MAS 6V05 Call number 10325

Special Topics: Market Design

Professor Ernan Haruvy

 

 

Credit Hours: 3 hours

                       

Who is this course for: This course is for PhD students (economics and business) seeking to write a research paper or a proposal for a research paper. Topics are geared especially towards special interests in Marketing, Operations Management, Information Systems, and Finance. Students interested in experimental economics will find this course to provide a different perspective (relative to other courses offered by the school in experimental economics) on experimental methods.

 

Synopsis: As researchers in economics and business, we make recommendations to managers and planners. Sometimes these recommendations involve taking an action within the boundaries or rules of the market (e.g., price, production levels, inventory levels, etc.). Other times, we would like to improve existing markets or create new markets that did not exist previously. This is called market design.

This course covers special topics in market design. These topics include markets with friction, prediction markets, asset markets, matching markets, procurement markets and electronic markets. Auction topics will be emphasized—including keyword auctions, multiple unit auctions, spectrum auctions, internet auctions and procurement auctions. Special attention will be given to auction theory and matching theory but not exclusively—only as they apply to each topic.

First and second year students will find this course to be a comprehensive overview of basic concepts and a good first course in the design of markets. More advanced students will find this course useful in understanding the theory behind topics of interest to them. Selected works from economics and business journals are on the reading list and the course will have a strong emphasis on applications. The course will have an equal mix of theory and empirical research, with emphasis on experimental research.

Grading and workload: This class will have no tests. Grades are based on presentation, discussion and an individual project in the form of research paper or proposal. Each student will do two short presentations.

 

 

 

 

Lect

Preliminary Lecture Schedule & Readings

Reading & Presentations

1

5-27

Lecture Topic: Introduction to Market Design and Basic Two-Sided Matching Theory

 

1. Survey students regarding interests

2. Divide up the work load for the semester

3. Intro to Market Design

4. Intro to Matching Theory

 

 

Recommended reading:

Roth, A. (2000), “The Economist as Engineer: Game Theory, Experimentation and Computation as Tools for Design Economics,” Econometrica, 70, 1341-1378

Roth, Alvin E. (2008), "What have we learned from market design?" Hahn Lecture, Economic Journal, 118 (March), 285-310

McMillan, John (2003), “Market Design: The Policy Uses of Theory” American Economic Review. 93 (2), 139-44.

2

6-3

Lecture:

 

One-sided matching

 

Theory, key concepts and applications

 

Two-sided matching

 

Theory, key concepts and applications

 

Matching Applications: 1-sided

Abdulkadiroglu, Atila and Sonmez, Tayfun (1999), House Allocation with Existing Tenants. Journal of Economic Theory, 88(2), 233–60.

 

Chen, Y. and T. Sonmez (2002), Improving Efficiency of On-Campus Housing: An Experimental Study. American Economic Review 92(5), 1669-86.

Wang, Yu and Aradhna Krishna (2006), "Time-Share Allocations: Theory and Experiment", Management Science, 52, 1223-1238.

Krishna, A. and U. Unver (2007), "Efficiency Enhanced Course Bidding: Evidence from a Field Experiment at the University of Michigan Business School", forthcoming Marketing Science.

 

Matching Applications: 2-sided

Roth, A. (1984): “The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory,” Journal of Political Economy, 92, 991–1016.

Roth, A. (1986): “On the Allocation of Residents to Rural Hospitals: A General Property of Two-Sided Matching Markets,” Econometrica, 54, 425–427.

 

Haruvy, Ernan, Alvin E. Roth, and M. Utku Unver, (2006) “The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market,” Journal of Economic Dynamics and Control, 30, 457-486.

3

6-10

Lecture: How to obtain auction data and what to do with it.

Auction Concepts, issues, ideas, data sets.

Auction econometrics.

 

Internet Auctions

Estimating Auction Data

Internet Auctions

3a. Lucking-Reiley, David (2000), Auctions on the Internet: What’s Being Auctioned, and How? J. of Industrial Economics, 48 (3)227-252

3b. Wilcox, R. (2000), Experts and Amateurs: The Role of Experience in Internet Auctions, Marketing Letters 11, 363-374

3c. Roth, A. E., A. Ockenfels. 2002. Last– Minute Bidding and the Rules for Ending Second– Price Auctions: Evidence from eBay and Amazon Auctions on the Internet, American Economic Review, 92 (4), 1093– 1103.

3d. Bruce, N., E. Haruvy and R. Rao (2004) “Seller Rating, Price, and Default in Online Auctions.” J. of Interactive Marketing,18(4), 37-50.

3e. Dholakia, U. M., I. Simonson. 2005. The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior, Marketing Science 24(2), pp. 206-217.

 

Estimating Auction Data (Juncai presenting)

4a. Chan, Tat Y., Kadiyali, Vrinda and Park, Young-Hoon, "Willingness to Pay and Competition in Online Auctions" Journal of Marketing Research, Forthcoming Available at SSRN

4b. Bradlow, Eric T. and Young-Hoon Park (2007), “Bayesian Estimation of Bid Sequences in Internet Auctions Using a Generalized Record Breaking Model,” Marketing Science, 26 (2), 218-229.

4c. Park, Young-Hoon and Eric T. Bradlow (2005), “An Integrated Model for Bidding Behavior in Internet Auctions: Whether, Who, When, and How Much,” Journal of Marketing Research, 42(4), 470-482.

4

6-17

Lecture: Creating New Markets for Advertisers. Keyword auctions and paid placement advertising

Common and affiliated auctions

 

Keyword Auctions: Data, issues, problems

Zsolt Katona and Miklos Sarvary (2008) “The Race for Sponsored Links: A Model of Competition for Search Advertising”

 

Animesh Animesh, Vandana Ramachandran, and Siva Viswanathan (2008), Quality Uncertainty And Adverse Selection In Sponsored Search Markets

Keyword Auctions 1

 

5a. Liu, Chen, Whinston (2008). Current Issues in Keyword Auctions, working paper.

5b. Weber, T.A., and Zheng, E. (2002), A model of search intermediaries and paid referrals. Working Paper 02-12-01, Department of Operations and Information Management, Wharton School.

 

 

Keyword Auctions 2

6a. Feng, J. (2006). Optimal Mechanism for Selling A Set of Commonly Ranked Objects." forthcoming in Marketing Science.

 

6b. He and Chen (2008), Paid Placement Advertising: A Novel Mechanism of Internet Marketing, working paper.

 

6c. Sen, R. J. D. Hess, S. Bandyopadhyay,  and J. Jaisingh (2007), “Pricing Paid Placements on Search Engines,” forthcoming in J. of Electronic Commerce Research.

 

5

6-24

Lecture: Friction in auctions and markets:  impatience, and search

 

Sequential search

Impatience and buy it now  in auctions

 

Search costs and friction in markets

    Haruvy and Popkowski 1 and 2

  Duration

 Haruvy and Popkowski 3  

 

Sequential search and Applications to Housing Markets

7a. Wheaton, W. (1990), Vacancy, Search, and Prices in a Housing Market Matching Model, Journal of Political Economy,98, 1270-1292

 

7b. Zwick, R., A. Rapoport, A. King Lo, A. V. Muthukrishnan (2003), Consumer Sequential Search: Not Enough or Too Much?, Marketing Science 22, 503–519

7c. Ofek, E., M. Yildiz and E. Haruvy (2007), “The Impact of Prior Choices on Subsequent Valuations,” Management Science 53(8), 1217-1233.

 

 

Auctions with Buyout Option

8a. Mathews, T. (2003), The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature, J. of Economics 81, 25-52.

 

8b. Wang, Xin, Alan L. Montgomery, and Kannan Srinivasan (2004), When Auction Meets Fixed Price: A Theoretical and Empirical Examination of Buy-it-Now Auctions, GSIA Working Paper #2004-E19.

6

7-1

Lecture: Procurement Auctions, Asymmetry and multi-units auctions

    Haruvy and Katok 2, Haruvy and Jap 2

Asymmetry

 Cantillon, E. (2000), The Effect of Bidders' Asymmetries on Expected Revenue in Auctions, forthcoming Games and Economic Behavior.

Maskin, Eric and John Riley (2000), Asymmetric Auctions, Review of Economic Studies, 67(3), 413-438.

Elmaghraby, Wedad (2005), The Effect of Asymmetric Bidder Size on an Auction's Performance: Are More Bidders Always Better? Management Science 51, 1763-1776  

Multi-dimensional auctions

Branco, F. 1997. The Design of Multi– Dimensional Auctions, RAND 28 (1), 63– 81.

Che, Y. K. 1993. Design Competition through Multi– Dimensional Auctions, RAND 24, 668– 680.

Multiple Unit Markets and FCC auctions

Milgrom, Paul (2000), “Putting Auction Theory to Work: The Simultaneous Ascending Auction,” Journal of Political Economy, 108:2, 245-272.

 

9a. Jap, S. and E. Haruvy (2008), “Inter-organizational Relationships and Bidding Behavior in Industrial Online Reverse Auctions,” forthcoming Journal of Marketing Research.

9b. Engelbrecht-Wiggans, R. Haruvy, E. and E. Katok (2007), “A Comparison of Buyer-Determined and Price-Based Multi-Attribute Mechanisms,” Marketing Science 26: 629-641.

 

10a. DeMartini, Kwasnica, Ledyard, and Porter (2005), A New and Improved Design for Multi-Object Iterative Auctions, Management Science. 51(3): 419–434

 

10b. Chen-Ritzo, Harrison, Kwasnica, and Thomas. (2005), Better, Faster, Cheaper: An experimental analysis of a multiattribute reverse auction mechanism with restricted information feedback, Management Science. 51(12), 1753-1762  

6.5

Lecture: Package Bidding and Combinatorial Auctions

The Simultaneous Ascending Auction (Milgrom, 2002)

Exposure problem, threshold problem, free-riding problem

Demand reduction (Ausubel and Cramton, 1996)

Collusion

Vickrey-Clarke-Groves (VCG)  Mechanism

Ascending Proxy Auction (Ausubel & Milgrom 2002)

The clock auction

Clock-proxy Auction (Ausubel, Cramton, and Milgrom)

 

 

 

 

“Putting Auction Theory to Work: The Simultaneous Ascending Auction,”
Milgrom (2000), Journal of Political Economy, 108:2, 245-272.

Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), Combinatorial Auctions, MIT Press 2005

7

7-8

Lecture: Channel Design

 

11a. Tony Cui, Jagmohan Raju, Z. John Zhang (2007) "Fairness and Channel Coordination", Management Science,  August 2007

11b. “A Theory of Channel Price Promotions,” J. Hess and E. Gerstner, American Economic Review, Vol. 81, No. 4, September 1991, 872‑886.

11c. “Price Discrimination Through a Distribution Channel: Theory and Evidence,” J. Hess, E. Gerstner, and D. Holthausen, American Economic Review, Vol. 84, No. 5, December 1994, 1437‑1445.

 

 

 

8

7-15

Lecture: Prediction Market Design

12a. Charles R. Plott, JorgenWit, and Winston C. Yang. Parimutuel betting markets as information aggregation devices: Experimental results. Economic Theory, 22:311–351, 2003.

12b. Forsythe, R., Nelson, F., Neumann, G. and Wright, J. Anatomy of an Experimental Political Stock Market.

American Economic Review 82. 1142-61.

12c. Wolfgang J. and N. Foutz (2007), "Using Virtual Stock Exchanges to Forecast Box-Office Revenue via Functional Shape Analysis", working paper

 

 

 

 

 

 

9

7-22

Lecture: Asset Market Design

13a. Haruvy, E., Y. Lahav and C. Noussair (2007), Traders’ Expectations in Asset Markets: Experimental Evidence”, American Economic Review, 97(5), 1901-1920, December.

13b. Haruvy, E. and C. Noussair (2006), The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets, Journal of Finance 61, 1119-1157.

 

10

7-29

Lecture:

Peer-to-peer Credit Market Design

Markets with Asymmetric or partial information

 

Peer-to-peer lending

Prosper.com

Zopa.com

 

Markets with partial information

Dufwenberg and Gneezy

14a. Stiglitz, Joseph E. (1990), Peer Monitoring and Credit Markets World Bank Economic Review , 4, 351-366

14b. Rumiany, Diego (2007), Internet Bidding for Microcredit: making it work in the developed world, conceiving it for the developing world, working paper