Irina Suleymanova

Technology licensing by advertising supported media platforms: An application to internet search engines

Abstract We develop a duopoly model with advertising supported platforms and analyze incentives of a superior firm to license its advanced technologies to an inferior rival. We highlight the role of two technologies characteristic for media platforms: the technology to produce content and to place advertisements. Licensing incentives are driven solely by indirect network effects arising from the aversion of users to advertising. We establish a relationship between licensing incentives and the nature of technology, the decision variable on the advertiser side, and the structure of platforms’ revenues. Only the technology to place advertisements is licensed. If users are charged for access, licensing incentives vanish. Licensing increases the advertising intensity, benefits advertisers and harms users. Our model provides a rationale for technology-based cooperations between competing platforms, such as the planned Yahoo-Google advertising agreement in 2008.

Technology Adoption in Markets with Network Effects: Theory and Experimental Evidence

We examine a technology-adoption game with network effects in which coordination on either technology A or technology B constitutes a Nash equilibrium. Coordination on technology B is assumed to be payoff dominant. We define a technology’s critical mass as the minimal share of users, which is necessary to make the choice of this technology the best response for any remaining user. We show that the technology with the lower critical mass implies risk dominance and selection by the maximin criterion. We present experimental evidence that both payoff dominance and risk dominance explain participants’ choices in the technology-adoption game. The relative riskiness of a technology can be proxied using either technologies’ critical masses or stand-alone values absent any network effects.

Strategic Investment in International Gas-Transport Systems: A Dynamic Analysis of the Hold-Up Problem

We develop a dynamic model of strategic investment in a transnational pipeline system. In the absence of international contract enforcement, countries may distort investment in order to increase their bargaining power, resulting in overinvestment in expensive and underinvestment in cheap pipelines. With repeated interaction, however, there is a potential to increase efficiency through dynamic collusion. In the theoretical part we establish a fundamental asymmetry: it is easier to avoid overinvestment than underinvestment. Calibrating the model to fit the Eurasian pipeline system for natural gas, we find that the potential to improve efficiency through dynamic cooperation is large. In reality, however, only modest improvements over the non-cooperative solution have been achieved.

Joint Customer Data Acquisition and Sharing Among Rivals

It is increasingly observable that in different industries competitors jointly acquire and share customer data. We propose a modified Hotelling model with two-dimensional consumer heterogeneity to analyze the incentives for such agreements and their welfare implications. In our model the incentives of firms for data acquisition and sharing depend on the willingness of consumers to switch brands. Firms jointly collect data on transportation cost parameters when consumers are relatively immobile between brands. However, the firms are unlikely to cooperatively acquire such data, when consumers are relatively mobile. Incentives to share information depend on the portfolio of data firms hold and consumer mobility. Data sharing arises with relatively mobile and immobile consumers - it is neutral for consumers in the former case, but reduces consumer surplus in the latter. Competition authorities ought to scrutinize such cooperation agreements on a case-by-case basis and devote special attention to consumer switching behavior.

On the (Mis-) Alignment of Consumer and Social Welfare in Markets with Network Effects

We analyze duopoly Bertrand competition under network effects. We consider both incompatible and compatible products. Our main result is that network effects create a fundamental conflict between the maximization of social welfare and consumer surplus whenever products are incompatible. While consumer surplus is highest in the symmetric equilibrium, social welfare is highest in the asymmetric equilibrium. We also show that both consumer surplus and social welfare are higher in any equilibrium under compatibility when compared with incompatible products. However, .firms never have strict incentives to achieve compatibility. Finally, we show the robustness of our results when products are horizontally differentiated.