In a rapidly growing industry, potential entrants strategically choose which local markets to enter. Facing the threat of additional entrants, a potential entrant may lower its expectation of future profits and delay entry into a local market, or it may accelerate entry due to preemptive motives. Using the evolution of local market structures of broadband Internet service providers from 1999 to 2007, we find that the former effect dominates the latter after allowing for spatial correlation across markets and accounting for endogenous market structure. On average, it takes 2 years longer for threatened markets to receive their first broadband entrant. Moreover, this entry delay has long‐run negative implications for the divergence of the U.S. broadband infrastructure: 1 year of entry delay translates into an 11% decrease on average present‐day download speeds.

Kyle Wilson

Mo Xiao

Peter F. Orazem

Previously Featured Articles

27.1 – The O-Ring Theory of the Firm

by Michael T. Rauh

27.1 – The magic of the new: How job changes affect job satisfaction

by Adrian Chadi and Clemens Hetschko
      1. Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions, by Ajay Agrawal, Christian Catalini, and Avi Goldfarb, Summer 2015
      2. Privacy Regulation and Market Structure, by James Campbell, Avi Goldfarb, and Catherine Tucker, Spring 2015
      3. Endowment Origin, Demographic Effects, and Individual Preferences in Contests, by Curtis R. Price and Roman M. Sheremeta, Fall 2015
      4. The Provision of Relative Performance Feedback: An Analysis of Performance and Satisfaction, by Ghazala Azmat and Nagore Iriberri, Spring 2016
      5. Promotion Signals, Experience, and Education, by Michael Bognanno and Eduardo Melero, Spring 2016

Recently Published Articles

Volume 30, Issue 4, Fall 2021 (current issue)

Buyers’ role in innovation procurement: Evidence from US military R&D contracts

Francesco Decarolis, Gaétan de Rassenfosse, Leonardo M. Giuffrida, Elisabetta Iossa, Vincenzo Mollisi, Emilio Raiteri, and Giancarlo Spagnolo
This study provides the first quantification of buyers' role in the outcome of R&D procurement contracts. We combine together four data sources on US federal R&D contracts, follow-on patented inventions, federal public workforce characteristics, and perception of their work environment. By exploiting the observability of deaths of federal employees, we find that managers' death events negatively affect innovation outcomes: a 1% increase in the share of relevant public officer deaths causes a decline of 32.3% of patents per contract, 20.5% patent citations per contract, and 34.3% patent claims per contract.

Do exit options increase the value for money of public–private partnerships?

Marco Buso, Cesare Dosi, and Michele Moretto
We study the effects of granting an exit option allowing the private party to terminate a Public–Private Partnerships contract early if it turns out to be loss-making. In a continuous-time setting with hidden information about the private returns on investment, we show that an exit option, acting as a risk-sharing device, can soften agency problems and, in so doing, spur investment and increase the government's expected payoff, even while taking into account the costs that the public sector will have to meet in the future to resume the project.

Private labels and product quality under asymmetric information

Zhiqi Chen and Heng Xu
Contrary to the existing theories of private label (PL) products, we demonstrate that the introduction of a PL product by a retailer may improve the profit of the supplier of a competing national-brand (NB) product.

Mobile Internet usage and usage-based pricing

Jeffrey Prince and Shane Greenstein
Using data on mobile Internet usage of thousands of individuals, we provide some of the first analyses linking mobile usage to key demographics such as income. We find a reverse-U relationship between mobile Internet usage and income—notably different than the monotonically declining relationship found on home devices. We then construct a simple model of mobile Internet usage that incorporates demand features suggested by our empirical finding and prior empirical findings on device adoption and usage.

Too big to succeed? Overstaffing in firms

Hans K. Hvide and Yanren Zhang
Overstaffing appears to be a source of significant inefficiencies in organizations, but there is little economic theory that informs us why. We extend the canonical Lazear–Rosen tournament model to a dynamic setting that yields overstaffing at the managerial level.

Promotions, managerial project choice, and implementation effort

Frédéric Loss and Antoine Renucci
In our model where career concerns take the form of promotion, managers use projects and effort to influence the labor market beliefs regarding their ability. We show that managers consider how projects affect the extent to which posterior beliefs can differ from initial beliefs, the precision of posterior beliefs, and equilibrium implementation effort costs.

Social efficiency of entry: Implications of network externalities

Debasmita Basak and Emmanuel Petrakis
We examine the welfare effects of entry in the presence of network externalities. We show that if network goods are fully incompatible, entry is socially insufficient as long as the entry cost is high, the goods are sufficiently differentiated, and the degree of network externality is low. Further, we show that as the degree of compatibility between the network goods increases, insufficient entry becomes more likely. Our findings provide policy guidelines for anticompetitive and procompetitive entry regulations.

Exclusive dealing when upstream displacement is possible

Ke Liu and Xiaoxuan Meng
We study exclusive dealing when the incumbent may be displaced by a more efficient entrant due to the need for a firm to pay a fixed cost to remain active. We show that the incumbent can deter socially efficient entry through exclusive contracts under the one-buyer-one-supplier framework. This result continues to hold in the presence of product differentiation, in which case exclusion is more likely to occur when the efficiency gap between the entrant and the incumbent falls into an intermediate range.

The role of expertise in syndicate formation

Sylvain Bourjade
In most initial public offerings around the world, an underwriter selects syndicate members and uses their information to set the offering price. The objective of this paper is to develop a model of the “book building” process in which the formation of the syndicate is an endogenous decision variable. I show that the underwriter faces a tradeoff between the cost of extracting information and valuation accuracy.

Volume 30, Issue 3, Fall 2021

Organization of R&D outsourcing: Asymmetric cross-effects between locations

María García-Vega and Elena Huergo
When companies acquire R&D from external national providers, would they benefit if they also acquired knowledge from foreign providers? And the other way around? In this paper, we try to answer these questions by empirically examining the cross-effects of international and national R&D outsourcing to generate innovation.

Can information economics explain the organization of productive facilities?

Phillip J. Lederer and Xiaobo Zheng
A management system exists to coordinate, control, and make decisions about activities within an organization. These functions are information intensive, and therefore the design of management hierarchy has much to do with information-processing economics. Most economic entities' management structures are described by “an organization chart” which is a network of departments. The goal of this paper is to take an analytical look at management hierarchy modeled as a tree with information-processing departments at nodes.

Information gathering by overconfident agents

Justin Downs
A principal hires an agent to both gather information about a project's costs and implement it. The agent's information-gathering effort and what he learns are his private information. I allow the agent to be overconfident in the sense that he underestimates his expected cost of implementation and study the effects this overconfidence has on the efficiency of information acquisition and implementation.

On the precision of information

Samuel C. A. Pereira
This paper explores a model in which the agent's effort affects (solely) the precision (variance) of a performance measure (signal) of the outcome. When moral hazard and adverse selection are considered together, and there is enough uncertainty related to adverse selection, the risk-sharing rule is above the first-best for more efficient types, but below the first-best for less efficient types. Further, the precision of the signal increases with the expected outcome.

When market unraveling fails and mandatory disclosure backfires: Persuasion games with labeling and costly information acquisition

Ennio Bilancini and Leonardo Boncinelli
In this paper, we develop a variant of the persuasion game by Milgrom and Roberts to study the emergence and the desirability of product labeling when buyers can acquire information on the quality of the product by paying a cost. Labeling is modeled as the (verifiable) public disclosure of an otherwise unobservable trait of the seller that is correlated with the quality of the product. Our main finding is that market unraveling can fail, in which case imposing mandatory disclosure can backfire.

Experiments on creativity and work design

Cortney S. Rodet
This study uses a controlled laboratory experiment to understand the impact of time constraints and goal setting on creativity. I find that reducing task constraints by making time constraints ambiguous increases the creativity of ideas without undermining their quantity, relative to the baseline. I also find that a nonbinding quantity-oriented goal increases the quantity of ideas without reducing creative quality. Likewise, a nonbinding creativity-oriented goal increases the creativity of ideas without decreasing the number of ideas.

Product selection in online marketplaces

Federico Etro
A marketplace such as Amazon hosts many products by third party sellers and acts as a first party or private label retailer. Assuming an advantage of Amazon in logistics and of sellers in marketing, we investigate whether entry by Amazon is excessive from the point of view of consumers.

Exclusive content in two‐sided markets

Akifumi Ishihara and Ryoko Oki
This study investigates the role of exclusive content provision in two‐sided markets in which both sides are allowed to join multiple platforms.

Intertemporal stability of survey-based measures of risk and time preferences

Andreas C. Drichoutis and Achilleas Vassilopoulos
This paper provides theory and evidence on airline bag fees, offering insights into a real-world case of product unbundling. The theory predicts that an airline's fares should fall when it introduces a bag fee, but that the full-trip price (the bag fee plus the new fare) could either rise or fall.

Volume 30, Issue 2, Summer 2021

Platform leadership and supply chains: Intel, Centrino, and the restructuring of Wi‐Fi supply

Roberto Fontana and Shane Greenstein
In this paper we examine Intel's launch of Centrino and interpret it as platform leader's attempt to restructure a supply chain. We provide a narrative of key actions and how they coordinated changes and offer a framework of the predictable consequences for complementary markets. We then collect data and test these predictions on outcomes in several related complementary markets.

Dynamic positioning, product innovation, and entry in a vertically differentiated market

David P. Baron
Two firms compete in a market vertically differentiated by the qualities of their products. Each firm produces a single product with profit proportional to product differentiation, and initial product qualities maximize product differentiation. In each period a firm can undertake innovation to increase the quality of its product. Product innovation that widens the quality gap between the firms' products can attract entrants, which can weaken the incentives for innovation.

Entrepreneurial experience and firm exit over the business cycle

Erin McGuire
In this paper, I explore business cycle‐related dynamics in differences in exit decisions between serial and novice entrepreneurs. Using time series geographic variation in economic conditions, I examine how businesses founded by serial and novice entrepreneurs differentially respond to changes on average state personal income, alternative employment options, and home values.

The transfer and value of academic inventions when the TTO is one option

Nicolas Carayol and Valerio Sterzi
Although the transfer of professors' inventions is typically performed by an intermediary set up by the university (the technology transfer office), other forms of transfer do coexist in reality. To clarify this situation and its consequences, we develop a model that endogenizes a professor's decision regarding the form of transfer for her invention in which intermediation by the transfer office is only one of two options, the other one being a transfer carried out by the professor herself.

Historical patent data: A practitioner’s guide

Michael J. Andrews
I provide a primer on six recent large‐scale historical patent data sets for use in innovation research. I discuss how each data set is constructed, the types of patent information included in each, and the quality and completeness of each. Throughout, I emphasize when our knowledge of the history of invention is dependent on the data source used and provide recommendations about which data set is most likely to be best for different contexts. Overall, these data sets paint a remarkably consistent picture of the history of U.S. invention.

Bargaining with informational and payoff externalities

Mikhail Drugov
This paper studies a dynamic bargaining model with informational externalities between bargaining pairs.

Auctions with signaling concerns

Olivier Bos and Tom Truyts
We study a symmetric private value auction with signaling, in which the auction outcome is used by an outside observer to infer the bidders' types. Applications include art auctions and charity auctions.

Pre‐emptive production and market competitiveness in oligopoly with private information

Yuki Amemiya, Akifumi Ishihara, and Tomoya Nakamura
We investigate a firm's pre‐emptive behavior by comparing Cournot competition and Stackelberg games with one leader and multiple followers, where each firm has access to private information on stochastic demand. We show that the firm prefers pre‐emptive quantity choice (Stackelberg leader) to simultaneous quantity choice (Cournot firm) if and only if the firm is ignorant of the market size compared to the other firm.

Intermediation in a directed search model

Klaus Kultti, Tuomas Takalo, and Oskari Vähämaa
We provide an example where establishing competitive coordination service platforms is so lucrative that they end up reducing welfare.

Volume 30, Issue 1, Spring 2021

The production economics of economics production

Yushan Hu and Ben G. Li
How is new economic knowledge produced over time? That depends on how the expertise of authors is managed within economic journals. Using data from 41 major economics journals spanning 21 years (1994–2014), we find that both the intensive margin (article length) and extensive margin (article number) of the discipline have been growing. In particular, the extensive margin has outgrown the intensive margin, such that each article produces absolutely more but relatively less knowledge.

Persistent and snap decision‐making

Tomoya Tajika
To avoid unfavorable inferences about her ability, an expert might cling to her original opinion and ignore valuable new information in formulating subsequent opinions. Conceivably, the expert might decline an initial opportunity to offer an opinion, delaying the opinion formation until more accurate information has arrived. However, we show that reputational concerns often lead an expert to express an opinion at the first opportunity, thereby making a snap decision.

Worker visibility and firms’ retention policies

Simon Dato, Andreas Grunewald, and Matthias Kräkel
In the last two decades, the widespread use of web‐based social networks has led to a higher visibility of workers to the labor market. We theoretically and experimentally analyze the consequences of such increased labor market transparency for the efficiency of job assignments, the wages of workers, and firm profits.

Harnessing the power of social incentives to curb shirking in teams

Brice Corgnet, Brian Gunia, and Roberto Hernán González
We study several solutions to shirking in teams, each of which triggers social incentives by reshaping the workplace social context. Using an experimental design, we manipulate social pressure at work by varying the type of workplace monitoring and the extent to which employees are allowed to engage in social interaction.

There is no ‘I’ in team: Career concerns, risk taking incentives, and team outcomes

Phong T. H. Ngo and Steven Roberts
The National Basketball Association contracting rules provide plausibly exogenous variation in career concerns near contract end. We use this setting to study how individual career concerns affect risk‐taking behavior and can sabotage team performance.

Collusive equilibria with switching costs: The effect of consumer concentration

Guillem Roig
I study the ability of two competing firms to set collusive prices in markets where consumers have switching costs.

Incentives of low‐quality sellers to disclose negative information

Dmitry Shapiro and Seung Huh
The paper studies incentives of low‐quality sellers to disclose negative information about their products.

The effects of ambiguity on entrepreneurship

Claudio A. Bonilla and Pablo A. Gutiérrez Cubillos
We incorporate ambiguity (Knightian uncertainty) into a classic model of entrepreneurship to analyze, among other things, its effects on the optimal level of business startups, the relation between total assets and the size of the entrepreneurial investment, the effects of increasing ambiguity on developing new ventures, and the decision to self‐select into entrepreneurship for an indifferent decision maker.

How does competition among lodging sharing platforms affect welfare and profits?

Esther Gal-Or
We investigate the likely effect on prices, consumer surplus, and profits of intensified competition among peer‐to‐peer lodging platforms.

Volume 29, Issue 4, Winter 2020

Multiple‐quality Cournot oligopoly and the role of market size

Ngo Van Long and Zhuang Miao
We model an oligopoly where firms are allowed to freely enter and exit the market and choose the quality level of their products by incurring different setup costs. Using this framework, we study the mix of firms in the long‐run Cournot–Nash equilibrium under different cost structures and the effects of market size on market outcomes.

Collusion under different pricing schemes

Florian Gössl and Alexander Rasch
We analyze collusive outcomes under different pricing schemes in a differentiated product market in which customers have elastic demand.

Contracting under unverifiable monetary costs

Nicolas Quérou, Antoine Soubeyran, and Raphael Soubeyran
We consider a contracting relationship where the agent's effort induces monetary costs, and limits on the agent's resource restrict his capability to exert effort. We show that the principal finds it best to offer a sharing contract while providing the agent with an up‐front financial transfer only when the monetary cost is neither too low nor too high.

Obstructive monitoring

Aaron Finkle and Dongsoo Shin
We consider a principal–agent relationship in which the principal's monitoring can be obstructive to the agent, reducing the agent's productivity. We show that, with obstructive monitoring, the optimal output schedule is distorted in all directions—the high‐cost agent produces less , and the low‐cost agent produces more than the first‐best levels.

Resources and culture in organizations

Suraj Prasad and Marcus Tomaino
We look at how an organization's level of resources interacts with its culture—that is, its shared beliefs and preferences. We consider an organization where workers exert effort to develop projects.

Platform–merchant competition for sales services

Carlotta Mariotto and Marianne Verdier
In this paper, we study whether a monopolistic platform prefers to impose price parity on sellers when the latter may sell directly to consumers.

An economic model of patent exhaustion

Olena Ivus, Edwin L.‐C. Lai, and Ted Sichelman
This paper offers the first economic model of domestic patent exhaustion that incorporates transaction costs in licensing downstream buyers and considers how the shift from absolute to presumptive exhaustion affects social welfare.

Innovation disclosure in times of uncertainty

Mario Daniele Amore
A recent literature shows that many firms feature missing R&D expenses in their accounting statements. This study explores how economic policy uncertainty affects the decision to disclose innovation‐related information.

Competition in the venture capital market and the success of startup companies: Theory and evidence

Suting Hong, Konstantinos Serfes, and Veikko Thiele
We examine the effect of a competitive supply of venture capital (VC) on the exits (initial public offering or mergers and acquisitions) of startups.