Atle Haugen

Konkurransetilsynet Rapport 3/2023

Individual retailers may choose to invest in a substitute to a dominant supplier’s products (inside option) as a way of improving its position towards the supplier. Given that a large retailer has stronger investment incentives than a small retailer, a large retailer may obtain a selective rebate (size-based price discrimination). We study the incentives of dominant suppliers to commit to uniform pricing in wholesale markets. The seminal literature on wholesale price discrimination has provided clearcut results when the source of wholesale price discrimination is inside options: a dominant supplier will commit to uniform wholesale pricing, and consumers will be harmed. In a model with endogenous inside options and differentiated retailers, we show that the outcome is ambiguous. We confirm the result if retailers are close substitutes. If, however, the retailers are weak substitutes, the outcome flips around. Consumers are better off under uniform pricing, but the supplier has no incentives to commit to uniform pricing. Interestingly, for an intermediate level of substitutability among the retailers, supplier and consumer interests can coincide.

Nordic Researchers in Industrial Organization (NORIO) XII

22nd CEPR-JIE Conference on Applied Industrial Organization and 18th CEPR-JIE School on Applied Industrial Organization

CLEEN Conference 2022

Swedish Researchers in Industrial Economics (SWERIE) Workshop

The 11th bi-annual Postal Economics Conference on E-commerce, Digital Economy and Delivery Services

Norges Handelshøyskole

We present two classroom experiments on technology licensing. The first classroom experiment introduces the concept of royalty stacking. The students learn that non-cooperative pricing of royalties for complementary intellectual property rights leads to a double-marginalization effect. Cooperation solves the problem and is welfare improving. The second classroom experiment introduces students to cross-licensing. It shows that reciprocal royalty payments dampen competition. The classroom experiments stimulate discussions of technology licensing, intellectual property rights, different royalty structures, patent pools and technology standards. We present the experimental procedures, and suggests routes for the discussion.

Department of Economics, Norwegian School of Economics

In this paper, we address how targeting and consumer multi-homing impact platform competition and market equilibria in two-sided markets. We analyze platforms that are financed by both advertising and subscription fees, and let them adopt a targeting technology with increasing performance in audience size: a larger audience generates more consumer data, which improves the platforms’ targeting ability and allows them to extract more ad revenues. Targeting therefore increases the importance of attracting consumers. Previous literature has shown that this could result in fierce price competition if consumers subscribe to only one platform (i.e. single-home). Surprisingly, we find that pure single-homing possibly does not constitute a Nash equilibrium. Instead, platforms might rationally set prices that induce consumers to subscribe to more than one platform (i.e. multi-home). With multi-homing, a platform’s audience size is not restricted by the number of subscribers on rival platforms. Hence, multi-homing softens the competition over consumers. We show that this might imply that equilibrium profit is higher with than without targeting, in sharp contrast to what previous literature predicts.

TIK Workshop for Young Researchers on Platform Studies: The Emerging Research Field in Norway

The 48th Annual Conference of the European Association for Research in Industrial Economics (EARIE)

Individual retailers may choose to invest in a substitute to a dominant supplier’s product (inside option) as a way of improving their position towards the supplier. If there are transactional economies of scale, a large retailer has stronger investment incentives than a smaller rival, and may be in a position to obtain a selective rebate (size-based price discrimination). Yet, we often observe that dominant suppliers do not charge small retailers more than large retailers, e.g., by using wholesale most-favored nation clauses. We argue that one reason for this is that the suppliers could be better off by committing to charge a uniform price, which reduces the retailer’s investment incentives. In this regard, the competitive pressure among the retailers plays a role. The more fiercely the retailers compete, the more each retailer cares about relative input prices. Other things equal, this implies that the retailers will invest more in the substitute the greater the competitive pressure. We show that if the competitive pressure is sufficiently strong, the supplier can profitably incentivize the large retailer to reduce its investments by committing to charge a uniform input price. Finally, we show that under uniform input pricing, the large retailer may induce smaller rivals to exit the market by strategically under-investing in inside options.

Norges Handelshøyskole

Individual retailers may choose to invest in a substitute to a dominant supplier’s products (inside option) as a way of improving its position towards the supplier. Given that a large retailer has stronger investment incentives than a smaller rival, the large retailer may obtain a selective rebate (size-based price discrimination). Yet, we often observe that suppliers do not price discriminate between retailers that differ in size. Why is this so? We argue that the explanation may be related to the competitive pressure among the retailers. The more fiercely the retailers compete, the more each retailer cares about its relative input prices. Other things equal, this implies that the retailers will invest more in the substitute the greater the competitive pressure. We show that if the competitive pressure is sufficiently strong, the supplier can profitably incentivize the retailer to reduce its investments in substitutes by committing to charge a uniform input price. Furthermore, we show that under uniform input pricing, the large retailer may induce smaller rivals to exit the market by strategically underinvesting in inside options.

CLEEN Workshop (online)

In this paper, we address how targeting and consumer multi-homing impact platform competition and market equilibria in two-sided markets. We analyze platforms that are financed by both advertising and subscription fees, and let them adopt a targeting technology with increasing performance in audience size: a larger audience generates more consumer data, which improves the platforms’ targeting ability and allows them to extract more ad revenues. Targeting therefore increases the importance of attracting consumers. Previous literature has shown that this could result in fierce price competition if consumers subscribe to only one platform (i.e. single-home). Surprisingly, we find that pure single-homing possibly does not constitute a Nash equilibrium. Instead, platforms might rationally set prices that induce consumers to subscribe to more than one platform (i.e. multi-home). With multi-homing, a platform’s audience size is not restricted by the number of subscribers on rival platforms. Hence, multi-homing softens the competition over consumers. We show that this might imply that equilibrium profit is higher with than without targeting, in sharp contrast to what previous literature predicts.

The 43rd Meeting of the Norwegian Association of Economists

In this paper, we analyse the impact of targeted advertising on market outcomes and competition between digital platforms. We concentrate on two-sided media markets and platforms that are financed by both advertising fees and subscription fees. It is commonly assumed that the advertiser value of reaching a consumer is independent of the specific platform. We relax this assumption by letting the platforms adopt a targeting technology which performance increases with consumer data. The technology thus allows the platforms to improve their targeting ability and extract more ad revenues through attracting more subscribers. Although targeting pays off on the ad side of the market, the platforms might end up competing away the additional profits on the consumer side. We find that this always happens when consumers subscribe to one platform only. In this case, subscription prices are strategic complements, which indicates tough competition on the consumer side. By comparison, if some consumers subscribe to multiple platforms, subscription prices are strategic substitutes. This softens the competition on the consumer side, and we show that it enables profitable implementation of targeting. Hence, a key contribution of this paper is demonstrating the importance of assumptions regarding consumer behaviour.

Institutt for samfunnsøkonomi, Norges Handelshøyskole

Individual retailers may choose to invest in a substitute to a dominant supplier’s products (inside option) as a way of improving its position towards the supplier. Given that a large retailer has stronger investment incentives than a smaller rival, the large retailer may obtain a selective rebate (size-based price discrimination). Yet, we often observe that suppliers do not price discriminate between retailers that differ in size. Why is this so? We argue that the explanation may be related to the competitive pressure among the retailers. The more fiercely the retailers compete, the more each retailer cares about its relative input prices. Other things equal, this implies that the retailers will invest more in the substitute the greater the competitive pressure. We show that if the competitive pressure is sufficiently strong, the supplier can profitably incentivize the retailer to reduce its investments in substitutes by committing to charge a uniform input price. Furthermore, we show that under uniform input pricing, the large retailer may induce smaller rivals to exit the market by strategically underinvesting in inside options.

FIBE XXXVII 2020. Fagkonferanse i bedriftsøkonomiske emner

We consider an industry with two retailers that differ in size and a supplier that sells an essential input. If the supplier charges a too high price for the input, each of the retailers will (threaten to) invest such that it can acquire the input from a different source (an outside option). The more a retailer invests in the outside option, the more profitable it is to use that good rather than buying it from the supplier. Because the larger retailer has the greater investment incentives, the supplier will price discriminate by offering the input at a lower price to the large than to the small retailer. We show that welfare increases if price discrimination is banned. The ban also increases consumer surplus if the input price is determined prior to the investment decision. Otherwise, consumer surplus might fall, depending on the competitive pressure between the retailers.

Geilo Seminar 2020 - Seminar for Institutt for foretaksøkonomi, Norges Handelshøyskole