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We develop and estimate an entry model for second price and open outcry independent private value auctions where potential bidders receive an imperfectly informative signal about their value prior to deciding whether to pay a sunk entry cost. In this way the model flexibly allows for selection on values, which will affect an entrant's subsequent competitiveness, at the entry stage. As signals become more informative, the entry process exhibits greater selection as firms with higher values are more likely to enter. We allow for asymmetries across bidders and unobserved heterogeneity across auctions, which are important features of most data sets. We show how incorrectly assuming the extremes of either no selection (no signal) or perfect selection (prior knowledge of one's value) - the common alternatives in the literature - can yield incorrect estimates of model primitives and bias the results from counterfactuals. We apply our model to U.S. Forest Service timber auctions and find strong evidence in favor of a selective entry process. We take advantage of the flexible entry model to reevaluate the well known theory result that with fixed participation a seller prefers an extra bidder over the ability to set an optimal reserve price. In our model, the relative value of setting a reserve price and increasing the number of potential entrants to a revenue-maximizing seller will depend on the degree of selection. Our structural estimates imply that, if the USFS wants to maximize revenues, it will benefit more from adding an additional potential entrant than setting an optimal reserve price.

Zonder onderwerpscode: economie

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In thinly traded markets for heterogenous, durable goods, such as housing, intermediaries may play especially important roles. Using a unique micro-level dataset of housing transactions in Los Angeles from 1988-2008 and a novel research design, we identify and measure the importance of two very distinct types of intermediaries, also known as "flippers". The first type act as middlemen who quickly match sellers and buyers, operate throughout housing market cycles and earn above average returns when they buy and sell. The second type act as speculators who attempt to time markets by holding assets for longer periods of time, perform relatively poorly when buying and selling and are strongly associated with price instability in their targeted areas. The presence of these unsophisticated speculators and positive feedback trading contribute the first pieces of evidence from the housing market to a growing body of work in other financial markets that questions whether speculators always act to stabilize prices.

Zonder onderwerpscode: economie

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The one-shot nature of most theoretical models of strategic investment, especially those based on asymmetric information, limits our ability to test whether they can fit the data. We develop a dynamic version of the classic Milgrom and Roberts (1982) model of limit pricing, where a monopolist incumbent has incentives to repeatedly signal information about its costs to a potential entrant by setting prices below monopoly levels. The model has a unique Markov Perfect Bayesian Equilibrium under a standard form of refinement, and equilibrium strategies can be computed easily, making it well suited for empirical work. We provide reduced-form evidence that our model can explain why incumbent airlines cut prices when Southwest becomes a potential entrant into airport-pair route markets, and we also calibrate our model to show that it can generate the large price declines that are observed in the data.

Zonder onderwerpscode: economie

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Function spaces --- Metric spaces --- Functional analysis --- Espaces fonctionnels --- Espaces métriques --- Espaces vectoriels topologiques --- Linear topological spaces