attempt is unsuccessful. Finally, we remark on the issues of regret, multiple attempts to quit, and quitting programs.

Optimal pricing strategy for durable-goods monopoly☆

Abstract In this paper, we reconsider the profitability of a durable-good monopoly when the sellers discount rate may be different from the buyers’. In an infinite-horizon continuous-time full-commitment model, the monopoly can achieve more than the static monopoly profit if and only if the seller is more patient than the buyers. Under this condition, the price function is strictly decreasing over time. These results remain valid in models with buyers arriving sequentially, where the seller may have only one unit to sell or can produce more at constant marginal cost.

Competition, Wage Commitments, and Application Fees

In this article I intend to justify the rare use of application fees in labor markets. I analyze a model in which there is a training or testing period preceding a workers effective production period. With various commitment abilities of firms, I find that application fees are used if and only if all future wages can be committed before a worker applies; otherwise, no application fees will be charged. The model is then modified to explain the positive fees in journal submissions and college admissions.

Optimal Mechanism Design with Resale Via Bargaining

In this paper, we examine the optimal mechanism design of selling an indivisible object to one regular buyer and one publicly known buyer, where inter-buyer resale cannot be prohibited. The resale market is modeled as a stochastic ultimatum bargaining game between the two buyers. We fully characterize an optimal mechanism under general conditions. Surprisingly, in this optimal mechanism, the seller never allocates the object to the regular buyer regardless of his bargaining power in the resale market. The seller sells only to the publicly known buyer, and reveals no additional information to the resale market. The possibility of resale causes the seller to sometimes hold back the object, which under our setup is never optimal if resale is prohibited. We find that the sellerʼs revenue is increasing in the publicly known buyerʼs bargaining power in the resale market. When the publicly known buyer has full bargaining power, Myersonʼs optimal revenue is achieved; when the publicly known buyer has no bargaining power, a conditionally efficient mechanism prevails.

Separating equilibria in a continuous-time bargaining model with two-sided uncertainty

Abstract. In this paper, we analyze the class of all smooth separating sequential equilibria in a continuous-time bargaining model with two-sided uncertainty. Trade between players occurs whenever there is surplus to be shared and delay is used to signal their valuations. When the buyer and the seller have a common discount rate, we show that the final outcome is unique among all these equilibria: the difference between the highest possible buyers valuation and the lowest possible sellers valuation always narrows down at a rate exactly equal to the discount rate. When their discount rates differ, the more patient side always reveals his valuation first in the unique smooth separating equilibrium.

LISTING PRICES AS SIGNALS OF QUALITY IN MARKETS WITH NEGOTIATION

We analyze markets where a buyer may pay the listing price or negotiate. We show that listing prices can signal quality to attract the right type of buyers. Prices are lower without quality uncertainty or without some of the lower qualities. In equilibrium, higher qualities/prices induce more bargaining, and thus more expensive goods are sold more often through bargaining.

Coalition formation in the presence of continuing conflict

This paper studies endogenous coalition formation in a rivalry environment where continuing conflict exists. A group of heterogeneous players compete for a prize with the probability of winning for a player depending on his strength as well as the distribution of strengths among his rivals. Players can pool their strengths together to increase their probabilities of winning as a group through coalition formation. The players in the winning coalition will compete further until one individual winner is left. We show that in any equilibrium there are only two coalitions in the initial stage of the contest. In the case of three players, the equilibrium often has a coalition of the two weaker players against the strongest. The equilibrium coalition structure with four players mainly takes one of the two forms: a coalition of the three weaker players against the strongest or a coalition of the weakest and strongest players against a coalition of the remaining two. Our findings imply that the rivalry with the possibility of coalition formation in our model exhibits a pattern of two-sidedness and a balance of power. We further study the impact of binding agreements by coalition members on equilibrium coalition structures. Our analysis sheds some light on problems of temporary cooperation among individuals who are rivals by nature.

Switching costs in infinitely repeated games

We show that small switching costs can have surprisingly dramatic effects in infinitely repeated games if these costs are large relative to payoffs in a single period. This shows that the results in Lipman and Wang [2000] do have analogs in the case of infinitely repeated games. We also discuss whether the results here or those in Lipman–Wang [2000] imply a discontinuity in the equilibrium outcome correspondence with respect to small switching costs. We conclude that there is not a discontinuity with respect to switching costs but that the switching costs do create a discontinuity with respect to the length of a period.