Doh-Shin Jeon

Bundling Electronic Journals and Competition Among Publishers

Site licensing of e-journals has been revolutionizing the way academic information is distributed. However, many librarians are concerned about the possibility that publishers might abuse site licensing by practicing bundling. In this paper, we analyze how bundling affects journal pricing in the context of STM electronic journal market and offer a novel insight on the bundling of a large number of information goods. We find that (i) when bundling is prohibited, surprisingly, market structure does not affect prices (ii) when bundling is allowed, each publisher finds bundling optimal and bundling increases the industry profit while reducing social welfare and (iii) any asymmetry-increasing merger is profitable but reduces social welfare

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.

A Leverage Theory of Reputation Building with Co-Branding: Complementarity in Reputation Building

We present a leverage theory of reputation building with co-branding. We show that under certain conditions, co-branding that links unknown firms in a new sector with established firms in a mature sector allows the unknown firms to signal a high product quality and establish their own reputation. We compare this situation with a benchmark in which both sectors are new and firms signal their quality only with prices. We investigate how this comparison is affected by the nature of the technology linking the two sectors and a cross-sector inference problem that consumers might face in identifying the true cause of product failure. We find that co-branding facilitates the process in which a Þrm in the new sector to signal its product quality only if the co-branding sectors produce complementary inputs and consumers face a cross-sector inference problem. We apply our insight to economics of superstars, multinational firms and co-authorship.

Buyer Coalition Against Monopolistic Screening: On the Role of Asymmetric Information among Buyers

The traditional theory of monopolistic screening tackles individual self-selection but does not address the possibility that buyers could form a coalition to coordinate their purchases and to reallocate the goods. In this paper, we design the optimal sale mechanism which takes into account both individual and coalition incentive compatibility focusing on the role of asymmetric information among buyers. We show that when a coalition of buyers is formed under asymmetric information, the monopolist can do as well as when there is no coalition. Although in the optimal sale mechanism marginal rates of substitution are not equalized across buyers (hence there exists room for arbitrage), they fail to realize the gains from arbitrage because of the transaction costs in coalition formation generated by asymmetric information.

Bundling and Competition for Slots: On the Portfolio Effects of Bundling

We consider competition among sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. We study how bundling affects competition for slots. Under independent pricing, equilibrium often does not exist and hence the outcome is often inefficient. When bundling is allowed, each seller has an incentive to bundle his products and an efficient equilibrium always exists. Furthermore, in the case of digital goods, all equilibria are efficient if slotting contracts are prohibited. We also identify portfolio effects of bundling and analyze the consequences on horizontal mergers. Finally, we derive clear-cut policy implications.

Bundling and competition for slots: Sequential pricing

In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon-Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

Labor Market Information Acquisition and Downsizing

We study the optimal mechanism for downsizing the public sector which takes into account different informational constraints (complete versus asymmetric information on each worker’s efficiency) and political constraints (mandatory versus voluntary downsizing). Under complete information, the optimal structure of downsizing (who is laid-off and who is not) does not depend on the political constraint and is determined by the (marginal) cost of retaining a worker in the public sector. Since this cost includes his opportunity cost in the private sector, information acquisition on opportunity costs affects the structure of downsizing. Under asymmetric information, the political constraints determine which workers obtain information rents and therefore affect the structure of downsizing. An increase in the precision of the information on workers’ opportunity costs may increase or decrease social welfare depending on its impacts on the information rents.

A Simple Access Pricing Rule to Achieve the Ramsey Outcome in Two-Way Access ∗

In this paper, I consider a general and informationally efficient approach to determine the optimal access rule and show that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. My approach is informationally efficient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any Þxed access price, the Efficient Component Pricing Rule (ECPR) and the ModiÞed ECPR as special cases. I show that in this set, there is a unique access rule that achieves the Ramsey outcome as the unique equilibrium as long as there exists at least a mild degree of substitutability among networks’ services.

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Two-Part Tariffs

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under competition in linear prices, derived by Jeon (2005), but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under the class of rules. Therefore, the regulator can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: in particular, we show that the regulator can achieve static and dynamic efficiency at the same time.

Money, Fame and the Allocation of Talent: Brain Drain, the Matthew Effect and the Institution of Science

The earning structure in science is known to be flat relative to the one in the private sector, which could cause a brain drain toward the private sector. In this paper, we assume that agents value both money and fame and study the role of the institution of science in the allocation of talent between the science sector and the private sector. Following works on the Sociology of Science, we model the institution of science as a mechanism distributing fame (i.e. peer recognition). We show that since the intrinsic performance is less noisy signal of talent in the science sector than in the private sector, a good institution of science can mitigate the brain drain. We also find that providing extra monetary incentives through the market might undermine the incentives provided by the institution and thereby worsen the brain drain. Finally, we study the optimal balance between monetary and non monetary incentives in science.