Bhaskar Chakravorti

Stakeholder Marketing 2.0

As more companies pursue “open innovation” and adopt social networking and Web 2.0 tools, there is an emerging opportunity for them to connect with a diverse body of stakeholders and incorporate their interests and ideas. However, this also introduces many new challenges. The author identifies key properties that such networking mechanisms must satisfy if they are to succeed. He introduces a simple framework based on two dimensions of choices for designing such mechanisms: how the stakeholders are motivated to participate and how the company uses their inputs and makes decisions. For any choice, there are trade-offs to be considered. The author concludes by identifying the design that is most likely to succeed in fundamentally advancing the state-of-the-art of stakeholder marketing. Examples of many pioneering companies, such as Starbucks, Dell, Staples, Muji, and several others, are included in the discussion to illustrate the key propositions presented.

Strategy space reduction for feasible implementation of Walrasian performance

The purpose of this paper is to establish a new upper bound on the size of the strategy space that is needed to feasibly implement the constrained Walrasian correspondence (W). This bound is significantly lower than those available from the literature on feasible Nash-implementation. Our focus on W has wider implications since implementation of W implies partial implementation of “almost” all individually rational and efficient implementable economic performance standards. Hence, our results provide a parallel — in the economic context — to the research agenda of Saijo [13] and McKelvey [9] who have established new upper bounds on the size of the strategy space required for feasible implementation of Nash-implementable performance standards in general social choice contexts. We prove that it is sufficient to have only three agents in an economy who make price-related announcements. This is a critical source of the reduction in strategy space.

Innovation Without Borders

the pack and “thinks different.” Quite surely, that famous advertising byline helped win the computer maker, Apple, ultimate iconic status of innovator as the ultimate iconoclast. Equally famously, Apple Computer made its system incompatible with the prevailing standard: you were either with the nearly 90% of users whose PCs ran on Microsoft Windows or aligned with Apple’s unique system. Apple’s chief, Steve Jobs, had declared his objective to “put a ding in the universe”; he certainly did so by banging into the sides of much bigger competitors: Microsoft, IBM, HP, Dell, among many others. The Us vs. Them image of the innovator is not limited to Apple alone. The popular idea of the innovator as the “disruptor”—and the many examples of companies on the Web or from emerging markets that have, indeed, disrupted long standing incumbents—has reinforced the competitive facet of innovation. And the metaphors keep coming: making the competiton irrelevant; innovate—or die. In fact, it is often remarked that some of the best-known innovative companies hire attorneys with as much zest as in their hiring of scientists and engineers. In the midst of all of these images of zero-sum innovation, the critical role of consensus, cooperation and coordination in most successful innovations may have been overlooked. Last year, the percentage of successful innovative products that were developed or commercialized with others was as high as 79%. The total return to shareholders for companies that adopted a collaborative approach to innovation was on average 1.6 times that of more insular innovators. Collaboration also led to better outcomes for users of the innovative products: the clinical survival rates of patients who use products from externally sourced programs in pharmaceuticals are twice the survival rates of patients served by products of internally sourced programs. The importance of outsiders in the innovation process often begins with the very idea that ultimately becomes a winning innovation. The office supplies retailing giant, Staples, had aspirations to boost its sales from highly appealing private label merchandise. One of its hottest recent products is the Wordlock, predicated on the simplest of ideas: people remember combinations of letters that spell familBhaskar Chakravorti

Probabilistic cheap talk

Abstract We consider a model in which there is uncertainty over when a one-shot game will be played. We show how a mechanism designer can implement desirable outcomes in certain economic games by manipulating only the probability that the game is played in a given round while leaving all other aspects of the game unchanged. We also show that if there is no discounting, this uncertainty imparts a sequential structure that is almost mathematically equivalent to a repeated version of the game with discounting. In particular, a folk theorem applies to such games. Thus, games of probabilistic cheap provide a third interpretation of the repeated game framework with the additional feature that expected payoff is invariant to the probability of the game ending.

Cheap play with no regret

This paper studies a special class of differential information games with pre-play communication —games with “cheap play”. We consider problems in which there are several rounds of payoff-irrelevant publicly observable choice (or discussion) of actions, followed by a final round in which actions are binding and payoff relevant. A natural focal subset of equilibria of such games in one that consists of equilibria involvingno regret. Such games were first studied by Green and Laffont (1987), where a criterion calledposterior implementability is introduced with the intention of identifying regret-free equilibria in games with cheap play. This is simply a restriction on the Bayesian equilibrium of the underlying one-shot game. If indeed such a restriction does characterize regret-freeness, then the analytics of such situations would be enormously simplified since one can ignore the messy extended-form of the cheap play game; merely examining the one-shot game is sufficient. We argue that regret-freeness of an equilibrium has a subtle distinction: regret-freeness in moves and regret-freeness in assessments. We show that the former causes the extended-form to be irrelevant; posterior implementability completely characterizes equilibria with regret-freeness in moves. The latter, on the other hand, does not yield a similar principle: the extended-form cannot be ignored.

Sequential rationality, implementation and pre-play communication

Abstract The following questions are addressed: what are the bounds on a mechanism designers ability to implement social objectives when the agents indulge in (possibly mediated) communication prior to participation in the mechanism? Moreover, how do these bounds compare with those obtained in the absence of communication opportunities? The paper (i) shows that a sequential structure is essential to the study of communication and identifies an appropriate equilibrium concept – sequential mediated equilibrium ; (ii) defines the problem of implementation of social performance standards in environments with communication and provides necessary and sufficient conditions for implementability; and (iii) examines the normative implications of these conditions. It is shown that, in general, no interim individually rational and Pareto-efficient performance standard is implementable. However, when there is complete information among economic agents, pre-play communication does not pose any additional constraints on the designer; any standard that is implementable in the absence of communication remains implementable even in the presence of communication opportunities.

Communication requirements and strategic mechanisms for market organization

Abstract A mechanism realizes an objective if, when agents are honest, the objective is met when the mechanism is used. A mechanism implements an objective if, when agents act strategically, the objective is met when the mechanism is used. This paper addresses the question: do we incur an ‘informational cost’, in terms of increased communication requirements, when we insist on implementation of the (constrained) Walrasian correspondence as opposed to, simply, its realization? Communication requirements of a mechanism are measured by the size of its message space. We prove the existence of a mechanism that implements the (constrained) Walrasian correspondence with a message space which is no larger than that of the competitive allocation mechanism. We explore implementation with quasi-games which generalize games in the sense that they have outcome correspondences. Since a quasi-game designer is free to specify a set of outcomes rather than a single outcome for each strategy profile, a smaller amount of information needs to be conveyed to the center. We prove our result using a quasi-game whose solution is well-defined and invariant with respect to alternative beliefs held by agents about selections from the set of out-of-equilibrium outcomes.

Releasing Trapped Value: The Coming Challenge of Innovation in the Context of Emerging Markets

It is commonly accepted that to succeed in emerging markets requires extraordinary focus on the growing ranks of new consumers and their idiosyncratic needs. Innovators with an eye towards serving this growing market will naturally place a strong emphasis on tailoring products, processes, and business models and will be guided by the three mantras of affordability, accessibility, and appropriateness — to make products cheaper, easier to distribute, and suitable for the local environments. In a sense, we can describe such initiatives as innovation for the core, i.e. for the attractive market segments being created because of the new consuming class. In this chapter, we argue that there is an urgent need to focus, in parallel, on innovating in a different direction. Specifically, we argue that it is essential to innovate, not just to serve the core, but to fill gaps in the broader context that surrounds the core opportunity as well.

The Counter-Revolutionary Industrial Revolution Ahead

By 2025, the majority of the world’s population is expected to belong to the consumer class, with disposable incomes of at least

The new rules for bringing innovations to market.

10 a day. This new majority would represent a dramatic improvement in quality of life for many, and should be welcomed. An industrial revolution must accompany this transformation, however, in order to serve the many unmet needs of the rising consumer class. This industrial revolution, unlike previous ones, will happen without any big technological breakthroughs as its anchors. Instead, innovative firms have to combine many small, mutually reinforcing business practices developed in recent decades to serve consumers in the emerging world. The article concludes with the caveat that the coming industrial revolution and economic transformation cannot ignore the contextual factors that could trump innovation or make further growth unsustainable. Innovators and consumers will need to develop their contextual intelligence even as they lead this transformation.