A major result in the study of two-sided platforms is the strategic interdependence between the two sides of the same platform, leading to the implication that a platform can maximize its total ...profits by subsidizing one of its sides. We show that this result largely depends on assuming that at least one side of the market single-homes. As technology makes joining multiple platforms easier, we increasingly observe that participants on both sides of two-sided platforms multihome. The case of multihoming on both sides is mostly ignored in the literature on competition between two-sided platforms. We help to fill this gap by developing a model for platform competition in a differentiated setting (a Hotelling line), which is similar to other models in the literature but focuses on the case where at least some agents on each side multihome. We show that when both sides in a platform market multihome, the strategic interdependence between the two sides of the same platform will diminish or even disappear. Our analysis suggests that the common strategic advice to subsidize one side in order to maximize total profits may be limited or even incorrect when both sides multihome, which is an important caveat given the increasing prevalence of multihoming in platform markets.
This paper was accepted by Joshua Gans, business strategy
.
Online peer-to-peer lending (P2P lending) has emerged as an appealing new channel of financing in recent years. A fundamental but largely unanswered question in this nascent industry is the choice of ...market mechanisms, i.e., how the supply and demand of funds are matched, and the terms (price) at which transactions will occur. Two of the most popular mechanisms are auctions (where the “crowd” determines the price of the transaction through an auction process) and posted prices (where the platform determines the price). While P2P lending platforms typically use one or the other, there is little systematic research on the implications of such choices for market participants, transaction outcomes, and social welfare. We address this question both theoretically and empirically. We first develop a game-theoretic model that yields empirically testable hypotheses, taking into account the incentive of the platform. We then test these hypotheses by exploiting a regime change from auctions to posted prices on one of the largest P2P lending platforms. Consistent with our hypotheses, we find that under platform-mandated posted prices, loans are funded with higher probability, but the preset interest rates are higher than borrowers’ starting interest rates and contract interest rates in auctions. More important, all else equal, loans funded under posted prices are more likely to default, thereby undermining lenders’ returns on investment and their surplus. Although platform-mandated posted prices may be faster in originating loans, auctions that rely on the crowd to discover prices are not necessarily inferior in terms of overall social welfare.
This paper was accepted by Chris Forman, information systems
.
Competitive equilibrium from equal incomes (CEEI) is a classic solution to the problem of fair and efficient allocation of ginfinityds (Foley 1967, Varian 1974). Every agent receives an equal budget ...of artificial currency with which to purchase ginfinityds, and prices match demand and supply. However, a CEEI is not guaranteed to exist when the ginfinityds are indivisible even in the simple two-agent, single-item market. Yet it is easy to see that, once the two budgets are slightly perturbed (made generic), a competitive equilibrium does exist. In this paper, we aim to extend this approach beyond the single-item case and study the existence of equilibria in markets with two agents and additive preferences over multiple items. We show that, for agents with equal budgets, making the budgets generic--by adding vanishingly small random perturbations--ensures the existence of equilibrium. We further consider agents with arbitrary nonequal budgets, representing nor/equal entitlements for ginfinityds. We show that competitive equilibrium guarantees a new notion of fairness among nonequal agents and that it exists in cases of interest (such as when the agents have identical preferences) if budgets are perturbed. Our results open opportunities for future research on generic equilibrium existence and fair treatment of nonequals.
Using a contingency theory lens, this study explores the impact of multiple firm-level capabilities and their interactions on firm growth under different market conditions, using panel data from 612 ...U.S. public firms across 16 years in 60 industries. Specifically, this study empirically examines how three key firm capabilities (marketing, R&D, operations) interact to impact firms’ revenue growth and profit growth over time, and how external boundary conditions (market munificence and competitive dynamism) influence the interactive growth effects of these capabilities. The results indicate that firms’ R&D (operations) capabilities positively (negatively) influence the effects of marketing capabilities on firm growth and that such effects vary across different market conditions. This study provides insights to researchers and managers regarding how to manage and deploy resources across multiple capabilities simultaneously under different market conditions to drive firm growth.
This paper analyzes the substantially growing markets for crowdfunding, in which retail investors lend to borrowers without financial intermediaries. Critics suggest that these markets allow ...sophisticated investors to take advantage of unsophisticated investors. The growth and viability of these markets critically depend on the underlying incentives. We provide evidence of perverse incentives in crowdfunding that are not fully recognized by the market. In particular, we look at group leader bids in the presence of origination fees and find that these bids are (wrongly) perceived as a signal of good loan quality, resulting in lower interest rates. Yet these loans actually have higher default rates. These adverse incentives are overcome only with sufficient skin in the game and when there are no origination fees. The results from the analysis in this paper provide more general implications for crowdfunding, its structure, and its regulation.
This paper was accepted by Wei Jiang, finance
.
Science and the Market for Technology Arora, Ashish; Belenzon, Sharon; Suh, Jungkyu
Management science,
10/2022, Volume:
68, Issue:
10
Journal Article
Peer reviewed
Well-functioning markets for technology (MFT) allow inventors to sell their inventions to others that may derive more value from them. We argue that the growing use of science in inventions enhances ...MFT. Science-based inventions have higher gains from trade and lower transaction costs. This relationship is amplified in equilibrium because science-based inventions are also likely to feature smaller inventors with a greater propensity to trade. Using large-scale data, we show that patents citing science are more likely to be traded, especially for novel patents and for smaller inventors. We conclude that the growing use of science in invention is beneficial by encouraging the expansion of MFT and supporting a division of innovative labor.
This paper was accepted by David Simchi-Levi, entrepreneurship and innovation.
Are there any viable semiotic objections to commodification? A semiotic objection holds that even if there is no independent consequentialist or deontic objection to the marketing of a good—such as ...that it is exploitative or causes third party harm—there remains a problem with what is said by participating in that market. Recent discussion of semiotic objections have suffered from a basic ambiguity in such talk. As Grice pointed out, there is a difference between saying that smoke on the horizon means fire, and saying that it means there will be war tomorrow. We could say that in the former case smoke indicates fire because of its causal connection with fire, while in the latter case smoke expresses a call to war because that is the non-natural meaning given to it by convention or by its place in a communicative practice. The recent defenses of semiotic objections presented by Anthony Booth, Jacob Sparks, and Mark Wells do not survive this distinction, as they either complain about non-semiotic facts that are indicated rather than expressed by markets, or they complain about semiotic features of markets, but these complaints inevitably collapse into weak consequentialist objections. But this result is not bad for anticommodificationists, as semiotic objections have dialectical disadvantages.
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