We study the design of self-enforcing mechanisms that rely on neither a trusted third party (e.g., court, trusted mechanism designer) nor a long-term relationship. Instead, we use a smart contract written on blockchains as a commitment device. We design the digital court, a smart contract that identifies and punishes agents who reneged on the agreement. The digital court substitutes the role of legal enforcement in the traditional mechanism design paradigm. We show that, any agreement that is implementable with legal enforcement can also be implemented with enforcement by the digital court. To pursue a desirable design of the digital court, we study a way to leverage truthful reports made by a small fraction of behavioral agents. Our digital court has a unique equilibrium as long as there is a positive fraction of behavioral agents, and it gives correct judgment in the equilibrium if honest agents are more likely to exist than dishonest agents. The platform for smart contracts is already ready in 2020; thus, self-enforcing mechanisms proposed in this paper can be used practically, even now. As our digital court can be used for implementing general agreements, it does not leak the detailed information about the agreement even if it is deployed on a public blockchain (e.g., Ethereum) as a smart contract.
{"title":"Mechanism Design with Blockchain Enforcement","authors":"Hitoshi Matsushima, Shunya Noda","doi":"10.2139/ssrn.3554512","DOIUrl":"https://doi.org/10.2139/ssrn.3554512","url":null,"abstract":"We study the design of self-enforcing mechanisms that rely on neither a trusted third party (e.g., court, trusted mechanism designer) nor a long-term relationship. Instead, we use a smart contract written on blockchains as a commitment device. We design the digital court, a smart contract that identifies and punishes agents who reneged on the agreement. The digital court substitutes the role of legal enforcement in the traditional mechanism design paradigm. We show that, any agreement that is implementable with legal enforcement can also be implemented with enforcement by the digital court. To pursue a desirable design of the digital court, we study a way to leverage truthful reports made by a small fraction of behavioral agents. Our digital court has a unique equilibrium as long as there is a positive fraction of behavioral agents, and it gives correct judgment in the equilibrium if honest agents are more likely to exist than dishonest agents. The platform for smart contracts is already ready in 2020; thus, self-enforcing mechanisms proposed in this paper can be used practically, even now. As our digital court can be used for implementing general agreements, it does not leak the detailed information about the agreement even if it is deployed on a public blockchain (e.g., Ethereum) as a smart contract.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117083130","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines vertical relationships in which a monopolistic upstream producer supplies a product through downstream distributors to consumers who may access multiple distributors (i.e., multi-homing). Given that there are multi-homing consumers, exclusive supply of a product induces more consumers to multi-home than non-exclusive supply. Consequently, the upstream firm deals with only one of the distributors exclusively without any contractual arrangements. We also show that forcing non-exclusive supply on the producer may worsen welfare as a result of the reduction of multi-homing consumers.
{"title":"Asymmetric Product Line and Multi-Homing","authors":"A. Ishihara, Ryoko Oki","doi":"10.2139/ssrn.3550355","DOIUrl":"https://doi.org/10.2139/ssrn.3550355","url":null,"abstract":"This paper examines vertical relationships in which a monopolistic upstream producer supplies a product through downstream distributors to consumers who may access multiple distributors (i.e., multi-homing). Given that there are multi-homing consumers, exclusive supply of a product induces more consumers to multi-home than non-exclusive supply. Consequently, the upstream firm deals with only one of the distributors exclusively without any contractual arrangements. We also show that forcing non-exclusive supply on the producer may worsen welfare as a result of the reduction of multi-homing consumers.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131959731","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Effective, legitimate and transparent governance is paramount for the long-term viability of decentralized networks. If the aim is to design such a governance model, it is useful to be aware of the history of decision making paradigms and the relevant previous research. Towards such ends, this paper is a survey of different governance models, the thinking behind such models, and new tools and structures which are made possible by decentralized blockchain technology. Governance mechanisms in the wider civil society are reviewed, including structures and processes in private and non-profit governance, open-source development, and self-managed organisations. The alternative ways to aggregate preferences, resolve conflicts, and manage resources in the decentralized space are explored, including the possibility of encoding governance rules as automatically executed computer programs where humans or other entities interact via a protocol.
{"title":"Governance in Decentralised Networks","authors":"R. Karjalainen","doi":"10.2139/ssrn.3551099","DOIUrl":"https://doi.org/10.2139/ssrn.3551099","url":null,"abstract":"Effective, legitimate and transparent governance is paramount for the long-term viability of decentralized networks. If the aim is to design such a governance model, it is useful to be aware of the history of decision making paradigms and the relevant previous research. Towards such ends, this paper is a survey of different governance models, the thinking behind such models, and new tools and structures which are made possible by decentralized blockchain technology. Governance mechanisms in the wider civil society are reviewed, including structures and processes in private and non-profit governance, open-source development, and self-managed organisations. The alternative ways to aggregate preferences, resolve conflicts, and manage resources in the decentralized space are explored, including the possibility of encoding governance rules as automatically executed computer programs where humans or other entities interact via a protocol.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"68 25","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120819224","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper extends the conventional literature on strategic trade policy in reciprocal dumping model to the context that involves market demand uncertainty and incomplete information. In order to highlight the role of uncertainty and incomplete information, a simple scenario with linear asymmetric demand, additive stochastic market shock, homogeneous products, and identical constant marginal costs are considered. It is shown that incomplete information at industrial level redistributes the option value associated with better information to the country with the better informed firm. As a result, both governments tend to choose tariffs over export subsidies in the Nash equilibrium of the simultaneous strategic trade policy games under complete and incomplete information. This yields a second best outcome. Moreover, we show that Nash equilibrium outcome is inferior to free-trade outcome.
{"title":"Strategic Trade Policy in Reciprocal Dumping Model with Incomplete Information","authors":"Haokai Ning","doi":"10.2139/ssrn.3642753","DOIUrl":"https://doi.org/10.2139/ssrn.3642753","url":null,"abstract":"This paper extends the conventional literature on strategic trade policy in reciprocal dumping model to the context that involves market demand uncertainty and incomplete information. In order to highlight the role of uncertainty and incomplete information, a simple scenario with linear asymmetric demand, additive stochastic market shock, homogeneous products, and identical constant marginal costs are considered. It is shown that incomplete information at industrial level redistributes the option value associated with better information to the country with the better informed firm. As a result, both governments tend to choose tariffs over export subsidies in the Nash equilibrium of the simultaneous strategic trade policy games under complete and incomplete information. This yields a second best outcome. Moreover, we show that Nash equilibrium outcome is inferior to free-trade outcome.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131654265","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A monopolistic seller is marketing a good to a customer whose willingness to pay is determined by both his private type and the quality of the good. The seller can design a menu of both prices and experiments—that reveal information about quality. We show that the optimal mechanism features both price discrimination and information discrimination: buyers with higher private types face lower prices and receive less precise positive signals. Our mechanism remains optimal within a general class of mechanisms satisfying ex post individually rationality. Overall, information design facilitates surplus creation on the extensive margin, but leads to surplus destruction on the intensive margin.
{"title":"(Reverse) Price Discrimination with Information Design","authors":"Dong Wei, Brett Green","doi":"10.2139/ssrn.3263898","DOIUrl":"https://doi.org/10.2139/ssrn.3263898","url":null,"abstract":"A monopolistic seller is marketing a good to a customer whose willingness to pay is determined by both his private type and the quality of the good. The seller can design a menu of both prices and experiments—that reveal information about quality. We show that the optimal mechanism features both price discrimination and information discrimination: buyers with higher private types face lower prices and receive less precise positive signals. Our mechanism remains optimal within a general class of mechanisms satisfying ex post individually rationality. Overall, information design facilitates surplus creation on the extensive margin, but leads to surplus destruction on the intensive margin.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115512091","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The different Pricing Drivers and related attributes shape up the pricing tactics in the retail industry. Pricing Tactics Persuasion Knowledge determines the consumer’s purchase decision based on prior interaction with persuasive actions employed by the brands to close the sales. It all depends upon the PTPK level of the consumers wherein a high PTPK consumer will judge a product differently than a low PTPK consumer. The different pricing strategies employed by the retailer and brands has a direct impact on the customers personal judgement of perceived price fairness which in turn determines the fate of the product where the persuasion is viewed either as a brand gimmick or legitimate offering.
{"title":"Pricing Drivers, Pricing Tactics and Persuasion Knowledge in Retail","authors":"Sarbik Das","doi":"10.2139/ssrn.3543973","DOIUrl":"https://doi.org/10.2139/ssrn.3543973","url":null,"abstract":"The different Pricing Drivers and related attributes shape up the pricing tactics in the retail industry. Pricing Tactics Persuasion Knowledge determines the consumer’s purchase decision based on prior interaction with persuasive actions employed by the brands to close the sales. It all depends upon the PTPK level of the consumers wherein a high PTPK consumer will judge a product differently than a low PTPK consumer. The different pricing strategies employed by the retailer and brands has a direct impact on the customers personal judgement of perceived price fairness which in turn determines the fate of the product where the persuasion is viewed either as a brand gimmick or legitimate offering.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131587215","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze mergers and entry in a differentiated products oligopoly model of price competition. We prove that any merger among incumbents is unprofitable if it spurs entry sufficient in magnitude to preserve consumer surplus. Thus, mergers occur in equilibrium only if barriers limit entry. Numerical simulations indicate that with profit-neutral mergers --- the best-case for consumers --- entry mitigates under 30 percent of the adverse price effects and, in most cases, under 50 percent of the consumer surplus loss. The results suggest a limited and conditional role for entry analysis in merger review.
{"title":"Mergers, Entry, and Consumer Welfare","authors":"Peter P. Caradonna, Nathan H. Miller, Gloria Sheu","doi":"10.2139/ssrn.3537135","DOIUrl":"https://doi.org/10.2139/ssrn.3537135","url":null,"abstract":"We analyze mergers and entry in a differentiated products oligopoly model of price competition. We prove that any merger among incumbents is unprofitable if it spurs entry sufficient in magnitude to preserve consumer surplus. Thus, mergers occur in equilibrium only if barriers limit entry. Numerical simulations indicate that with profit-neutral mergers --- the best-case for consumers --- entry mitigates under 30 percent of the adverse price effects and, in most cases, under 50 percent of the consumer surplus loss. The results suggest a limited and conditional role for entry analysis in merger review.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127975523","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In many durable good contexts, firms price discriminate by charging higher prices for the latest functionality. By contrast, the software market sees little such price discrimination, despite new versions being introduced over time. I propose that the software firm’s ability to price discriminate is restricted by (1) the extent to which consumers value the innovation and (2) the cost associated with legacy software maintenance. To analyze this question, I use a unique dataset of subscriptions to a Fortune 500 firm’s software products. In my data, consumers frequently choose to forgo the free upgrade, electing to renew legacy versions of the product instead. To distinguish among the different factors driving this pattern, I develop a dynamic model of consumer choice of product versions, renewal opportunities and upgrades. The model estimates reveal that although the majority of consumers value new versions, the high value, price insensitive consumers do not, causing it to be unprofitable for the firm to price latest functionality at a premium. Even so, I find that this preference heterogeneity favors a shift to a product with automatic upgrades to the latest functionality, thus providing both a cost and a demand justification for this observed industry trend.
{"title":"New Features Free of Charge? Using Price to Sort Consumers among Legacy Software Versions","authors":"Kristina Brecko","doi":"10.2139/ssrn.3529429","DOIUrl":"https://doi.org/10.2139/ssrn.3529429","url":null,"abstract":"In many durable good contexts, firms price discriminate by charging higher prices for the latest functionality. By contrast, the software market sees little such price discrimination, despite new versions being introduced over time. I propose that the software firm’s ability to price discriminate is restricted by (1) the extent to which consumers value the innovation and (2) the cost associated with legacy software maintenance. To analyze this question, I use a unique dataset of subscriptions to a Fortune 500 firm’s software products. In my data, consumers frequently choose to forgo the free upgrade, electing to renew legacy versions of the product instead. To distinguish among the different factors driving this pattern, I develop a dynamic model of consumer choice of product versions, renewal opportunities and upgrades. The model estimates reveal that although the majority of consumers value new versions, the high value, price insensitive consumers do not, causing it to be unprofitable for the firm to price latest functionality at a premium. Even so, I find that this preference heterogeneity favors a shift to a product with automatic upgrades to the latest functionality, thus providing both a cost and a demand justification for this observed industry trend.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124928381","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The rise of the sharing economy has disrupted traditional industries and has had many unforeseen societal impacts. This has sparked policy debates on whether and how the sharing economy should be regulated to promote the healthy growth of such markets. In this research, we examine the impact of platform self-regulation in the context of the home-sharing market. Using policy changes that reduce the number of Airbnb listings, we deploy a difference in difference approach to empirically test the impact of platform self-regulation on the crime rate. Our results suggest that a reduction in Airbnb listings resulting from the platform self-regulation leads to a reduction in crime. We further study the impact of these policy changes on different types of crime and find that these self-regulations lead to a reduction in incidents of crime such as assault, robbery, and burglary, but an increase in theft incidents. In addition, we use geographically weighted regression to investigate the heterogeneous effects of Airbnb occupancy on different types of neighborhoods, and show that income, housing price, and population moderate the impact of such regulations. This research contributes to our understanding of the societal impacts of the sharing economy and the impact of platform self-regulation. Our findings also provide empirical evidence to inform policymaking.
{"title":"Does Home Sharing Impact Crime Rate? An Empirical Investigation","authors":"Wencui Han, Xunyi Wang, M. Ahsen, S. Wattal","doi":"10.2139/ssrn.3520919","DOIUrl":"https://doi.org/10.2139/ssrn.3520919","url":null,"abstract":"The rise of the sharing economy has disrupted traditional industries and has had many unforeseen societal impacts. This has sparked policy debates on whether and how the sharing economy should be regulated to promote the healthy growth of such markets. In this research, we examine the impact of platform self-regulation in the context of the home-sharing market. Using policy changes that reduce the number of Airbnb listings, we deploy a difference in difference approach to empirically test the impact of platform self-regulation on the crime rate. Our results suggest that a reduction in Airbnb listings resulting from the platform self-regulation leads to a reduction in crime. We further study the impact of these policy changes on different types of crime and find that these self-regulations lead to a reduction in incidents of crime such as assault, robbery, and burglary, but an increase in theft incidents. In addition, we use geographically weighted regression to investigate the heterogeneous effects of Airbnb occupancy on different types of neighborhoods, and show that income, housing price, and population moderate the impact of such regulations. This research contributes to our understanding of the societal impacts of the sharing economy and the impact of platform self-regulation. Our findings also provide empirical evidence to inform policymaking.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123078157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A major part of antitrust violations are comprised by price fixing arrangements, as they operate against the standard of price being determined by market forces. Such arrangements are a cause of concern in both horizontal and vertical markets. In this regard, Resale Price Maintenance agreements have been a subject of debate in India as well as in various jurisdictions due to a milieu of very interesting questions surrounding them. This paper discusses the treatment accorded to Resale Price Maintenance agreements in India while analysing the Competition Commission of India’s adjudication on this subject. It further assesses the issues and implications arising from the existing framework and highlights the need to develop the jurisprudence on this subject in order to gain a deeper insight into its treatment under our law.
{"title":"Resale Price Maintenance – A Beneficial Tool or a Hardcore Restriction of Competition?","authors":"A. Jaswal","doi":"10.2139/ssrn.3551048","DOIUrl":"https://doi.org/10.2139/ssrn.3551048","url":null,"abstract":"A major part of antitrust violations are comprised by price fixing arrangements, as they operate against the standard of price being determined by market forces. Such arrangements are a cause of concern in both horizontal and vertical markets. In this regard, Resale Price Maintenance agreements have been a subject of debate in India as well as in various jurisdictions due to a milieu of very interesting questions surrounding them. This paper discusses the treatment accorded to Resale Price Maintenance agreements in India while analysing the Competition Commission of India’s adjudication on this subject. It further assesses the issues and implications arising from the existing framework and highlights the need to develop the jurisprudence on this subject in order to gain a deeper insight into its treatment under our law.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"23 25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128443678","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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