Jeong-Yoo Kim

An Economic Analysis of the Receiver Pays Principle

Abstract This paper examines the effect of the receiver pays principle (RPP) on the calling price, social welfare and interconnection charge. A significant difficulty with introducing this system in telecommunications pricing is the possibility that the receiving party may refuse to receive a call if the charge he has to bear is very high. We find the condition under which no calls are refused and show that the profit maximizing prices charged to the calling party and the receiving party must satisfy this condition. We demonstrate that the calling price under RPP must be lower than the price under the caller pays principle (CPP), that the profit of a firm will be increased under RPP, but that the consumer surplus will not necessarily be increased under RPP despite the lowered calling price. Also, we show that, if the demand function is linear, the reciprocal interconnection charge under RPP is higher than that under CPP.

Network marketing on a small-world network

We investigate a dynamic model of network marketing in a small-world network structure artificially constructed similarly to the Watts–Strogatz network model. Different from the traditional marketing, consumers can also play the role of the manufacturers selling agents in network marketing, which is stimulated by the referral fee the manufacturer offers. As the wiring probability α is increased from zero to unity, the network changes from the one-dimensional regular directed network to the star network where all but one player are connected to one consumer. The price p of the product and the referral fee r are used as free parameters to maximize the profit of the manufacturer. It is observed that at α=0 the maximized profit is constant independent of the network size N while at α≠0, it increases linearly with N. This is in parallel to the small-world transition. It is also revealed that while the optimal value of p stays at an almost constant level in a broad range of α, that of r is sensitive to a change in the network structure. The consumer surplus is also studied and discussed.

Product compatibility as a signal of quality in a market with network externalities

Abstract In this paper, I consider the compatibility decision as a signaling device of the quality of a newly introduced technology of which users are not informed. Provided that firms are located sufficiently far apart in Hotelling’s [0,1] interval, I find separating equilibria where low compatibility signals high quality. This possible separation is due to the fact that low compatibility is more advantageous to the high-quality entrant than to the low-quality entrant, since it can prevent users of the established technology from enjoying network benefits from the new technology very much.

Consumer referral in a small world network

Abstract We consider a firm’s profit maximization problem when the demand for the product is created by referrals between consumers connected in a small world network. We generate a small world network by applying the rewiring algorithm of Watts and Strogatz and incorporate it into the profit maximization problem. We demonstrate (i) that contrary to our anticipation, the firm’s profit smoothly (not rapidly) approaches the profit in the complete network as the rewiring probability increases, but (ii) that the per consumer profit is saturated to a finite non-zero value when the rewiring probability is near zero, implying a small world transition.

Stigma in divorces and its deterrence effect

Abstract We develop a simple economic model of divorce by incorporating the labeling effect into rational choice theory. In our model, we provide an explanation of the process through which a divorced person is being stigmatized and explore theoretically the relationship between the experience of having divorced and the likelihood of divorce. Contrary to a widely held belief, our theoretical model predicts that a once-divorced person is not necessarily more likely to divorce, as is the case in Asian countries. This is because a divorced person may hesitate more to divorce one more time for fear of being labeled as pathological or abnormal.

Demand for Self Control: A Model of Consumer Response to Programs and Products that Moderate Consumption

Is it better to apply effort to increase personal consumption, or control what one wants? The model presented here provides a characterization of demand for self control, namely, its responsiveness to price and risk. Unlike most other models of self control, the model does not identify self control with time inconsistency or rely on the multiple-selves framework. Self control refers to resources allocated to preference transformation technology enabling consumers to moderate desire for ordinary consumption by reducing threshold levels required to achieve goals or target-levels of consumption. Consumers face a choice between allocating resources toward increasing expected levels of consumption or increasing chances of contentment through self control. Because of strong income effects, demand for self control turns out to be non-monotonic in price and sometimes discontinuous, revealing potential for unanticipated and sometimes surprisingly large responses to small changes in price. The model is used to analyze consumers’ willingness to follow new regulations, take up credit counseling, enroll in financial literacy programs, and purchase products aimed at improving financial decision making through cultivation of self control.

Multidimensional Signaling in the Labor Market

I consider a two-dimensional job market signaling model in which firms care about a workers personal network as well as his technical productivity, and a worker can choose both academic activity and social activity to signal his ability. In a simple model where the social activity forming a social network does not require special ability, I show that the ChoKreps intuitive criterion singles out Spences outcome of signaling high academic ability by high education. I also demonstrate the possibility that a worker with high academic ability may under invest in education when the social ability is correlated with the academic ability.

Dutch treat versus Oriental treat

We introduce a class of goods called “ping-pong goods” whose values are generated only through joint consumption by two or more people. Mainly, we compare the efficiency of two fee sharing rules. One is the Dutch rule, whereby each participant bears its own expenses and the other is the Oriental rule, whereby the initial proposer bears all the expenses. We assert that the consumers’ surplus under the Oriental rule is higher than the consumers’ surplus under the Dutch rule only if the per-person price is high and the number of participants in consuming a ping-pong good is small.

Yes-Men and No-Men: Does Defiance Signal Talent?

We provide the rationale for the existence of yes-men and no-men in an organization or a group. On one hand, a person is inclined to conform to the instruction of another, because he cannot ignore the information contained in the instruction, even though his own evidence contradicts the instruction. On the other hand, if only the person himself knows the accuracy of his own information, he may tend to disobey the instruction, to make others believe that he is able in the sense that his information is accurate. We demonstrate that disobedience can signal high ability in an equilibrium.

An Economic Theory of Deviance

We develop a model of deviance by incorporating the labeling effect into rational choice theory. In our model, we provide an explanation of the process through which a deviant is stigmatized and explore theoretically the relationship between the experience of having deviated and the incentive for deviation. Surprisingly, our study finds that an ex-deviant is not necessarily more likely to deviate, contrary to widely held belief. This is because the ex-deviant may hesitate to violate the norm one more time for fear of being labeled as a pathological deviant.