Behavioral Economics of Digital Content

Increased use of the Internet for the distribution of digital products allows firms to embrace new business models. These models provide higher levels of product customization. In search of a better match between products and consumers’ willingness to pay, many online and mobile content providers have recently started to add new charging methods to their existing pricing strategies. Currently, a gap exists between a firm’s decision to implement a pricing mechanism and the firm’s consideration of consumers’ behavior towards acceptance of that pricing mechanism. What can firms do to better align their revenue models with consumers’ behavioral norms? If an answer exists, and we will offer one, it will directly relate to the design, implementation and pricing of information goods. From the point of view of an online content provider this paper examines implications of one of the many types of consumers’ economic anomalies: mental accounting (MA). More specifically, we look at how mental accounting (MA) of payment for and consumption of digital content at the consumer level impacts firm level choices of pricing strategies. Our results show that MA of payments and consumptions change firms’ pricing strategy for digital content. For the firm which has high digital content customization level, pay-per-use and pay-later strategies are always inferior to subscription. In contrast, under neoclassical assumptions, firms are equally well-off from employing any price scheme. Our results also show that in a duopolistic market for information goods, firms must be knowledgeable of MA’s influence on the market. MA’s influence is magnified if the level of customization is a further differentiating factor. We present general conditions under which profits increase with the intensity of MA. Also, our results offer insights into the choice of pricing schemes by content distribution networks as well as mobile service providers and may provide an explanation as to how economic and behavioral aspects of digital consumption may interact

Market Model and Optimal Pricing Scheme of Big Data and Internet of Things (IoT)

Big data has been emerging as a new approach in utilizing large datasets to optimize complex system operations. Big data is fueled with Internet-of-Things (IoT) services that generate immense sensory data from numerous sensors and devices. While most current research focus of big data is on machine learning and resource management design, the economic modeling and analysis have been largely overlooked. This paper thus investigates the big data market model and optimal pricing scheme. We first study the utility of data from the data science perspective, i.e., using the machine learning methods. We then introduce the market model and develop an optimal pricing scheme afterward. The case study shows clearly the suitability of the proposed data utility functions. The numerical examples demonstrate that big data and IoT service provider can achieve the maximum profit through the proposed market model

Revenue recycling and the welfare effects of road pricing

The authors explore the interaction between taxes on work-related traffic congestion and preexisting distortionary taxes in the labor market. A congestion tax raises the overall costs of commuting to work and discourages labor force participation at the margin when revenues are returned in lump-sum transfers. The resulting efficiency loss in the labor market can be larger that the Pigouvian efficiency gains from internalizing the congestion externality. By contrast, if congestion tax revenues are used to reduce labor taxes, the net impact on the labor supply is positive and the efficiency gain in the labor market can raise the overall welfare gains of the congestion tax by as much as 100 percent. Recycling congestion tax revenues in public transit subsidies produces a positive, but smaller, impact on the labor supply. In short, the authors'results indicate that the presence of preexisting tax distortions, and the form of revenue recycling, can crucially affect the size - and possibly even the sign - of the welfare effect of road pricing schemes. The efficiency gains from recycling congestion tax revenues in other tax reductions can amount to several times the Pigouvian welfare gains from congestion reduction.Public Sector Economics&Finance,Economic Theory&Research,Labor Policies,Environmental Economics&Policies,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management

Quality Management in Supply Chain Networks - The Case of Poland

In this article we suggest that rising quality requirements are key factors for the redesign of food chains. We argue that the food supply proceeds through pyramidalhierarchical strategic networks coordinated by powerful focal firms. These firms choose a quality strategy and employ chain quality management concepts by exerting managerial discretion to achieve the super-ordinate network aims. We introduce and elaborate upon two types of chain quality management: strategic and operative. The theoretical findings have been tested using evidence from the Polish dairy market. Semi-structured interviews were conducted across the various hierarchical levels of the 19 largest Polish dairy cooperatives during the spring of 2006. The results show that the firms’ activities are generally aligned with current market opportunities for optimal enterprise performance. Thus, we determined that manufacturers of well-branded products create an advanced network structure and apply strategic quality management. Networks that have a focal company acting as an external customer of a processor use operative quality management. Some Polish dairies are still not embedded in any supply chain networks; no chain quality management concepts can be installed in these chains because they have no powerful focal firm.chain quality management, dairy cooperatives, network theory, Poland, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Farm Management, International Development, Livestock Production/Industries, Production Economics,

Profit Maximization Auction and Data Management in Big Data Markets

A big data service is any data-originated resource that is offered over the Internet. The performance of a big data service depends on the data bought from the data collectors. However, the problem of optimal pricing and data allocation in big data services is not well-studied. In this paper, we propose an auction-based big data market model. We first define the data cost and utility based on the impact of data size on the performance of big data analytics, e.g., machine learning algorithms. The big data services are considered as digital goods and uniquely characterized with "unlimited supply" compared to conventional goods which are limited. We therefore propose a Bayesian profit maximization auction which is truthful, rational, and computationally efficient. The optimal service price and data size are obtained by solving the profit maximization auction. Finally, experimental results on a real-world taxi trip dataset show that our big data market model and auction mechanism effectively solve the profit maximization problem of the service provider.Comment: 6 pages, 9 figures. This paper was accepted by IEEE WCNC conference in Dec. 201

Evaluating Welfare with Nonlinear Prices

This paper examines how to evaluate consumer welfare when consumers face nonlinear prices. This problem arises in many settings, such as devising optimal pricing strategies for firms, assessing how price discrimination affects consumers, and evaluating the efficiency costs of many transfer programs in the public sector. We extend prior methods to accommodate a broad range of modern pricing practices, including menus of pricing plans. This analysis yields a simpler and more general technique for evaluating exact consumer surplus changes in settings where consumers face nonlinear prices. We illustrate our method using recent changes in mobile phone service plans.

The Social Cost of Road Congestion in Ile-de-France Region (and France): Empirical Evidences from the Paris Ring-Road

The aim of this article was to assess specific problems concerning traffic congestion access to the city of Paris. First, we attempted to evaluate the evolution of the congestion cost for the Paris Ring-Road (PRR), the major urban highway surrounding the French capital, during the period from 2000-2007. A speed-density methodology was implemented which enabled us to differentiate the external costs of road congestion between speed-classes of 5 km/h. These results were useful to subsequently propose the order of magnitude of time losses at national and regional scales, as well as marginal pricing schemes which could potentially be used in order to correct road congestion externality on the PRR. Our empirical investigation concluded that, in 2007, the PRR was more costly for central Paris area (130 M€) compared to that of seven years earlier (117 M€). The deterioration of traffic conditions, symbolized by the mean speed fall (- 5.2 %), dominates the infrastructure least used (- 2.2 %). Based on these figures, the social cost of road congestion is thought to reach about 0.2 % of the French GDP. This ratio becomes three times higher once reported on a regional scale and underlines that road congestion is an important issue for Ile-de-France. Finally, despite their analytical limitations, the proposed taxes clearly illustrate the challenges related to road-pricing strategies.Paris Ring-Road, Road Congestion, Speed-Density Relationship, Road-Pricing

A Model of Vertical Oligopolistic Competition

This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier structure while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing