Differentiated Networks: Equilibrium and Efficiency

We consider a model of price competition in a duopoly with product differentiation and network effects. The value of a good for a consumer is the sum of a common and an idiosyncratic component. The first captures the vertical dimension of quality, the second captures horizontal differentiation. Each consumer privately observes his own value for each good, but cannot separate the common and the idiosyncratic component. Therefore, he has incomplete information about the value of the goods for the other consumers. After firms announce prices, consumers choose simultaneously which network to join, facing a coordination problem. In the efficient allocation, both networks are active and the firm with the highest expected quality has the largest market share. To characterize the equilibrium allocation, we derive necessary and sufficient conditions for uniqueness of the equilibrium of the coordination game played by consumers for given prices. The equilibrium allocation differs from the efficient one for two reasons. First, the equilibrium allocation of consumers to the networks is too balanced, since consumers fail to internalize network externalities. Second, if access to the networks is priced by strategic firms, then the product with the highest expected quality is also the most expensive. This further reduces the asymmetry between market shares and therefore social welfare.

Clustering in N-Player Preemption Games

sz=53 Note: The Discussion Papers in this series are prepared by members of the Department of Economics, University of Essex, for private circulation to interested readers. They often represent preliminary reports on work in progress and should therefore be neither quoted nor referred to in published work without the written consent of the author. Clustering in N-Player Preemption Games

Network Markets and Consumer Coordination

This paper assumes that groups of consumers in network markets can coordinate their choices when it is in their best interest to do so, and when coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium if consumers have heterogeneous reservation values. A monopolist provider might choose to operate multiple networks to price differentiate consumers on both sides of the market. Competing network providers might operate networks such that one of them targets high reservation value consumers on one side of the market, while the other targets high reservation value consumers on the other side. Firms can obtain positive profits in price competition. In these asymmetric equilibria product differentiation is endogenized by the network choices of consumers. Heterogeneity of consumers is necessary for the existence of this type of equilibrium.

Perception-Theoretic Foundations of Weighted Utilitarianism

We provide a microfoundation for a weighted utilitarian social welfare function that reflects common moral intuitions about interpersonal comparisons of utilities. If utility is only ordinal in the usual microeconomic sense, interpersonal comparisons are meaningless. Nonetheless, economics often adopt utilitarian welfare functions, assuming that comparable utility functions can be calibrated, using information beyond consumer choice data. We show that consumer choice data alone are sufficient. As suggested by Edgeworth (1881), just noticeable differences (JNDs) provide a common unit of measure for interpersonal comparisons of utility differences. We prove that a simple monotonicity axiom implies a weighted utilitarian aggregation of preferences, with weights proportional to individual JNDs

Psychophysical foundations of the Cobb–Douglas utility function

Relying on a literal interpretation of Weber’s law in psychophysics, we show that a simple condition of independence across good categories implies the Cobb–Douglas preferences

Bias and Negligence with Freedom of Information

We analyse decision-making in the presence of Freedom of Information (FOI) rules. A decision-maker chooses whether to acquire costly information to inform his decision regarding a policy action. If information is not disclosed voluntarily a monitor may open a costly investigation, using FOI to access the information. A finding of biased decision-making or negligence in information acquisition generates a reward to the monitor and a penalty to the decision-maker. We find that strengthening FOI to reduce the cost of investigation may increase negligence without necessarily reducing bias. Moreover increasing the reward for discovering negligence can paradoxically increase negligence in equilibrium

Strategic Information Acquisition and Transmission

This paper explores the implications of costly information acquisition in a strategic communication setting. We show that equilibrium decisions based on a biased expert's advice may be more precise than when information is directly acquired by the decision maker, even if the expert is not more efficient than the decision maker at acquiring information. This result bears important implications for organization design. Communication by an expert to a decision maker may often outperform delegation of the decision-making authority to the expert, as well as centralization by the decision maker of both information acquisition and decision-making authority

Second-Order Induction in Prediction Problems

Agents make predictions based on similar past cases, while also learning the relative importance of various attributes in judging similarity. We ask whether the resulting "empirically optimal similarity function” (EOSF) is unique, and how easy it is to find it. We show that with many observations and few relevant variables, uniqueness holds. By contrast, when there are many variables relative to observations, non-uniqueness is the rule, and finding the EOSF is computationally hard. The results are interpreted as providing conditions under which rational agents who have access to the same observations are likely to converge on the same predictions, and conditions under which they may entertain different probabilistic beliefs

Targeting Taxanes to Castration-Resistant Prostate Cancer Cells by Nanobubbles and Extracorporeal Shock Waves

To target taxanes to castration-resistant prostate cancer cells, glycol-chitosan nanobubbles loaded with paclitaxel and docetaxel were constructed. The loaded nanobubbles were then combined with Extracorporeal Shock Waves, acoustic waves widely used in urology and orthopedics, with no side effects. Nanobubbles, with an average diameter of 353.3 ± 15.5 nm, entered two different castration-resistant prostate cancer cells (PC3 and DU145) as demonstrated by flow cytometry and immunofluorescence. The shock waves applied increased the amount of intracellular nanobubbles. Loading nanobubbles with paclitaxel and docetaxel and combining them with shock waves generated the highest cytotoxic effects, resulting in a paclitaxel GI50 reduction of about 55% and in a docetaxel GI50 reduction of about 45% respectively. Combined treatment also affected cell migration. Paclitaxel-loaded nanobubbles and shock waves reduced cell migration by more than 85% with respect to paclitaxel alone; whereas docetaxel-loaded nanobubbles and shock waves reduced cell migration by more than 82% with respect to docetaxel alone. The present data suggest that nanobubbles can act as a stable taxane reservoir in castration-resistant prostate cancer cells and shock waves can further increase drug release from nanobubbles leading to higher cytotoxic and anti-migration effect

Clustering in N-Player Preemption Games

We study a complete information preemption game in continuous time. A finite number of firms decide when to make an irreversible, observable investment. Upon investment, a firm receives flow profits, which decrease in the number of firms that have invested. The cost of investment declines over time exogenously. We characterize the subgame-perfect equilibrium outcome, which is unique up to a permutation of players. When the preemption race among late investors is sufficiently intense, the preemption incentive for earlier investors disappears, and two or more investments occur at the same time. We identify a sufficient condition in terms of model parameters: clustering of investments occurs if the flow profits from consecutive investments are sufficiently close. This shows how clustering can occur in the absence of coordination failures, informational spillovers, or positive payoff externalities