Research

My research interests lie in the transformative effects of new technology's entry into conventional markets, competition between technologies and traditional business models and between technologies in dynamic settings, the profound impact of firm asymmetries, and how these affect consumers, theoretically and empirically.

Journal Publications

This paper analyzes a scenario in which two bidders compete for two objects sold at two second-price auctions. Each bidder's valuations of the two objects are affiliated, and participating in each auction is costly. Bidders make their participation decisions for the two auctions sequentially, in that they decide whether to enter the second auction after observing their entry decisions for the first auction. After making their participation decisions for the two auctions, bidders choose their bids in any auction they participate in. We derive the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation and the presence of participation costs, a bidder's entry into the first auction signals his strong interest in the object sold at the second auction. Hence, a bidder with a higher valuation of the second object is more likely to participate in the first auction in order to deter his opponent from entering the second auction. We then compare the models of sequential and simultaneous participation decisions in terms of equilibrium cutoffs and the equilibrium probability of entry into the two auctions. Lastly, we discuss the effects of the order of entry decisions on the revenues in the two auctions as well as the total revenue.

"Sales-based Compensation and Collusion with Heterogeneous Firms," Journal of Economics & Management Strategy, forthcoming (with Douglas Turner).

Pricing and output decisions are often delegated to managers compensated on the basis of sales. Prior literature has shown that when firms are homogeneous, the delegation of pricing or output decisions to managers, compensated on the basis of sales, does not facilitate collusion. We show that when firms are heterogeneous, either in marginal cost or product quality, sales-based compensation can facilitate collusion under both price and quantity competition. As a result, compensating managers on the basis of sales can increase firm profits and reduce consumer welfare. Additionally, we find that owners can strategically design managerial compensation structures to incentivize collusion between rival managers.

Working Papers

Dynamic pricing has enabled transportation network providers (TNPs) to penetrate the taxi market; however, there is limited evidence of how they have changed the behaviors of taxi drivers and how much consumers gain due to competition. This paper presents a structural model of the ridehail industry to analyze competition between transportation networks and taxis under search friction. The model comprises five parts: taxi supply, taxi demand, TNP supply, TNP demand, and consumer choice of mode. I estimate the model using trip data of taxis and transportation network providers in Chicago. I use the estimates to analyze the impact of the entrance of TNPs and dynamic pricing on consumer welfare. The ``Uber effect'' constitutes a 36.48% decrease in the number of taxi consumers and 289 seconds less waiting time for a consumer. The dynamic pricing scheme of the TNP causes its price to rise in the nighttime and drop in the daytime compared to the uniform pricing scheme. In the nighttime, waiting times drop by more than 40% due to dynamic pricing. As a result, the number of TNP consumers increases by more than 20%.

It is well known that two-sided network effects may turn duopolistic markets into monopolies, but it is still in question under which conditions this occurs in practice. To analyze a dynamic platform competition, I develop a differential game framework incorporating product differentiation and network effects in the rideshare industry. Two platforms play a differential game with market share dynamics depending on differences in price and waiting times. I present a Markov strategy equilibrium in this game. In the equilibrium, two-sided network effects facilitate the larger platform to drive the smaller one out whereas product differentiation allows the smaller one to survive. Various numerical analyses demonstrate that markets are likely to turn into monopolies when the multi-homing cost is high, the difference between price and waiting time in a consumer's sensitivities is large, or the discount rate is high.

Recent regulatory changes in the financial sector have pilot-allowed Big Tech firms to enter the insurance comparison and recommendation market. This study evaluates the potential for Big Tech to create monopolistic structures in the insurance acquisition market when entering the comparison and recommendation market. The analysis relies on economic theory, categorizing their roles as 1) new sales channels, 2) companies with exclusive positions in other industries, and 3) leaders in the data market. The assessment reveals that the comparison and recommendation market is susceptible to significant network effects, with a likelihood of a few firms dominating market share beyond a critical threshold. Differentiated regulation based on scale and policies promoting data sharing among platforms may be necessary to ensure fair competition and ongoing innovation. Additionally, proactive regulations to prevent the abuse of dominant positions by Big Tech when transitioning from other industries to the comparison and recommendation market can effectively limit their monopolistic tendencies.

In Progress

"Dynamic Pricing and Distortion in Taxi Location Choices," 2023. (Draft available upon request)

This paper examines the impact of dynamic pricing by transportation network providers (TNPs) on ride-hailing markets, specifically focusing on the location choices of taxi drivers. After the entry of TNPs, taxi drivers increasingly gravitated towards areas characterized by higher passenger demand while avoiding regions with lower demand. First, I develop a theoretical model to explain this observation. Under a uniform pricing scheme, more consumers benefit drivers by reducing their searching times, which leads to higher driver supply. However, the presence of dynamic pricing creates two opposing forces. It leads TNP drivers to move farther away from less dense regions due to high demand, but it also attracts them towards less dense regions due to higher wages. Conversely, taxi drivers move in the opposite direction to TNP drivers. The study identifies theoretical conditions under which platforms can adjust prices and wages to mitigate TNP driver skewness. I find that dynamic pricing causes more regions to have only TNP drivers without any taxi drivers. I then use trip data from transportation network providers in Chicago to empirically identify the relationship between dynamic pricing and taxi driver location choices. The results show that dynamic pricing exacerbates the skewness of taxi drivers toward dense regions. Consumers benefit from dynamic pricing because waiting times become shorter in denser regions due to higher access to taxi drivers.

"Crimes and Market Inefficiency in Ridehailing Markets," 2023.

This paper examines how crime rates affect driver supply in ridehailing markets and the impact of transportation network providers (TNPs) on the efficiency of the markets. Using trip data from taxis and TNPs in Chicago, I find that prior to the entry of TNPs, high-crime regions typically experience an undersupply of drivers, leading to market inefficiency. However, with the entry of TNPs, dynamic pricing leads TNP drivers to move towards high-crime regions; thus, the entry of TNPs improves market efficiency. On the other hand, dynamic pricing causes traditional taxi drivers to move towards lower crime regions. Finally, consumer welfare went up due to reduced overall waiting times.

"Preemptive Entry in Auctions with Sequential and Costly Participation: The Case of Identical Objects," 2021 (with Jaeok Park).

Other Publications

"Trends in Tech-driven P&C Insurance Companies in Korea," KIRI Report, Korea Insurance Research Institute, March 2024.

Recently established digital P&C insurance companies operate a business model that sells products primarily through non-face-to-face channels. They launch new products that cover emerging risks or provide value-added services that enhance consumer convenience. Meanwhile, they are increasing the proportion of long-term insurance sales, which appears to be a strategy to overcome low profitability. For digital non-life insurance companies to continue to play a role in mitigating gaps in risk coverage, it is necessary to consider various supports to increase their profitability and ensure their establishment.

"In the Era of Generative AI, the Use and Challenges of AI in the Insurance Industry," CEO Report, Korea Insurance Research Institute, March 2024 (with Jae-hee Son).

Generative AI differs from traditional AI in that it can generate new content, enabling interactions with humans based on user demands. While global and domestic insurers apply AI in customer care and claims management, they can also expand their roles to cover AI-related risks. Governments and regulators worldwide have implemented measures to govern AI use and mitigate potential risks that may slow the adoption of AI in insurance. In order to achieve market innovation, insurers should be proactive in securing reliability and preventing potential customer harm arising from AI use while trying to strike the right balance between harnessing value from emerging technology and managing risks appropriately.

"Insurtech Companies and Investment Trends in the Evolving Insurance Landscape," Research Report, Korea Insurance Research Institute, April 2023 (with Inchang Hwang and Yunmi Jang).

This report examines the transformation of the insurance industry in recent years and the emergence of Insurtech companies, which are offering new products and services to consumers through information and communication technologies. The study aims to classify Insurtech companies and analyze investment trends in the insurance industry. The report notes that investment in Insurtech has become more concentrated in a few key companies, with successful business models being selected in auto, property, cyber, and health insurance.

The study also highlights that investment in multiline companies has grown rapidly, leading to their significant growth in the insurance industry. The report observes different changes in the value chain for each type of insurance, with investments in Insurtech companies offering multiple services and value-added services increasing more quickly than those providing only a few traditional services, especially in the life and health insurance sector.

The report concludes by discussing investment trends in 2022. The macroeconomic shock of rising interest rates resulted in low profitability for Insurtech. However, the report highlights that there are still opportunities for startups to offer innovative services, particularly in the life and health insurance and multiline insurance sub-sectors. The findings of this study have significant implications for future investments in the insurance industry, as investors seek to understand and take advantage of the new opportunities emerging in the sector.

"The Rise of Value-Added Services and Its Use in Insurance," KIRI Report, Korea Insurance Research Institute, March 2023.

This report discusses the increasing development of value-added services beyond traditional product offerings within the insurance industry's value chain, particularly in overseas markets. Compared to other financial industries, the insurance industry has less frequent interactions with consumers, making it essential to enhance consumer experience and achieve efficient risk management by utilizing value-added services. In this context, where there is greater availability of various data sources, such as financial my-data, and insurance companies have greater autonomy in their ancillary businesses, it is crucial for insurance companies to actively use value-added services to increase their market competitiveness.

"The Role of Network Effects and Leverage in Big Tech's Expansion into the Insurance Industry," KIRI Report, Korea Insurance Research Institute, October 2022.

This report discusses the uncertainty surrounding the success of big tech companies that have recently entered the financial and insurance industries and the impact they may have on existing industries. Due to this uncertainty, there are limitations to regulatory discussions. Big tech companies have grown rapidly due to their ability to create network effects, and their success in the insurance industry depends on their ability to provide services that create such effects. Overseas, there have been concerns raised regarding the use of leverage by big tech companies entering new markets. Therefore, it is important to closely monitor and evaluate the benefits to consumers and the impact on market competition that big tech's entry into the insurance industry may have from multiple perspectives.