Research

We analyze nonlinear pricing with finite information. We consider a multi-product environment where each buyer has preferences over a d-dimensional variety of goods. The seller is limited to offering a finite number n of d-dimensional choices. The limited menu reflects a finite communication capacity between the buyer and seller.
We identify necessary conditions that the optimal finite menu must satisfy, for either the socially efficient or the revenue-maximizing mechanism. These conditions require that information be bundled, or "quantized," optimally. We introduce vector quantization and establish that the losses due to finite menus converge to zero at a rate of 1/n2/d_ In the canonical model with one-dimensional products and preferences, this establishes that the loss resulting from using the n-item menu converges to zero at a rate proportional to 1 /n2 . 

This is the fifth in a series of papers prepared by a collection of economists and policy experts in the United States, the UK, and the European Union who have studied, and are committed to the improvement of, competition in digital markets. Previous papers addressed consumer protection in online markets, regulating the market for general search services, the concepts of “fairness” and “contestability” as used in the Digital Markets Act, and the use of “equitable interoperability” as a “super tool” to restore and encourage competition in online markets.

As large amounts of data become available and can be communicated more eas­ily and processed more effectively, information has come to play a central role for economic activity and welfare in our age. This essay overviews contributions to the industrial organization of information markets and nonmarkets, while attempting to maintain a balance between foundational frameworks and more recent developments. We start by reviewing mechanism-design approaches to modeling the trade of infor­mation. We then cover ratings, predictions, and recommender systems. We turn to forecasting contests, prediction markets, and other institutions designed for collect­ing and aggregating information from decentralized participants. Finally, we discuss science as a prototypical information nonmarket with participants who interact in a non-anonymous way to produce and disseminate information. We aim to familiarize the reader with the central notions and insights in this burgeoning literature and also point to some critical open questions that future research will have to address. 

Consider a market with identical firms offering a homogeneous good. For any given ex ante distribution of the price count (the number of firms from which a consumer obtains a quote), we derive a tight upper bound on the equilibrium distribution of sales prices. The bound holds across all models of firms’ common-prior higher-order beliefs about the price count, including the extreme cases of full information and no information. One implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined.

This paper is concerned with competition in digital platform markets where network effects are strong. As is widely acknowledged, these markets have an inherent tendency towards concentration, leaving consumers with little competition in the market. We explain how interoperability regulation can help stimulate competition in the market in a way that benefits consumers.

We analyze the use of the concepts of fairness and contestability in the Digital Markets Act (DMA) and propose formal definitions rooted in the economic analysis of digital markets as well as the goals of the proposed law. We discuss the implication of these concepts for innovation in digital markets.

This paper identifies a set of possible regulations that could be used both to make the search market more competitive and simultaneously ameliorate the harms flowing from Google’s current monopoly position. The purpose of this paper is to identify conceptual problems and solutions based on sound economic principles and to begin a discussion from which robust and specific policy recommendations can be drafted.

This is the sixth in a series of papers prepared by a collection of economists and policy experts in the United States, the UK, and the European Union who have studied, and are committed to the improvement of, competition in digital markets. Previous papers addressed consumer protection in online markets, regulating the market for general search services, the concepts of “fairness” and “contestability” as used in the Digital Markets Act, the use of “equitable interoperability” as a “super tool” to restore and encourage competition in online markets, and coherence between US and European approaches to digital regulation.

The advent of mobile devices and digital media platforms in the past decade represents the biggest shock to cognition in human history. Robust medical evidence is emerging that digital media platforms are addictive and, when used in excess, harmful to users’ mental health. Other types of addictive products, like tobacco and prescription drugs, are heavily regulated to protect consumers. Currently, there is no regulatory structure protecting digital media users from these harms. Antitrust enforcement and regulation that lowers entry barriers could help consumers of social media by increasing competition. Economic theory tells us that more choice in digital media will increase the likelihood that some firms will vie to offer higher-quality and safer platforms. For this reason, evaluating harm to innovation (especially safety innovation) and product variety may be particularly important in social media merger and conduct cases. Another critical element to antitrust enforcement in this space is a correct accounting of social media’s addictive qualities. Standard antitrust analysis seeks to prohibit conduct that harms consumer welfare. Economists have taught the antitrust bar that the output of a product or service is a reliable proxy for consumer welfare. However, output and welfare do not have this relationship when a product is addictive. Indeed, in social media markets, increased output is often harmful. We argue that antitrust analysis must reject the output proxy and return to a focus on consumer welfare itself in cases involving addictive social media platforms. In particular, courts should reject defenses that rely only on gross output measures without evidence that any alleged increases in output actually benefit consumers.

We study data linkages among heterogeneous firms and examine how they shape the outcome of privacy regulation. A single consumer interacts sequentially with two firms: one firm collects data on consumer behavior; the other firm leverages the data to set a quality level and a price. A data linkage benefits the consumer in equilibrium when the recipient firm is sufficiently similar to the collecting firm. We then endogenize linkage formation under various forms of privacy regulation. We show that voluntary consent requirements are beneficial to consumers in equilibrium but that bans on discriminatory price and quality offers are harmful.