A Dichotomy of Sport Sponsorships: Does the Nature of Competition Among Sponsors Matter?

In this paper, the authors argue that the firm value implications of sport sponsorships for sponsors may depend on the competitive environment during the bidding process for different types of sponsorships. More specifically, the authors contend that the bidding environment for professional football (soccer) kit sponsorships represents a form of common value auction, while the bidding environment for corporate logo sponsorships on teams’ shirts does not. As common value auctions are prone to winner’s curse, the firm value implications should be different for kit sponsorship announcements than for shirt sponsorship announcements. Our results suggest that shareholders indeed perceive the value derived from kit and shirt sponsorships differently, resulting in the predicted distinction in their impact on sponsors’ firm value. This study sheds light on conflicting results on firm value implications of sport sponsorships in the prior literature and provides rich areas for future research.

Revenue Enhancement via Asymmetric Signaling in Interdependent-Value Auctions

We consider the problem of designing the information environment for revenue maximization in a sealed-bid second price auction with two bidders. Much of the prior literature has focused on signal design in settings where bidders are symmetrically informed, or on the design of optimal mechanisms under fixed information structures. We study commonand interdependent-value settings where the mechanism is fixed (a second-price auction), but the auctioneer controls the signal structure for bidders. We show that in a standard common-value auction setting, there is no benefit to the auctioneer in terms of expected revenue from sharing information with the bidders, although there are effects on the distribution of revenues. In an interdependent-value model with mixed private- and common-value components, however, we show that asymmetric, information-revealing signals can increase revenue.

Alternative Policy Responses to Increased Use of Formula Pricing

This article determines the potential effects of policies to address concerns about lower producer prices due to increased use of marketing agreements. Policies considered are banning alternative marketing agreements, compensating producers who sell on the cash market, and restricting the quantity of marketing agreements. We use an agent-based model in a common-value auction framework to analyze these policies. The common-value auction framework is used because it closely resembles how livestock are actually purchased. The agent-based model is used to find the common-value auction equilibrium. A ban on marketing agreements reduces social welfare and the other policy interventions have little effect on prices. Past theoretical studies predict marketing agreements will cause large reductions in prices paid to producers. Conversely, empirical studies show slight effects. This article offers an alternative theory that more closely matches livestock markets and our results reduce the gap between theoretical and empirical research. The common-value auction model predicts negative effects on producer prices close to those found in past empirical research.