Essays on Information Dynamics

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Journal Title
Journal ISSN
Volume Title
School of Business | Doctoral thesis (article-based)
Date
2019
Major/Subject
Mcode
Degree programme
Language
en
Pages
173
Series
Aalto University publication series DOCTORAL DISSERTATIONS, 78/2019
Abstract
This theses studies how information and its timing affect strategic behavior. The thesis consists of three separate essays. Each analyzes a situation where information arrives endogenously over time as a consequence of actions taken. In the first essay, a monopolistic seller launches a new product to a market. The true value of the product is unknown to both the monopolist and the consumers. It can be learned as consumers try out the product. The consumers impose an informational externality on each other as late buyers benefit from the information produced by early buyers. Consumers have an incentive to postpone purchasing decision and free-ride on the experimentation of other consumers. The monopolist can affect consumers' incentives through pricing. The essay concentrates on the impact of the monopolist's commitment power. When the monopolist cannot precommit to a pricing scheme, she ends up charging low prices once the uncertainty is resolved, which tend to cause inefficiently little experimentation as consumers want to postpone delay their purchase. As a result, the welfare implications of the famous Coase conjecture can be overturned: monopolist's commitment power may increase both total and consumer surplus. The second essay studies a related experimentation problem where actions today have a long-lasting impact on information generation in the future. We study the optimal expansion path of irreversible actions when the decision maker does not know the state of the world, which affects optimal actions. The state of the world can be learned as the consequences of past actions will be revealed. We highlight a novel dynamic trade-off: acting today speeds up information generation in the future, but postponing enables the current action to be made with more information. This trade-off is not present when the feedback of actions is immediate, which is the case in the first essay and in the existing literature. The third essay departs from the symmetric information of the first and second essay by having an informed seller. The seller I use an information design approach to show that the endogenous information revelation in a finite horizon reputation setting tends to be too intense. The optimal information structure with exogenous signals starts revealing the type earlier than would be necessary in order to incentivize the players. Under the optimal information structure, the information unravels sooner and more gradually so that some normal type long-run players are able to keep a high reputation longer.
Description
Supervising professor
Välimäki, Juuso, Prof., Aalto University, Department of Economics, Finland
Thesis advisor
Murto, Pauli, Prof., Aalto University, Department of Economics, Finland
Terviö, Marko, Prof., Aalto University, Department of Economics, Finland
Keywords
endogenous learning, experimentation, dynamic pricing, Coase conjecture, reputations, information design
Other note
Parts
  • Julia Salmi; Tuomas Laiho. Social learning and monopoly pricing with forward looking buyers
  • Julia Salmi; Tuomas Laiho; Pauli Murto. Endogenous Learning from Incremental Actions
  • Julia Salmi. Optimal Reputation Dynamics
Citation