Gabriel Y. Weintraub

Investment in Two Sided Markets and the Net Neutrality Debate

This paper develops a game-theoretic model based on a two-sided market framework to compare Internet service providers’ (ISPs) investment incentives, content providers’ (CPs) participation, and social welfare between neutral and non-neutral network regimes. We find that ISPs’ investments are driven by the trade-off between softening consumer price competition and increasing revenues from CPs. Specifically, investments are higher in the non-neutral regime because it is easier to extract revenue through appropriate CP pricing. On the other hand, participation of CPs may be reduced in a non-neutral network due to higher prices. The net impact of non-neutrality on social welfare is determined by which of these two effects is dominant. Overall, we find that the non-neutral network is always welfare superior in a “walled-gardens” model, while the neutral network is superior in a “priority lanes” model when CP-quality heterogeneity is large. These results provide useful insights that inform the net-neutrality debate.

Investment and Market Structure in Industries with Congestion

We analyze investment incentives and market structure under oligopoly competition in industries with congestion effects. Our results are particularly focused on models inspired by modern technology-based services such as telecommunications and computing services. We consider situations where firms compete by simultaneously choosing prices and investments; increasing investment reduces the congestion disutility experienced by consumers. We define a notion of returns to investment, according to which congestion models inspired by delay exhibit increasing returns, whereas loss models exhibit nonincreasing returns. For a broad range of models with nonincreasing returns to investment, we characterize and establish uniqueness of pure-strategy Nash equilibrium. We also provide conditions for existence of pure-strategy Nash equilibrium. We extend our analysis to a model in which firms must additionally decide whether to enter the industry. Our theoretical results contribute to the basic understanding of competition in service industries and yield insight into business and policy considerations.

A Combinational Auction Improves School Meals in Chile

Chiles school system is using mathematical modeling to assign catering contracts in a singleround sealed-bid combinational auction. The Chilean state spends around US

Oblivious equilibrium: An approximation to large population dynamic games with concave utility

180 million a year to feed 1,300,000 students from low income families, making this one of the largest state auctions. To improve the quality of the assignment in the auction process, we constructed an integer linear programming model to decide contract awards optimally among different concession holders. The model completely changed the nature of the process in three crucial aspects. First, it gave transparency and objectivity to the complete process, generating competition among firms. Second, it allowed the companies to build flexible territorial bids to include their scale economies, leading to efficient resource allocation. Finally, the model indeed found an optimal solution, which is not easy because the assignment problem was NP-complete with more than 10,000 binary variables. This new methodology improved the price-quality ratio of the meals with yearly savings of around US

On oblivious equilibrium in large population stochastic games

40 million--equivalent to the cost of feeding 300,000 children during one year.

A Framework for Dynamic Oligopoly in Concentrated Industries

We study stochastic games with a large number of players, where players are coupled via their payoff functions. A standard solution concept for such games is Markov perfect equilibrium (MPE). It is well known that the computation of MPE suffers from the “curse of dimensionality.” Recently an approximate solution concept called “oblivious equilibrium” (OE) was developed by Weintraub et. al, where each player reacts to only the average behavior of other players. In this work, we characterize a set of games in which OE approximates MPE. Specifically, we show that if system dynamics and payoff functions are concave in state and action and have decreasing differences in state and action, then an oblivious equilibrium of such a game approximates MPE. These exogenous conditions on model primitives allow us to characterize a set of games where OE can be used as an approximate solution concept.

Competition and Contracting in Service Industries

We study stochastic games with a large number of players, where players are coupled via their payoff functions. A standard solution concept for such games is Markov perfect equilibrium (MPE). It is well known that the computation of MPE suffers from the “curse of dimensionality.” To deal with this complexity, several researchers have introduced the idea of oblivious equilibrium (OE). In OE, each player reacts to only the long-run average state of other players. In this paper, we study existence of OE, and also find conditions under which OE approximates MPE well.

A mean field approach to competition in large scale wireless systems

We consider dynamic oligopoly models in the spirit of Ericson and Pakes (1995). We introduce a new computationally tractable model for industries with a few dominant firms and many fringe firms, in which firms keep track of the detailed state of dominant firms and of few moments of the distribution that describes the states of fringe firms. Based on this idea we introduce a new equilibrium concept that we call moment-based Markov equilibrium (MME). MME is behaviorally appealing and computationally tractable. However, because moments may not summarize all payoff relevant information, MME strategies may not be optimal. We propose different approaches to overcome this difficulty with varying degrees of restrictions on the model primitives and strategies. We illustrate our methods with computational experiments and show that they work well in empirically relevant models, and significantly extend the class of dynamic oligopoly models that can be studied computationally. In addition, our methods can also be used to improve approximations in other settings such as dynamic industry models with a continuum of firms and an aggregate shock and stochastic growth models.

The Scope of Sequential Screening with Ex-Post Participation Constraints

In service industries with congestion effects, two very different contractual structures are commonly observed, depending on whether or not firms choose to offer a guaranteed service level. We analyze the impact of these choices on market outcomes in oligopolistic industries. Our results highlight how different contractual agreements change the intensity of price competition in service industries. Broadly speaking, we show that competition is intensified when firms choose to offer service level guarantees.

Framework Agreements in Procurement: An Auction Model and Design Recommendations

We study competition between wireless devices in a dynamic setting. We model such systems as non-cooperative stochastic games. Computing the equilibrium behavior of devices in stochastic games is computationally prohibitive, especially when the number of devices are large. To deal with the complexity of such large scale systems, we use an approximate solution concept called the oblivious equilibrium, (proposed by Weintraub et. al) where each device reacts to the aggregate state of other devices. We show that under some structural assumptions on the model primitives of the game, the oblivious equilibrium approximates the actual Markov perfect equilibrium. This allows us to use compute the equilibrium behavior of these devices in large scale games.