In programmatic advertising, firms outsource the bidding for ad impressions to ad platforms. Although firms are interested in targeting consumers that respond positively to advertising, ad platforms are usually rewarded for targeting consumers with high overall purchase probability. We develop a theoretical model that shows if consumers with high baseline purchase probability respond more positively to advertising, then firms and ad platforms agree on which consumers to target. If, conversely, consumers with low baseline purchase probability are the ones for which ads work best, then ad platforms target consumers that firms do not want to target—the incentives are misaligned. We conduct a large-scale randomized field experiment, targeting 208,538 individual consumers, in a display retargeting campaign. Our unique data set allows us to both causally identify advertising effectiveness and estimate the degree of incentive misalignments between the firm and ad platform. In accordance with the contracted incentives, the ad platform targets consumers that are more likely to purchase. Importantly, we find no evidence that ads are more effective for consumers with higher baseline purchase probability, rendering the ad platform’s bidding suboptimal for the firm. A welfare analysis suggests that the ad platform’s bidding optimization leads to a loss in profit for the firm and an overall decline in welfare. To remedy the incentive misalignment, we propose a solution in which the firm restricts the ad platform to target only consumers that are profitable based on individual consumer-level estimates for baseline purchase probability and ad effectiveness. This paper was accepted by Anandhi Bharadwaj, information systems.
{"title":"Incentive Misalignments in Programmatic Advertising: Evidence from a Randomized Field Experiment","authors":"T. Frick, Rodrigo Belo, Rahul Telang","doi":"10.2139/ssrn.4039560","DOIUrl":"https://doi.org/10.2139/ssrn.4039560","url":null,"abstract":"In programmatic advertising, firms outsource the bidding for ad impressions to ad platforms. Although firms are interested in targeting consumers that respond positively to advertising, ad platforms are usually rewarded for targeting consumers with high overall purchase probability. We develop a theoretical model that shows if consumers with high baseline purchase probability respond more positively to advertising, then firms and ad platforms agree on which consumers to target. If, conversely, consumers with low baseline purchase probability are the ones for which ads work best, then ad platforms target consumers that firms do not want to target—the incentives are misaligned. We conduct a large-scale randomized field experiment, targeting 208,538 individual consumers, in a display retargeting campaign. Our unique data set allows us to both causally identify advertising effectiveness and estimate the degree of incentive misalignments between the firm and ad platform. In accordance with the contracted incentives, the ad platform targets consumers that are more likely to purchase. Importantly, we find no evidence that ads are more effective for consumers with higher baseline purchase probability, rendering the ad platform’s bidding suboptimal for the firm. A welfare analysis suggests that the ad platform’s bidding optimization leads to a loss in profit for the firm and an overall decline in welfare. To remedy the incentive misalignment, we propose a solution in which the firm restricts the ad platform to target only consumers that are profitable based on individual consumer-level estimates for baseline purchase probability and ad effectiveness. This paper was accepted by Anandhi Bharadwaj, information systems.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"50 1","pages":"1665-1686"},"PeriodicalIF":0.0,"publicationDate":"2022-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73768067","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}
Saeede Eftekhari, Niam Yaraghi, R. Gopal, R. Ramesh
Efforts to promote Health Information Exchanges (HIEs) on a nationwide scale are beset with major challenges, and one of them is its meaningful use for both physicians and patients. Referrals potentially provide a context for the meaningful use of HIE, and we are yet to understand how HIEs affect referrals. This research studies the impact of HIE on referral patterns. We establish that participation in an HIE network increases the referrals sent to and received from other HIE participants. We investigate this relationship using both econometric and network-analytic methods. Whereas the econometric analysis focuses on the underlying associations between HIE adoption and referral patterns, the network analysis addresses the transformation process by which HIE adoption and referrals coevolve over time. This study has significant implications for healthcare policy making, development of innovative HIE business models, and management of healthcare organizations. This paper was accepted by Anindya Ghose, information systems.
{"title":"Impact of Health Information Exchange Adoption on Referral Patterns","authors":"Saeede Eftekhari, Niam Yaraghi, R. Gopal, R. Ramesh","doi":"10.1287/mnsc.2022.4435","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4435","url":null,"abstract":"Efforts to promote Health Information Exchanges (HIEs) on a nationwide scale are beset with major challenges, and one of them is its meaningful use for both physicians and patients. Referrals potentially provide a context for the meaningful use of HIE, and we are yet to understand how HIEs affect referrals. This research studies the impact of HIE on referral patterns. We establish that participation in an HIE network increases the referrals sent to and received from other HIE participants. We investigate this relationship using both econometric and network-analytic methods. Whereas the econometric analysis focuses on the underlying associations between HIE adoption and referral patterns, the network analysis addresses the transformation process by which HIE adoption and referrals coevolve over time. This study has significant implications for healthcare policy making, development of innovative HIE business models, and management of healthcare organizations. This paper was accepted by Anindya Ghose, information systems.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"9 1","pages":"1615-1638"},"PeriodicalIF":0.0,"publicationDate":"2022-05-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75985664","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 research investigates the role of parents in explaining the surprisingly low presence of women among inventors despite their increase among graduates from science, technology, engineering and mathematics (STEM) subjects. With Danish registry data on the population born between 1966 and 1985 and an experimental setting crafted on siblings’ gender composition, we find that the transmission of inventorship from parents to children disfavors daughters if they have a (second-born) brother. We complement this analysis with evidence about the role of parental factors at different stages of children’s education. Overall, our results confirm that parental role models matter for children’s education, especially at early stages and, through this, increase the probability of a child’s becoming an inventor. However, the direct transmission of inventorship that favors boys much more than girls seems to be affected by gendered expectations developed by parents about daughters’ and sons’ returns from inventorship. Our study contributes to explaining who becomes an inventor and why by adding an important boundary condition to the literature: Parents are intermediaries who, based on their own interpretation of external information about inventive jobs, contribute to create or limit opportunities for their children. This paper was accepted by Olav Sorenson, organizations.
{"title":"Lost Marie Curies: Parental Impact on the Probability of Becoming an Inventor","authors":"Karin Hoisl, H. Kongsted, M. Mariani","doi":"10.1287/mnsc.2022.4432","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4432","url":null,"abstract":"This research investigates the role of parents in explaining the surprisingly low presence of women among inventors despite their increase among graduates from science, technology, engineering and mathematics (STEM) subjects. With Danish registry data on the population born between 1966 and 1985 and an experimental setting crafted on siblings’ gender composition, we find that the transmission of inventorship from parents to children disfavors daughters if they have a (second-born) brother. We complement this analysis with evidence about the role of parental factors at different stages of children’s education. Overall, our results confirm that parental role models matter for children’s education, especially at early stages and, through this, increase the probability of a child’s becoming an inventor. However, the direct transmission of inventorship that favors boys much more than girls seems to be affected by gendered expectations developed by parents about daughters’ and sons’ returns from inventorship. Our study contributes to explaining who becomes an inventor and why by adding an important boundary condition to the literature: Parents are intermediaries who, based on their own interpretation of external information about inventive jobs, contribute to create or limit opportunities for their children. This paper was accepted by Olav Sorenson, organizations.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"18 1","pages":"1714-1738"},"PeriodicalIF":0.0,"publicationDate":"2022-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90209409","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 this paper, we consider a container leasing firm that has elementary and premium containers, which are downward substitutable and for use by elementary contract customers (ECCs), premium contract customers (PCCs), as well as walk-in customers (WICs). ECCs can be satisfied by elementary containers or premium ones at discounted prices while PCCs only accept premium containers. WICs can be satisfied by any type of container at different prices. The objective is to maximise the expected total rental revenue by managing its limited capacity. We formulate this problem as a discrete-time Markov Decision Process and show the submodularity and concavity of the value function. Based on this, we show that the optimal policy can be characterised by a series of rationing thresholds, a series of substitution thresholds and a priority threshold, all of which depend on the system states. We further give conditions under which the optimal policy can be simplified. Numerical experiments are conducted to show the impact of the substitution of two items on the revenue, to compare the performance of the optimal policy with those of the commonly used policies and to investigate the influence of arrival rates on the optimal policy. Last, we extend the basic model to consider different rental durations, ECCs’ acceptance behaviour and endogenous prices for WICs. This paper was accepted by Jayashankar Swaminathan, operations management.
{"title":"Optimal Capacity Rationing Policy for a Container Leasing System with Multiple Kinds of Customers and Substitutable Containers","authors":"Xufeng Yang, Juliang Zhang, Wenfei Jiao, H. Yan","doi":"10.1287/mnsc.2022.4425","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4425","url":null,"abstract":"In this paper, we consider a container leasing firm that has elementary and premium containers, which are downward substitutable and for use by elementary contract customers (ECCs), premium contract customers (PCCs), as well as walk-in customers (WICs). ECCs can be satisfied by elementary containers or premium ones at discounted prices while PCCs only accept premium containers. WICs can be satisfied by any type of container at different prices. The objective is to maximise the expected total rental revenue by managing its limited capacity. We formulate this problem as a discrete-time Markov Decision Process and show the submodularity and concavity of the value function. Based on this, we show that the optimal policy can be characterised by a series of rationing thresholds, a series of substitution thresholds and a priority threshold, all of which depend on the system states. We further give conditions under which the optimal policy can be simplified. Numerical experiments are conducted to show the impact of the substitution of two items on the revenue, to compare the performance of the optimal policy with those of the commonly used policies and to investigate the influence of arrival rates on the optimal policy. Last, we extend the basic model to consider different rental durations, ECCs’ acceptance behaviour and endogenous prices for WICs. This paper was accepted by Jayashankar Swaminathan, operations management.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"157 1","pages":"1468-1485"},"PeriodicalIF":0.0,"publicationDate":"2022-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79901814","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 develop an approach to solve the Barberis casino gambling model [Barberis N (2012) A model of casino gambling. Management Sci. 58(1):35–51] in which a gambler whose preferences are specified by the cumulative prospect theory (CPT) must decide when to stop gambling by a prescribed deadline. We assume that the gambler can assist their decision using independent randomization. The problem is inherently time inconsistent because of the probability weighting in CPT, and we study both precommitted and naïve stopping strategies. We turn the original problem into a computationally tractable mathematical program from which we devise an algorithm to compute optimal precommitted rules that are randomized and Markovian. The analytical treatment enables us to confirm the economic insights of Barberis for much longer time horizons and to make additional predictions regarding a gambler’s behavior, including that, with randomization, a gambler may enter the casino even when allowed to play only once and that it is prevalent that a naïf never stops loss. This paper was accepted by Kay Giesecke, finance.
{"title":"A Casino Gambling Model Under Cumulative Prospect Theory: Analysis and Algorithm","authors":"Sang Hu, J. Obłój, X. Zhou","doi":"10.1287/mnsc.2022.4414","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4414","url":null,"abstract":"We develop an approach to solve the Barberis casino gambling model [Barberis N (2012) A model of casino gambling. Management Sci. 58(1):35–51] in which a gambler whose preferences are specified by the cumulative prospect theory (CPT) must decide when to stop gambling by a prescribed deadline. We assume that the gambler can assist their decision using independent randomization. The problem is inherently time inconsistent because of the probability weighting in CPT, and we study both precommitted and naïve stopping strategies. We turn the original problem into a computationally tractable mathematical program from which we devise an algorithm to compute optimal precommitted rules that are randomized and Markovian. The analytical treatment enables us to confirm the economic insights of Barberis for much longer time horizons and to make additional predictions regarding a gambler’s behavior, including that, with randomization, a gambler may enter the casino even when allowed to play only once and that it is prevalent that a naïf never stops loss. This paper was accepted by Kay Giesecke, finance.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"22 1","pages":"2474-2496"},"PeriodicalIF":0.0,"publicationDate":"2022-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80048247","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}
Willingness to vaccinate and test are critical in the COVID-19 pandemic. We study the effects of two measures to increase the support of vaccination and testing: defaults and monetary compensations. Some organizations, such as restaurants, fire departments, hospitals, or governments in some countries, have used these measures. Yet there is the concern that compensations could erode intrinsic motivation and decrease vaccination intentions. We show that, in the early stages of the pandemic, both approaches, compensations and defaults, significantly increased COVID-19 test demand and vaccine intentions. Compensations for vaccines, however, need to be large enough because low compensations can backfire. We estimate heterogeneous treatment effects to document which groups are more likely to respond to these measures. The results show that defaults and avoidance of small compensations are especially important for individuals who are more skeptical of the vaccine, measured by their trust in the vaccine and their political views. Hence, both measures could be used in a targeted manner to achieve stronger results. This paper was accepted by Yan Chen, behavioral economics and decision analysis.
{"title":"Incentives and Defaults Can Increase COVID-19 Vaccine Intentions and Test Demand","authors":"Marta Serra-Garcia, Nora Szech","doi":"10.1287/mnsc.2022.4405","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4405","url":null,"abstract":"Willingness to vaccinate and test are critical in the COVID-19 pandemic. We study the effects of two measures to increase the support of vaccination and testing: defaults and monetary compensations. Some organizations, such as restaurants, fire departments, hospitals, or governments in some countries, have used these measures. Yet there is the concern that compensations could erode intrinsic motivation and decrease vaccination intentions. We show that, in the early stages of the pandemic, both approaches, compensations and defaults, significantly increased COVID-19 test demand and vaccine intentions. Compensations for vaccines, however, need to be large enough because low compensations can backfire. We estimate heterogeneous treatment effects to document which groups are more likely to respond to these measures. The results show that defaults and avoidance of small compensations are especially important for individuals who are more skeptical of the vaccine, measured by their trust in the vaccine and their political views. Hence, both measures could be used in a targeted manner to achieve stronger results. This paper was accepted by Yan Chen, behavioral economics and decision analysis.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"2004 1","pages":"1037-1049"},"PeriodicalIF":0.0,"publicationDate":"2022-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83031538","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 analyzes how the degree of task-related team diversity influences the team outcome. The focus is on a novel benefit of team diversity that does not depend on complementary skills or mutual learning. We consider a multiagent setting where the employer makes use of career competition to motivate the team. Our analysis reveals incentive effects that do not exist in the well-studied case of teams of size 2. In teams with more than two members, diversity may have a positive effect on the efforts of some members although diversity leads to unbalanced career competition. As a consequence, expected profits are higher under a moderate degree of diversity compared with a situation with completely homogeneous agents. This result shows that the employer prefers a positive degree of diversity for pure incentive reasons. This paper was accepted by Suraj Srinivasan, accounting.
{"title":"Team Diversity and Incentives","authors":"L. Imhof, M. Kräkel","doi":"10.1287/mnsc.2022.4419","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4419","url":null,"abstract":"This paper analyzes how the degree of task-related team diversity influences the team outcome. The focus is on a novel benefit of team diversity that does not depend on complementary skills or mutual learning. We consider a multiagent setting where the employer makes use of career competition to motivate the team. Our analysis reveals incentive effects that do not exist in the well-studied case of teams of size 2. In teams with more than two members, diversity may have a positive effect on the efforts of some members although diversity leads to unbalanced career competition. As a consequence, expected profits are higher under a moderate degree of diversity compared with a situation with completely homogeneous agents. This result shows that the employer prefers a positive degree of diversity for pure incentive reasons. This paper was accepted by Suraj Srinivasan, accounting.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"84 1","pages":"2497-2516"},"PeriodicalIF":0.0,"publicationDate":"2022-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80379162","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}
Existing research on word-of-mouth considers various descriptive statistics of rating distributions, such as the mean, variance, skewness, kurtosis, and even entropy and the Herfindahl-Hirschman index. But real-world consumer decisions are often derived from visual assessment of displayed rating distributions in the form of histograms. In this study, we argue that such distribution charts may inadvertently lead to a consumer-choice bias that we call the histogram distortion bias (HDB). We propose that salient features of distributions in visual decision making may mislead consumers and result in inferior decision making. In an illustrative model, we derive a measure of the HDB. We show that with the HDB, consumers may make choices that violate well-accepted decision rules. In a series of experiments, subjects are observed to prefer products with a higher HDB despite a lower average rating. They could also violate widely accepted modeling assumptions, such as branch independence and first-order stochastic dominance. This paper was accepted by Chris Forman, information systems.
{"title":"Histogram Distortion Bias in Consumer Choices","authors":"Tao Lu, May Yuan, Chong Wang, X. Zhang","doi":"10.1287/mnsc.2022.4306","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4306","url":null,"abstract":"Existing research on word-of-mouth considers various descriptive statistics of rating distributions, such as the mean, variance, skewness, kurtosis, and even entropy and the Herfindahl-Hirschman index. But real-world consumer decisions are often derived from visual assessment of displayed rating distributions in the form of histograms. In this study, we argue that such distribution charts may inadvertently lead to a consumer-choice bias that we call the histogram distortion bias (HDB). We propose that salient features of distributions in visual decision making may mislead consumers and result in inferior decision making. In an illustrative model, we derive a measure of the HDB. We show that with the HDB, consumers may make choices that violate well-accepted decision rules. In a series of experiments, subjects are observed to prefer products with a higher HDB despite a lower average rating. They could also violate widely accepted modeling assumptions, such as branch independence and first-order stochastic dominance. This paper was accepted by Chris Forman, information systems.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"25 1","pages":"8963-8978"},"PeriodicalIF":0.0,"publicationDate":"2022-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85372585","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 consider a mixed duopoly service system with two service providers (SPs): one private and the other public. The public SP’s objective is welfare maximization, whereas the private SP is profit driven. Customers are heterogeneous in terms of their quality tastes and choose from three options, namely, joining the private queue, joining the public queue, and balking (or taking an outside option). We first consider the scenario where the private SP provides a premium service and the public SP provides a regular service. Paradoxically, we find that although the public SP’s objective is welfare maximization, welfare in the system can be less than that obtained with only profit-seeking private SPs. We further demonstrate that the maximum social welfare is achieved by partially privatizing the public SP, that is, by including both welfare and profit maximization as arguments in its objective function. In extreme cases in which the public SP’s capacity is very small, fully privatizing the public SP can be socially desirable. We then consider the alternate setting where the public SP provides a premium service and the private SP provides a regular service and obtain similar conclusions. These findings, however, rely on the assumption that an outside option exists for balking customers, and one should be cautious in generalizing to no-balking situations. This paper was accepted by Jayashankar Swaminathan, operations management.
{"title":"On the Benefit of Privatization in a Mixed Duopoly Service System","authors":"Wenhui Zhou, Weixiang Huang, V. Hsu, Pengfei Guo","doi":"10.1287/mnsc.2022.4424","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4424","url":null,"abstract":"We consider a mixed duopoly service system with two service providers (SPs): one private and the other public. The public SP’s objective is welfare maximization, whereas the private SP is profit driven. Customers are heterogeneous in terms of their quality tastes and choose from three options, namely, joining the private queue, joining the public queue, and balking (or taking an outside option). We first consider the scenario where the private SP provides a premium service and the public SP provides a regular service. Paradoxically, we find that although the public SP’s objective is welfare maximization, welfare in the system can be less than that obtained with only profit-seeking private SPs. We further demonstrate that the maximum social welfare is achieved by partially privatizing the public SP, that is, by including both welfare and profit maximization as arguments in its objective function. In extreme cases in which the public SP’s capacity is very small, fully privatizing the public SP can be socially desirable. We then consider the alternate setting where the public SP provides a premium service and the private SP provides a regular service and obtain similar conclusions. These findings, however, rely on the assumption that an outside option exists for balking customers, and one should be cautious in generalizing to no-balking situations. This paper was accepted by Jayashankar Swaminathan, operations management.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"24 1","pages":"1486-1499"},"PeriodicalIF":0.0,"publicationDate":"2022-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80186394","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 study a bilateral trade problem with multiunit demand and supply and one-dimensional private information. Each agent geometrically discounts additional units by a constant factor. We show that when goods are complements, the incentive problem—measured as the ratio of second-best to first-best social surplus—becomes less severe as the degree of complementarity increases. In contrast, if goods are substitutes and each agent’s distribution exhibits linear virtual types, then this ratio is a constant. If the bilateral trade setup arises from prior vertical integration between a buyer and a supplier, with the vertically integrated firm being a buyer facing an independent supplier, then the ratio of second-best to first-best social surplus is, in general, not monotone in the degree of complementarity when products are substitutes and is increasing when products are complements. Extensions to profit maximization by a market maker and a discrete public good problem show that the broad insight that complementarity of goods mitigates the incentive problem generalizes to these settings. This paper was accepted by Joshua Gans, business.
{"title":"Bilateral Trade with Multiunit Demand and Supply","authors":"S. Loertscher, L. Marx","doi":"10.1287/mnsc.2022.4399","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4399","url":null,"abstract":"We study a bilateral trade problem with multiunit demand and supply and one-dimensional private information. Each agent geometrically discounts additional units by a constant factor. We show that when goods are complements, the incentive problem—measured as the ratio of second-best to first-best social surplus—becomes less severe as the degree of complementarity increases. In contrast, if goods are substitutes and each agent’s distribution exhibits linear virtual types, then this ratio is a constant. If the bilateral trade setup arises from prior vertical integration between a buyer and a supplier, with the vertically integrated firm being a buyer facing an independent supplier, then the ratio of second-best to first-best social surplus is, in general, not monotone in the degree of complementarity when products are substitutes and is increasing when products are complements. Extensions to profit maximization by a market maker and a discrete public good problem show that the broad insight that complementarity of goods mitigates the incentive problem generalizes to these settings. This paper was accepted by Joshua Gans, business.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"2 1","pages":"1146-1165"},"PeriodicalIF":0.0,"publicationDate":"2022-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89916855","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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