Three Games of Asymmetric Information
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School of Business |
Doctoral thesis (article-based)
| Defence date: 2024-05-07
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Authors
Date
2024
Major/Subject
Mcode
Degree programme
Language
en
Pages
15 + app. 57
Series
Aalto University publication series DOCTORAL THESES, 85/2024
Abstract
This thesis is a collection of three essays that study three different economic settings in which asymmetric information has a central role. The first essay studies the externalities that employers' selective hiring policies cause for other employers. Employers match with workers in the unemployment pool, observe noisy signals about their productivity and hire candidates with good enough signals. A high (low) threshold for acceptable signals induce strong (slight) adverse selection into the unemployment pool which may rationalize adopting a high (low) threshold, resulting in multiple equilibria. Employers are better off in an equilibrium with a high threshold, in contrast to the workers who prefer a low threshold. The model can explain statistical discrimination between demographic groups and can be adapted to other applications such as the credit market. The second essay compares the first-price and the second-price auctions in a setting where the buyers receive random outside offers after bidding but before paying for the item. The winner of the auction can costlessly default on the payment if she is offered a cheaper price. The first-price auction collects more revenue and has lower optimal reservation price under standard assumptions. The seller can benefit from setting a price ceiling along with a reservation price. In the third essay (joint with Mikael Mäkimattila), we examine start-ups' incentives to innovate, enter and compete on a market occupied by an incumbent firm which is willing to eliminate competition with buyouts. When a start-up's innovation effort and success are private, it may achieve a successful sell-out without bringing technological advancements to the market. This weakens the incentives to innovate and encourages market entry without competitive advantage. To obtain a good buyout deal, a start-up with no innovation must enter and compete aggressively as to mimic an innovative start-up. We analyze the effects of competition policy: allowing buyouts decreases innovation to an inefficiently low level, increases socially wasteful market entry and leads to inefficient production by the non-innovative start-ups. However, allowing buyouts intensifies the initial competition before a buyout.Description
Supervising professor
Murto, Pauli, Prof., Aalto University, Department of Economics, FinlandThesis advisor
Välimäki, Juuso, Prof., Aalto University, Department of Economics, FinlandHauser, Daniel, Assist. Prof., Aalto University, Department of Economics, Finland
Keywords
game theory, information economics, statistical discrimination, auctions, merger policy
Other note
Parts
- [Publication 1]: Eero Mäenpää. Screening with Common-Pool Externalities. Unpublished manuscript.
- [Publication 2]: Eero Mäenpää. Auctions with Outside Offers. Unpublished manuscript.
- [Publication 3]: Eero Mäenpää and Mikael Mäkimattila. Fake It Till You Exit. Unpublished manuscript.