Jens Prüfer

Interconnection and competition among asymmetric networks in the Internet backbone market

We examine the interrelation between interconnection and competition in the internet backbone market.Networks asymmetric in size choose among different interconnection regimes and compete for end-users.We show that a direct interconnection regime, Peering, softens competition compared to indirect interconnection since asymmetries become less influential when networks peer.If interconnection fees are paid, the smaller network pays the larger one. Sufficiently symmetric networks enter a Peering agreement while others use an intermediary network for exchanging traffic.This is in line with considerations of a non-US policy maker.In contrast, US policy makers prefer Peerings among relatively asymmetric networks.

On the Evolution of Collective Enforcement Institutions: Communities and Courts

Impersonal exchange has been a major driver of economic development. But transactors with no stake in maintaining an ongoing relationship have little incentive to honor deals. Therefore, all economies have developed institutions to support honest trade and realize the gains of impersonal exchange. We analyze the relative capacities of communities (or social networks) and courts to secure cooperation among heterogeneous, impersonal transactors. We find that communities and courts are complementary in the sense that they tend to support cooperation for different sets of transactions but that the existence of courts weakens the effectiveness of community enforcement. By relating the effectiveness of enforcement institutions to changes in the cost and risks of long-distance trade, driven in part by improvement in shipbuilding methods, our analysis also provides an explanation for the emergence of the medieval Law Merchant and its subsequent supersession by state courts.

Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice

We formalize the difference between profit-maximizing firms, nonprofits, and cooperatives and identify optimal organizational choice in a model of quality provision. Firms provide lowest and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process among owners and technology. Firms are optimal when decision making costs are high. Else, firms are increasingly dominated by either nonprofits or cooperatives. Increased competition improves relative efficiency of firms and decreases relative efficiency of nonprofits.

Competition and Mergers Among Nonprofits

Should mergers among nonprofi t organizations be assessed diff erently than mergers among for-profit firms? A recent debate in law and economics, boosted by apparently one-sided court decisions, has produced the result that promoting competition is socially valuable regardless of the particular objectives of producers. In this paper, I challenge the general validity of this result by showing that it may indeed depend on the particular objectives of producers whether a merger between two nonprofits is welfare decreasing or increasing. This implies that it is impossible to assess the net effects of a merger between two nonprofi ts without examining the objectives of the owners involved.

Business Associations and Private Ordering

We study the capacity of business associations|private, formal, noncommercial organizations designed to promote the common business interests of their members|to support contract enforcement and collective action. Inspired by recent empirical literature, our theoretical framework connects the organizational and institutional features of formal and informal business organization with socioeconomic distance. We show how associations provide value to their members even if members are already embedded in social networks, and which players join an association. We propose explanations for empirical puzzles, put forward novel testable hypotheses, and relate business associations to alternative private ordering institutions.

An Auction Market for Journal Articles

We recommend that an auction market replace the current system for submitting academic papers and show a strict Pareto-improvement in equilibrium. Besides the benefit of speed, this mechanism increases the average quality of articles and journals and rewards editors and referees for their effort. The “academic dollar” proceeds from papers sold at auction go to authors, editors and referees of cited articles. This nonpecuniary income indicates the academic impact of an article—facilitating decisions on tenure and promotion. This auction market does not require more work of editors.

How to Govern the Cloud? Characterizing the Optimal Enforcement Institution that Supports Accountability in Cloud Computing

This paper applies economic governance theory to the cloud computing industry. We analyze which governance institution may be best suited to solve the problems stemming from asymmetric information about the true level of data protection, security, and accountability offered by cloud service providers. We conclude that certification agencies - private, independent organizations which award certificates to cloud service providers meeting certain technical and organizational criteria - are the optimal institution available. Those users with high valuation for accountability will be willing to pay more for the services of certified providers, whereas other users may patronize uncertified providers.

Why Do Developers and Firms Contribute to the Production of Open Source Software

This article explains why both software developers and firms contribute to the production of Open Source Software (OSS). Existing economic theories either focus on the supply side (developers) or the demand side (firms) of OSS development. This paper is the first to explain both sides in one integrated model by understanding the OSS production process as an application contest to the network of prominent developers. Programmers contribute because they aim for reputation and high salaries. Firms finance the process, since they receive inside information on highly talented developers not yet known on the regular job market.

Competing with Big Data

This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information.

Business Associations, Lobbying, and Endogenous Institutions

Are business associations - private, formal, nonprofit organizations designed to promote the common interests of their members - positive or negative for the economy and overall welfare? Scholars from institutional and organizational economics, on the one side, and from industrial organization, law & economics, and public choice, on the other side, have given different answers to this question, which is instrumental for policy making. We construct a model that endogenizes association membership of firms and the main functions of associations, which can have positive or negative spillovers on the economy. We derive predictions regarding associations’ functions and their net welfare effects, depending on the level of property rights securitization, which are in line with empirical observations.