Program (draft May 18)

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Invited speakers

Roberto Weber  (University of Zurich, Switzerland)
Johannes Johnen (Université catholique de Louvain, Belgium)
Fabio Michelucci (CERGE-EI, Czech Republic)
Sander Onderstal (University of Amsterdam and Tinbergen Institute)
Jens Prüfer (Tilburg University)
Nicolas de Roos (The University of Sydney, Australia)
Eleftheria Triviza (University of Mannheim, Germany)
Andrej Woerner (University of Amsterdam and Tinbergen Institute)

Available abstracts in alphabetical order of speaker:

Johannes Johnen (Université catholique de Louvain, Belgium)
‘Screening Procrastinators with Automatic Renewal Contract’

Automatic contract renewals are a common feature in consumer markets and a frequent concern among policy makers. They can be used to exploit consumer inertia when consumers forgo benefits from switching to better alternatives. I consider two sources for this inertia – limited attention and present bias – which can both lead to procrastination. In both cases, I study how firms can use contract renewal to price discriminate between consumers with different inclinations to procrastinate. Monopolists optimally distort automatic-renewal contracts to exploit procrastination of consumers. However, the more a monopolist designs contracts to exploit procrastinators, the higher are the benefits to more sophisticated consumers who take advantage of these offers by not procrastinating. This adverse-selection problem forces monopolists to focus less on exploiting procrastinating consumers, leading to fewer consumer mistakes. In this setting, information rents can induce monopolists to offer more efficient contracts. I show that adverse selection might not occur with competition, and that competitive firms focus more on exploitation. Competitive firms frequently offer less efficient contracts. Indeed, with limited attention, competition leads to larger renewal prices. I discuss implications for teaser rates and evaluate recent policies on automatic-renewal contracts in the USA and the UK, such as reminders and increased salience of automatic-renewal features.

Fabio Michelucci (CERGE-EI, Czech Republic)
‘How to Boost revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions’

We evaluate the revenue implications of two disclosure policies commonly available in auction design: Disclosure of all bids from past auctions and disclosure of winning bids only. The results from our experiment show that disclosing only the winning bids in first-price auctions with two bidders leads to higher bids and higher revenues in the long run. We explain the finding by the presence of a share of subjects (naive bidders) who fail to understand that the information they are provided with might come from a selected sample when only winning bids are disclosed, and we provide a method to estimate this share. Accordingly, we find that 57% of subjects are naive, and revenues are higher by 6% when only winning bids are disclosed. Our finding may provide a novel rationale as to why sellers rarely disclose losing bids in the field. Joint with Philippe Jehiel  (PSE and UCL)  and Peter Katuscak (RWTH).

Sander Onderstal (University of Amsterdam and Tinbergen Institute)
‘Signalling in Auctions: Experimental Evidence’

We study the relative performance of the first-price sealed-bid auction and the second-price sealed-bid auction in a laboratory experiment where bidders can signal information through their bidding behaviour to an outside observer. We consider two different information settings: the auctioneer reveals either the identity of the winning bidder only, or she also reveals the winner’s payment to an outside observer. We find that the first-price sealed-bid auction in which the winner’s payment is revealed outperforms the other mechanisms in terms of revenue and efficiency. Our findings may have implications for the design of charity auctions, art auctions, and spectrum auctions. Joint with Olivier Bos, Francisco Gomez-Martinez, and Tom Truyts.

Jens Prüfer (Tilburg University)
‘Consumers’ Privacy Choices in the Era of Big Data’

Recent progress in information technologies provides sellers with detailed knowledge about consumers’ preferences, approaching perfect price discrimination in the limit. We construct a model where consumers with less strategic sophistication than the seller’s pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers’ privacy choices. Some consumers benefit but others suffer from their anonymization. Joint with Sebastian Dengler.
Click here to read full paper.

Nicolas de Roos (The University of Sydney, Australia)
‘Collusion with limited product comparability’

We adapt the framework of Spiegler (2016) to examine the effect of limited product comparability on the viability of collusion. Firms choose messages to influence the propensity of consumers to compare products. The cartel hinders transparency on the equilibrium path, and seeks it for optimal punishment. We provide five conditions, each sufficient to ensure obfuscation aids collusion: if firms can mix over messages or commit to messages, if  messages are informative, or if an individual firm or the cartel as a whole can control comparability. We also analyse the impact of message differentiation and complexity for optimal messages, and identify a key role for the convexity or concavity of comparison probabilities in these features.

Eleftheria Triviza (University of Mannheim, Germany)
‘The Optimal Pricing Scheme when Consumers are Habit Forming’

This article analyses how consumers’ habit formation affects firms’ pricing policy. Sophisticated and naive consumers are considered. The former realize that their current consumption will affect future consumption, the latter do not. Our main result, both with symmetric and asymmetric information, is that under naive habit formation, the optimal pricing pattern is a three part tariff, namely a fixed fee, an amount of units priced below cost and after their end pricing above marginal cost. Different from Grubb (2009), we claim that only one mistake, in our case underestimation of future demand, is sufficient for three part tariff to be optimal.

Roberto Weber (University of Zurich, Switzerland)
‘Moral Behavior in Markets’

Socially responsible behavior by consumers presents a complementary approach to regulation for mitigating inefficiencies caused by negative external effects from market activity. This makes it important to understand the factors that influence consumer social responsibility. We investigate whether economic growth, leading to higher consumer income, causes an increase in consumers’ willingness to pay to avoid negative impacts from their consumption.

National-level data suggests a positive relationship between income and socially responsible expenditures. To complement this correlational evidence, we employ a laboratory market experiment in which we exogenously vary consumers’ incomes, thus allowing a causal interpretation of the relationship between income growth and socially responsible market behavior. Our results reveal a positive relationship between consumer income and socially responsible consumption, similar in magnitude to the evidence from correlational data.

Andrej Woerner (University of Amsterdam and Tinbergen Institute)
‘Exercising More with a Matched Bet’

Using a field experiment, I study a new commitment device designed to help people stick to their exercising goals. The device is a matched bet that satisfies ex-post strict budget-balancedness. In a theoretical model I show offering a matched bet helps both sophisticated and naïve procrastinators. My experimental results confirm my theoretical predictions. Offering a matched bet has a significant positive effect on gym attendance. The effect is largest for people who procrastinated exercising in the past. Overall, the matched bet proves a promising device to help people exercise more. I also discuss how a matched bet could be applied to other areas such as smoking cessation, weight loss and academic performance.