2022 - Working Papers: Managerial Economics

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“For the public benefit”: Who should control our data? , 41 pp.
S. Markovich and Y. Yehezkel
(Working Paper No. 2/2022)
Research No. 03422100

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We consider a platform that collects data from users. Data has commercial benefit to the platform, personal benefit to the user, and public benefit to other users. We ask whether the platform, or users, should have the right to decide which data the platform commercializes. We find that when users differ in their disutility from the commercialization of their data and the public benefit of data is high (low), it is welfare enhancing to let the platform (users) control the data. In contrast, when heterogeneity is in the disutility from the commercialization of different data items, it is welfare enhancing to let users (the platform) control the data when the public benefit of data is high (low). Furthermore, we find that an entrant platform may choose to give users control over their data as doing so can help it overcome the focality advantage the incumbent enjoys.

Vertical collusion to exclude product improvement, 52 pp.
D. Gilo and Y. Yehezkel
(Working Paper No. 3/2022)
Research No. 03421100

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A manufacturer of an established product repeatedly interacts with a retailer that can sell an inferior new product thereby improving it. The manufacturer’s exclusionary strategy consists of a permanently below-cost wholesale price and “vertical collusion” with the retailer to exclude via a future reward of a reduced fixed fee. The latter tool is available only in an infinite game. Although contracts include fixed fees, the retailer sells the new product more than what maximizes industry profits. Exclusive dealing or a vertical merger between the manufacturer of the established product and the retailer replicate the vertically integrated outcome and increase prices.

The wisdom of the crowd when acquiring information is costly, 29 pp. J. Glazer, I. Kremer and M. Perry
(Working Paper No. 5/2022)
Research No. 02570100

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We consider a sequential investment process that is characteristic of crowdfunding platforms, among other contexts. Investors wish to avoid the cost of information acquisition and thus prefer to rely on information acquired by previous investors. This may lead to a phenomenon similar to an information cascade. We characterize the optimal policy that balances between the incentive to acquire information and the optimal investment decision. The policy is based on time-varying transparency levels such that it may be worthwhile to conceal some information in some periods. Glazer thanks the Coller Fund and the Henry Crown Institute for Business Research in Israel for financial support.

Price saliency and fairness: Evidence from regulatory shaming, 42 pp.
I. Ater and O. Avishay-Rizi
(Working Paper No. 9/2022)
Research No. 07822100

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What are the effects of attention to the price paid by other consumers on consumer demand and firms’ pricing decisions? We study the effects of a regulation that required Israeli retailers to display on-the-shelf signs indicating the (cheap) international price of a product alongside the price of that product in the local store. We find that prices of products included in the regulation fell on average by 8%. The price drop was larger for products that were initially more expensive compared to their international price. Following the price drop, quantities sold increased. Yet, these increases were significantly smaller than increases in quantities that we predict based on pre-regulation demand elasticities and the actual price drops. Products that remained relatively expensive vis-á-vis their international price exhibited larger differences between predicted and actual quantities sold. We develop a theoretical model that explains these findings, and estimate it to quantify the importance of salient unfair prices. We find that a 20 percentage-point salient difference between local and international prices is equivalent to a 1% increase in the price of the local product itself. Next, we use the model and its estimated parameters to calculate the impact of the regulation on consumer utility. We find that utility declined for some products included in the regulation. This happens when the disutility from observing that other consumers pay less exceeds the added utility from reduced prices and increased consumption. We discuss potential implications of our findings for optimal pricing strategies, price rigidity, and theoretical models of salient thinking.

From conference submission to publication and citations: Evidence from the EARIE conference, 54 pp.
Y. Spiegel and O. Toivanen
(Working Paper No. 10/2022)
Research No. 08622100

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Using data from five annual conferences of the European Association for Research in Industrial Economics (EARIE), we shed light on the role of academic conferences in disseminating research results and on research in IO. Among other things, we find that (i) there are disagreements between members of the scientific committee when they evaluate the same paper in almost half of the cases, though large disagreements are present in only 6% of the cases; (ii) between 40% - 50% of the submitted papers remain unpublished years after the conference and those that are published, take on average over 3 years to get published; (iii) presentation at the conference is associated with a higher likelihood of publishing in an IO journal, although only 19% of the published papers appear in IO journals; (iv) empirical papers and co-authored papers are more likely to get published and get more citations when published; (v) accepted papers receive more citations when published than rejected papers; and (vi) publications in economics journals receive substantially fewer citations than publications in adjacent fields like entrepreneurship and finance.

Partial cross ownership and innovation, 49 pp.
S. Shelegia and Y. Spiegel
(Working Paper No. 11/2022)
Research No. 08690100

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We study the effects of partial cross ownership (PCO) among rival firms on their incentives to innovate. PCO in our model gives rise to a price effect which encourages investment by softening price competition, but also to a cannibalization effect which discourages investment because each firm internalizes part of the negative externality of its investment on the rival’s profit. We show that overall, PCO may benefit or harm consumers depending on the size of the PCO stakes and their degree of symmetry, the relative cost of the innovation and its size, and whether it is drastic or not.

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