Economics serving society

Program content

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This PSE summer school introduces participants to cutting-edge research on “platforms”, a form of intermediation that has gained importance in recent years. In a two-sided market, two groups interact through an intermediary, or platform, that accounts for the externalities between the groups. Two-sided platforms, or networks, can be found in many industries, including search engines or communication networks such as the media and the internet. The program will focus on these cases, and will familiarize participants with the relevant methods that are required to analyze several important issues that are currently discussed in the economic literature, including policy.

Structure

  • Platforms: Business models and information - Francis Bloch
  • Platforms and Data - Nikhil Vellodi
  • Search: Platform design - Régis Renault
  • Platform antitrust: Empirical tests - Philippe Gagnepain

Plenary talk

Esther Duflo, Professor at the MIT and visitor at the PSE for the year 2020-2021, will give a plenary lecture on “Development strategies for the post COVID era”, on site and online, Thursday the 17th of June, from 6 pm to 7 pm.


Platforms: Business models and information - Francis Bloch

Objectives
This course will start from the classical theory of two-sided platforms, and enrich the model to take into account current business models of digital platforms: targeted advertising, information and new product diffusion. The course will also explore how platforms can be used to relay information and rumors (including fake news) and extract information about friends in social media. The course will be based on theoretical and empirical work, with references drawn from economics, marketing and computer science.

Course structure

  • Basics : Two-sided platforms
  • Advertising-based platform models
  • Diffusing of new products and viral marketing
  • Rumors and fake news

Selected key references
- Armstrong, M. (2006): “Competition in Two-Sided Markets”, RJE, 37(3), 668–91.
- Caillaud, B. and B. Jullien (2003), “Chicken & Egg: Competition among Intermediation Service Providers”, RJE, 34(2), 309–28.
- Rochet, J.-C. and J. Tirole (2003): “Platform Competition in Two-Sided Markets”, JEEA, 1(4), 990–1029.
- Bloch, F., Demange, G., & Kranton, R. (2018). Rumors and social networks. International Economic Review, 59(2), 421-448.
- Bloch, F., & Olckers, M. (2019). Friend-based ranking. Available at SSRN 3213311.
- Leduc, M. V., Jackson, M. O., & Johari, R. (2017). Pricing and referrals in diffusion on networks. Games and Economic Behavior, 104, 568-594


Platforms and Data - Nikhil Vellodi

Objectives
Online platforms have become an indispensable part of global economic activity. Due to their rapid emergence, their existence poses a number of issues for regulators and policy makers. This course will address such platforms’ primary asset – data. It will comprise of two sections, relating to data production and data protection. The first will tackle topics such as: social learning, consumer reviews (real and fake), ratings and incentives. The second will explore issues including: consumer privacy (discrimination versus targeting, data externalities and ownership) and producer privacy (imitation and competition). The course will feature both theory and empirics, and will center largely around issues of current importance in the regulatory and policy spaces.

Course structure

  • Social learning and consumer reviews
  • Ratings and incentives
  • Consumer privacy, targeting and data externalities
  • Producer privacy, imitation and dual-moding

Selected key references
- Banerjee, A. V., “A simple model of herd behavior,” Quarterly Journal of Economics, 1992, 107 (3), 797–817.
- Mayzlin, D., Dover, Y., & Chevalier, J. , “Promotional reviews: An empirical investigation of online review manipulation”, American Economic Review, 104(8), 2014, 2421-55.
- Lewis, G. and G. Zervas, “The Welfare Impact of Consumer Reviews: A Case Study of the Hotel Industry,” Working Paper, 2016
- Che, Y-K. and J. Hörner, “Recommender Systems as Mechanisms for Social Learning,” Quarterly Journal of Economics, 2018, 133, 871–925.
- Hidir, S. and Vellodi, N., “Privacy, Personalization and Price Discrimination”, Journal of the European Economics Association, 2021.
- Vellodi, N., “Ratings Design and Barriers to Entry”, working paper, 2020


Search: Platform design - Régis Renault

Objectives
The course presents the basic concepts underpinning the theory of imperfectly competitive markets with consumer search and draws some implications for the design of online platforms. The theory of consumer search can address critical questions such as the impact of reduced search cost on prices, product variety, and product design as well as advertising practices. Particular attention is devoted to the allocation of prominence of sellers in the search order and the role of information obfuscation in maintaining market power on a platform that should nonetheless remain attractive to consumers.

Course structure

  • Price dispersion
  • Matching products to consumers
  • Buyer and seller heterogeneity
  • Prominence and ordered search
  • Obfuscation and platform design

Selected key references
- Anderson, S. P., Renault, R. (1999). Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model. The RAND Journal of Economics, 30(4), 719-735.
- Anderson, S. P., & Renault, R. (2018). Firm pricing with consumer search. Handbook of Game Theory and Industrial Organization, 2, 177-224.
- Armstrong, M. (2017). Ordered consumer search. Journal of the European Economic Association, 15(5), 989-1024.
- Bar-Isaac, H., Caruana, G., Cunat, V. (2012). Search, Design, and Market Structure. American Economic Review, 102(2), 1140-1160.


Platform antitrust: Empirical tests - Philippe Gagnepain

Objectives
Platform economics creates some important challenges for antitrust policy. This course proposes to discuss several antitrust issues from an empirical perspective. Examples include: (i) Platform providers who compete with one another to get the firms that produce of complementary goods and services onboard their network, and often rely on exclusive contracts or vertical integration in order to do so. (ii) Apple who uses most favored-nation (MFN) clauses which prohibited publishers from selling their e-books at higher retail prices on Apple’s iBookstore than they sold for elsewhere. (iii) The newspaper market which provides an ideal environment for analyzing the effect of mergers on product features. An interesting question is whether, after an ownership consolidation, newspaper publishers improve or diminish the content quality, whether they enlarge or shrink the local news ratio, or whether they increase or decrease content variety. Whether or not all these (and many other) arrangements are pro- or anti-competitive needs to be tested using simple reduced forms or more complex structural models which aim at describing more precisely each economic agent’s strategic behavior.

Course structure

  • Merger effects
  • Exclusive contracts
  • Vertical integration
  • Most favored-nation clauses

Selected key references
- Fan, Y. (2013). Ownership consolidation and product characteristics: A study of the US daily newspaper market. American Economic Review, 103(5), 1598-1628.
- Foros, Ø., Kind, H. J., & Shaffer, G. (2017). Apple’s agency model and the role of most‐favored‐nation clauses. The RAND Journal of Economics, 48(3), 673-703.
- Jeziorski, P. (2014). Effects of mergers in two-sided markets: The US radio industry. American Economic Journal: Microeconomics, 6(4), 35-73.
- Lee, R. S. (2013). Vertical integration and exclusivity in platform and two-sided markets. American Economic Review, 103(7), 2960-3000.


Contents - Industrial Organization