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We study how a buyer unable to price discriminate should satisfy his demand inthe presence of diseconomies of scale in production. Defying the Coase Conjecture,we show that auctioning contracts for lots (block sourcing) followed by setting aprice to realize (part of) the residual gains from trade always leads to higher buyersurplus than simply setting a price.

We present a novel micro-structure for the market for athletes. Clubs simultaneously target bids at the players, in (Nash) equilibrium internalizing whether - depending on the other clubs' bids - a player not hired would play for the competition. When talent is either scarce or has low outside options,we support - and generalize to heterogeneous players - the Coasian results of Rottenberg (1956) and Fort and Quirk (1995): talent allocation is efficient and independent of initial "ownership" and revenue sharing arrangements.We also characterize equilibria when talent is abundant (or has a high outside option). The analysis uses a non-specific club objective with an endogenously derived trade-off between pecuniary and non-pecuniary benefits.

We study how a buyer should structure his demand in the presence of diseconomies of scale in production. Compared to an efficient market with n (identical)suppliers, he benefits from auctioning large blocks of contracts and sourcing only the remainder via the market. Optimally, he sets n - 2 or n - 1 lots, depending on his bargaining power vs. a single supplier. The distortion leads to overproduction and to the misallocation of production. When he has commitment power and can strategically set the quantity, block sourcing is still beneficial, but - unless his bargaining power is very high - it leads to underproduction.

We present a realistic and novel micro-structure for the market for athletes in league sports. In our trading mechanism the clubs bid for individual players, internalizing the effect that a player not hired might play for the competition. For inelastic talent supply, our (wage minimizing) equilibrium supports the Coasian results of Rottenberg (1956) and Fort and Quirk (1995): talent allocation is independent of initial ownership and revenue sharing arrangements. When talent supply is elastic, revenue sharing decreases the aggregate amount of talent hired. This negative effect on the talent level may be efficiency enhancing when the competition for talent results in excess talent being hired. For the first time in the literature, we carry out our entire analysis using a newly formulated, unspecified club objective, incorporating both pecuniary and non-pecuniary benefits.

We present a model where firms producing substitutes bid for inputs (es-pecially labor) in a decentralized market. We show that downstream marketpower increases the intensity of competition for input through a new channel:local competitive foreclosure. In our model each unit of input (worker) is soldin a separate local market and firms try not just to get it, but also to keepit from their rivals. This externality leads to firms targeting the same unitsof input and the price of these is bid up. This effect mitigates the outputreducing effect of downstream market power and in the limit (linear Cournotwith constant returns) can even restore efficiency. As a result of coordination,there exist further equilibria, with prices above cost even with price takingsuppliers - the labor application this leads to involuntary unemployment.When, instead of targeting, firms post prices, coordination no longer playsa role and we have a unique(!) equilibrium that clears the market, still internalizing the externality. Finally, we show that targeting can also result inendogenous market segmentation and price/wage differentials.

We propose a new model of simultaneous price competition, based on firmsoffering personalized prices to consumers. In a market for a homogeneous goodand decreasing returns, the unique equilibrium leads to a uniform price equalto the marginal cost of each firm, at their share of the market clearing quantity.Using this result for the short-run competition, we then investigate the long-run investment decisions of the firms. While there is underinvestment, theoverall outcome is more competitive than the Cournot model competition.Moreover, as the number of firms grows we approach the competitive long-run outcome.

We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is (symbol), the marginal utility of money, derived from the consumer's rest-of-life problem. It provides a simple criterion for choosing a consumption bundle in a separable consumption problem. We derive a robust approximation of (symbol), and show how to incorporate liquidity constraints, indivisibilities, and adaptation to a changing environment. We find connections with numerous historical and recent constructs, both behavioral and neoclassical, and draw contrasts with standard partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive description of consumer choice.

We analyse a labour matching model with wage posting, where - reflecting institutional constraints - firms cannot differentiate their wage offers within certain subsets of workers. Inter alia, we find that the presence of impersonal wage offers leads to wage compression, which propagates to the wages for high productivity workers who receive personalized offers.

I prove that as long as we allow the marginal utility for money (symbol) tovary between purchases (similarly to the budget) then the quasi-linear andthe ordinal budget-constrained models rationalize the same data. However,we know that (symbol) is approximately constant. I provide a simple constructiveproof for the necessary and sufficient condition for the constant (symbol) rationalization, which I argue should replace the Generalized Axiom ofRevealed Preference in empirical studies of consumer behavior.

We model a market for highly skilled workers, such as the academic job market. The outputs of firm-worker matches are heterogeneous and common knowledge. Wage setting is synchronous with search: firms simultaneously make on personalized offer each to the worker of their choice. With large frictions (delay costs), efficient coordination is not possible, but for small frictions efficient matching with Diamond-type monopsony wages is an equilibrium.

In many decentralised markets, the traders who benefit most from an exchange do not employ intermediaries even though they can easily afford them. For other traders, those who benefit little from trade, intermediaries are too expensive. Together, these observations lead to empirically observed participation choices which are non-monotone in “type”. This paper provides a theoretical foundation for this hitherto unexplained phenomenon. We build a dynamic model, where the equilibrium bargaining share of a trader is a convex increasing function of her type. This characteristic ensures the existence of equilibria where only traders of middle type employ the intermediary, while the rest, the high and the low types, prefer to search for a trading partner directly.Keywords: Decentralised markets, Price formation, Walrasian equilibrium

I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their 'valuation', and for why trade might be detrimental to welfare.

Hold-up arises when part of the return on an agent's relationship-specific investments is ex post expropriable by his trading partner. The hold-up problem has played an important role as a foundation of modern contract and organization theory, as the associated inefficiencies have justified many prominent organizational and contractual practices. We formally describe the main inefficiency hypothesis and sketch out the remedies suggested, as well as the more recent re-examination of the relevance of these theories.

In this note I argue that the traditional argument proving the non-existence of two-person ordinal bargaining solutions is misleading, and also provide an example of such a solution.(This abstract was borrowed from another version of this item.)

The buyer of a homogeneous input employs split-award contracting to divide his input requirements into two contracts that are awarded to different suppliers. The buyer uses a sequential second-price auction to award a larger primary contract and a smaller secondary contract. With a fixed number of suppliers participating in the auctions, we find that the buyer pays a higher expected price than with a sole-source auction. The premium paid to the winner of the secondary contract must also be paid to the winner of the primary contract as an opportunity cost of not winning the secondary contract. With fixed costs of participating in the auction, we identify the conditions under which a secondary contract can increase the number of suppliers and lower the expected price paid by the buyer. An optimal secondary contract can internalize the cost reductions from the new industry capacity and extract the rents of the suppliers. An optimal secondary contract can be particularly beneficial when the number of suppliers is limited by high fixed costs.

Why are moving sales a successful and widespread phenomenon? How can it be optimal for a seller to disclose her low valuation for the item to be sold? We propose an explanation based on the "lemons problem" in bargaining with asymmetric information about quality. Disclosing a low valuation signals that there are significant gains from trade, so that trade takes place when it wouldn't otherwise and all agents are made better off. N/A