Agency Frictions and Procurement: New Evidence from US Electricity Restructuring
( Abito, Jose Miguel | Han, Jin Soo | Houde, Jean-Francois | van Benthem, Arthur A. )JOURNAL OF INDUSTRIAL ECONOMICS2024-03
Abstract
This article presents new quantitative evidence of the sources of efficiency benefits from deregulation. We estimate the heterogeneous effects of plant divestitures on fuel procurement costs during the restructuring of the U.S. electricity industry. Guided by economic theory, we focus on three mechanisms and find that restructuring reduced fuel procurement costs for firms that (i) were not subject to earlier incentive-regulation programs, (ii) had relatively strong bargaining power as coal purchasers after restructuring, and (iii) were locked in with disadvantaged coal contracts prior to restructuring.
Robust Risk Quantification via Shock Propagation in Financial Networks
( Ahn, Dohyun | Chen, Nan | Kim, Kyoung-Kuk )OPERATIONS RESEARCH2024-01
Abstract
Given limited network information, we consider robust risk quantification under the Eisenberg-Noe model for financial networks. To be more specific, motivated by the fact that the structure of the interbank network is not completely known in practice, we propose a robust optimization approach to obtain worst-case default probabilities and associated capital requirements for a specific group of banks (e.g., systemically important financial institutions) under network information uncertainty. Using this tool, we analyze the effects of various incomplete network information structures on these worst-case quantities and provide regulatory insights into the collection of actionable network information. All claims are numerically illustrated using data from the European banking system.
The Role of Advertising in High-Tech Medical Procedures: Evidence from Robotic Surgeries
( Yoon, Tae Jung | Kim, TI Tongil )JOURNAL OF MARKETING2024-01
Abstract
Hospital advertising has grown more than five-fold in the last two decades. However, hospital advertising has been understudied, unlike detailing and advertising for prescription drugs. This study introduces a customer-centric view to this market by investigating the role of advertising in patients’ choice of high-tech medical procedures, with a focus on robotic surgery. The authors analyze approximately 140,000 individual patient records and television advertising data from Florida during 2011-2015 to investigate how hospital advertising of robotic surgery affects patients’ choice of robotic surgery over more conventional laparoscopic and open surgeries. Using a variation of a Designated Market Area border identification strategy, the authors find that this advertising leads to more robotic surgery choices. The advertising effect is especially strong for Medicaid patients, whose socioeconomic status tends to be lower. While robotic surgery is associated with a shortterm health benefit (i.e., reduced length-of-stay), it does not affect long-term health benefits and comes at a higher cost than other forms of surgery. Thus, understanding the effect of advertising robotic surgery has significant health, cost, and marketing implications for different stakeholders in the healthcare industry, such as patients, healthcare providers, surgical robot manufacturers, insurance providers, and policymakers.
Constrained contests with a continuum of battles
( Hwang, Sung-Ha | Koh, Youngwoo | Lu, Jingfeng )GAMES AND ECONOMIC BEHAVIOR2023-11
Abstract
We study a contest problem in which two players compete on a continuum of battlefields by spending resources subject to some constraints on their strategies. Following Myerson (1993), we assume that each player's resource allocation on each battlefield is an independent random draw from the same distribution. Within each battlefield, the player who allocates a higher level of resources wins, but both players incur costs for resource allocation. To analyze this problem, we introduce a systematic way to identify equilibrium allocation strategies and show that any equilibrium strategy of a player renders the rival indifferent in terms of the “constraint-adjusted payoff”. Using this, we provide a complete characterization of equilibrium allocation strategies. We also show that whereas a symmetric budget constraint may induce players to spend more resources than in the case with no constraint, asymmetric budgets that are proportional to players' values of winning would eliminate this possibility.
A Model of Product Portfolio Design: Guiding Consumer Search through Brand Positioning
( Ke, T. Tony | Shin, Jiwoong | YU, Jungju )MARKETING SCIENCE2023-11
Abstract
We investigate a firm's optimal product portfolio design on a Hotelling line that can affect consumers' search decisions. Consumers form their perceptions of a brand from interactions with all products in the portfolio. We conceptualize the average location of the products as the brand position that represents the aggregate information about characteristics common to the product portfolio. Then, we propose a mechanism for why and how brand positioning induced by a firm's product portfolio design can deliver credible information that guides consumer search. We show that niche positioning naturally conveys more information than mainstream positioning. A mainstream brand has incentives to opportunistically dilute its brand by offering a wide range of products. Even in a monopolistic market, a niche brand positioning may arise as an equilibrium because it serves as a commitment device that prevents brand dilution.
