An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to follow the behavior of the preceding individual without regard to his own information. We argue that localized conformity of behavior and the fragility of mass behaviors can be explained by informational cascades.

/pdf/a-theory-of-fads-fashion-custom-and-cultural-change-as-3s4j8rv8xm.pdf

A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1405027_code2024.pdf?abstractid=1286306&mirid=1&type=2

Many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must “get both sides of the market on board.” Accordingly, platforms devote much attention to their business model, that is, to how they court each side while making money overall. This paper builds a model of platform competition with two-sided markets. It unveils the determinants of price allocation and end-user surplus for different governance structures (profit-maximizing platforms and not-for-profit joint undertakings), and compares the outcomes with those under an integrated monopolist and a Ramsey planner. (JEL: L5, L82, L86, L96)

/pdf/platform-competition-in-two-sided-markets-4qm5x3rvp9.pdf

Platform competition in two‐sided markets

From the Publisher:
Information Goods -- from movies and music to software code and stock quotes - have supplanted industrial goods as the key drivers of world markets. Confronted by this New Economy, many instinctively react by searching for a corresponding New Economics to guide their business decisions. Executives charged with rolling out cutting-edge software products or on-line versions of their magazines are tempted to abandon the classic lessons of economics, and rely instead on an ever changing roster of trends, buzzwords, and analogies that promise to guide strategy in the information age. Not so fast, say authors Carl Shapiro and Hal R. Varian. In Information Rules they warn managers, "Ignore basic economic principles at your own risk. Technology changes. Economic laws do not." Understanding these laws and their relevance to information goods is critical when fashioning today's successful competitive strategies. Information Rules introduces and explains the economic concepts needed to navigate the evolving network economy. Information Rules will help business leaders and policy makers - from executives in the entertainment, publishing, hardware, and software industries to lawyers, finance professionals, and writers -- make intelligent decisions about their information assets.

/pdf/information-rules-a-strategic-guide-to-the-network-economy-e8wzthah9w.pdf

Information Rules: A Strategic Guide to the Network Economy

The use of a fairly standard vehicle width of a little under 2 meters originates from the design of prehistoric carts and sleds as evidenced by rutting in ancient roads which aided in steering Despite dramatic advances in vehicular and infrastructural technologies, the standard has changed little over the millennia The gauges of railroad track, for instance, are now standardized at 4 feet 8 and half inches (1435 mm) across Europe and North America, the same as the first steam railway, and a mere half-inch wider than the typical pre-steam tracks in the mining districts near Newcastle, consistent in size with the wheel gauge used in Roman Britain This standard gauge lasted since it was first used on the Stockton and Darlington railway in 1825, and were adopted by most subsequent lines (Puffert, 2002), despite some railways trying alternatives (eg the Great Western Railway was originally built at 5 feet 6 inches, or 1676 mm) Alternative gauges would have accommodated wider, taller, and faster trains more easily, but the standard gauge that was adopted first acquired advantages as other railways sought compatibility with the standard to obtain access to the uses of earlier lines, and helped lock-in that standard

https://www.jstor.org/stable/pdfplus/2486211.pdf

First‐mover advantages

A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market. Whether the action provides costs or benefits in the second market depends on (a) whether it increases or decreases marginal costs in the second market and (b) whether competitors' products are strategic substitutes or strategic complements. The latter distinction is determined by whether more "aggressive" play (e.g., lower price or higher quantity) by one firm in a market lowers or raises competing firms' marginal profitabilities in that market. Many recent results in oligopoly theory can be most easily understood in terms of strategic substitutes and complements.

https://www.jstor.org/stable/pdfplus/1832005.pdf

Multimarket Oligopoly: Strategic Substitutes and Complements

We survey recent work on competition in markets in which consumers have costs of switching between competing firms' products, even when all firms' products are functionally identical We address issues in macroeconomics and international trade, as well as industrial organization: In a market with switching costs (or 'brand loyalty'), a firm's current market share is an important determinant of its future profitability We examine how the firm's choice between setting a low price to capture market share, and setting a high price to Harvest profits by exploiting its current locked-in customers, is affected by the threat of new entry interest rates, exchange rate expectations, the state of the business cycle, etc We also discuss the causes of switching costs, explain introductory offers and price wars, and examine industry profits, firms' product choices, and implications for multi-product competition

Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade

Ex ante homogeneous products may, after the purchase of one of them, be ex post differentiated by switching costs including learning costs, transaction costs, or "artificial" costs imposed by firms, such as repeat-purchase discounts. The nonco-operative equilibrium in an oligopoly with switching costs may be the same as the collusive outcome in an otherwise identical market without switching costs. However, the prospect of future collusive profits leads to vigorous competition for market share in the early stages of a market's development. The model thus explains the emphasis placed on market share as a goal of corporate strategy.

/pdf/markets-with-consumer-switching-costs-3wrh37d88z.pdf

Markets with consumer switching costs

We model an oligopoly facing uncertain demand in which each firm chooses as its strategy a "supply function" relating its quantity to its price. Such a strategy allows a firm to adapt better to the uncertain environment than either setting a fixed price or setting a fixed quantity; commitment to a supply function may be accomplished in practice by the choice of the firm's size and structure, its culture and values, and the incentive systems and decision rules for its employees. In the absence of uncertainty, there exists an enormous multiplicity of equilibria in supply functions, but uncertainty, by forcing each firm's supply function to be optimal against a range of possible residual demand curves, dramatically reduces the set of equilibria. Under uncertainty, we prove the existence of a Nash, equilibrium in supply functions for a symmetric oligopoly producing a homogeneous good and give sufficient conditions for uniqueness. We perform comparative statics with respect to firms' costs, the industry demand, the nature of the demand uncertainty, and the number of firms, and sketch the extension to differentiated products. Firms' equilibrium supply functions are steeper with marginal cost curves that are steeper relative to demand, fewer firms, more highly differentiated products, and demand uncertainty that is relatively greater at higher prices. The steeper are the supply functions firms choose in equilibrium, the more closely competition resembles the Cournot model (which exogenously imposes vertical supply functions-fixed quantities); with flatter equilibrium supply functions, competition is closer to the Bertrand model (which exogenously imposes horizontal supply functions-fixed prices).

Supply function equilibria in oligopoly under uncertainty

This paper provides an elementary, non-technical, survey of auction theory, by introducing and describing some of the critical papers in the subject. (The most important of these are reproduced in a companion book, The Economic Theory of Auctions, Paul Klemperer (ed.), Edward Elgar (pub.), forthcoming.); We begin with the most fundamental concepts, and then introduce the basic analysis of optimal auctions, the revenue equivalence theorem, and marginal revenues. Subsequent sections address risk-aversion, affiliation, asymmetries, entry, collusion, multi-unit auctions, double auctions, royalties, incentive contracts, and other topics. Appendices contain technical details, some simple worked examples, and a bibliography for each section.

/pdf/auction-theory-a-guide-to-the-literature-3i2uohzm74.pdf

Auction Theory: A Guide to the Literature

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