Scientific articles

A monopolist selling a network good to heterogeneous users is shown to become a two-sided platform if it can condition prices on some user characteristics or if it cannot but induces user self-selection by offering screening contracts. This shows that the availability of sophisticated pricing instruments is essential to make a platform two-sided, not the ability to distinguish separate user groups. The use of freemium strategies (which consists of offering a base version at zero price and a premium version at a positive price) emerges as a special case of versioning. 

We develop a model of an economy in which consumers are interested in making many purchases, but have limited attention to examine relevant prices and product features (e.g., add-on fees or product safety). Our goal is to analyze effects of consumer-protection regulation (e.g., caps on fees, safety standards) spanning multiple markets. Such protection from post-purchase harm  lowers the attention necessary for valuable purchases, which can raise consumer welfare in two qualitatively different ways. First, freed-up attention may be used by the consumer to purchase in more markets. Second, when ``spare'' --- i.e., in equilibrium unused --- attention becomes available, it generates competition. The first benefit tends to be most important at the stage where the planner regulates relatively few markets, and the second when the planner's regulatory scope reaches a sufficiently high level. Because little spare attention can enforce competition in many markets, consumer welfare can be highly non-linear in the planner's regulatory scope. The benefits of regulating a market often accrue in other markets, so regulation can be beneficial even if it is not binding in equilibrium and does not change prices and volume in the regulated market. Furthermore, there is a sense in which overly tight regulation outperforms overly lax regulation. Broad consumer protection can help the economy reach productive efficiency, and when this is achieved such broad regulation may become unnecessary. 

We examine how product ratings are interpreted in the presence of heterogeneous preferences among both raters and consumers. Raters with altruistic motives should rate for the benefit of future consumers, however an ambiguity arises when preferences are heterogeneous. Multiple equilibria exist in which ratings may reflect the preferences of raters or the preferences of future consumers. In an online experiment, we examine how ratings are selected by raters and interpreted by consumers, and how information about rater preferences or product attributes can influence equilibrium selection. We show how both raters and consumers update their evaluation of what a rating represents in each environment, doing so in similar ways. 

Free and Open-Source Software (FOSS) are developed by a community of developers led by a coordinator. Coordinators balance the following trade-off: (i) more developers improve FOSS quality—a positive vertical differentiation effect; (ii) more developers lead to more diverse views, driving FOSS characteristics away from the preferences of existing developers—a negative horizontal differentiation effect. FOSS are able to attract more developers when coordinators improve their level of coordination, increasing the marginal vertical network effect, or by having a more permissive Open-Source license, increasing the marginal horizontal network effect. More permissive Open-Source licenses can intensify competition between FOSS and proprietary software, resulting in lower prices. However permissive licenses may reduce the incentives to coordinate FOSS, leading to lower quality FOSS that only serve niche markets. I explore coordinators who may have different motivations—self-interested Founders, volunteering Altruists, and profit-driven Managers—discussing when and how they choose to coordinate FOSS. 

Evidence suggests lower prices lead to better ratings, but better ratings induce firms to charge higher prices in the future. We model that consumers are only willing to make the effort to rate a seller if this seller provides a sufficient value-for-money. Using this model, we explore how firms use prices to impact their own ratings. We show that firms harvest ratings: they offer lower prices in early periods to trigger consumers to leave a good rating in order to earn larger profits in the future. Because especially low-quality firms harvest ratings, harvesting makes ratings less-informative about quality. Based on this mechanism, (i) we argue that rating harvesting causes rating inflation; (ii) we show that a marketplace that facilitates ratings (e.g. through reminders, one-click ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace that screens the quality of sellers makes ratings less-informative if the screening is insufficient. Counter to the conventional wisdom that consumers benefit from ratings via the information they transmit, we show that consumers prefer somewhat, but never fully informative ratings. Nonetheless consumers prefer more-informative ratings than average sellers. We apply these results to characterise when a two-sided platform wants to facilitate ratings, and argue that efforts of major platforms to facilitate ratings did not just lead to less-informative ratings, but also shifted surplus from consumers to sellers.  

Unlike traditional investing, where decisions follow a clear financial calculus, it is unclear how and why funders support hybrid ventures. To address this question, we analyze the varied priority that investors place on social impact versus financial returns and draw on categories theory to argue that different priority orderings associate with different perceptions of how hybridity aligns with different investment goals. Results show that funders who prioritize financial goals react positively when they perceive a venture exhibits greater hybridity, whereas funders who prioritize social impact do not. Our findings contribute to research on impact investing, hybrid organizations, and categories theory.

Intermediaries—such as Amazon, Alibaba Group, and Walmart—play critical roles in digital markets: This paper proposes a model for analyzing how search cost affects their market outcomes. Distinguished from existing search literature, we introduce network effects to the market by allowing buyers to have positive preferences for product variety. In addition, we relax the exogenous demand and supply assumptions in the conventional search literature to study how search affects participation on both sides of the market. Through the model, we focus on studying and comparing two important types of intermediary: the two-sided platform; and the one-sided retailer. We find that reducing search costs does not necessarily increase the profit of both intermediary types. Furthermore, its influences are highly varied—depending on both the type of intermediary and its buyers’ preferences for variety. 

Digital platforms have enabled sharing among strangers as a means to satisfy economic needs. This development was expected to allow traditional, community-based sharing to be taken to a much larger scale, providing a mechanism to address a variety of societal and environmental concerns. However, this early optimism seems misguided, as commercial sharing economy platforms are increasingly criticized for their negative societal consequences and ambiguous environmental impact. Testing claims made in the literature, we investigate whether this mission drift in community-based platforms can indeed explain this shift towards an increasingly commercial orientation in the sharing economy. Building on a comprehensive geographical mapping, the quantitative analysis of our granular dataset does not support these claims. Rather, we find that community-based platforms perceive increased scaling potential while avoiding mission drift. By complementing these quantitative findings with an in-depth case study, we explain the underlying mechanisms allowing for this alternative scaling strategy of community-based platforms. 

We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This is compatible with higher price-cost margins on one or both sides, noting that in the latter case one margin must be negative. Our finding raises further doubts on using market shares as a measure of market power in platform markets.

We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose designs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superficially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to distract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product information weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency labels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.

Many products sold on online platforms have additional features like fees for shipping, luggage, upgrades etc. We study when a two-sided platform uses dark patterns to shroud additional features towards potentially-naive buyers. We explore a novel mechanism according to which platforms shroud to manipulate network externalities between buyers and sellers. Exploring this mechanism, we argue the advent of online marketplaces led to less-transparent markets. First, platforms have stronger incentives to shroud seller fees than sellers themselves. Second, when sellers on the platform compete more fiercely, platforms—somewhat perversely—shroud more. We connect these results to the current debate on regulating online platforms

We study a model of simultaneous price competition that subsumes many employed in the literature over the last several decades. Firms sell a homogeneous good to consumers characterized by the number of prices they (exogenously) consider. We show there is a unique equilibrium if and only if some consumers consider exactly two prices. The equilibrium is in symmetric mixed strategies. When no consumer considers exactly two prices, there is, in addition, an uncountable infinity of asymmetric equilibria. Our results show that the paradigm generically produces a unique equilibrium, and only the commonly sought symmetric equilibrium is robust to perturbations in consumer behavior.

Crowdfunding has created new opportunities for poor microentrepreneurs. One crucial question is the impact that the purpose of a loan—either business investment or basic necessities—may have on the success of a campaign. Investigating a prosocial crowdfunding platform, we find that loans taken out to meet basic needs are funded faster than business-related loans, especially for small amounts, which can be explained by the prosocial motivation of microlenders. Moreover, female microborrowers are funded faster than men, especially for basic needs loans. Our results therefore suggest an ethical blind spot, since prosocially motivated crowdlenders may unintentionally end up producing adverse effects, replicating gender role by supporting women to a lesser extent when they apply for business loans. This finding expands prosocial motivational theory in ethical finance.

Operators of digital platforms have to convince potential users that their intermediation and matchmaking services bring additional value in the market. To do so, they need to formulate a strong value proposition, which convinces users that joining the platform brings them larger value than staying out. In recent years, a number of frameworks have been developed to help entrepreneurs reflect on which elements should be included (or not) in their value proposition. In this paper, the authors argue that such tools do not necessarily offer a satisfactory answer, as they miss the specificities of platform-based business models. Hence, they propose an alternative tool that overcomes the limitations they identified and is more appropriate for nascent multisided platforms. They argue that it is crucial to identify the complementarities and potential conflicts between the wants, needs, and fears of the different groups of users that the platform connects, so as to formulate a set of interlocked value propositions.

We identify a competition-policy-based argument for regulating the secondary features of complex or complexly priced products when consumers have limited attention. Limited attention implies that consumers can only “study” a small number of complex products in full, while—by failing to check secondary features—they can superficially “browse” more. Interventions limiting ex post consumer harm through safety regulations, caps on certain fees, or other methods induce consumers to do more or more meaningful browsing, enhancing competition. We show that for a pro-competitive effect to obtain, the regulation must apply to the secondary features, and not to the total price or value of the product. As an auxiliary positive prediction, we establish that because low-value consumers are often more likely to study—and therefore less likely to browse—than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. We discuss applications of our insights to health-insurance choice, the European Union’s principle on unfair contract terms, food safety in developing countries, and the shopping behaviour of (and prices paid by) low-income and high-income consumers.

In many deceptive markets, firms design contracts to exploit mistakes of naive consumers. These contracts also attract less-profitable sophisticated consumers. I study such markets when firms compete repeatedly. By observing their customers' usage patterns, firms acquire private information about their level of naiveté. First, I find that private information on naiveté mitigates competition and is of great value even with homogeneous products. Second, competition between initially symmetrically informed firms is mitigated when firms can educate naifs about mistakes. In an analogous setting without naifs, the second result does not occur; the first result occurs when firms cannot disclose fees.

Two duopolists compete on price in the market for a homogeneous product. They can “profile” consumers, that is, identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers or that only one firm profiles consumers as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus.