Professor John Wooders

Biography

John Wooders joined UTS in June 2011 from the University of Arizona. His personal web page can be accessed by clicking here.

Distinguished Research Professor, Economics Discipline Group
Core Member, Centre for the Study of Choice
BSC, PHD
 
Phone
+61 2 9514 3206
Room
CB05D.02.29

Research Interests

Strategic behavior in games and markets, game theory, mixed-strategy Nash equilibrium, effect of seller reputation on auction prices, incentives of bidders to enter auctions, "mini-micro" foundations of competitive equilibrium

Can supervise: Yes

Journal Articles

Garratt, R., Walker, M. & Wooders, J. 2012, 'Behavior in second-price auctions by highly experienced eBay buyers and sellers', Experimental Economics, vol. 15, no. 1, pp. 44-57.
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We report on sealed-bid second-price auctions that we conducted on the Internet using subjects with substantial prior experience: they were highly experienced participants in eBay auctions. Unlike the novice bidders in previous (laboratory) experiments, the experienced bidders exhibited no greater tendency to overbid than to underbid. However, even subjects with substantial prior experience tended not to bid their values, suggesting that the non-optimal bidding of novice subjects is robust to substantial experience in non-experimental auctions. We found that auction revenue was not significantly different from the expected revenue the auction would generate if bidders bid their values. Auction efficiency, as measured by the percentage of surplus captured, was substantially lower in our SPAs than in previous laboratory experiments.
Moreno Ruiz, D. & Wooders, J. 2011, 'Auctions with heterogeneous entry costs', Rand Journal Of Economics, vol. 42, no. 2, pp. 313-336.
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If bidders have independent private values and homogeneous entry costs, a first- or second-price auction with a reserve price equal to the seller's value maximizes social surplus and seller revenue. We show that if entry costs are heterogeneous and private information, then the revenue-maximizing reserve price is above the seller's value, a positive admission fee (and a reserve price equal to the seller's value) generates more revenue, and an entry cap combined with an admission fee generates even more revenue. Social surplus and seller revenue may either increase or decrease in the number of bidders, but they coincide asymptotically.
Walker, M., Wooders, J. & Amir, R. 2011, 'Equilibrium play in matches: Binary Markov games', Games and Economic Behavior, vol. 71, no. 2, pp. 487-502.
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We study two-person extensive form games, or "matches," in which the only possible outcomes (if the game terminates) are that one player or the other is declared the winner. The winner of the match is determined by the winning of points, in "point games." We call these matches binary Markov games. We show that if a simple monotonicity condition is satisfied, then (a) it is a Nash equilibrium of the match for the players, at each point, to play a Nash equilibrium of the point game; (b) it is a minimax behavior strategy in the match for a player to play minimax in each point game; and (c) when the point games all have unique Nash equilibria, the only Nash equilibrium of the binary Markov game consists of minimax play at each point. An application to tennis is provided.
Garratt, R. & Wooders, J. 2010, 'Efficiency in Second-Price Auctions: A New Look at Old Data', Review Of Industrial Organisation, vol. 37, no. 1, pp. 43-50.
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Experiments on second-price sealed-bid private value auctions have established that subjects typically bid more than their value, despite the fact that value bidding is a dominant strategy in such auctions. Moreover, the laboratory evidence shows that subjects do not learn to bid their values as they gain more experience. In the present paper, we re-examine the second-price auction data from Kagel and Levin's (Econ J 103:868-879, 1993) classic paper. We find that auction efficiency increases over time, even though the frequency of overbidding is unchanged. We argue that the rise in efficiency is due to a decline in the variability of overbidding. This is consistent with subjects' learning to bid more like each other.
Wooders, J. 2010, 'Does Experience Teach? Professionals and Minimax Play in the Lab', Econometrica, vol. 78, no. 3, pp. 1143-1154.
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Does expertise in strategic behavior obtained in the field transfer to the abstract setting of the laboratory? Palacios-Huerta and Volij (2008) argued that the behavior of professional soccer players in mixed-strategy games conforms closely to minimax play, while the behavior of students (who are presumably novices in strategic situations requiring unpredictability) does not. We reexamine their data, showing that the play of professionals is inconsistent with the minimax hypothesis in several respects: (i) professionals follow nonstationary mixtures, with action frequencies that are negatively correlated between the first and the second half of the experiment, (ii) professionals tend to switch between under- and overplaying an action relative to its equilibrium frequency, and (iii) the distribution of action frequencies across professionals is far from the distribution implied by minimax. In each respect, the behavior of students conforms more closely to the minimax hypothesis.
Moreno Ruiz, D. & Wooders, J. 2010, 'Decentralised Trade Mitigates The Lemons Problem', International Economic Review, vol. 51, no. 2, pp. 383-399.
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In markets with adverse selection, only low-quality units trade in the competitive equilibrium when the average quality of the good held by sellers is low. We show that under decentralized trade, however, both high-and low-quality units trade, although with delay. Moreover, when frictions are small, the surplus realized is greater than the (static) competitive surplus. Thus, decentralized trade mitigates the lemons problem. Remarkably, payoffs are competitive as frictions vanish, even though both high-and low-quality units continue to trade, and there is trade at several prices.
Reynolds, S. & Wooders, J. 2009, 'Auctions with a buy price', Economic Theory, vol. 38, no. 1, pp. 9-39.
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eBay and Yahoo allow sellers to list their auctions with a buy price at which a bidder may purchase the item immediately. On eBay, the buy-now option disappears once a bid is placed, while on Yahoo the buy-now option remains in effect throughout the auction. We show that when bidders are risk averse, both types of auctions raise seller revenue for a wide range of buy prices. The Yahoo format raises more revenue than the eBay format when bidders have either CARA or DARA. Bidders with DARA prefer the eBay auction, while bidders with CARA are indifferent between the two.
Houser, D.E. & Wooders, J. 2006, 'Reputation in auctions: Theory, and evidence from eBay', Journal Of Economics & Management Strategy, vol. 15, no. 2, pp. 353-369.
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Employing a procedure suggested by a simple theoretical model of auctions in which bidders and sellers have observable and heterogenous reputations for default, we examine the effect of reputation on price in a data set drawn from the online auction site eBay. Our main empirical result is that seller's, but not bidder's, reputation has an economically and statistically significant effect on price.
Goeree, J., Plott, C. & Wooders, J. 2004, 'Bidders' choice auctions: Raising revenues through the right to choose', Journal of the European Economic Association, vol. 2, no. 2-3, pp. 504-515.
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Amir, R., Evstigneev, I. & Wooders, J. 2003, 'Noncooperative versus cooperative R&D with endogenous spillover rates', Games And Economic Behavior, vol. 42, no. 2, pp. 183-207.
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This paper deals with a general version of a two-stage model of R&D and product market competition. We provide a thorough generalization of previous results on the comparative performance of noncooperative and cooperative R&D, dispensing in particular with ex-post firm symmetry and linear demand assumptions. We also characterize the structure of profit-maximizing R&D cartels where firms competing in a product market jointly decide R&D expenditure, as well as internal spillover, levels. We establish the firms would essentially always prefer extremal spillovers, and within the context of a standard specification, derive conditions for the optimality of minimal spillover.
Moreno Ruiz, D. & Wooders, J. 2002, 'Prices, delay, and the dynamics of trade', Journal Of Economic Theory, vol. 104, no. 2, pp. 304-339.
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We characterize the dynamics of trading patterns and market composition when trade is bilateral, finding a trading pat trier is costly, prices arc determined by bargaining, and preferences are private information. We show that equilibrium is inefficient and exhibits delay as sellers price discriminate between buyers with different values. As frictions vanish, transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches zero. even though the trading patterns continue to be inefficient and delay persists.
Walker, M. & Wooders, J. 2001, 'Minimax play at Wimbledon', American Economic Review, vol. 91, no. 5, pp. 1521-1538.
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We develop a test of the minimax hypothesis using field data from championship professional tennis matches, and we find that win rates in the serve and return play of top professional tennis players are consistent with the minimax hypothesis. However, the players' choices are not consistent with the serial independence implied by the minimax hypothesis: even the best tennis players tend to switch from one action to another too often.
Wooders, J. & Shachat, J. 2001, 'On the irrelevance of risk attitudes in repeated two-outcome games', Games And Economic Behavior, vol. 34, no. 2, pp. 342-363.
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We study equilibrium and maximin play in supergames consisting of the sequential play of a finite collection of stage games, where each stage game has two outcomes for each player. We show that for two-player supergames in which each stage game is strictly competitive, in any Nash equilibrium of the supergame, play at each stage is a Nash equilibrium of the supergame provided preferences over certain supergame outcomes satisfy a natural monotonicity condition. In particular, equilibrium play does not depend on risk attitudes. We establish an invariance result for games with more than two players when the solution concept is subgame perfection. Classification Numbers: C72, C9.
Amir, R. & Wooders, J. 2000, 'One-way spillovers, endogenous innovator/imitator roles, and research joint ventures', Games And Economic Behavior, vol. 31, no. 1, pp. 1-25.
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We consider a two-period duopoly characterized by a one-way spillover structure in process R&D and a very broad specification of product market competition. We show that a priori identical firms always engage in different levels of R&D, at equilibrium, thus giving rise to an innovator/imitator configuration and ending up with different sizes. We also provide a general analysis of the social benefits of, and firms' incentive for, forming research joint ventures. Another contribution is methodological, illustrating how submodularity (R&D decisions are strategic substitutes) can be exploited to provide a general analysis of a R&D game. Journal of Economic Literature Classification Numbers: C72, L13, O31.
Amir, R. & Wooders, J. 1999, 'Effects of one-way spillovers on market shares, industry price, welfare, and R & D cooperation', Journal Of Economics & Management Strategy, vol. 8, no. 2, pp. 223-249.
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With one-way spillovers, the standard symmetric two-period R & D model leads to an asymmetric equilibrium only, with endogeneous innovator and imitator roles. We show how R & D decisions and measures of firm heterogeneity-market shares, R & D shares, and profits-depend on spillovers and on R & D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions, and social welfare only under extra assumptions, beyond those required with multidirectional spillovers. Finally, the novel issue of optimal R & D cartels is addressed. We show an optimal R & D cartel may seek to minimize R & D spillovers between its members.
Moreno Ruiz, D. & Wooders, J. 1998, 'An experimental study of communication and coordination in noncooperative games', Games And Economic Behavior, vol. 24, no. 1-2, pp. 47-76.
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This paper reports the results of an experiment designed to test the usefulness of alternative solution concepts to explain players' behavior in noncooperative games with preplay communication. In the experiment subjects communicate by plain conversation prior to playing a simple game. In this setting, we find that the presumption of individualistic and independent behavior underlying the concept of Nash equilibrium is inappropriate. Instead, we observe behavior to be coordinated and correlated. Statistical tests reject Nash equilibrium as an explanation of observed play. The coalition proof correlated equilibrium of the game, however, explains the data when the possibility of errors by players is introduced.
Wooders, J. 1998, 'Walrasian equilibrium in matching models', Mathematical Social Sciences, vol. 35, no. 3, pp. 245-259.
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We analyze trading in a model in which the agents and their preferences are the same as in the main models of matching and bargaining, but in which trade is centralized rather than decentralized. We characterize equilibrium when trade is centralized and, by comparing our results with results from the matching literature, we show conditions under which decentralized trading processes reproduce the allocations of our centralized one. We establish that the competitive price as defined in the matching literature (i.e.. relative to the stocks. flows, or totals) coincides, in the appropriate setting, with the equilibrium price in our model.
Amir, R. & Wooders, J. 1998, 'Cooperation vs. competition in R & D: the role of stability of equilibrium', Journal of Economics, vol. 67, no. 1, pp. 63-73.
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We consider a model in which firms first choose process R&D expenditures and then compete in an output market. We show the symmetric equilibrium under R&D competition is sometimes unstable, in which case two asymmetric equilibria must also exist. For the latter, we find, in contrast to the literature that total profits are sometimes higher with R&D competition than with research joint venture cartelization (due to the cost asymmetry of the resulting duopoly in the noncooperative case). Furthermore, these equilibria provide another instance of R&D-induced firm heterogeneity.
Wooders, J. 1998, 'Matching and bargaining models of markets: approximating small markets by large markets', Economic Theory, vol. 11, no. 1, pp. 215-224.
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We show that the equilibrium of a matching and bargaining model of a market in which there is a finite number of agents at each date need not be near the equilibrium of a market with a continuum of agents, although matching probabilities are the same in both markets. Holding the matching process fixed, as the finite market becomes large its equilibrium approaches the equilibrium of its continuum limit.
Wooders, J. 1997, 'Equilibrium in a Market with Intermediation is Walrasian', The Review of Economic Design 3, vol. 3, no. 1, pp. 75-89.
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We show that a profit maximizing monopolistic intermediary may behave approximately like a Walrasian auctioneer by setting bid and ask prices nearly equal to Walrasian equilibrium prices. In our model agents choose to trade either through the intermediary or privately. Buyers (sellers) trading through the intermediary potentially trade immediately at the ask (bid) price, but sacrifice the spread as gains. A buyer or seller who trades privately shares all the gains to trade with this trading partner, but risks costly delay in finding a partner. We show that as the cost of delay vanishes, the equilibrium bid and ask prices converge to the Walrasian equilibrium prices.