Alexander White

On the Antitrust Economics of the Electronic Books Industry

When Apple entered the ebook market, prices rose. A recent court decision found Apple guilty of colluding with publishers, blaming the price hike, in part, on agency agreements and prohibiting their use. Building a model to compare these with traditional wholesale agreements, we identify a single, pivotal condition that leads prices under agency to be higher than under wholesale with two-part tariffs but lower with linear pricing. Our model shows that the increase in ebook prices can be explained, instead, by heightened competition for reading devices, and it guides our understanding of when restricting agency agreements is advisable.

Search Engines: Left Side Quality Versus Right Side Profits

High quality search results have the potential to eat into a search engine’s profits. However few people would use a lousy search engine. While there is clearly a tradeoff governing a search engine’s quality choice, it is far from straightforward. A search engine must attract users, direct them to relevant websites, some of which are paid ads and some of which are not, while creating conditions that are profitable for the former. This paper examines this tradeoff. It shows that the quality choice is closely tied with users’ post-search interaction with advertisers. Quality serves as a demand booster for users, causing them to tolerate a search engine on which advertisers do not offer the lowest possible prices. It argues, however, that websites that do not pay to appear still have an incentive to compete in the same market as advertisers, and shows that if this is the case, then adding quality reduces the prices advertisers will in fact charge. Thus, even if quality were free to produce, in order to allow advertisers to charge a positive markup, the search engine must set quality below the highest possible level. ∗Many thanks to Eduardo Azevedo, Klênio Barbosa, Stefan Behringer, Guido Friebel, Dominik Grafenhofer, Andrei Hagiu, Marti Hearst, Kamal Jain, Bruno Jullien, Dmytro Kylymnyuk, German Lambardi, Jérôme Mathis, Volker Nocke, Martin Peitz, Paul Seabright, Carl Shapiro, Joacim T̊ag, Glen Weyl, and especially to Jacques Crémer for very helpful discussions and/or comments on previous drafts. I also thank participants at the ZEW ICT Conference, in July 2008, where this work was first presented, as well as seminar audiences at Toulouse School of Economics, UCL and participants in the Latin American Meeting of the Econometric Society in Rio de Janeiro. I bear full responsibility for all errors. †Toulouse School of Economics, GREMAQ; alexander.white@univ-tlse1.fr The goals of the advertising business model do not always correspond to providing quality search to users. [...] we expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers. – Sergey Brin and Larry Page (1998), founders of Google, before Google was advertising funded

Walrasian Equilibrium in Large, Quasilinear Markets

In an economy with indivisible goods, a continuum of agents, and quasilinear utility, we show that equilibrium exists regardless of the nature of agents’ preferences over bundles. This contrasts with results for economies with a finite number of agents, which require restrictions on preferences (such as substitutability) to guarantee existence. When the distribution of preferences has full support, equilibrium prices are unique.

Let the Right 'One' Win: Policy Lessons from the New Economics of Platforms

Many of the leading controversies in competition policy in the last two decades, especially those surrounding the Microsoft case, reflect the challenges posed by platform industries. Unfortunately, too often economists and policymakers have drawn the wrong lessons when thinking about such industries.

The Attention Economy of Search and Web Advertisement

When people go on the web, they surf. Accordingly, in many circumstances, such as when people use a search engine (SE) to find a “content website” (CW), such pairs of websites are complements. Typically, both of these types of sites show advertisements to their visitors, but they do so using very different technologies. We study the incentives for such ad-funded websites with differing technologies to force their visitors to pay attention by putting up with distracting advertisements.We show that SEs and CWs face two distinct coordination problems when designing their advertising strategies. The first is the classic problem of double marginalization among sellers of complements. The second potential problem is new: the need to efficiently allocate demands to a given user for her attention. Because of this second issue, the market for user attention exhibits surprising behavior when competition increases. In particular, heightened competition among sites of a given type (SE or CW) may cause social welfare to decrease by giving the other type of site an incentive to make more inefficient demands for the users’ attention.

Half-Hearted Cooperation: A Theory of the Evolution of Altruistic Preferences

This paper presents an evolutionary model in which altruists and egoists simultaneously survive natural selection. Successive generations of randomly paired agents play a two-stage game consisting first of a choice of technology and second a choice of effort level. This setting induces a form of cooperation if at least one of the pair is an altruist but not when both are egoists. As a result, in the population steady state there is a positive fraction of both types of agent that is a function of the technology and of the altruists’ degree of regard for their opponents.