This paper investigates how firms invest under demand uncertainty focusing on the role of information in container shipping. I develop and estimate a dynamic oligopoly model that allows uncertainty about the demand process in addition to uncertainty about demand realizations: agents do not know the true parameters in the demand process, but form and revise their expectations based on information available at each decision-making moment. I find that the uncertainty about the demand process amplifies investment cycles through (i) leading firms to update beliefs more often and drastically as they experience demand volatility, and (ii) intensifying strategic incentives among firms.
{"title":"Learning and investment under demand uncertainty in container shipping","authors":"Jihye Jeon","doi":"10.1111/1756-2171.12406","DOIUrl":"https://doi.org/10.1111/1756-2171.12406","url":null,"abstract":"This paper investigates how firms invest under demand uncertainty focusing on the role of information in container shipping. I develop and estimate a dynamic oligopoly model that allows uncertainty about the demand process in addition to uncertainty about demand realizations: agents do not know the true parameters in the demand process, but form and revise their expectations based on information available at each decision-making moment. I find that the uncertainty about the demand process amplifies investment cycles through (i) leading firms to update beliefs more often and drastically as they experience demand volatility, and (ii) intensifying strategic incentives among firms.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2022-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44978844","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is about (platform) mediated matching in markets in which valuations evolve over time. We introduce and then study a class of dynamic matching auctions where, in each period, agents from two sides of a market submit multiple bids, one for each possible partner. Each match receives a “score” that is a weighted average of the involved agents’ reciprocal bids, net of the platform’s match-specific costs. The weights are determined by the agents’ membership statuses and vary with the platform’s objectives. In each period, the matches that maximize the sum of the bilateral scores subject to individual and aggregate capacity constraints are implemented. We show that, under appropriate conditions, this class includes both welfareand profit-maximizing mechanisms. When match values are positive and none of the capacity constraints binds, profit maximization results in fewer interactions than welfare maximization, in each period. This conclusion need not extend to markets in which individual and/or aggregate capacity constraints bind and/or agents dislike certain interactions. Finally, we discuss how similar auctions but with forward-looking “index scores” can be used in markets where match values depend on past interactions, for example due to experimentation, a preference for variety, or habit formation. JEL Classification Numbers: D82, C73, L1.
{"title":"Matching auctions","authors":"Daniel Fershtman, A. Pavan","doi":"10.1111/1756-2171.12399","DOIUrl":"https://doi.org/10.1111/1756-2171.12399","url":null,"abstract":"This paper is about (platform) mediated matching in markets in which valuations evolve over time. We introduce and then study a class of dynamic matching auctions where, in each period, agents from two sides of a market submit multiple bids, one for each possible partner. Each match receives a “score” that is a weighted average of the involved agents’ reciprocal bids, net of the platform’s match-specific costs. The weights are determined by the agents’ membership statuses and vary with the platform’s objectives. In each period, the matches that maximize the sum of the bilateral scores subject to individual and aggregate capacity constraints are implemented. We show that, under appropriate conditions, this class includes both welfareand profit-maximizing mechanisms. When match values are positive and none of the capacity constraints binds, profit maximization results in fewer interactions than welfare maximization, in each period. This conclusion need not extend to markets in which individual and/or aggregate capacity constraints bind and/or agents dislike certain interactions. Finally, we discuss how similar auctions but with forward-looking “index scores” can be used in markets where match values depend on past interactions, for example due to experimentation, a preference for variety, or habit formation. JEL Classification Numbers: D82, C73, L1.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2022-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49588046","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article analyzes the potential for competition policy to affect welfare and investment in a network industry. When a network is split between competitors, each internalizes less network effects, but may still invest to steal customers. I structurally estimate consumers' utility from adopting and using mobile phones, with transaction data from nearly the entire Rwandan network. I simulate the equilibrium choices of consumers and network operators. Adding a competitor earlier could have reduced prices and increased incentives to invest in rural towers, increasing welfare by the equivalent of 1% of GDP. However, forcing free interconnection can lower incentives to invest.
{"title":"Competition in network industries: Evidence from the Rwandan mobile phone network.","authors":"Daniel Björkegren","doi":"10.1111/1756-2171.12405","DOIUrl":"https://doi.org/10.1111/1756-2171.12405","url":null,"abstract":"<p><p>This article analyzes the potential for competition policy to affect welfare and investment in a network industry. When a network is split between competitors, each internalizes less network effects, but may still invest to steal customers. I structurally estimate consumers' utility from adopting and using mobile phones, with transaction data from nearly the entire Rwandan network. I simulate the equilibrium choices of consumers and network operators. Adding a competitor earlier could have reduced prices and increased incentives to invest in rural towers, increasing welfare by the equivalent of 1% of GDP. However, forcing free interconnection can lower incentives to invest.</p>","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2022-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10438865/pdf/nihms-1854206.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"10105513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The recent rise of dockless bike-sharing is dominated by two firms in China: one started first in 82 cities, 59 of which were subsequently entered by the second firm. Using these variations, we study how the entrant affects the incumbent's market performance. To our surprise, the entry expands the market for the incumbent. Not only does the entry boost its total number of trips and encourage more bike investment, it but also allows the incumbent to achieve higher revenue per trip, improve bike utilization rate, and form a wider and more evenly distributed network. The market expansion effect on new users dominates a significant market-stealing effect on the incumbent's old users. These findings, together with a theoretical model that highlights consumer search and network effects, suggest that a market with positive network effects is not necessarily winner-takes-all, especially when users multi-home across compatible networks. Guangyu Cao Guanghua School of Management Guanghua-ofo Center for Sharing Economy Resarch Peking University Beijing 100871 China cgy1117@pku.edu.cn Ginger Zhe Jin University of Maryland Department of Economics 3115F Tydings Hall College Park, MD 20742-7211 and NBER jin@econ.umd.edu Xi Weng Room 304, Guanghua New Bldg Peking University Beijing, China wengxi125@gsm.pku.edu.cn Li-An Zhou Guanghua School of Management Peking University Beijing 100871 CHINA zhoula@gsm.pku.edu.cn
{"title":"Market‐expanding or Market‐stealing? Competition with network effects in bike‐sharing","authors":"Guangyu Cao, G. Jin, Xi Weng, Li-an Zhou","doi":"10.1111/1756-2171.12391","DOIUrl":"https://doi.org/10.1111/1756-2171.12391","url":null,"abstract":"The recent rise of dockless bike-sharing is dominated by two firms in China: one started first in 82 cities, 59 of which were subsequently entered by the second firm. Using these variations, we study how the entrant affects the incumbent's market performance. To our surprise, the entry expands the market for the incumbent. Not only does the entry boost its total number of trips and encourage more bike investment, it but also allows the incumbent to achieve higher revenue per trip, improve bike utilization rate, and form a wider and more evenly distributed network. The market expansion effect on new users dominates a significant market-stealing effect on the incumbent's old users. These findings, together with a theoretical model that highlights consumer search and network effects, suggest that a market with positive network effects is not necessarily winner-takes-all, especially when users multi-home across compatible networks. Guangyu Cao Guanghua School of Management Guanghua-ofo Center for Sharing Economy Resarch Peking University Beijing 100871 China cgy1117@pku.edu.cn Ginger Zhe Jin University of Maryland Department of Economics 3115F Tydings Hall College Park, MD 20742-7211 and NBER jin@econ.umd.edu Xi Weng Room 304, Guanghua New Bldg Peking University Beijing, China wengxi125@gsm.pku.edu.cn Li-An Zhou Guanghua School of Management Peking University Beijing 100871 CHINA zhoula@gsm.pku.edu.cn","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2021-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45581257","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study a platform that connects buyers and sellers, and signs private contracts with sellers. Secret contracting implies interrelated hold-up problems for buyers and sellers that reduce platform pro ts and welfare. We nd that by increasing its control over sellers’ prices, the platform is able to increase price transparency and commit not to behave opportunistically, which increases platform pro ts and welfare. Therefore, enhancing the market power of a dominant platform may increase welfare, which implies that policy prescriptions for dealing with contractual secrecy are reversed in the case of two-sided platforms. Our results explain the widespread use (and social desirability) of price-forcing contracts, the subscription-based, retailer, and merchant business models, and vertical integration by platforms. We also nd that a platform may bene t from an erosion of its market power on one side of the market if this raises the surplus it can o er to the other side. This result obtains when buyers are less informed than sellers about platform prices, in which case an improvement in sellers’ information may lead to worse outcomes for the platform and society.
{"title":"Private contracts in two‐sided platforms","authors":"Gastón Llanes, Francisco Ruiz-Aliseda","doi":"10.1111/1756-2171.12392","DOIUrl":"https://doi.org/10.1111/1756-2171.12392","url":null,"abstract":"We study a platform that connects buyers and sellers, and signs private contracts with sellers. Secret contracting implies interrelated hold-up problems for buyers and sellers that reduce platform pro ts and welfare. We nd that by increasing its control over sellers’ prices, the platform is able to increase price transparency and commit not to behave opportunistically, which increases platform pro ts and welfare. Therefore, enhancing the market power of a dominant platform may increase welfare, which implies that policy prescriptions for dealing with contractual secrecy are reversed in the case of two-sided platforms. Our results explain the widespread use (and social desirability) of price-forcing contracts, the subscription-based, retailer, and merchant business models, and vertical integration by platforms. We also nd that a platform may bene t from an erosion of its market power on one side of the market if this raises the surplus it can o er to the other side. This result obtains when buyers are less informed than sellers about platform prices, in which case an improvement in sellers’ information may lead to worse outcomes for the platform and society.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2021-12-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44255125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Divide and conquer in two‐sided markets: A potential‐game approach","authors":"Lester T. Chan","doi":"10.1111/1756-2171.12393","DOIUrl":"https://doi.org/10.1111/1756-2171.12393","url":null,"abstract":"","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2021-11-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48334647","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A buyer can either buy a good at a local monopolist or search for it in the market at a market price. The more intensely the buyer searches, the more likely he will find the good in the market, whereas if his search fails, he can still buy it from the local monopolist. We show that a buyer with a higher willingness to pay searches (weakly) more intensely. This skews the distribution of types buying at the local monopolist towards lower valuations and exerts pressure on the local monopolist to reduce his price. Despite this effect, offering the monopoly price remains weakly optimal in equilibrium: depending on the parameters, the local monopolist either chooses the monopoly price with probability one or he randomizes over a set of prices with the monopoly price as the upper bound of the support. Interestingly, a higher market price can make it more likely that the local monopolist prices below the monopoly level
{"title":"Optimal pricing, private information and search for an outside offer","authors":"Sarah Auster, Nenad Kos, S. Piccolo","doi":"10.1111/1756-2171.12390","DOIUrl":"https://doi.org/10.1111/1756-2171.12390","url":null,"abstract":"A buyer can either buy a good at a local monopolist or search for it in the market at a market price. The more intensely the buyer searches, the more likely he will find the good in the market, whereas if his search fails, he can still buy it from the local monopolist. We show that a buyer with a higher willingness to pay searches (weakly) more intensely. This skews the distribution of types buying at the local monopolist towards lower valuations and exerts pressure on the local monopolist to reduce his price. Despite this effect, offering the monopoly price remains weakly optimal in equilibrium: depending on the parameters, the local monopolist either chooses the monopoly price with probability one or he randomizes over a set of prices with the monopoly price as the upper bound of the support. Interestingly, a higher market price can make it more likely that the local monopolist prices below the monopoly level","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2021-11-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43953075","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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