A Model of B2B Exchanges

B2B exchanges are revolutionizing the way businesses will buy and sell a variety of intermediary products and services. It is estimated that most of the roughly $7 trillion worth of business transactions are likely to go through these new institutions within the next decade. This paper tries to understand the economics governing the transactions within B2B exchanges and analyze their likely evolution over time. In doing so, we start by providing the rigorous definitions to a number of critical concepts broadly used in the context of B2B exchanges including "market fragmentation", "critical mass" and buyer-seller "connectivity". We describe equilibrium behavior in the exchange and analyze it as a function of these critical concepts. Next, we study the evolution of the exchanges in a dynamic system where buyers and sellers enter (exit) the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. Our results have important implications for practice. For example, we show that equilibrium prices within the marketplace may not always decrease with lower search costs. However, buyer surplus rises with lower search costs even if prices are higher in the exchange. We also show that the general view that demand and supply (so-called "liquidity") either grows or shrinks in the marketplace may not always hold and it is quite possible to have a marketplace that is stable even though only a relatively small proportion of the market participants transact in it. Finally, we also provide conditions under which the exchange should subsidize buyers or seller in order to achieve critical mass.

Social Media and News: Content Bundling and news Quality

The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper’s website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets. News quality is more likely to increase with content bundling when the cost of providing quality is low, and when competition among publishers is strong. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers’ profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform’s ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content

Social media news: content bundling and news quality

The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper’s website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets, with initially high-quality outlets investing more and low-quality ones investing less. With many heterogenous newspapers, the result is robust even if each newspaper can prevent the platform from using its content. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers’ profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform’s ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content

Social Media and the News: Content Bundling and news Quality

The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper’s website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets. News quality is more likely to increase with content bundling when the cost of providing quality is low, and when competition among publishers is strong. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers’ profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform’s ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content

Buying and selling information under competition

Markets for information products exhibit varying degrees of competition on both the supply and the demand side. This paper studies the potential complementarity of information products, equilibrium information buying behaviors and information price setting in such markets. Our game-theoretic model consists of two information providers selling imperfect information to two competing clients and allows for different information quality levels as well as varying degrees of client competition. Absent of client competition, information providers compete on the statistical properties of the information they supply (i.e., the accuracy of the information). The competitive price can be high because of potential complementarity among information products when these are not very reliable. However, this may change when the clients are competing against each other. We adopt a reduced-form model of buyer competition that reflects situations where information buyers face discrete alternatives. We find that a buyer gains more through information acquisition when its competitor is less informed, suggesting a first mover advantage in information acquisition. More importantly, we also find that intense client competition can make the information products more substitutable, resulting in a lower equilibrium price for information. Furthermore, this effect leads to harsh competition between information providers and consequently provides incentives for exclusive contracting. In summary, it is found that the "quality" of information has a very different impact on sellers' profits depending on the degree of client competition

Quand et comment Internet est-il susceptible de diminuer la concurrence sur les prix?

International audienceLa sagesse traditionnelle, tendrait à prétendre qu'en abaissant le coût de distribution et en facilitant la recherche pour le consommateur, l'introduction de l'Internet serait à même d'intensifier la concurrence en matière de prix. Cet article tente d'examiner ce point de vue en posant les questions suivantes : quand et comment l'Internet est-il susceptible de diminuer la concurrence sur les prix entre les entreprises? Pour répondre à cette question, nous développons un modèle analytique présentant les caractéristiques suivantes. Côté demande, les consommateurs doivent recueillir des informations sur deux types d'attributs de produit : les attributs “ numériques ” (qui peuvent être communiqués par le Web à un coût très faible) et les attributs “ non-numériques ” (pour lesquels une étude physique du produit est nécessaire). Les consommateurs choisissent entre deux marques mais ne connaissent les attributs non-numériques que de la marque achetée lors du dernier achat. Côté offre, les entreprises utilisent les magasins traditionnels et l'Internet pour informer les consommateurs sur les attributs de leurs produits et vendre les produits en question. Dans cet article, nous prouvons que l'impact de l'Internet sur la concurrence sera radicalement différent selon l'importance relative des paramètres décrivant le contexte d'achat et de distribution. Nous constatons spécifiquement que l'introduction de l'Internet pourrait mener au prix de monopole quand (1) la proportion d'utilisateurs d'Internet est assez élevée, (2) les attributs non-numériques sont pertinents mais pas trop dominants, (3) les consommateurs ont un antécédent plus favorable pour la marque qu'ils possèdent et (4) la situation d'achat peut être caractérisée par des achats de type “ centre commercial ”. Plus étonnamment, nous montrons également que dans de tels cas l'utilisation d'Internet conduit non seulement à des prix plus élevés mais peut également décourager les consommateurs d'entreprendre une telle recherche. Ainsi, un des principaux messages important de cet article est, que sous certaines conditions, Internet peut représenter une opportunité pour les entreprises d'accroître la fidélité envers leur marque et augmenter leurs profits.L'aspect intuitif sous-jacent de nos résultats est le suivant. L'Internet permet facilement à des consommateurs d'sévaluer les attributs numériques, c'est-à-dire sans visiter les magasins. Les attributs non-numériques peuvent au contraire seulement être évalués par la présence physique. Ainsi, pour des produits où les deux types d'attributs sont importants, l'introduction du Net modifie le coût effectif de la recherche pour les consommateurs. Sans Internet le coût de la recherche est le coût de visite en plus d'un magasin. Par l'introduction du Net, les consommateurs ne cherchant pas ne doivent plus utiliser le circuit d'achat traditionnel parce qu'ils peuvent commander les produits sur le Net. Ainsi, en présence de l'Internet, le coût de la recherche est lié au coût d'utilisation du circuit d'achat dans sa globalité. Dans le cas de visites de magasins (c'est-à-dire quand le coût fixe d'utilisation du circuit de visite de magasins, est plus élevé que le coût de visite d'un magasin supplémentaire), la présence de l'Internet crée des coûts de recherche effectifs plus élevés pour les consommateurs. Vu ce décalage, dû à Internet, de paradigme en coûts de recherche, les consommateurs ne peuvent pas prendre le risque de rechercher des produits dotés de meilleurs attributs non-numériques. Ils conservent à la place le produit qui leur est familier, ce qui a pour conséquence d'accroître la fidélité du consommateur, qui conduit à son tour les entreprises à augmenter leurs prix.Nos résultats ont des implications managériales importantes. D'abord, ils fournissent des indications aux entreprises pour savoir pour quelles catégories de produit elles devraient élargir leur réseau de distribution par l'intégration d'Internet. A cet égard, un éclairage additionnel important de ce rapport est qu'Internet peut diminuer la concurrence sur les prix et conduire à une recherche réduite pour le consommateur même si cette démarche est plus coûteuse que le recours au canal de distribution traditionnel. Ceci peut facilement être le cas si la distribution par Internet génère des coûts additionnels tels que les coûts associés aux opérations d'expédition, de manipulation et de retours. En second lieu, le rapport fournit également des indications sur la façon de planifier la stratégie Internet de l'entreprise. Il est intéressant de noter que les résultats révèlent que grâce à l'existence de l'Internet, le rôle des magasins pourrait réellement devenir plus important. Tandis que nous ne modélisons pas explicitement un marché dynamique, nos résultats ainsi que ceux de Klemperer (1987) indiquent que les magasins pourraient avoir un rôle clé dans l'acquisition du consommateur, alors qu'Internet pourrait aider, en répondant à la demande, à élargir la base de clientèle fidèle. Ceci pourrait impliquer que dans certaines catégories de produit les entreprises devraient réellement allouer des ressources additionnelles en vue d'améliorer l'environnement de leurs magasins lorsqu'elles considèrent l'Internet comme un canal de distribution complémentaire

News Consumption and Media Bias

Bias in the market for news is well-documented. Recent research in economics explains the phenomenon by assuming that consumers want to read (watch) news that is consistent with their tastes or prior beliefs rather than the truth. The present paper builds on this idea but recognizes that (i) besides "biased" consumers, there are also "conscientious" consumers whose sole interest is in discovering the truth, and (ii) consistent with reality, media bias is constrained by the truth. These two factors were expected to limit media bias in a competitive setting. Our results reveal the opposite. We find that media bias may increase when there are more conscientious consumers. However, this increased media bias does not necessarily hurt conscientious consumers who may be able to recover more information from multiple media outlets the more the outlets are biased. We discuss the practical implications of these findings for media positioning, media pricing, media planning, and the targeting of advertising

Leveraging the customer base: creating competitive advantage through knowledge management

P rofessional services firms (e.g., consultants, accounting firms, or advertising agencies) generate and sell business solutions to their customers. In doing so, they can leverage the cumulative experience gained from serving their customer base to either reduce their variable costs or increase the quality of their products/services. In other words, their "production technology" exhibits some form of increasing returns to scale. Growth and globalization, coupled with recent advances in information technology, have led many of these firms to introduce sophisticated knowledge management (KM) systems in order to create sustainable competitive advantage. In this paper, the authors analyze how KM is likely to affect competition among such professional services firms. In particular, they first explore what type (supply-side versus demand-side) of economies of scale are likely to be exploited in KM systems. In the former case, KM's role is to reduce the operating costs of the firm, while in the latter case, its role is to create added value to customers by significantly increasing product quality. Second, the authors analyze the competitive dynamics and market structure that emerge as a result of firms competing with KM systems. The results shed light on the current literature exploring the deployment of KM systems by suggesting that in a competitive setting, when firms' ability to leverage their customer base is high, KM should lead to quality improvement rather than cost reductions. In a dynamic setting, it is also shown that when firms use their KM system to improve product quality, higher ability to leverage the customer base may actually hurt profits and lead to industry shakeout. Beyond normative insights, the results also support a number of recent market trends in management consulting, including the increased emphasis on knowledge-creating activities in modern KM systems, the wave of mergers between consulting firms, and the recent emergence of "retail consulting" services