Category: academic articles

Academic articles

Posted on

Pricing and Efficiency in the Market for IP Addresses

Edelman, Benjamin, and Michael Schwarz. “Pricing and Efficiency in the Market for IP Addresses.” American Economic Journal: Microeconomics 7, no. 3 (August 2015): 1-23. (lead article.)

We consider market rules for transferring IP addresses, numeric identifiers required by all computers connected to the Internet. Transfers usefully move resources from lowest- to highest-valuation networks, but transfers tend to cause socially costly growth in the Internet’s routing table. We propose a market rule that avoids excessive trading and comes close to achieving social efficiency. We argue that this rule is feasible despite the limited powers of central authorities. We also offer a framework for reasoning about future prices of IP addresses and then explore the role of rentals in sharing information about the value of IP address and assuring allocative efficiency.

Posted on

Does Google Leverage Market Power Through Tying and Bundling?

Edelman, Benjamin. “Does Google Leverage Market Power Through Tying and Bundling?” Journal of Competition Law & Economics 11, no. 2 (June 2015): 365-400.

I examine Google’s pattern and practice of tying to leverage its dominance into new sectors. In particular, I show how Google used these tactics to enter numerous markets, to compel usage of its services, and often to dominate competing offerings. I explore the technical and commercial implementations of these practices, then identify their effects on competition. I conclude that Google’s tying tactics are suspect under antitrust law.

Posted on

How to Launch Your Digital Platform: A Playbook for Strategists

Edelman, Benjamin. “How to Launch Your Digital Platform: A Playbook for Strategists.” Harvard Business Review 93, no. 4 (April 2015): 90-97. (Reprinted in Launch a Start-Up That Lasts, Harvard Business Review OnPoint, Winter 2016.)

Official abstract:

The ubiquity of Internet access has caused a sharp rise in the number of businesses offering platforms that connect users for communication or commerce. Entrepreneurs are particularly drawn to these platforms because they create significant value and have modest operating costs, and network effects protect their position once established–users rarely leave a vibrant platform. But these businesses also raise significant start-up challenges. Every platform starts out empty. Platforms need to immediately attract not only many users but also multiple types of users. For example, it’s not enough that many customers want to book taxis by smartphone. Drivers must also be willing to accept smartphone bookings. Harvard Business School professor Ben Edelman has been studying the dynamics of platform businesses and the strategies for launching them for 10 years. In this article he draws on research on dozens of platform sites and products to offer a framework for building a successful platform business. It involves asking five basic questions: (1) Can I attract a large group of users at once? (2) Can I offer stand-alone value to users? (3) How can I build credibility with customers? (4) How should I charge users? (5) Should my platform be compatible with legacy systems?

Informal introduction:

For online platform businesses, customer mobilization challenges loom large. The most successful platforms connect two or more types of users—buyers and sellers on a shopping portal, travelers and hotel operators on a booking service—and a strong launch usually requires convincing early users to join even before the platform reaches scale. Customers find Skype worth installing only if there are people on the platform to talk to. Who would join PayPal if there were no one to pay? Every platform starts out empty, making these worries particularly acute. For multisided platforms, which need not only many users, but many users of different types, the risk is even greater. It’s not enough for a car-dispatch platform to have a large base of customers who want to book rides by smartphone. It also needs drivers willing to accept those bookings.

Often, a platform’s designer has a workable plan once it achieves an early critical mass of users. If a service had drivers, it could attract passengers, or vice versa. And when we look at the myriad platforms that have overcome these hurdles, it can be easy to assume solutions will present themselves. In fact success is far from guaranteed, and many startups fail at this crucial stage. In an article in next month’s Harvard Business Review, I offer strategies to guide entrepreneurs through this challenge.

Posted on

Markets with Price Coherence

Edelman, Benjamin, and Julian Wright. “Markets with Price Coherence.” Harvard Business School Working Paper, No. 15-061, January 2015. (Revised March 2015.) (Supplement to “Price Coherence and Excessive Intermediation.”)

In markets with price coherence, the purchase of a given good via an intermediary is constrained to occur at the same price as a purchase of that same good directly from the seller (or through another competing intermediary). We examine ten markets with price coherence, including their origin and outcomes as well as concerns and policy interventions.

Posted on

Whither Uber? Competitive Dynamics in Transportation Networks

Edelman, Benjamin. “Whither Uber? Competitive Dynamics in Transportation Networks.” Competition Policy International 11, no. 1 (Spring-Fall 2015).

Transportation Network Companies offer notable service advances–but do they comply with the law? I offer evidence of some important shortfalls, then consider how the legal system might appropriately respond. Though it is tempting to forgive many violations in light of the companies’ benefits, I offer a cautionary assessment. For one, I note the incentives that might result, including a race-to-the-bottom as a series of companies forego all manner of requirements. Furthermore, the firms that best compete in such an environment are likely to be those that build a corporate culture of ignoring laws, a diagnosis that finds support in numerous controversial Uber practices. On the whole, I suggest evenhanded enforcement of applicable laws, with thoughtful changes implemented with appropriate formality, but no automatic free pass for the platforms that have recently framed laws and regulations as suggestions rather than requirements.

Posted on

Bitcoin: Economics, Technology, and Governance

Böhme, Rainer, Nicolas Christin, Benjamin Edelman, and Tyler Moore. “Bitcoin: Economics, Technology, and Governance.” Journal of Economic Perspectives 29, no. 2 (Spring 2015): 213-238.

Bitcoin is an online communication protocol that facilitates virtual currency including electronic payments. Since its inception in 2009 by an anonymous group of developers, Bitcoin has served tens of millions of transactions with total dollar value in the billions. Users have been drawn to Bitcoin for its decentralization, intentionally relying on no single server or set of servers to store transactions and also avoiding any single party that can ban certain participants or certain types of transactions. Bitcoin is of interest to economists in part for its potential to disrupt existing payment systems and perhaps monetary systems as well as for the wealth of data it provides about agents’ behavior and about the Bitcoin system itself. This article presents the platform’s design principles and properties for a non-technical audience; reviews its past, present, and future uses; and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy.

Posted on

Risk, Information, and Incentives in Online Affiliate Marketing

Edelman, Benjamin, and Wesley Brandi. “Risk, Information, and Incentives in Online Affiliate Marketing.” Journal of Marketing Research (JMR) 52, no. 1 (February 2015): 1-12. (Lead Article.)

We examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire outside specialists to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside specialists are most effective at excluding the responsible affiliates, which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as “borderline” (albeit still contrary to merchants’ interests), foregoing the efficiencies of specialization in favor of the better incentives of a company’s staff. We consider the implications for marketing of online affiliate programs and for online marketing more generally.

Posted on

Social Comparisons and Deception Across Workplace Hierarchies: Field and Experimental Evidence

Edelman, Benjamin, and Ian Larkin. “Social Comparisons and Deception Across Workplace Hierarchies: Field and Experimental Evidence.” Organization Science 26, no. 1 (January-February 2015): 78-98.

We examine how unfavorable social comparisons differentially spur employees of varying hierarchical levels to engage in deception. Drawing on literatures in social psychology and workplace self-esteem, we theorize that negative comparisons with peers could cause either junior or senior employees to seek to improve reported relative performance measures via deception. In a first study, we use deceptive self-downloads on SSRN, the leading working paper repository in the social sciences, to show that employees higher in a hierarchy are more likely to engage in deception, particularly when the employee has enjoyed a high level of past success. In a second study, we confirm this finding in two scenario-based experiments. Our results suggest that longer-tenured and more successful employees face a greater loss of self-esteem from negative social comparisons and are more likely to engage in deception in response to reported performance that is lower than that of peers.

Posted on

Accountable? The Problems and Solutions of Online Ad Optimization

Edelman, Benjamin. “Accountable? The Problems and Solutions of Online Ad Optimization.” IEEE Security & Privacy 12, no. 6 (November-December 2014): 102-107.

Online advertising might seem to be the most measurable form of marketing ever invented. Comprehensive records can track who clicked what ad–and often who saw what ad–to compare those clicks with users’ subsequent purchases. Ever-cheaper IT makes this tracking cost-effective and routine. In addition, a web of interlocking ad networks trades inventory and offers to show the right ad to the right person at the right time. It could be a marketer’s dream. However, these benefits are at most partially realized. The same institutions and practices that facilitate efficient ad placement can also facilitate fraud. The networks that should be serving advertisers have decidedly mixed incentives, such as cost savings from cutting corners, constrained in part by long-run reputation concerns, but only if advertisers ultimately figure out when they’re getting a bad deal. Legal, administrative, and logistical factors make it difficult to sue even the worst offenders. And sometimes an advertiser’s own staff members prefer to look the other way. The result is an advertising system in which a certain amount of waste and fraud has become the norm, despite the system’s fundamental capability to offer unprecedented accountability.

Posted on

Price Restrictions in Multi-sided Platforms: Practices and Responses

Edelman, Benjamin, and Julian Wright. “Price Restrictions in Multi-sided Platforms: Practices and Responses.” Competition Policy International 10, no. 2 (Fall 2014).

In connecting buyers to sellers, some two-sided platforms require that sellers offer their lowest prices through the platform, disallowing lower prices for direct sales or sales through competing platforms. In this article, we explore the various contexts where such restrictions have arisen, then consider effects on competition, entry, and efficiency. Where there are plausible mitigating factors, such as efficiencies from platforms’ price restrictions, we explore those rationales and compare them to the harms. We identify a set of responses for competition policy, look at experiences to date, and suggest some future attempts to improve the functioning of these markets.