Co-ordination and Lock-in: Competition with Switching Costs and Network Effects

Switching costs and network effects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in effciency, and gives vendors lucrative ex post market power-over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects. Firms compete ex ante for this ex post power, using penetration pricing, introductory offers, and price wars. Such "competition for the market" or "life-cycle competition" can adequately replace ordinary compatible competition, and can even be fiercer than compatible competition by weakening differentiation. More often, however, incompatible competition not only involves direct effciency losses but also softens competition and magnifies incumbency advantages. With network effects, established firms have little incentive to offer better deals when buyers’ and complementors’ expectations hinge on non-effciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive offers and random events, it later "tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another’s existing customers, and s also discourage more aggressive entry. Because of these competitive effects, even ineffcient incompatible competition is often more profitable than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus firms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

Progress in Behavioral Game Theory

Is game theory meant to describe actual choices by people and institutions or not? It is remarkable how much game theory has been done while largely ignoring this question. The seminal book by von Neumann and Morgenstern, The Theory of Games and Economic Behavior, was clearly about how rational players would play against others they knew were rational. In more recent work, game theorists are not always explicit about what they aim to describe or advise. At one extreme, highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions. At the other extreme, adaptive and evolutionary approaches use very simple models-mostly developed to describe nonhuman animals-in which players may not realize they are playing a game at all. When game theory does aim to describe behavior, it often proceeds with a disturbingly low ratio of careful observation to theorizing

The William and Flora Hewlett Foundation's Nuclear Security Initiative: Findings from a Summative Evaluation

The Nuclear Security Initiative (NSI) began as an exploratory effort in 2008 and, as with other Foundation initiatives, was intended to be a time-limited effort (though the timeframe for the Foundation's exit was not specified at the outset). The NSI was extended in 2011 and the last grants were made in 2014. Over seven years, the NSI pursued a number of strategies designed to reduce the risk of a nuclear disaster.Although security issues have never been a central element in the Hewlett Foundation's main programs, the Foundation does have a history of funding projects in the peace and security space when these issues touched on the Foundation's main focus areas. Re-entry into the nuclear security space was opportunistic; at the time of the NSI's inception, windows appeared to be opening, signaling that nearterm gains on pressing policy issues were possible. In 2007, four eminent statesmen (Kissinger, Shultz, Nunn and Perry) authored a provocative Wall Street Journal op-ed calling for "a nuclear-free world" and outlining the policy steps required to achieve it. This was the first such articulation by prominent foreign policy and national security leaders from across the political spectrum. Shortly thereafter came the election of Barack Obama who, as a Senator, had taken interest in advancing nuclear security and nonproliferation and who, when newly elected, began making these issues a first-tier national security concern of his Administration. Finally, there was increasing movement by some growing powers, such as Brazil and Turkey, to explore development of nuclear energy domestically, thereby increasing the risk of global nuclear proliferation.The evaluation that is the subject of this report revealed that the NSI set in motion new things in the field—including an increased and more intentional focus on advocacy and communications, increased coordination among funders, and increased attention to building the expertise and capacity of states outside of the P5 (United States, Russia, China, United Kingdom, France) and other established nuclear powers, as opposed to focusing exclusively on US-Russia and US-China relations. The Hewlett Foundation's re-entry into the nuclear security space was seen as bringing "excitement and energy" and "innovation.

A methodology for the capture and analysis of hybrid data: a case study of program debugging

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Suboptimality of Sales Promotions and Improvement Through Channel Coordination

This paper deals with sales promotions in the form of consumer price discounts in fast-moving consumer goods. First, we show analytically that suboptimality is to be expected with respect to the size of the consumer price discount. This is due to the separate decision making of the retailer and the manufacturer. We then compute the impact of this suboptimality for a database of eighty-six sale promotions, and we find that it is substantial. On average, the actual profitability of the sales promotions is only about one fourth of its potential profitability. The suboptimality problem can be solved through specific arrangements between retailer and manufacturer, which have the purpose of better channel coordination. One of these is a proportional discount sharing arrangement, in which each party contributes to the consumer price discount in proportion to its original margin (without sales promotion). Several other winwin arrangements are possible also.Sales promotions;channel coordination;channels of distribution;consumer price discounts

Greater Power, Lasting Impact: Effective Grantmaker Strategies from the Communities for Public Education Reform Fund (CPER)

CPER (also referred to here on as the "Fund") is a national funders' collaborative committed to improving educational opportunities and outcomes for students -- in particular students of color from low-income families -- by supporting community-driven reforms led by grassroots education organizing groups. CPER originated in discussions among funders active in Grantmakers for Education's Working Group on Education Organizing.They launched the collaborative in 2007, in partnership with NEO Philanthropy (then Public Interest Projects), the 501 (c)(3) public charity engaged to direct the Fund. CPER's founding funders saw that, in the education debates of the day, the perspectives of those closest to the ground were often left out. These funders recognized that students and families have a crucial role to play in identifying, embracing, and sustaining meaningful school reform. Students and families know their own needs and see first-hand the inequities in schools. Organizing groups help them get a seat at the decision-making table and develop workable solutions, building on community assets that are vital to addressing the cultural and political dimensions of reform. These grassroots groups are essential to creating the public accountability and will needed to catalyze educational reforms and ensure they stick. They can be the antidote to the ever-shifting political conditions and leadership turnover that plague reform efforts. At the same time, they help community members develop leadership and a grassroots base, building individual civic capacity and community power that strengthens our democratic infrastructure for the long term. Because educational improvement requires tackling persistent inequities in race and income, supporting leaders in low-income communities of color also helps build the social capital needed to solve integrally related social challenges. CPER was initially conceived to run for a minimum of three years -- a timeline consistent with most foundation grants but short for the transformative kinds of changes the Fund hoped to achieve. CPER's lifespan eventually stretched to eight years because of the recognized power of its supported work. Over this period, NEO Philanthropy engaged a highly diverse set of 76 local and national funders in the CPER collaborative. Incentivizing new resources through matching dollars, CPER raised close to $34 million and invested nationally in some 140 community groups and advocacy allies in national coalitions and in six target sites of varying scale (California, Chicago, Colorado, Mississippi, New Jersey, and Philadelphia). These groups, in turn, developed local leadership, national coalitions, and cross-issue alliances that helped to achieve over 90 school-, district, and state-level policy reforms that strengthen educational equity and opportunity. CPER's history of impact illustrates the efficacy of community organizing as an essential education reform strategy, along with the more commonly supported strategies of policy advocacy, research, and model demonstration efforts. But CPER's story is also more broadly instructive. In this period of "strategic philanthropy " when focused, foundation-led agendas are increasingly seen as the surest route to achieving desired ends, CPER offered a very different, bottom-up, multi-issue alternative that proved effective. In sharing CPER's story, we hope to deepen understanding of the value of community organizing for education reform while contributing to the larger conversation about how grantmakers can effectively support social movements to strengthen opportunity and justice