Research Papers

Kennes, J. & A. Schiff (2008). Quality infomediation in search markets, International Journal of Industrial Organization, 26: 1191-1202.

We examine the effects of informational intermediation by a third party ‘infomediary’ in a search model with heterogeneous seller qualities and asymmetric information. The infomediary earns revenue by selling a list of accredited sellers (a ‘guidebook’) to buyers and selling accreditations to sellers. We show that such information always improves welfare but can hurt informed buyers (as well as the uninformed) if it is not sufficiently informative about seller qualities. The model also provides a number of insights concerning the private and social incentives to create information, and the determinants and nature of demand for infomediation services by buyers and sellers.

Schiff, A. (2008). The ‘waterbed’ effect and price regulation, Review of Network Economics, 7: 392-414.

This paper investigates conditions that generate the so-called “waterbed” effect under price regulation. This is the effect whereby regulation of one price of a multiproduct firm causes one or more of its unregulated prices to change as a result of the firm’s profit-maximizing behavior. A waterbed effect is shown to arise when demands and/or marginal costs are interdependent, firms use nonlinear pricing, or there is a zero-profit constraint or global price cap. Some implications for market definition, welfare analysis of regulation, non-price competition, collusion and two-sided markets are also discussed, as well as specific applications to fixed-to-mobile termination and bank overcharges.

Aoki, R. & A. Schiff (2008). Promoting access to intellectual property: Patent pools, copyright collectives and clearinghouses, R&D Management, 38: 189-204.

This paper reviews and compares patent pools, intellectual property (IP) clearinghouses, and copyright collectives as systems for promoting efficient access to licensable IP in a ‘market for technology’. These systems promote downstream use of innovations by economizing on search and transaction costs in licensing, as well as potentially mitigating the conditions that lead to the ‘tragedy of the anti-commons’ and other coordination problems in multilateral licensing. We compare and classify different systems in terms of their features, review some existing systems, and discuss their economic characteristics.

Kennes, J. & A. Schiff (2007). Simple reputation systems, Scandinavian Journal of Economics, 109: 71-91.

We develop a model of simple “reputation systems” that monitor and publish information about the behavior of sellers in a search market with asymmetric information. The reputations created influence the equilibrium search patterns of buyers and thus provide for market-based “punishment” of bad behavior. We show that a reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type. However, the same system can be prone to strategic manipulation by sellers who always have low-quality products. In that case, we show that an alternative system which assigns reputations based on product quality rather than honesty can be superior.

Schiff, A. (2003). Open and closed systems of two-sided networks, Information Economics and Policy, 15: 425 – 442.

Firms with two-sided networks facilitate connections or transactions between two distinct populations of consumers. This paper analyzes the behavior of such firms where there are no intrinsic benefits to consumers other than the network effects, such as employment agencies, real estate agents and videogame platforms. The modelling framework encompasses both matching service and platform business models and allows for subscription or per-transaction pricing. Three different market structures are considered: monopoly, and duopoly with and without compatibility. Comparisons of prices, profits, consumer surplus, and welfare are made between the three regimes. It is shown that duopoly with compatibility is socially preferable to the other regimes, while monopoly is socially preferable to duopoly without compatibility.