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Intermediated Platforms and Firm Investments
Numerous studies have shown that cross-subsidization is a valuable tool to coordinate prices on each side of a platform, thereby increasing platform profits. We study how firm investments can be coordinated in an intermediated platform setting (where firms operating on a platform intermediate the relationship between the platform and end customers). In our setting, demand generated by a firm depends on own investments and prices, as well as cross-side investments and prices. We model this coordination problem using the case of Demand Response (DR) on the Smart Grid, where the platform enables interoperability between DR products, firms invest to develop DR products, and customers purchase DR products from firms. In the first stage the platform sets fees and transfers, and in the second and third stages, firms set prices and investments, respectively. We find that the platform’s choice of transfer maximizes aggregate platform demand - here, the platform and the policymaker are aligned. Although fees increase prices set by firms, thereby decreasing aggregate platform demand, the rate of price increase with fees depends on the demand facing each firm. We isolate conditions on firm demand where prices increase faster than fees (a phenomenon we term N-Convexity). Further, if there is N-Convexity, then it is inevitable that firm investment increases with fees (N-Investment); however, N-Investments can occur even when there is not N-Convexity.
Vaarun Vijairaghavan is a PhD candidate in Business Technology Management at the Haskayne School of Business, with a minor in Accounting. He holds an MBA from the Schulich School of Business at York University, and a Bachelor of Computer Engineering degree from the University of Pune, India.
Vaarun's research interest is in privacy, data ownership and data rights as it relates to the data analytics industry. He is currently investigating the effect of the European Union's General Data Protection Guidelines on competition in the data controller industry. He also studies platform mediated networks, with the goal of understanding the behavior of investments made by firms operating on a platform. In addition, he studies Information Technology's (IT's) effect on firm productivity, and in particular, how IT affects firm costs, accrual size, and accrual precision. He focuses on the Economics of Information Systems, using analytical modelling and econometric methods.
Vaarun's teaching experience includes multiple years as an instructor of Business Technology Management at Haskayne, corporate training at IBM, and guest lecturing at the University of Pune and the University of Calgary. His professional experience includes technical, business and consulting work in the IT industry in U.S.A., Canada and India.
The semester’s complete speaker series schedule can be found at: http://mist.ucmerced.edu/seminars
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