Discussion Paper No. 554
November 25, 2025
Oligopolistic Information Markets
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Abstract:
In modern information markets, buyers routinely combine signals from multiple sellers. We develop a model of ``portfolio competition'' to analyze this distinctive feature. We show that the combinability of information overturns standard oligopoly intuition. Unlike traditional markets, competitive pressure does not necessarily protect buyers: when signals are complements, sellers can leverage the buyer's desire for the joint portfolio to extract the full social surplus, regardless of the number of competitors. We characterize the precise conditions for rent extraction, which reduce to a simple geometric test for symmetric sellers. Furthermore, we find that the canonical logic of market entry fails. Entry is never socially excessive because efficient portfolio choices eliminate business-stealing effects. Paradoxically, entry can reduce competitive pressure: when entrants provide strong complementarities, they shift the buyer's threat point, allowing all sellers to extract higher rents.
Keywords:
information markets; portfolio competition; market entry; data economy; complementarity;
JEL-Classification:
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Discussion Paper No. 553
Demand-Investment in Distribution Channels
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Abstract:
We study a manufacturer's demand-investment decisions in distribution channels subject to double marginalization. Casting this as a mechanism design problem, we show that demand-enhancing investments strengthen retailers' incentives to exploit market power, forcing manufacturers to concede greater rents. Manufacturers therefore optimally restrict product quality or market coverage. We fully characterize which demand parameters create these perverse incentives: increases benefit manufacturers in segments where they control pricing but harm them in segments with binding incentive constraints. This reveals fundamental limits to demand-side investment in vertical relationships.
Keywords:
demand; investment incentives; distribution channels; double marginalization;
JEL-Classification:
D21; D82; L11;
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Discussion Paper No. 540
July 28, 2025
Mean Field Portfolio Games with Epstein-Zin Preferences
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Abstract:
We study mean field portfolio games under Epstein-Zin preferences, which naturally encompass the classical time-additive power utility as a special case. In a general non-Markovian framework, we establish a uniqueness result by proving a one-to-one correspondence between Nash equilibria and the solutions to a class of BSDEs. A key ingredient in our approach is a necessary stochastic maximum principle tailored to Epstein-Zin utility and a nonlinear transformation. In the deterministic setting, we further derive an explicit closed-form solution for the equilibrium investment and consumption policies.
Keywords:
epstein-zin utility; mean field game; stochastic maximum principle;
JEL-Classification:
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Discussion Paper No. 538
Surplus Squeeze and Informational Hold-Up
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Abstract:
We study a static bilateral trade setting with moral hazard, where a seller privately chooses quality and a buyer may pay to verify it. We show that buyer-side information acquisition can lead to informational hold-up through a mechanism wecall surplus squeezing: precise verification enables the seller to extract all buyer surplus, deterring inspection and causing trade to unravel. When verification is noisy, uncertainty preserves buyer surplus and sustains trade. Our framework highlights how strategic responses to learning can distort investment incentives, offering a new perspective on the limits of information precision in mitigating moral hazard.
Keywords:
surplus squeeze; informational hold-up; buyer learning; costly information;
JEL-Classification:
D82; D83;
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Discussion Paper No. 535
July 13, 2025
The Production of Information to Price Discriminate
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Abstract:
We study price discrimination by a monopolistic seller that endogenously produces a market segmentation at a cost, and question the efficiency of the production of market segmentations led by private incentives. We show that the efficient market segmentation gives all the gains in total surplus to the buyer, and the seller profit stays at the uniform profit level. Our result suggests that the private production of information by sellers to price discriminate is significantly inefficient.
Keywords:
price discrimination; cost of information; production of information;
JEL-Classification:
D42; D83; L12;
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Discussion Paper No. 525
January 29, 2025
Informative Certification: Screening vs. Acquisition
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Abstract:
We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information.
Keywords:
certification; disclosure; screening; information acquisition; monopolistic distortions;
JEL-Classification:
D82;
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Discussion Paper No. 517
December 8, 2024
A Mean-Field Game of Market Entry
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Abstract:
We consider both N-player and mean-field games of optimal portfolio liquidation in which the players are not allowed to change the direction of trading. Players with an initially short position of stocks are only allowed to buy while players with an initially long position are only allowed to sell the stock. Under suitable conditions on the model parameters we show that the games are equivalent to games of timing where the players need to determine the optimal times of market entry and exit. We identify the equilibrium entry and exit times and prove that equilibrium mean-trading rates can be characterized in terms of the solutions to a highly non-linear higher-order integral equation with endogenous terminal condition. We prove the existence of a unique solution to the integral equation from which we obtain the existence of a unique equilibrium both in the mean-field and the N-player game.
Keywords:
portfolio liquidation; mean-field game; Nash equilibrium; trading constraint; non-linear integral equations;
JEL-Classification:
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Discussion Paper No. 495
February 15, 2024
Insourcing Vs Outsourcing in Vertical Structure
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Abstract:
We study an agency model with vertical hierarchy---the principal, the prime-agent and the sub-agent. The principal faces a project that needs both agents' services. Due to costly communication, the principal receives a report only from the prime-agent, who receives a report from the sub-agent. The principal can directly incentivize each agent by setting individual transfers (insourcing), or sets only one overall transfer to an independent organization in which the prime-agent hires the sub-agent (outsourcing). We show that insourcing is always optimal when the principal can perfectly process the prime-agent's report. When the principal's information process is limited, however, outsourcing can be the prevailing mode of operation. In addition, insourcing under limited information process is prone to collusion between the agents, whereas no possibility of collusion arises with outsourcing.
Keywords:
information process; sourcing policy; vertical structure;
JEL-Classification:
D86; L23; L25;
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Discussion Paper No. 409
July 5, 2023
(Dis)honesty and the Value of Transparency for Campaign Promises
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Abstract:
Promise competition is prevalent in many economic environments, but promise keeping is often difficult to observe. We study the value of transparency for promise competition and ask whether promises still offer an opportunity to honor future obligations when outcomes do not allow for observing promise keeping. Focusing on campaign promises, we show theoretically how preferences for truth-telling shape promise competition when promise keeping can(not) be observed and identify the causal effects of transparency in an incentivized experiment. Transparency leads to less promise breaking but also to less generous promises. Rent appropriations are higher in opaque institutions though only weakly so when not fully opaque. Instrumental reputational concerns and preferences for truth-telling explain these results.
Keywords:
campaign promises; promise breaking; voting; lying costs; preferences for truth-telling; political Economy; theory; experiment;
JEL-Classification:
C91; C92; D72; D73; D91;
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Discussion Paper No. 391
March 29, 2023
On the (Ir)Relevance of Fee Structures in Certification
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Abstract:
Restrictions on certifiers’ fee structures are irrelevant for maximizing their profits and trade efficiency, and for the implementability of (monotone) distributions of rents. The irrelevance results exploit that certification schemes involve two substitutable dimensions—the fee structure and the disclosure rule—and adaptations in the disclosure dimension can mitigate restrictions on the fee dimension. While restrictions on fee structures do affect market transparency, it has no impact on economic efficiency or rent distributions.
Keywords:
certification; fee structures; disclosure rules; transparency;
JEL-Classification:
D82;