|
on Industrial Organization |
|
Issue of 2021‒06‒21
five papers chosen by |
| By: | Stéphane Lemarié; Cecilia Vergari |
| Abstract: | We study the optimal monopoly pricing when consumers may buy one or two units of a good over two successive periods and their preferences evolve depending on past purchases and preference persistence. If the monopolist cannot discriminate between past and new buyers, he refrains from intertemporal price discrimination. Selling over two periods improves the monopoly profit as compared to the benchmark one-period equilibrium only for high preference persistence. Conversely, if the monopoly can discriminate between second period buyers, behavior-based price discrimination becomes profitable only for low preference persistence. |
| Keywords: | Repeated purchases, monopoly dynamic pricing, vertical differentiation |
| JEL: | L10 Q10 |
| Date: | 2021–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2021/271&r= |
| By: | Daniel Garcia; Juha Tolvanen; Alexander K. Wagner |
| Abstract: | We provide a new framework to identify demand elasticities in markets where managers rely on algorithmic recommendations for price setting, and apply it to a dataset containing bookings for a sample of mid-sized hotels in Europe. Using non-binding algorithmic price recommendations and observed delay in price adjustments by decision makers, we demonstrate that a control-function approach, combined with state-of-the-art model selection techniques, can be used to isolate exogenous price variation and identify demand elasticities across hotel room types and over time. We confirm these elasticity estimates with a difference-in-differences approach that leverages the same delays in price adjustments by decision makers. However, the difference-in-differences estimates are more noisy and only yield consistent estimates if data is pooled across hotels. We then apply our control-function approach to two classic questions in the dynamic pricing literature: the evolution of price elasticity of demand over time as well as the effects of a transitory price change on future demand due to the presence of strategic buyers. Finally, we discuss how our empirical framework can be applied directly to other decision-making situations in which recommendation systems are used. |
| Keywords: | big data, causal inference, machine learning, revenue management, price recommendations, demand estimation |
| JEL: | L13 L83 D12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9127&r= |
| By: | Evensen, Charlotte Bjørnhaug (Dept. of Economics, Norwegian School of Economics and Business Administration); Haugen, Atle (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | Abstract In this paper, we address how targeting and consumer multi-homing impact platform competition and market equilibria in two-sided markets. We analyze platforms that are financed by both advertising and subscription fees, and let them adopt a targeting technology with increasing performance in audience size: a larger audience generates more consumer data, which improves the platforms’ targeting ability and allows them to extract more ad revenues. Targeting therefore increases the importance of attracting consumers. Previous literature has shown that this could result in fierce price competition if consumers subscribe to only one platform (i.e. single-home). Surprisingly, we find that pure single-homing possibly does not constitute a Nash equilibrium. Instead, platforms might rationally set prices that induce consumers to subscribe to more than one platform (i.e. multi-home). With multi-homing, a platform’s audience size is not restricted by the number of subscribers on rival platforms. Hence, multi-homing softens the competition over consumers. We show that this might imply that equilibrium profit is higher with than without targeting, in sharp contrast to what previous literature predicts. |
| Keywords: | Two-sided markets; digital platforms; targeted advertising; incremental pricing; consumer multi-homing. |
| JEL: | D11 D21 L13 L82 |
| Date: | 2021–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2021_013&r= |
| By: | Jian Jia; Ginger Zhe Jin; Liad Wagman |
| Abstract: | Digital platforms are not only match-making intermediaries but also establish internal rules that govern all users in their ecosystems. To better understand the governing role of platforms, we study two Airbnb pro-guest rules that pertain to guest and host cancellations, using data on Airbnb and VRBO listings in 10 US cities. We demonstrate that such pro-guest rules can drive demand and supply to and from the platform, as a function of the local platform competition between Airbnb and VRBO. Our results suggest that platform competition sometimes dampens a platform wide pro-guest rule and sometimes reinforces it, often with heterogeneous effects on different hosts. This implies that platform competition does not necessarily mitigate a platform's incentive to treat the two sides asymmetrically, and any public policy in platform competition must consider its implication on all sides. |
| JEL: | D81 D83 L14 L15 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28878&r= |
| By: | Bonnet, Céline; Etcheverry, Clara |
| Abstract: | The online distribution channel expands in many sectors, and the food industry is not left out. This paper analyzes the impact of ecommerce on French grocery shopping. Using purchase data, we develop a structural econometric model of demand and supply to estimate the effect of the emergence of online distribution channels on prices, profit, consumer surplus, and profit-sharing between retailers and manufacturers in the soft drink sector. We find that e-commerce leads to market expansion, and the effect on the retailers’ profits depends on their online strategy. The retailers which developed independent warehouses for the online distribution channel get higher market shares, retail margins, and profits. The retailers which develop the online services in the existing stores or adjoined warehouses get lower downstream margins, market shares, and profits with e-commerce. Our results also suggest that the introduction of the online grocery channel is profitable to most manufacturers due to an increase in wholesale margins. This increase with the introduction of e-commerce comes from the higher retailers’ fear of risking a bargaining breakdown compared to accepting a concession to its trading partner. |
| Keywords: | E-commerce; grocery; online shopping; bargaining; profit sharing |
| JEL: | L13 L63 L81 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125747&r= |