Working Papers

A Wind Tunnel Test of Wind Farm Auctions

Joint work with Xinyu Li, Sander Onderstal and Jasper Veldman

Globally, governments increasingly rely on auctions to advance renewable energy. We study the design of wind farm auctions and analyze the impact of price guarantees and subsidies. While in the theoretical analysis the price guarantee has no effect, our laboratory experiment suggests that it improves efficiency and often increases production and revenue. The price guarantee turns out to nullify correlations between participants’ willingness to take risks and their bids, which, in turn, improves efficiency relative to the case without price guarantee. The subsidy is less effective than suggested by theory. Bidders with a higher valuation tend to bid more conservatively than the equilibrium prediction, thus neutralizing the efficiency-enhancing effect of the subsidy. Our results also have implications for other auctions in which rights are allocated to enter markets characterized by heavy upfront investments and uncertainty about future payoffs.

This version: May 20, 2024.

Punching above One’s Weight – On Overcommitment in Election Campaigns

Joint work with Sander Onderstal and Yohanes Riyanto

In this paper, we develop a game-theoretic model to study how candidates compete in elections when voters care about the winner’s ability to implement policies. In our model, the candidates make commitments before the election regarding the plans they will try to implement if elected. These commitments serve as a signal of ability. In equilibrium, candidates make overambitious promises. While the candidate with the highest ability wins, the electorate may be better off having a random candidate implement her best plan, rather than seeing the winner implementing an overambitious plan.

This version: April 19, 2024.

Choosing your Battles: Endogenous Multihoming and Platform Competition

Joint work with Nannette Stoffers and Gijsbert Zwart

 We study how digital platforms can choose competitive strategies to influence the number of multihoming consumers. Platforms compete for consumers and advertisers. A platform earns a premium from advertising to singlehomers, as it is a gatekeeper to these consumers. Competitive strategies leading to intense competition on the consumer side reduce profits on that side, but also increase consumer singlehoming and hence market power over advertisers. The size of the singlehoming premium determines where this competitive strategy ‘seesaw’ will end up. We apply this insight to four strategic choices that may affect singlehoming: reducing product differentiation, portfolio diversification, the choice of compatibility and tying.

This version: April 15, 2024.

There is a cartoon video version here.

Winning Back the Unfaithful while Exploiting the Loyal; Retention Offers and Heterogeneous Switching Costs

Joint work with Wim Siekman.

We study retention offers, the practice that firms lower prices to consumers that want to cancel their contract. In a two-period Hotelling model, consumers have either low or high switching costs. In the second period, firms try to poach consumers. Consumers with a poaching offer can solicit a retention offer from their original supplier. In equilibrium, only low switching costs go though the effort of obtaining a poaching offer. Hence, retention offers serve as a mechanism to price discriminate against high switching cost consumers. In our model, the possibility of retention offers increases prices and profits. Consumer surplus decreases.

This version: May 19, 2021