Platform Economics in Vertically-Related Structures

A l'última dècada, l'auge i l'expansió de l'economia de plataformes ha representat la nova revolució econòmica. Recolzada per la digitalització, aquesta nova forma d'organització de l'economia ha canviat l'arquitectura general de la indústria i ha reformat tot el procés de creació de valor, que ha passat d'estructures de cadena vertical a ecosistemes més horitzontals. Empreses com Amazon, Facebook, Google i Microsoft són un clar exemple d'aquest canvi disruptiu. Aquesta tesi es composa de tres assaigs independents relacionats amb la nova economia de plataformes. Al capítol 1, s'analitza l'efecte combinat de la previsió del consumidor i la competència entre aeroports sobre els beneficis de la plataforma, mitjançant l'anàlisi de les indústries aeroportuàries. Curiosament, s’observa que l'estratègia òptima d'un aeroport monopolista depèn en última instància del grau de previsió del consumidor i és insensible als canvis de l'entorn competitiu. No obstant això, la correlació entre els beneficis aeroportuaris i la miopia del consumidor és positiva quan es consideren aeroports monopolis i feblement negativa quan es té en compte la competència aeroportuària. Al capítol 2 s’explora la distribució autònoma i delegada per part dels autors en la indústria del llibre electrònic, tenint en compte el cas concret d'Amazon. El principal resultat suggereix que l'autopublicació comporta uns preus més elevats dels llibres electrònics per als consumidors en determinades circumstàncies. Finalment, al capítol 3 abordem el tema de la venda d'informació dels consumidors, caracteritzant l'estratègia òptima d'un propietari de dades que decideix si vendre les seves dades o utilitzar-les per competir en el mercat. Es conclou que el propietari de les dades no té una estratègia dominant.En la última década, el auge y expansión de la economía de plataformas ha representado la nueva revolución económica. Con la ayuda de la digitalización, esta nueva forma de organizar la economía ha cambiado la arquitectura general de la industria y ha reformado todo el proceso de creación de valor, que ha pasado de estructuras de cadena vertical a ecosistemas más horizontales. Empresas como Amazon, Facebook, Google y Microsoft son un claro ejemplo de este cambio disruptivo. Esta tesis se compone de tres ensayos independientes, relacionados con la nueva economía de plataformas. En el capítulo 1, se analiza el efecto combinado de la previsión del consumidor y la competencia entre aeropuertos sobre los beneficios de la plataforma, mediante el análisis de las industrias aeroportuarias. Curiosamente, se observa que la estrategia óptima de un aeropuerto monopolista depende en última instancia del grado de previsión del consumidor y es insensible a los cambios en el entorno competitivo. Sin embargo, la correlación entre los beneficios de los aeropuertos y la miopía de los consumidores es positiva cuando se consideran aeropuertos monopolistas y débilmente negativa cuando se considera la competencia aeroportuaria. En el capítulo 2, se explora la distribución propia y delegada por parte de los autores en la industria del libro electrónico, tomando en consideración el caso específico de Amazon. El resultado principal sugiere que la autoedición conlleva precios más altos de los libros electrónicos para los consumidores en ciertas circunstancias. Finalmente, en el capítulo 3 se aborda el tema de la venta de información de los consumidores, caracterizando la estrategia óptima de un propietario de datos que decide si vender sus datos o usarlos para competir en el mercado. Se concluye que el propietario de los datos no tiene una estrategia dominante.In the last decade, the rise and expansion of the platform economy has represented the new economic revolution. Helped by the digitization, this new form of organizing the economy has changed the overall Industry Architecture and reformed the whole value-creation process, which has passed from vertical-chain structures to more horizontal ecosystems. Companies such as Amazon, Facebook, Google and Microsoft are a clear example of this disruptive change. This thesis is composed of three independent essays related to new platform economy. In chapter 1, we analyze the combined effect of consumer foresight and competition on platform profits, by analyzing the airport industries. Interestingly, we find that the optimal strategy of a monopoly airport ultimately depends on the degree of consumer foresight and it is insensitive to changes in the competitive environment. Nevertheless, the correlation between airport profits and consumer myopia is positive when considering a monopoly airports and weakly negative when considering airport competition. In chapter 2, we analyze the self- and delegated distribution in the e-book industry, by taking into consideration the specific case of Amazon. Our main result suggests that self-publishing results in higher e-book prices for consumers under certain circumstances. Finally, in chapter 3 we address the topic of the sale of consumer information, by characterizing the optimal strategy of a data owner who has to decide whether to sell his data or using them to compete in the market. We find that the data owner does not have a dominant strategy

Asymmetric information in the regulation of the access to markets

It is frequently argued that the high costs of clinical trials prior to the admission of new pharmaceuticals are stifling innovation. At the same time, regulation of the access to markets is often justified on the basis of consumers` inability to detect the true quality of a product. We examine these arguments from an information economic perspective by setting a framework where the incentives to invest in R&D are influenced by the information structure prevailing when the product is launched in the market at a later stage. In this setting, by changing the information structure, regulation (or the lack of) can thus indirectly affect R&D efforts. More formally, we construct a moral hazard - cum - adverse selection model in which a pharmaceutical firm exerts an unobservable effort towards developing an innovative (high quality) drug (moral hazard) and then announces the (unobservable) quality outcome to an uninformed regulator and/or consumers (adverse selection). We compare the outcomes in regard to innovation effort and expected welfare under two regimes: (i) regulation, where products undergo a clinical trial designed to ascertain product quality at the point of market access; and (ii) laissez-faire with free entry, where the revelation of quality is left to the market process. Results show that whether or not innovation is greater in the presence of entry regulation crucially depends on the efficacy of the trial in identifying (poor) quality, on the probability that unknown qualities are revealed in the market process, and on the preference and cost structure. The welfare ranking of the two regimes depends on the differential effort incentive and on the net welfare gain from implementing full information instantaneously. For example, in settings of vertical monopoly, vertical differentiation and horizontal differentiation with no variable cost of quality, entry regulation tends to be the preferred regime if the effort incentive under pooling is relatively low and profits do not count too much towards welfare. A complementary numerical Analysis shows how the outcomes vary with the market and cost structure. (authors' abstract)Series: Department of Economics Working Paper Serie

The Economics of Pricing Add-on Products under Duopoly Competition

Firms often offer a variety of add-on products in addition to their core information goods. How should firms offer such add-on products? When should they offer them as a bundle versus à la carte? How does competition impact firms’ bundling choice? What is the impact of regulators’ decision to limit add-on pricing on consumers’ surplus? Motivated by these questions, we develop an analytical model to examine asymmetric firms’ bundling and pricing strategy. We identify the critical role of competition in firm’s bundling decision. When there is more competition from the inferior firm, the superior firm has more incentive to bundle its add-on, even when the add-on is costly to offer. When the ratio of cost to quality is sufficiently low, the superior firm bundles as opposed to the monopoly case wherein the superior firm unbundles. We show that consumers are never better off when add-on pricing is prohibited by regulators

A Comparison of the Wholesale Model and the Agency Model in Differentiated Markets

We compare the wholesale model and the agency model that characterise a vertical relation in a bilateral duopoly framework. Results suggest that the agency model may be regarded as an example of retailer power resale price maintenance and provide an economic view of why restraints of this kind should be evaluated under the rule of reason. While competition is more likely to be undercut under the agency model, relative to the wholesale model, the agency model benefits consumers by offering relatively lower retail prices and greater demand

Information Disclosure and Consumer Awareness

Whether consumers are aware of potentially adverse product effects is key to private and social incentives to disclose information about undesirable product characteristics. In a monopoly model with a mix of aware and unaware consumers, a larger share of unaware consumers makes information disclosure less likely to occur. Since the firm is not interested in releasing information to unaware consumers, a more precise targeting technology that allows the firm to better keep unaware consumers in the dark leads to more disclosure. A regulator may want to intervene in this market and impose mandatory disclosure rules

Quality standards versus nutritional taxes: Health and welfare impacts with strategic firms

The goal of this paper is to better understand firms' strategic reactions to nutritional policies targeting food quality improvements and to derive optimal policies. We propose a model of product differentiation, taking into account the taste and health characteristics of products. We study how two firms react to alternative policies: an MQS policy, linear taxation of the two goods on the market, and taxation of the lowquality good. The MQS and the taxation of the low-quality product are the preferred options by a social planner. If taste is moderately important, the MQS policy is chosen by a populist and a paternalist social planner. If taste is a major component of choice, the populist planner chooses to tax the low-quality product whereas the paternalist planner prefers the MQS policy. Finally, for a paternalist social planner, an MQS-based policy always allows for higher levels of welfare than an information policy alone

Consumer behavioural biases in competition: A survey

This is a survey of studies that examine competition in the presence of behaviourally biased or boundedly rational consumers. It will tackle questions such as: How does competition and pricing change when consumers are biased? Can inefficiencies that arise from consumer behavioural biases be mitigated by lowering barriers to entry? Do biased consumers make rational ones better or worse off? And will biased consumer behaviour be overcome through learning or education?Behavioural Economics, Industrial Organization, Biased Consumers

Essays on vertical mergers, advertising, and competitive entry

textThis dissertation consists of three independent essays. We briefly introduce these essays in chapter 1 and leave a comprehensive introduction to each essay. Chapter 2 considers a vertically separated industry where production takes time and vertical mergers shorten production time. We investigate the impact of vertical mergers on the downstream firms' ability to collude and show that vertical mergers facilitate downstream collusion. Chapter 3 provides a theoretical foundation for a puzzling empirical observation that advertising follows an inverted U shape for some new products. Chapter 4 analyzes an incumbent's response to a competitive entry. We show that if the quality of the entrant is uncertain, the incumbent can "jam" the quality signalling of the entrant. Finally, chapter 5 summarizes main conclusions of three essays.Economic

Coexistence of GMO production, labeling policies, and strategic firm interaction

This dissertation analyzes the market effects of the coexistence of genetically modified organism (GMO) and conventional production, labeling policies, and strategic firm interactions through vertical product differentiation. Although we focus on GMOs, the applied frameworks can be adopted and extended to other differentiated products where similar concepts apply. The main body of the dissertation consists of four chapters. In the first chapter, we estimate the perceived costs of legal requirements (‘coexistence measures’) for growing genetically modified (GM) Bt maize in Germany using a choice experiment. The costs of the evaluated ex-ante and ex-post coexistence measures range from zero to more than 300 euros per hectare per measure, and most of them are greater than the extra revenue the farmers in our survey expect from growing Bt maize or than the estimates in the literature. The cost estimates for temporal separation, which were the highest in our evaluation, imply that the exclusion of this measure in Germany is justified. The costliest measures that are currently applied in Germany are joint and strict liability for all damages. Our results further show that neighbors do not cause a problem and that opportunities for reducing costs through agreements with them exist. Finally, we find that farmers’ attitudes toward genetically modified crops affect the probability of adoption of Bt maize. Our results imply that strict liability will deter the cultivation of Bt maize in Germany unless liability issues can be addressed through other means, for example, through neighbor agreements. The coexistence costs have implications for the supply of products in which GMOs are excluded from the production process (i.e., non-GM labeling). This is the topic of the second chapter. In that chapter, we discuss and illustrate the complexity of non-GM food labeling in Germany. We show how a multi-stakeholder organization that sets a voluntary private production and certification standard can combine the opposing and agreeing interests of its members. This cohesion reduces the fears of retailers of NGO pressure in the case of mislabeling. Whereas non-GM labeling in Germany started as a niche for farmer-to-consumer direct marketing and small processors, it was further driven by anti-GMO organizations. Today, retail chains label some of their store brands and are now the drivers. We also discuss how informing consumers through non-GM labeling addresses imperfect information, but at the same time, can create new information imperfections if consumers are not well informed about the labeling system itself. Non-GM labeling, together with the EU-wide mandatory labeling of GMOs and their requirements on coexistence, have implications for the potential regulation of crops derived by new plant breeding techniques (NPBTs). In the third chapter, we analyze the market and welfare effects of regulating crops derived by NPBTs as genetically modified or conventional products. We consider the mandatory scheme for labeling GM products and a voluntary non-GM scheme for labeling livestock products derived from non-GM feed. We develop a partial equilibrium model that explicitly takes into account both the coexistence costs at the farm level and the segregation and identity preservation costs at the downstream level. By applying the model to EU rapeseed, we find that regulating NPBTs as GM (as compared to non-GM) in combination with mandatory and voluntary labeling increases prices and therefore makes producers better off. We also show that higher coexistence costs make the price increasing effect even stronger. Voluntary non-GM labeling applied to feed makes consumers in this sector overall worse off, but it benefits farmers and rapeseed oil consumers overall as long as segregation costs are low. Consumers of biodiesel and industrial products, such as lubricants produced from GM rapeseed, benefit from high segregation costs. We show that the effects of farm-level coexistence costs largely differ from the effects of downstream market segregation costs. In the last of the four chapters, we consider the effects of market power and analyze the decision of investing in quality updating when high-quality product demand is growing. We model a decision of a duopoly that initially offers a product perceived as lower quality (e.g., GM product) to invest in an emerging high-quality (e.g., labeled non-GM) product. We investigate whether the smaller or the larger firm invests first. Either preemption or a war of attrition can result, depending on demand and cost factors. For each case, we derive the unique Nash equilibrium. We show that a firm’s timing to invest in high-quality production (e.g., implement a voluntary production standard) depends on several factors, such as the difference in firm size between competing firms and the level of vertical differentiation, growth and discount rate, demand parameters, and per-unit production costs. We show that institutions, which set private or public certification standards, can affect firms’ investment in differentiated products because the standard stringency affects the production and compliance costs as well as the level of product differentiation. Hence, through the setting of these standards, private and governmental institutions can impact the market structure as well as the growth of an emerging market. Finally, we discuss policy implications and how an adjustment of the EU-regulatory framework from a process- to a product-based system can make several issues discussed in this thesis problems of the past.</p