Competitive Nonlinear Pricing Under Adverse Selection
Author: Andrea Attar
Publisher:
Published: 2021
Total Pages:
ISBN-13:
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Participation Constraints in Discontinuous Adverse Selection Models
Author: David Martimort
Publisher:
Published: 2020
Total Pages: 42
ISBN-13:
DOWNLOAD EBOOKWe present a set of necessary and sufficient conditions for a class of optimal control problems with pure state constraints for which the objective function is linear in the state variable but the objective function is only required to be upper semi-continuous in the control variable. We apply those conditions to a number of economic environments in contract theory where discontinuities in objectives prevail. Examples of applications include nonlinear pricing of digital goods, nonlinear pricing under competitive threat, and common agency models of regulation.
Price and Quality Competition Under Adverse Selection
Author: Gary Biglaiser
Publisher:
Published: 2003
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKFirms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices.
Perfect Competition in Markets with Adverse Selection
Author: Eduardo M. Azevedo
Publisher:
Published: 2017
Total Pages: 40
ISBN-13:
DOWNLOAD EBOOKAdverse selection is an important problem in many markets. Governments respond to it with complex regulations: mandates, community rating, subsidies, risk adjustment, and regulation of contract characteristics. This paper proposes a perfectly competitive model of a market with adverse selection. Prices are determined by zero-profit conditions, and the set of traded contracts is determined by free entry. Crucially for applications, contract characteristics are endogenously determined, consumers may have multiple dimensions of private information, and an equilibrium always exists. Equilibrium corresponds to the limit of a differentiated products Bertrand game.We apply the model to show that mandates can increase efficiency but have unintended consequences. An insurance mandate can increase adverse selection on the intensive margin and lead some consumers to purchase less coverage. Optimal regulation addresses adverse selection on both the extensive and the intensive margins, can be described by a sufficient statistics formula, and includes elements that are commonly used in practice.
Stress Testing Structural Models of Unobserved Heterogeneity
Author: Aaron L. Bodoh-Creed
Publisher:
Published: 2023
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKIn this paper, we provide a suite of tools for empirical market design, including optimal nonlinear pricing in intensive-margin consumer demand, as well as a broad class of related adverse-selection models. Despite significant data limitations, we are able to derive informative bounds on demand under counterfactual price changes. These bounds arise because empirically plausible DGPs must respect the Law of Demand and the observed shift(s) in aggregate demand resulting from a known exogenous price change(s). These bounds facilitate robust policy prescriptions using rich, internal data sources similar to those available in many real-world applications. Our partial identification approach enables viable nonlinear pricing design while achieving robustness against worst-case deviations from baseline model assumptions. As a side benefit, our identification results also provide useful, novel insights into optimal experimental design for pricing RCTs.
A Note on Pricing in Search Equilibrium with Adverse Selection
Author: Ben Lockwood
Publisher:
Published: 1988
Total Pages: 34
ISBN-13:
DOWNLOAD EBOOKOn Competitive Nonlinear Pricing
Author: Andrea Attardi
Publisher:
Published: 2015
Total Pages: 46
ISBN-13:
DOWNLOAD EBOOKMany financial markets rely on a discriminatory limit-order book to balance supply and demand. We study these markets in a static model in which uninformed market makers compete in nonlinear tariffs to trade with an informed insider, as in Glosten (1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze the case where tariffs are unconstrained and the case where tariffs are restricted to be convex. In both cases, we show that pure-strategy equilibrium tariffs must be linear and, moreover, that such equilibria only exist under exceptional circumstances. These results cast doubt on the stability of even well-organized financial markets.
Three Principles of Competitive Nonlinear Pricing
Author: Frank H. Page
Publisher:
Published: 2001
Total Pages: 33
ISBN-13:
DOWNLOAD EBOOKDoes Competitive Pricing Cause Market Breakdown Under Extreme Adverse Selection?
Author: George J. Mailath
Publisher:
Published: 2007
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKWe study market breakdown in a finance context under extreme adverse selection with and without competitive pricing. Adverse selection is extreme if for any price there are informed agent types with whom uninformed agents prefer not to trade. Market breakdown occurs when no trade is the only equilibrium outcome. We present a necessary and sufficient condition for market breakdown. If the condition holds, then trade is not viable. If the condition fails, then trade can occur under competitive pricing. There are environments in which the condition holds and others in which it fails.
Competitive Nonlinear Pricing and Contract Variety
Author: Jian Shen
Publisher:
Published: 2016
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKWe analyze markets with both horizontally and vertically differentiated products under both monopoly and duopoly. In the base model with two consumer types, we identify conditions under which entry prompts an incumbent to expand or contract its low end of the product line. Our analysis offers a novel explanation for the widespread use of 'fighting brands' and 'product line pruning.' We also extend our analysis to asymmetric firms and three types of consumers and show that depending on the specific environment, entry may lead the incumbent to expand or contract the middle range of its product line (middle contracts). Our results are mainly driven by interactions between horizontal differentiation (competition) and vertical screening of consumers.
