Marketplace Design

We study the dynamic mechanism design problem of a seller that repeatedly auctions independent items over a discrete time horizon to buyers that face a cumulative budget constraint. A driving motivation behind our model is the emergence of real-time bidding markets for online display advertising in which such budgets are prevalent. We assume the seller has a strong form of limited commitment: she commits to the rules of the current auction but cannot commit to those of future auctions.

Firms often finance their inventory through debt and subsequently sell it to generate profits and service the debt. Pricing of products is consequently driven by both inventory and debt servicing considerations. In the present paper, we analyze how debt distorts dynamic pricing decisions and reduces generated sales revenues. We show that debt induces sellers to always price higher than the revenue-maximizing price.

People can be surprisingly insensitive to quantities in valuation judgments—a phenomenon called scope insensitivity, which is generally attributed to the operation of affective processes in judgment. Building on research showing that affect is inherently a decision-making system of the present, we propose that scope insensitivity is more likely to be observed in decisions that are psychologically proximate to the immediate self.

We study the relationship between capacity and performance for a service firm with spatial operations, in the sense that requests arrive with origin-destination pairs. An example of such a system is a ride-hailing platform in which each customer arrives in the system with the need to travel from an origin to a destination. We propose a state-dependent queueing model that captures spatial frictions as well as spatial economies of scale through the service rate.

The authors examine how consumers respond to pseudo-free offers--offers that are presented to consumers as free but that require consumers to make a nonmonetary payment (such as completing a survey or providing personal information) in order to receive the "free" good or service. Across six studies, the authors find that consumers are generally just as likely to accept pseudo-free offers (with nonmonetary costs) as comparable truly free offers (with no costs), as long as the costs of the pseudo-free offers are below some threshold.

Consumer reviews and ratings of products and services have become ubiquitous on the Internet. This paper analyzes, given the sequential nature of reviews and the limited feedback of such past reviews, the information content they communicate to future customers. We consider a model with heterogeneous customers who buy a product of unknown quality and we focus on two different informational settings. In the first setting customers observe the whole history of past reviews. In the second one they only observe the sample mean of past reviews.

We study how much communication is needed to find a stable matching in a two-sided matching market with private preferences. Segal (2007) and Gonczarowski et al. (2015) showed that, in the worst case, any protocol that computes a stable matching requires the communication cost per agent to scale linearly with the total number of agents. In markets with many thousands of agents, this communication requirement is implausibly high, casting doubt on whether stable matchings can arise in large markets.

In many auctions, buyers are represented by an intermediary that manages their bidding process, along with that of other buyers. Notably, this is prevalent in the real-time online display advertising market, in which advertisers bid for impressions through intermediaries called demand side platforms (DSPs). In turn, intermediaries, when bidding on behalf of their customers, strategize to maximize some internal objective and may only submit a single bid to limit competition on a given item.

Principals often operate on misspecified models of their agents' preferences. When preferences are such that non-local incentive constraints may bind in the optimum, even slight misspecification of the preferences can lead to large and non-vanishing losses. Instead, we propose a two-step scheme whereby the principal: (1) identifies the model-optimal menu; and (2) modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model-optimal price.