Working Papers

Revenue-Maximizing Number of Ads per Page in the Presence of Market Externalities (Revised version oming soon)

  • Firms use advertising as a medium to gain a competitive advantage, which is negatively affected if the ad appears alongside their rival's ad---a form of externality. The multiple ad display setting on search engines, such as Google and Yahoo!, introduces such externalities in the market. In this paper, I estimate a structural model based on a novel data set of Yahoo! ads to (i) quantify the effect of externality on an advertiser's willingness to pay and (ii) simulate the revenue-maximizing number of ads for a search engine. First, I find that externality depends on the quality and quantity of competing ads. For example, an advertiser's willingness to pay decreases by 18.5 percent due to the addition of a second high-quality ad, but only by 0.15 percent due to the addition of a seventh low-quality ad. Second, the counterfactual results suggest that the revenue-maximizing number of ads per page differs across the ad product category, with the average being five ads per page, and implementing the suggested number of ads would lead to a 4.5 percent increase in revenue, on average. These results provide evidence in support of recent changes in the online advertising market; for example, Microsoft introduced a service called R.A.I.S. that provides advertisers with an option of an exclusive ad display.

Quality Differentiation and Optimal Pricing Strategy in Multi-sided Markets (Download)

(with Soo Jin Kim) (Under review)

  • This paper analyzes the generalized quality differentiation model in multi-sided markets with positive externalities, which leads to new insights into the optimal pricing structure of the firm. We find that quality differentiation for users on one side affects not only the side involving differentiation but also the other side due to cross-side network externalities, thereby affecting the pricing structure of multi-sided firms. In addition, quality differentiation affects the strategic relationships among all the choice variables for the platform, so that the platform strategically uses quality differentiation to raise its profits

Dynamic Game with Multidimensional Type: The Case of Carbon-Credit Market (Download)

(with Thomas D. Jeitschko)

  • A significant problem with the carbon credit market that has become apparent in recent years is that the market price has been far more volatile than originally envisioned. The underlying problem is the ill-understood pricing anomalies in a repeated period dynamic setting. In this paper, we drive the equilibrium price path in a dynamic setting and suggests ways to overcome price instability. The model setup allows the firms to differ in terms of their value for the carbon credit as well as the urgency of obtaining it. For example, a firm with an early deadline for obtaining the carbon credits will have a higher urgency index. We find that the equilibrium price is affected by two factors, namely the per period supply rate and uncertainty in future demand. A key insight of the results is that the future supply rate can be used to decrease price fluctuation. Thus, as a policy implication, we suggest that the government should correlate the supply rate with uncertainty in the market. Specifically, they should decrease future supply when the future demand uncertainty in the market increases. The results show that this policy would lead to a more stable price over time

Work in Progress

Brand Effect on a Car’s Resale Value: Dynamic Game Estimation Approach (link coming soon!)

(with Kyoo il Kim and Haoyang Li)

  • In this paper we analysis the resale market for cars to identify the willingness to pay for different characteristics of a used car. We look at the dynamic setting as the buyer’s decision of buying a car considers the choices available over a period of time. We use a novel data set from Korean resale market for the analysis. The paper aims to use these results to see how much does the resale value of different car brands affects the consumer’s brand preference for a new car. The intuition is that consumers will be willing to pay a higher premium for brands that have a higher value in the resale market. Thus, the counterfactual aims to explore the dependence of consumer’s car choice on the resale value of the car. The inter dependency of these two markets is an integral, but an unexplored area of research.

Stochastic Supply and Demand in Spectrum Auction (Snapshot of work till now)

(with Thomas D. Jeitschko and Chowdhury Sayeed Hyder)

  • This paper constructs an efficient direct mechanism for sequential auction with stochastic number of buyers and sellers. The buyers have multidimensional private information, namely about their valuation and lifetime. In this setting, the outside option value is endogenous and the buyers take their future period payoffs into consideration when deciding on the value of winning in current period. Under multidimensional private value assumption, we construct an efficient and ex-post incentive compatible direct mechanism.