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How to Build an Economic Model

Date：2016-06-17 From：

Lecture:

1、How to Build an Economic Model

2、Frenemies in Platform Markets: Heterogeneous Profit Foci as Drivers of Compatibility Decisions

Speaker：Prof. Jianqing Chen (The University of Texas at Dallas)

Time: 9：00, 23th June 2016

Place: Building 25A-3-A

Bio:

Jianqing Chen is an associate professor in information systems at the Jindal School of Management at the University of Texas at Dallas and was previously an assistant professor at the Haskayne School of Business at the University of Calgary. He received his Ph.D. from McCombs School of Business at the University of Texas at Austin and his Bachelor and Master from Tsinghua University. His general research interests are in electronic commerce, economics of information systems, and supply chain management. His current research focuses are: (1) online advertising and pricing; (2) auctions and mechanism design; (3) online communities and user-generated content; and (4) supply chain risk management. His papers have been published in top academic journals across different fields, including Information Systems Research, MIS Quarterly, Journal of Marketing Research, Journal of Marketing, Production and Operations Management, Journal of Management Information Systems, Economics Letters, Decision Analysis, and Decision Support Systems. He won Dean's Award for "Outstanding New Scholar" in 2009 and won the competition for funding from the Canadian federal funding agency Social Sciences and Humanities Research Council in 2010. In Tsinghua, he received the highest student honor---Tsinghua Top-Grade Scholarship (清华大学校长特等奖学金). He received the Best Paper awards for the Fifteenth Conference on Information Systems and Technology (CIST) in 2010 and for the China Summer Workshop on Information Management (CSWIM) in 2007 and 2012. He is currently an Associate Editor of Decision Support Systems of Journal of Electronic Commerce Research. He is also an editorial board member of Journal of Database Management.

Abstract:

We study compatibility decisions of two competing platforms that generate profits through both hardware sales and royalties from content sales. We consider a game-theoretic model in which the platform hardware may offer different standalone utilities to users who have different preferences over the two platforms. We find that incentives to establish one-way compatibility---the platform with smaller standalone value allows users of the competing platform to access its content---can arise from the difference in their profit foci. As the difference in the standalone utilities increases, royalties from content sales become less important to the platform with greater standalone value but becomes more important for the other platform. Compatibility can thus increase asymmetry between the platforms' profit foci and, when the difference in the standalone utilities is sufficiently large, yields greater profits for both platforms. We further show that social welfare is greater under one-way compatibility than under incompatibility, and there exist no incentives for either platform to establish one-way compatibility the other way round---the platform with greater standalone value allows users of the competing platform to access its content. We investigate as well how factors such as platform production costs, exclusive content, heterogeneous intensities of content consumption, endogenized royalty rates, and correlation in consumer preferences for hardware and software affect compatibility incentives.

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