Economics Commons^™

Dynamic Competition With Network Externalities: Why History Matters, Hanna Halaburda, Bruno Jullien, Yaron Yehezkel

Hanna Halaburda

Competing By Restricting Choice: The Case Of Search Platforms, Hanna Halaburda, Mikolaj Jan Piskorski, Pinar Yildirim

Hanna Halaburda

The Role Of Coordination Bias In Platform Competition, Hanna Halaburda, Yaron Yehezkel

Hanna Halaburda

Endogenous R&D And Intellectual Property Laws In Developed And Emerging Economies, Aniruddha Bagchi, Abhra Roy

Abhra Roy

The incentive of providing protection of intellectual property has been analyzed, both for an emerging economy as well as for a developed economy. The optimal patent length and the optimal patent breadth within a country are found to be positively related to each other for a fixed structure of laws abroad. Moreover, a country can respond to stronger patent protection abroad by weakening its patent protection under certain circumstances and by strengthening its patent protection under other circumstances. These results depend upon the curvature of the R&D production function. Finally, we investigate the impact of an increase in the willingness-to-pay …

All-Units Discounts As A Partial Foreclosure Device, Yong Chao, Guofu Tan

Yong Chao

All-units discounts (AUD) are pricing schemes that lower a buyer’s marginal price on every unit purchased when the buyer’s purchase exceeds or is equal to a pre-specified threshold. The AUD and related conditional rebates are commonly used in both final-goods and intermediate-goods markets. Although the existing literature has thus far focused on interpreting the AUD as a price discrimination tool, investment incentive program, or rent-shifting instrument, the antitrust concerns on the AUD and related conditional rebates are often their plausible exclusionary effects.

In this article, we investigate strategic effects of volume-threshold based AUD used by a dominant firm in the …

Pay-What-You-Want Pricing: Can It Be Profitable?, Yong Chao, Jose Fernandez, Babu Nahata

Yong Chao

Using a game theoretic framework, we show that not only can pay-what-you-want (PWYW) pricing generate positive profits, but it can also be more profitable than charging a fixed price to all consumers. Further, whenever it is more profitable, it is also Pareto-improving. We derive conditions in terms of two parameters, namely the marginal cost of production and the psychological cost of the consumer for paying too little compared to her reference price.

The paper makes the following contributions to the existing literature. First, we endogenize the choice of pricing strategies—PWYW vs. fixed price. Thus rather than solely focusing on the …

Nonlinear Pricing With Asymmetric Competition, Yong Chao, Guofu Tan, Adam Chi Leung Wong

Yong Chao

No abstract provided.

Vertical Probabilistic Selling: The Role Of Consumer Anticipated Regret, Yong Chao, Lin Liu, Dongyuan Zhan

Yong Chao

This paper studies vertical probabilistic selling (mixing products with different qualities) when firms compete, and consumers have different abilities to anticipate the potential post-purchase regret raised by the possibility of obtaining the inferior products. We show that, when consumers have either no or full ability to anticipate the regret, probabilistic selling emerges only when the product differentiation between firms is intermediate. However, when consumers have partial ability to anticipate the regret, probabilistic selling will arise more often and yield higher profit compared with the previous two cases. This is due to the “reverse quality discrimination”: the perceived quality of the …

Tick Size Constraints, Two-Sided Markets, And Competition Between Stock Exchanges, Yong Chao, Chen Yao, Mao Ye

Yong Chao

We investigate competition between stock exchanges that choose the number of trading platforms to establish and the fee structure on each platform. U.S. exchanges compete for order flow by setting “make” fees for limit orders and “take” fees for market orders. When traders can quote continuous prices, the manner in which exchanges divide the total fee between makers and takers is irrelevant, because traders can choose prices that perfectly counteract any division of the fee. In such a case, order flow will simply consolidate to the platform with the lowest total fee. The one-cent minimum tick size constraints imposed by …

The Degree Of Distortions Under Second-Degree Price Discrimination, Yong Chao, Babu Nahata

Yong Chao

We consider second-degree price discrimination for two types of consumers. When the net-of-cost valuation functions cross at least once at some positive quantity, it is always optimal to serve both types of consumers. Moreover, the type with the higher valuation peak always gets the socially efficient quantity. The sufficient and necessary condition for the overall efficiency is the peak of each type's net-of-cost valuation is above the other type's net-of-cost valuation at that peak quantity. For two general linear demands, we quantify the degree of efficiency, upward and downward distortions.

Collusive Bidding In The Fcc Spectrum Auctions, Peter Cramton, Jesse Schwartz

Jesse A. Schwartz

This paper describes the bid signaling that occurred in many of the FCC spectrum auctions. Bidders in these auctions bid on numerous spectrum licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to raise the bid on any license. Simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This “code bidding” occurs when one bidder tags the last few digits of its bid with the market number of a related license. We examine how extensively bidders signaled each other with retaliating bids …

Cartelization Through Buyer Groups, Chris Doyle, Martijn Han

Martijn A. Han

Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to commit credibly to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an ‘implied cartel’ depends on the retailers’ incentives to source their inputs secretly from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase …

Information And Two-Sided Platform Profits

Hanna Halaburda

Modeling The Effects Of Wage Premiums On Airline Competition Under Asymmetric Economies Of Density: A Case Study From Brazil, Alessandro V. M. Oliveira, Lucia Helena Salgado, Cícero R. Melo Filho, Renato C. Sato

Alessandro V. M. Oliveira

This paper investigates the effects of wage premiums on the competition between Full Service Carriers (FSC) and Low Fare Carriers (LFC) in the airline industry. We study the impact of changes in the labor market and the resulting effects on performance in the product market and examine the role of economies of density. We develop an oligopoly model of airline competition with endogenous wages and simulate increases in labor costs. We apply the model to the case of the most important domestic route of Brazil using airline/route-specific demand and costs data. Our chief contribution relies on the empirical model of …

Agency And Compensation: Evidence From The Hotel Industry, Matthew Freedman, Renata Kosova

Matthew Freedman

Technology Licensing In A Differentiated Oligopoly, Aniruddha Bagchi, Arijit Mukherjee

Aniruddha Bagchi

Second Chance Offers In Auctions, Aniruddha Bagchi, Brett Katzman, Timothy Mathews

Aniruddha Bagchi

When Does A Platform Create Value By Limiting Choice?, Ramon Casadesus-Masanell, Hanna Halaburda

Hanna Halaburda

The Role Of Family Ties In Mitigating Moral Hazard: Firm-Level Evidence From Tamil Nadu, India, Goldie Chow

Goldie Chow

Drawing on firm-level data from the district of Coimbatore in Tamil Nadu, India, this study explores the role of family ties as a means to counteract potential moral hazard concerns. It is shown that firms will be more likely to employ family relations when faced with a higher hidden context for moral hazard. Specifically, the analysis finds that the presence of family members within the firm is higher when the firm provides general training and that firms that are more likely to do external business with family relations when it is believed that the legal system is not effective. Additionally, …

Strategic Effects Of Three-Part Tariffs Under Oligopoly, Yong Chao

Yong Chao

The distinct element of a three-part tariff, compared with linear pricing or a two-part tariff, is its quantity target within which the marginal price is zero. This quantity target instrument enriches the firm's strategy set in dictating the competition to a specific level, even in the absence of usual price discrimination motive. With general differentiated linear demand system, the competitive effect of a three-part tariff in contrast to linear pricing depends on the degree of substitutability between products: competition is intensified when two products are more differentiated, yet softened when two products are more substitutable.

Individually Rational Buyback Contracts With Inventory Level Dependent Demand, Lokendra Devagan, R K Amit, Peeyush Mehta, Sanjeev Swami, Kripa Shanker

R K Amit

In this paper, we consider a supply chain coordination problem when demand faced by a retailer is influenced by the amount of inventory displayed on the retail shelf. We assume that shelf space inventory is used as one of the levers to stimulate demand. Our objective in this research is to design individually rational contracts that coordinate the supply chain when the retailer faces inventory-level-dependent demand. We consider a buyback contract where any leftover inventory at the retailer can be returned to the supplier at a pre-specified terms of the buyback contract. The existing buyback contracts in the supply chain …

Tight Representation Of Logical Constraints As Cardinality Rules, John Hooker, Hong Yan

John Hooker

We address the problem of finding a "tight" representation of complex logical constraints in a mixed integer programming model by describing a convex hull representation of cardinality rules.

Approximate Compilation Of Constraints Into Multivalued Decision Diagrams, Tarik Hadzic, John Hooker, Barry O'Sullivan, Peter Tiedemann

John Hooker

We present an incremental refinement algorithm for approximate compilation of constraint satisfaction models into multivalued decision diagrams (MDDs). The algorithm uses a vertex splitting operation that relies on detection of equivalent paths in the MDD. Although the algorithm is quite general, it can be adapted to exploit constraint structure by specializing the path equivalence test to particular constraints.We show how to modify the algorithm in a principled way to obtain an approximate MDD when the exact MDD is too large for practical purposes. This is done by replacing the equivalence test with a constraint-specific measure of distance. We demonstrate the …

Testing Heuristics: We Have It All Wrong, John Hooker

John Hooker

The competitive nature of most algorithmic experimentation is a source of problems that are all too familiar to the research community. It is hard to make fair comparisons between algorithms and to assemble realistic test problems. Competitive testing tells us which algorithm is faster but not why. Because it requires polished code, it consumes time and energy that could be better spent doing more experiments. This article argues that a more scientific approach of controlled experimentation, similar to that used in other empirical sciences, avoids or alleviates these problems. We have confused research and development; competitive testing is suited only …

Optimal Design Of Truss Structures By Logic-Based Branch And Cut, S. Bollapragada, Omar Ghattas, John Hooker

John Hooker

The truss design problem is to find the optimal placement and size of structural bars that can support a given load. The problem is nonlinear and, in the version addressed here, the bars must take certain discrete sizes. It is shown that a logic-based method that dispenses with integer variables and branches directly on logical disjunctions can solve substantially larger problems than mixed integer programming, even though the nonlinearities disappear in the mixed integer model. A primary purpose of the paper is to investigate whether advantages of logic-based branching that have been demonstrated elsewhere for linear problems extend to nonlinear …

Optimal Movement Of Factory Cranes, Ionuţ Aron, Latife Genç-Kaya, Iiro Harjunkoski, Samid Hoda, John Hooker

John Hooker

We study the problem of finding optimal space-time trajectories for two factory cranes or hoists that move along a single overhead track. Each crane is a assigned a sequence of pickups and deliveries at specified locations that must be performed within given time windows. The cranes must be operated so as not to interfere with each other, although one crane may need to yield to another. The objective is generally to follow a production schedule as closely as possible. We show that only certain types of trajectories need be considered to obtain an optimal solution. This simplifies the operation of …

Mixed Logical-Linear Programming, John Hooker, M. Osorio

John Hooker

Mixed logical/linear programming (MLLP) is an extension of mixed integer/linear programming (MILP). It can represent the discrete elements of a problem with logical propositions and provides a more natural modeling framework than MILP. It can also have computational advantages, partly because it eliminates integer variables when they serve no purpose, provides alternatives to the traditional continuous relaxation, and applies logic processing algorithms. This paper surveys previous work and attempts to organize ideas associated with MLLP, some old and some new, into a coherent framework. It articulates potential advantages of MLLP's wider choice of modeling and solution options and illustrates some …

Good And Bad Futures For Constraint Programming (And Operations Research), John Hooker

John Hooker

Two futures are sketched for constraint programming and operations research. In one, they continue their present emphasis on computational methods. In the other, they are empirical sciences dedicated to prescriptive modeling of human activities, with computation playing an ancillary role. The second future is defended as one in which the two fields, which are at root one field, maintain their vitality and make a more effective contribution to solving the problems of an increasingly complex world.

A Linear Programming Framework For Logics Of Uncertainty, K. Andersen, John Hooker

John Hooker

Several logics for reasoning under uncertainty distribute “probability mass” over sets in some sense. These include probabilistic logic, Dempster-Shafer theory, other logics based on belief functions, and second-order probabilistic logic. We show that these logics are instances of a certain type of linear programming model, typically with exponentially many variables. We also show how a single linear programming package can implement these logics computationally if one “plugs in” a different column generation subroutine for each logic, although the practicality of this approach has been demonstrated so far only for probabilistic logic.

Simpl: A System For Integrating Optimization Techniques, Ionuţ Aron, John Hooker, Tallys Yunes

John Hooker

In recent years, the Constraint Programming (CP) and Operations Research (OR) communities have explored the advantages of combining CP and OR techniques to formulate and solve combinatorial optimization problems. These advantages include a more versatile modeling framework and the ability to combine complementary strengths of the two solution technologies. This research has reached a stage at which further development would benefit from a general-purpose modeling and solution system. We introduce here a system for integrated modeling and solution called SIMPL. Our approach is to view CP and OR techniques as special cases of a single method rather than as separate …