John Morgan

University of California, Berkeley | UCB · Haas School of Business

We analyze the incentives for showing off, which we model as a costly signaling game, and study the consequences of norms against such behavior. Prior to competing in a contest, a newcomer can signal his talent to an incumbent. In equilibrium, costly signaling of ability occurs only when the newcomer is exceptionally talented. In such situations si...

We show that meritocracy, in the sense of accuracy of performance ranking, can be too much of a good thing: in contests with sufficiently homogeneous agents, it reduces output and is Pareto inefficient. In contests with sufficiently heterogeneous agents, discouragement and complacency effects further reduce the benefits of meritocracy. Perfect meri...

We consider a symmetric two-player contest, in which the choice set of effort is constrained. We apply a fundamental property of the payoff function to show that, under standard assumptions, there exists a unique Nash equilibrium in pure strategies. It is shown that all equilibria are near the unconstrained equilibrium. Perhaps surprisingly, this i...

We reconsider Krugman's (1979) model of trade. We show that the initiation of trade leaves both countries strictly worse off. The reason is that the gains from trade are second-order, while the associated welfare loss from a drop in domestic varieties is first-order. Hence, even if free and costless trade is better than autarky, a bit of trade is w...

We reconsider Krugman's taste-for-variety model of trade (Krugman, 1979). We show that initially, as trade costs drop below the prohibitive level, trade leaves countries worse off and reduces product variety. The reason is that the gains from trade are second-order, while the utility losses associated with the disappearance of domestic varieties ar...

Presidential debates are thought to provide an important public good by revealing information on candidates to voters. However, this may not always be the case. We consider an endogenous model of presidential debates in which an incumbent and a contender (who is privately informed about her own quality) publicly announce whether they are willing to...

Milton Friedman famously suggested that firms ought not divert profits toward public goods because shareholders can better make these contributions themselves. Despite this, activist shareholders are increasingly successful in persuading firms to be “socially responsible.” We study firm behavior when shareholders care about public goods as well as...

We characterize the Nash equilibria of a class of two-player contests with a non-convex strategy space under the usual concavity assumptions. The analysis sheds light on behavior in international conflicts. For instance, it may explain why some attempts to resolve international conflicts have been successful while others have not.

Many empirical studies of online price dispersion show that sellers post different prices for homogeneous goods. However, seller heterogeneity is difficult to control for and posted prices may not reflect price dispersion in actual transactions. We contribute to this literature by selling identical simple goods (cell phone credits) at different pri...

Is it better to be a big fish in a small pond or a small fish in a big pond? To find out, we study self-selection into contests. Our simple model predicts that: 1) entry into the big pond---in terms of show-up fees, number or value of prizes---is non-monotonic in ability; 2) entry into the more meritocratic pond is likewise non-monotonic, exhibitin...

We re-examine the seminal persuasion model of Dye (1985), focusing on the contracting power of current shareholders. Current shareholders determine the disclosure policy of a manager, who may be informed about the firm's value. Current shareholders desire higher future stock prices and dislike volatility. We show that the optimal policy is complete...

We report on the results of experiments where participants choose between entrepreneurship and an outside option. Entrepreneurs enter a market and then make investment decisions to capture value. Payoffs depend on both strategic risk (i.e. the investments of other entrepreneurs) and natural risk (i.e. luck). Absent natural risk, participants endoge...

Levitt and List (2007) hypothesize that pro-social individuals will be selected out of cutthroat industries. To study this, we measure the pro-social preferences of individuals in two such industries, domain trading and online adult entertainment (pornography). Contrary to the selection hypothesis, we find that these individuals exhibit a high degr...

This paper considers identification and estimation of a general model for online price competition. We show that when the number of competing firms is unknown the underlying parameters of the model can still be identified and estimated employing recently developed results on measurement errors. We illustrate our methodology using UK data for person...

Fear of failure can dominate the choices of individuals. We model its role in the decision to become an entrepreneur and subsequent investments made in pursuit of success using the framework of loss aversion. We show that when an individual's threshold for success is sufficiently high, fear of failure motivates additional investment. When the thres...

A firm surveys a large number of consumers, some of whom sincerely report their tastes and others of whom report strategically. It makes product decisions using the sample mean of survey responses. When firms and consumers agree on the fraction of sincere consumers, information loss is severe, and many products are flops as they poorly match consum...

Educational tracking seeks to group students by unobserved ability using measures of observable acquired skills. In a model where individuals have differential skills prior to beginning formal education due to differences in early childhood development (e.g. linguistic, cultural, or nutritional disadvantages), we show that color-blind tracking syst...

While many conjectured that the information-rich and frictionless nature of online markets would result in marginal cost pricing, this has proved not to be the case. Price dispersion online is ubiquitous. The main reason is that price discovery occurs through platforms that have an incentive to ensure that prices are dispersed so that information i...

We compare voluntary and compulsory voting in a Condorcet-type model in which voters have identical preferences but differential information. With voluntary voting, all equilibria involve sincere voting and positive participation. Thus, in contrast to situations with compulsory voting, there is no conflict between strategic and sincere behavior. Wh...

We offer a model of “negative vote buying” – paying voters to abstain. While negative vote buying is feasible under the open ballot, it is never optimal. In contrast, a combination of positive and negative vote buying is optimal under the secret ballot: Lukewarm supporters are paid to show up at the polls, while lukewarm opponents are paid to stay...

We study a Condorcet jury model where voters are driven by instrumental and expressive motives. We show that arbitrarily small amounts of expressive motives significantly affect equilibrium behavior and the optimal size of voting bodies. Enlarging voting bodies always reduces accuracy over some region. Unless conflict between expressive and instrum...

Firms spend considerable amounts on socially responsible business practices. These expenditures are often seen as an indirect form of profit maximization or a perquisite of the manager at shareholder expense. We offer a more direct explanation, absent agency issues or indirect profit maximization --- the manager simply acts in the interest of share...

Majority rule is known to be at odds with utilitarianism --- majority rule follows the preferences of the median voter whereas a utilitarian planner would follow the preferences of the mean voter. In this paper, we show that when voting is costly and voluntary, turnout endogenously adjusts so that the two are completely reconciled: In large electio...

We study career choice when competition for promotion is a contest. A more meritocratic profession always succeeds in attracting the highest ability types, whereas a profession with superior promotion benefits attracts high types only if the hazard rate of the noise in performance evaluation is strictly increasing. Raising promotion opportunities p...

We study optimal fee setting decisions by a monopoly online platform connecting advertisers with potential buyers in two environments: a simple model that captures stylised features of advertising on search engines, social networks and advertisement‐supported email; and a richer model that is more relevant for ‘directed’ search at price comparison...

We study a model where retailers endogenously engage in both brand ad-vertising to attract loyal customers as well as informational advertising, which consists of deciding whether and what price to list on a price comparison site. We derive a symmetric subgame perfect equilibrium of the model and show that endogenous branding does not eliminate equ...

We report on experiments examining the value of commitment in Stack- elberg games where the follower chooses whether to pay some cost ε to per- fectly observe the leader's action. Várdy (2001) shows that in the unique

The market structure of platform competition is critically important to managers and policy makers. While network e¤ects in these markets predict concentrated industry struc-tures, competitive e¤ects and di¤erentiation suggest the opposite. Standard theory o¤ers little guidance— full rationality leads to multiple equilibria with wildly varying mark...

We study a Condorcet jury model where voters are driven both by passion (expressive motives) and by reason (instrumental motives). We show that arbitrarily small amounts of passion significantly affect equilibrium behavior and the optimal size of voting bodies. Increasing the size of voting bodies always reduces accuracy over some region. Unless co...

Increasingly, lobbying groups are subject to transparency requirements, obliging them to provide detailed information about their business. We study the effect this transparency policy has on the nature of lobbying competition. Under mild conditions, mandated transparency leads to an increase in wastefulness of lobbying competition and a decline in...

An overlooked but important benefit of CSR is to insure a firm against a decline in reputation in the face of adverse events. Through a case study and a multi-year analysis of stock price responses for S&P 500 companies following product recalls, we find that firms that have high CSR ratings fare better than those that do not. Furthermore, a firm t...

We conduct a battery of social preference experiments on business people from two contro-versial internet industries—domain trading and adult entertainment (pornography). We then conduct the same experiments on Berkeley students. Levitt and List (2007) conjecture that selection pressures among business people would reduce or eliminate pro-social ch...

We show that the value of commitment is fragile in many standard games. When the follower faces a small cost to observe the leader's action, equilibrium payoffs are identical to the case where the leader's actions are unobservable. Applications of our result include standard Stackelberg–Cournot and differentiated product Bertrand games, as well as...

We study a model in which voters choose between two candidates on the basis of both ideology and competence. While the ideology of the candidates is commonly known, voters are imperfectly informed about competence. Voter preferences, however, are such that ideology alone determines voting. When voting is compulsory, the candidate of the majority id...

This paper (1) presents a general model of online price competition, (2) shows how to structurally estimate the underlying parameters of the model when the number of competing firms is unknown or in dispute, (3) estimates these parameters based on UK data for personal digital assistants, and (4) uses these estimates to simulate the competitive effe...

In many settings, including venture capital financing, mergers and acquisitions, and lease competition, the structure of the contracts over which firms compete differs. Furthermore, the structure of the contract affects the future incentives of the firm to engage in value-creating activities by potentially diluting effort or investment incentives....

We use field and natural experiments in online auctions to study the revenue effect of varying the level and disclosure of shipping charges. Our main findings are (1) disclosure affects revenues—for low shipping charges, a seller is better off disclosing; and (2) increasing shipping charges boosts revenues when these charges are hidden. These resul...

Platform competition is ubiquitous, yet platform market structure is little understood. Theory models typically suffer from equilibrium multiplicity—platforms might coexist or the market might tip to either platform. We use laboratory experiments to study the outcomes of platform competition. When platforms are primarily vertically differentiated,...

Governments and foundations have successfully harnessed tournaments to spur innovation. Yet this tool is not widely used by firms. This article presents a framework for managers seeking to organize tournaments for ideas. It examines the theoretical underpinnings of tournaments and then connects this analysis with three recent innovations—the power...

Theory models of platform competition predict that prices and buyer-seller ratios should be approximately equal on coexisting auction sites. Using field experiments on eBay and Yahoo Auctions, we find evidence that is inconsistent with equilibrium hypotheses and suggest that the market is tipping. Prices on eBay are consistently 20-70 percent highe...

This paper presents theory and experiments to investigate how network architecture influences route-choice behavior. We consider changes to networks that, theoretically, exhibit the Pigou–Knight–Downs and Braess Paradoxes. We show that these paradoxes are specific examples of more general classes of network change properties that we term the “least...

Platform competition is ubiquitous, yet its outcome is little understood. Theory models typically su¤er from equilibrium multiplicity— platforms might coexist or the market might tip to either platform. We use controlled labo-ratory experiments to study the dynamics of tipping in a class of games that included both markets with homogeneous and di¤e...

We study a model where an employer, trying to fill a vacancy, engages in optimal sequential search by drawing from two subpopulations of candidates who differ in their "discourse systems": during an interview, a minority candidate with a discourse system not shared with the employer conveys a noisier unbiased signal of ability than does a majority...

This classroom experiment introduces students to the concept of double marginalization, i.e., the exercise of market power at successive vertical layers in a supply chain. By taking on roles of firms, students determine how the mark-ups are set at each successive production stage. They learn that final retail prices tend to be higher than if the fi...

We report the results of laboratory experiments on rent-seeking contests with endogenous participation. Theory predicts that (a) contest entry and rent-seeking expenditures increase with the size of the prize; and (b) earnings are equalized between the contest and the outside option. While the directional predictions offered in (a) are supported in...

,We thank Colin Camerer, Charles Holt, Ganesh Iyer, John Morgan, RaT Rob, Jos'e Cam?oes Silva and Miguel Villas-Boas for helpful comments. This research is partially supported by the Wharton-SMU Research Center, Singapore Management University. Direct correspondence to any author. Ho: hoteck@haas. berkeley. edu, Haas School of Business, University...

We examine a communication game between an analyst and a decision-maker and investigate how the presence of public information affects the preci-sion of the information the analyst gathers and credibly communicates to the decision-maker. We characterize conditions under which public information causes the analyst to under-invest or over-invest in t...

In many settings, including venture capital financing, mergers and acquisitions, and lease competition, the structure of the contracts (debt versus equity) over which firms compete differs. Furthermore, the structure of the contract affects the future incentives of the firm to engage in value-creating activities by potentially diluting effort or in...

Much of experimental research in marketing has focused on individual choices. Yet in many contexts, the outcomes of one’s choices depend on the choices of others. Furthermore, the results obtained in individual decision making context may not be applicable to these strategic choices. In this paper, we discuss three avenues for further advancing our...

We study optimal contracting under imperfect commitment in a model with an uninformed principal and an informed agent. The principal can commit to pay the agent for his advice but retains decision-making authority. Under an optimal contract, the principal should (i) never induce the agent to fully reveal what he knows-even though this is feasible-a...

We study information transmission via polling. A policymaker polls constituents, who differ in their information and ideology, to determine policy. Full revelation is an equilibrium in a poll with a small sample, but not with a large one. In large polls, full information aggregation can arise in an equilibrium where constituents endogenously sort t...

Cheap-talk models address the question of how much information can be credibly transmitted when communication is direct and costless. When a single informed expert, who is biased, gives advice to a decision maker, only noisy information can be credibly transmitted. The more biased the expert is, the noisier the information. The decision maker can i...

We study strategic voting in a Condorcet type model in which voters have identical preferences but differential information. Voters incur private costs of going to the polls and may abstain if they wish; hence voting is voluntary. We show that under majority rule with voluntary voting, it is an equilibrium to vote sincerely. Thus, in contrast to si...

One primary difference between the online marketplace and the high street is the quality of information about product characteristics and prices that are available to all consumers and retailers. Successful online retailers exploit this rich information through innovative dynamic pricing strategies. This article identifies important considerations...

In an earlier paper (Blinder and Morgan, 2005), we created an experimental apparatus in which Princeton University students acted as ersatz central bankers, making monetary policy decisions both as individuals and in groups. In this study, we manipulate the size and leadership structure of monetary policy decisionmaking. We find no evidence of supe...

We study vote buying by competing interest groups in a variety of electoral and contractual settings. While increasing the size of a voting body reduces its buyability in the absence of competition, we show that larger voting bodies may be more buyable than smaller voting bodies when interest groups compete. In contrast, imposing the secret ballot-...

John Morgan presents a radical proposal to sell voting rights at the IMF and redistribute power through market mechanisms instead of by formula.

John Morgan presents a radical proposal to sell voting rights at the IMF and redistribute power through market mechanisms instead of by formula.

We report the results of laboratory experiments examining platform com- petition in two-sided markets. Owing to "market size"eects that favor the platform with the larger customer base, there always exist equilibria in which all participants "tip" to one platform or the other. When "market impact" eects are su¢ ciently large, then there also exist...

For many years experimental observations have raised questions about the rationality of economic agents--for example, the Allais Paradox or the Equity Premium Puzzle. The problem is a narrow notion of rationality that disregards fear. This article extends the notion of rationality with new axioms of choice under uncertainty and the decision criteri...

We provide a unified treatment of alternative models of information acquisition/transmission that have been advanced to rationalize price dispersion in online and offline markets for homogeneous products. These different frameworks -- which include sequential search, fixed sample search, and clearinghouse models -- reveal that reductions in (or the...

We study a model where an employer, trying to fill a vacancy, engages in optimal sequential search by drawing from two subpopulations of candidates who differ in their "discourse systems": during an interview, a minority candidate with a discourse system not shared with the employer conveys a noisier unbiased signal of ability than does a majority...

Online markets have dramatically altered the retail landscape. By eliminating barriers associated with geography as well as the physical costs of maintaining a storefront, online markets have created a "democracy" of buyers and sellers. However, the fluidity of this marketplace and the relative anonymity of transactions has made the problem of main...

This paper presents theory and experiments to investigate how network architecture influences route-choice behavior by comparing outcomes across several different networks. The network changes we consider are based on abstract examples illustrating the Pigou-Knight-Downs and Braess Paradoxes. We show that these paradoxes are specific examples of mo...

We study the impact of the Euro on prices charged by online retailers within the European Union. Our data span the period before and after the Euro was introduced, cover a variety of products, and include countries inside and outside of the Eurozone. After controlling for cost, demand, and market structure effects, we show that the pure Euro change...

In the presence of competing interest groups, this paper examines how the form of votebuying contracts affects policy outcomes. We study contracts contingent upon individual votes, policy outcomes, and/or vote shares. Voters either care about their individual votes, or about the policy outcome. We find that vote buying is cheaper when what can be c...

We use a laboratory experiment to study advertising and pricing behavior in a market where consumers differ in price sensitivity. Equilibrium in this market entails variation in the number of firms advertising and price dispersion in advertised prices. We vary the cost to advertise as well as varying the number of competing firms. Theory predicts t...

Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of f...

The market values of online platforms, such as Yahoo, stem from their ability to monetize the clicks they generate for firms advertising on their sites. We exploit a unique dataset on clicks from one of Yahoo's price comparison sites to estimate the determinants of clicks received by online retailers. We find that a firm enjoys a 60% jump in its cl...

Using data from one of the Internet’s leading price comparison sites for consumer electronics products, we present evidence for the persistence of price dispersion for 36 homogeneous products. The markets for these products are “thick” with an average of over 20 firms selling each product. We show that prices do not converge to the “law of one pric...

We report an experiment examining a simple clearinghouse model that generates price dispersion. According to this model, price dispersion arises because of consumer heterogeneity—some consumers are “informed” and simply buy from the firm offering the lowest price, while the remaining consumers are “captive” and shop based on considerations other th...

Abstract We study, both theoretically and in the lab, the performance of open outcry debt and equity auctions in the presence of both private information,and hidden,e¤ort in an independent,private value setting. We characterize symmetric,equilibrium,bidding strategies and show that these lead to e¢ cient allocation. More interestingly, the revenue...

The recent theoretical literature suggests that consumer myopia may lead firms to profitably suppress or shroud some attributes of the price. Empirical and experimental data also suggest that sellers gain by transferring a larger fraction of the price to the shrouded attributes. However, alternative theories, including mental accounting, could also...

We model a homogeneous product environment where identical e-retailers endogenously engage in both brand advertising (to create loyal customers) and price advertising (to attract 'shoppers'). Our analysis allows for 'cross-channel' effects; indeed, we show that price advertising is a substitute for brand advertising. In contrast to models where loy...

Clearinghouse models of online pricing---such as Varian (1980), Rosenthal (1980), Narasimhan (1988), and Baye-Morgan (2001)---view a price comparison site as an 'information clearinghouse' where shoppers and loyals obtain price and product information to make online purchases. These models predict that the responsiveness of a firm's demand to a cha...