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Keynote presentation - Triple-IO: A (P)review - Simon Loertscher

Tracks
Room: CBE LT1
Thursday, June 29, 2023
3:50 PM - 4:45 PM

Overview

INCOMPLETE INFORMATION INDUSTRIAL ORGANISATION IO (Session 1) Convenor: Simon Loertscher


Speaker

Professor Simon Loertscher
Director Cmd
University of Melbourne

Triple-IO: A (P)review

Abstract

Incomplete information IO models have a broad range of applications. In monopoly and monopoly pricing problems, the Triple-IO approach shows when it is optimal for firms to price discriminate, and if so, how to optimally do so. It provides explanations for rationing and underpricing, conflation and opaque pricing and shows that these features remain optimal even if the resulting inefficiency induces resale. In a labor context with monopsony power, efficiency wages and involuntary unemployment arise as optimal because they allow the firm to procure labor at the smallest cost. They can be eliminated by imposing an appropriately chosen minimum wage. Applied to bargaining, the Triple-IO approach permits clear-cut, mechanism-independent definitions of bargaining power. It shows that buyer bargaining and countervailing power are distinct; efficient bargaining implies efficient investments; and bargaining breakdown is an on-path equilibrium phenomenon. It provides a rationale for agents' privacy protection. Inherent to the Triple-IO approach is a fundamental trade-off between social surplus and rent extraction, which is at the core of many problems of interest in economics. Applied to vertical integration, Triple-IO models show that there is no basis for a presumption that it increases or decreases social surplus. After previewing the above, this talk will present a model that provides guidance for merger policy as a function of, typically observable, data related to market structure. In particular, it gives a rationale and directions for divestitures. A laissez-faire merger policy is optimal with two firms but not otherwise because of bargaining externalities that stem from the fact that the efficiency of the market depends on the market structure

Biography

Simon Loertscher is professor of economics and director of the Centre for Market Design (CMD) at the University of Melbourne. His research focuses on Mechanism Design and Industrial Organization. Recent publications of his appeared in the American Economic Review, the Journal of Political Economy, Theoretical Economics, the Journal of Economic Theory and the American Economic Journal: Microeconomics. He is an Associate Editor at the Journal of Economic Theory and the Journal of Industrial Economics and a member of the editorial board at the American Economic Journal: Microeconomics. He is also a founding member of the Asia-Pacific Industrial Organization Society, which organizes the annual APIO Conference.
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