Partial Unraveling and Strategic Contract Timing

2021 ◽  
Author(s):  
Liang Guo
Keyword(s):  
Information Transmission ◽  
Private Information ◽  
Social Preferences ◽  
Wholesale Price ◽  
Bilateral Bargaining ◽  
Vertical Relationships ◽  
Bilateral Monopoly ◽  
Ex Ante

Renegotiations and last-minute contracting are prevalent in many vertical relationships. Information transmission between firms and buyers can be imperfect as well. In this paper we present a theory to explicate how early/delayed contracting over wholesale prices, and partial unraveling of private information, can sustain each other endogenously in a channel setting with bilateral monopoly. Should the wholesale price be predetermined, the downstream manufacturer would be compelled to fully disclose all private information. By contrast, the to-be-negotiated wholesale price can be potentially affected by manufacturer disclosure or concealment. This can represent a countervailing force for equilibrium revelation to be imperfect, even when disclosure is costless. Thus partial unraveling may emerge if and only if no enforceable contract has been signed (i.e., contracting is delayed). Conversely, partial unraveling can endogenously influence ex ante preferences for contract timing. Therefore, contracting may be deliberately delayed even without learning/cost considerations. Moreover, equilibrium contract timing can be socially too early to alleviate channel distortions, and bilateral bargaining can align private and social preferences for delayed contracting. This paper was accepted by Dmitri Kuksov, marketing.

scholarly journals Overconfidence and Timing of Entry

Games ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 44
Author(s):  
Luis Santos-Pinto ◽  
Tiago Pires
Keyword(s):  
Private Information ◽  
Welfare Effect ◽  
The Other ◽  
Ex Ante ◽  
Rational Player ◽  
Timing Of Entry ◽  
Game Players ◽  
The Impact ◽  
Stackelberg Leader

We analyze the impact of overconfidence on the timing of entry in markets, profits, and welfare using an extension of the quantity commitment game. Players have private information about costs, one player is overconfident, and the other one rational. We find that for slight levels of overconfidence and intermediate cost asymmetries, there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of being the Stackelberg leader. Overconfidence lowers the profit of the rational player but can increase that of the overconfident player. Consumer rents increase with overconfidence while producer rents decrease which leads to an ambiguous welfare effect.

Pricing and Design of After-Sales Service Contract: The Value of Mining Asymmetric Sales Cost Information

2017 ◽  
Vol 34 (01) ◽  
pp. 1740002 ◽  
Author(s):  
Yanfei Lan ◽  
Zhibing Liu ◽  
Baozhuang Niu
Keyword(s):  
Big Data ◽  
Private Information ◽  
Investment Decision ◽  
Wholesale Price ◽  
Service Level ◽  
Equivalent Model ◽  
Cost Information ◽  
Service Contract ◽  
Symmetric Information ◽  
Asymmetric Cost

In this paper, we study a pricing and after-sales service contract design problem, where a retailer purchases products from a manufacturer and then sells to the consumers. The sales cost is the retailer’s private information and might be mined by the manufacturer via advanced learning algorithms and related big data techniques. We first develop a crisp equivalent model, based on which the optimal contracts and the supply chain parties’ profits under asymmetric information are derived. We show that, compared with the optimal wholesale price and after-sales service level with symmetric information, asymmetric cost information makes the wholesale price distorted upward when the retailer’s sales cost is low. When the retailer’s cost is high, the after-sales service level is distorted downward. We characterize the manufacturer’s loss and the retailer’s gains due to asymmetric sales cost information. This helps the manufacturer make the investment decision of big data techniques. Interestingly, we find that the retailer might voluntary disclose the sales cost information, which results in a win-win situation for the manufacturer and the retailer. This makes the manufacturer less favor big data techniques. Finally, we conduct extensive sensitivity analysis with respect to the retailer’s sales cost, the consumer’s sensitivity to the retailer’s after-sale service level, and the fraction of high-type retailers in the market.

Sharing Demand Information with Retailer Under Upstream Competition

2021 ◽  
Author(s):  
Aditya Jain
Keyword(s):  
Information Sharing ◽  
Private Information ◽  
Operations Management ◽  
Information Acquisition ◽  
Wholesale Price ◽  
Substitutable Products ◽  
Downward Pressure ◽  
Demand Information ◽  
Intensity Of Competition ◽  
Share Information

We analyze demand information sharing collaboration between two manufacturers and a retailer under upstream competition. The manufacturers produce partially substitutable products, which are stocked by the retailer that sells them in the market characterized by random demand. The manufacturers are privately informed about uncertain demand and decide on whether to share this information with the retailer. We show that by not sharing information, a manufacturer ends up distorting its wholesale price upward to signal its private information to the retailer, and under upstream competition, this distortion is propagated to the competing manufacturer. Thus, although a manufacturer’s decision to not share information may benefit or hurt its own profit, this always benefits the competing manufacturer. Under low intensity of competition, signaling-driven distortions exacerbate double marginalization and hurt all parties, whereas under more intense competition, these distortions help manufacturers offset downward pressure on wholesale prices. Thus, in equilibrium similarly informed manufacturers share information in the former case but not in the latter case. Additionally, when manufacturers differ in their information accuracies, only the better-informed manufacturer shares information. The retailer always benefits from both manufacturers sharing information, and its benefits are larger when the better-informed manufacturer shares information. We show existence of a contracting mechanism the retailer can employ to enable information sharing. Finally, we analyze manufacturers’ information acquisition decisions and find that under competition, two manufacturers acquire minimal information so that they are better off not sharing information in the information sharing game. This paper was accepted by Vishal Gaur, operations management.

Dictating the Risk: Experimental Evidence on Giving in Risky Environments: Reply

2016 ◽  
Vol 106 (3) ◽  
pp. 840-842 ◽  
Author(s):  
J. Michelle Brock ◽  
Andreas Lange ◽  
Erkut Y. Ozbay
Keyword(s):  
Experimental Evidence ◽  
Social Preference ◽  
Social Preferences ◽  
Preference Model ◽  
Ex Post ◽  
Ex Ante ◽  
Fairness Concerns

In Brock, Lange, and Ozbay (2013), we experimentally investigate social preferences under risk. One of our conclusions is that a social preference model incorporating both ex ante and ex post fairness concerns may best describe behavior. Krawczyk and Le Lec (2016 ) argue that ex ante comparisons alone may account for our data. We address their points in this reply. (JEL C72, D63, D64, D81)

Yeats Valves and Controls Inc.

2017 ◽  
pp. 1-16
Author(s):  
Robert F. Bruner ◽  
Sean Carr
Keyword(s):  
Human Behavior ◽  
Private Information ◽  
The Other ◽  
Case Discussion ◽  
Bilateral Bargaining ◽  
Usual Case ◽  
Financial Forecast

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore, an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm, and negotiation of an acquisition. They may be taught singly in usual case-discussion fashion, or combined into a joint-negotiation exercise where students are assigned parts to play. Used in a bilateral bargaining exercise, two teams of students are designated, each team representing one side of the negotiation and receiving a case designed for that team. The bargaining exercise provides a particular opportunity for joint teaching among instructors in finance, strategy, human behavior, and negotiation.

scholarly journals Inventory and Pricing Decisions Under Wholesale Price Contract with Social Preferences

2016 ◽  
Vol 4 (1) ◽  
pp. 68-86 ◽  
Author(s):  
Shuren Liu ◽  
Huina Chen ◽  
Lili Chen
Keyword(s):  
Supply Chain ◽  
Social Preferences ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Price Setting ◽  
Order Quantity ◽  
Pricing Decisions ◽  
Other Regarding ◽  
The Impact ◽  
Other Regarding Preferences

AbstractThis paper introduces the other-regarding preferences coefficients and studies the impact of social preferences on supply chain performance in the price-setting newsvendor setting. It is assumed that the stochastic demand is multiplicative. The manufacturer and retailer play a Stackelberg game. We analyze the impact of the decision-maker’s social preferences on the manufacturer’s optimal wholesale price, the retailer’s optimal retail price and order quantity, the supply chain member’s profits and utilities, and the supply chain system’s profits and utilities under three different cases that only the retailer, only the manufacturer and both are with social preferences. We show that a manufacturer, as a leader, should find a spiteful retailer, while a retailer, as a follower, should find a manufacturer with generous liability, to improve the entire supply chain. Finally, numerical examples are given to illustrate these results.

Dynamic Taxation

2020 ◽  
Vol 12 (1) ◽  
pp. 801-831
Author(s):  
Stefanie Stantcheva
Keyword(s):  
Private Information ◽  
Quantitative Methods ◽  
Income Taxes ◽  
Sufficient Statistics ◽  
Time Dynamic ◽  
Income Distributions ◽  
Ex Ante ◽  
Age Dependent ◽  
Short Run ◽  
The Government

This article reviews recent advances in the study of dynamic taxation, considering three main approaches: the dynamic Mirrlees, the parametric Ramsey, and the sufficient statistics approaches. In the first approach, agents’ heterogeneous abilities to earn income are private information and evolve stochastically over time. Dynamic taxes are not restricted ex ante and are set for redistribution and insurance considerations. Capital is taxed only in order to improve incentives to work. Human capital is optimally subsidized if it reduces posttax inequality and risk on balance. The Ramsey approach specifies ex ante restricted tax instruments and adopts quantitative methods, which allow it to consider more complex and realistic economies. Capital taxes are optimal when age-dependent labor income taxes are not possible. The newer and tractable sufficient statistics approach derives robust tax formulas that depend on estimable elasticities and features of the income distributions. It simplifies the transitional dynamics thanks to a newly defined criterion, the utility-based steady-state approach, which prevents the government from exploiting sluggish responses in the short run. Capital taxes are here based on the standard equity-efficiency trade-off.

Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model

2011 ◽  
Vol 101 (2) ◽  
pp. 819-843 ◽  
Author(s):  
Steffen Huck ◽  
Andrew J Seltzer ◽  
Brian Wallace
Keyword(s):  
Experimental Test ◽  
Social Preferences ◽  
Monetary Incentives ◽  
Labor Contracts ◽  
Deferred Compensation ◽  
Ex Ante

This paper provides the first experimental test of Edward Lazear's (1979) model of deferred compensation. We examine the relation ship between firms' wage offers and workers' effort supply in a multi-period environment. If firms can ex ante commit to a wage schedule with deferred compensation, workers should respond by supplying sufficient effort to avoid dismissal. We contrast this full-commitment case to controls with no commitment and computer-generated wages in order to examine the roles of monetary incentives, social preferences, and reciprocity. Finally, we examine a setup without formal commitment, but where firms can build a reputation for paying deferred wages. (JEL D86, J22, J31, J33, J41)

scholarly journals Preferencias sociales y egoísmo racional

2013 ◽  
Author(s):  
Alejandro Rosas
Keyword(s):  
Private Information ◽  
Prisoner's Dilemma ◽  
Social Preferences ◽  
Prisoner’S Dilemma ◽  
Rational Agent ◽  
Homo Oeconomicus ◽  
Iterated Prisoner's Dilemma ◽  
Imperfect Rationality ◽  
Iterated Prisoner’S Dilemma ◽  
Rational Egoism

RESUMENLos economistas experimentales han demostrado que algunos humanos cooperan con base en preferencias sociales, pero el modelo de agente racional conocido como Homo oeconomicus no incluye preferencias sociales como causas de la conducta cooperativa. ¿Qué implica su existencia para el egoísmo racional defendido en los modelos microeconómicos dominantes y en la teoría de juegos? Se describen tres posibles respuestas: 1) preferencias sociales como mecanismos redundantes de reserva; 2) preferencias sociales para remediar la racionalidad imperfecta y 3) preferencias sociales como motor primario de la cooperación, porque el egoísmo racional no recomienda cooperar en dilemas de prisionero iterado con información imperfecta. Defiendo la tercera opción: agentes que carecen de preferencias sociales ven el engaño y la coerción como opciones racionales.PALABRAS CLAVECOOPERACIÓN, DILEMA DE PRISIONEROS, EGOÍSMO RACIONAL, EXPLICACIÓN Y JUSTIFICACIÓNABSTRACTExperimental economics provides evidence that social preferences drive human cooperation in the lab, but the dominant microeconomic model of a rational agent, Homo oeconomicus, denies such preferences. Assuming the evidence is cogent, what follows for the claim that humans cooperate on the basis of rational egoism? I describe three possible answers: 1) social preferences are backup mechanisms for rational egoism; 2) social preferences are required to remedy for imperfect rationality; and 3) social preferences are the primary motives for cooperation, because rational egoism does not recommend cooperation in the iterated prisoner’s dilemma with imperfect or private information. I argue for option 3): rational egoists without social preferences see deception and coercion as rational options.KEYWORDS:COOPERATION, PRISONER’S DILEMMA, RATIONAL EGOISM, EXPLANATION AND JUSTIFICATION

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