The
goal of this course is to introduce students to the notion of strategic
thinking in environments with private information, using real life examples.
The most prominent theoretical example that is considered at length,
is auction theory; attention is restricted to symmetric single unit
auctions with independent as well as interdependent signals. Participation
and bidding strategies are derived formally. It is shown that many structural
results about participation strategies can be derived under quite general
conditions. We emphasize the importance of participation decisions that
have been, largely, ignored in the literature. It is shown that these
decisions strongly a.ect bidding strategies. The large spectrum auctions
that have taken place in recent years in the US and in Europe, serve
as examples of how economic theory can be applied in reality, as well
as its limitations.
Final
grade is computed as follows: max{exam_grade, 0.7*exam_grade+0.3*HomeAssignment_grade}.
Course outline:
Part I
Strategic Thinking
How to elicit private information
Literal versus strategic liars
How to make truthful response players’ best strategy
How to reason
Naive versus strategic voting
Part II
When coordination is needed
Prisoners’ dilemma and applications
Weak against strong
Part III
Incentives and contracts
Asymmetric information
Moral hazard
Signaling
Market failure: Market for lemons
Part IV
Auction theory
Symmetric, single unit, private value
Participation; large class of games, robustness
Part V
Takeovers
The winner’s curse
Vodafone against Mannesmann, Olivetti against Telecom
Italia, Pfeizer against
American Home Products
Part VI
Spectrum auctions in the US and Europe
SYLLABUS
Naive versus strategic voting Ch. 10 in Dixit and Nalebu. (1991).
Mechanisms that elicit private information Part I in CM.
Applying knowledge and common knowledge J. Geanakoplos (1992),
Part I in CM.
Prisoners’ dilemma and applications Part II in CM.
Market failure and models with private information
Ch. 13, 14 in Mas-Collel, Whinston and Green
Auction theory
Ch. 1, 2, 3 in Krishna (2002) and Part IV in CM.
Auctions, applications: Privatizing spectrum in the US and
Europe
J. McMillan (1994), Binmore and Klemperer (2002), Klemperer (2002a)
and
(2002b).
How to enhance competition and gain
Gal, Landsberger and Nemirovski (2003).
Takeovers: Lessons from recent European experience
Reading List
K. Binmore and P. Klemperer, ”The Biggest Auction Ever: The
Sale of the British 3G Telecom Licences”, Economic Journal, 112, (2002),
74-96.
S. Gal, M. Landsberger and A. Nemirovski, ”Participation in
Auctions”, (2003), (download).
A. Dixit and B. Nalebu., Thinking Strategically, Norton paperback
(1993).
L. Harden and B. Heyman, The Auction-App, McGraw-Hill, (2002).
J. Geanakoplos, ”Common Knowledge” The Journal ofEconomic Perspectives,
Fall (1992), 53-83.
P. Klemperer, ”What Really Matters in Auction Design”, The
Journal of Economic Perspectives, 16, (2002a), 169-190.
P. Klemperer, ”How Not to Run Auctions: The European 3G Telecom
Auctions”, European Economic Review, (2002b), xxx.
V. Krishna, Auction Theory, Academic Press, (2002).
M. Landsberger, Course Manual A. Mas-Collel, M. Winston and
J. Green, Microeconomic Theory, Oxford University Press, (1995)
J. McMillan, ”Selling Spectrum Rights”, The Journal ofEconomic
Perspectives, Summer (1994), p. 145-162.
