The status quo of prohibiting broadband service providers from charging websites for preferential access to their customers-the bedrock principle of net neutrality (NN)—is under fierce debate. We develop a game-theoretic model to address two critical issues of NN: (1) Who are gainers and losers of abandoning NN? (2) Will broadband service providers have greater incentive to expand their capacity without NN? We find that if the principle of NN is abolished, the broadband service provider stands to gain from the arrangement, as a result of extracting the preferential access fees from content providers. Content providers are thus left worse off, mirroring the stances of the two sides in the debate. Depending on parameter values in our framework, consumer surplus either does not change or is higher in the short run. When compared to the baseline case under NN, social welfare in the short run increases if one content provider pays for preferential treatment but remains unchanged if both content providers pay. Finally, we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under NN are higher than those under the no-net-neutrality (NNN) regime, except in some specific cases. Under NN, the broadband service provider always invests in broadband infrastructure at the socially optimal level but either under- or overinvests in infrastructure capacity in the absence of NN.
We investigate the incentive issues that surround the adoption and sharing of electronic health records (EHR) and the potential role of a personal health record (PHR) platform in facilitating data sharing. Through our analysis, we find evidence that health-care providers may not have an incentive to share patients' records electronically even though EHR systems will increase consumer surplus, especially in the presence of provider heterogeneity and myopic consumers. In this context, we find that an independent PHR platform can create incentives for the providers to share their patients' records electronically with other providers by selectively subsidizing them. In a pluralistic health-care system like that in the United States, where health-care providers have varying incentives to implement electronic health records, an online PHR platform can provide a proxy for a "national health information network,"' wherein consumers can freely exchange their health records among competing providers.
The computing industry is gradually evolving to cater to the demand for software-as-a-service (SaaS). Two core competencies that have emerged over the past few years are that of the application service providers (ASPs) and the application infrastructure providers (AIPs). The arrangements between them result in system dynamics that is typical in supply chain networks. We examine the performance of an SaaS set up under different coordination strategies between these two players. Our analysis indicates that coordination between the monopoly ASP and the AIP can result in an outcome with the same overall surplus as can be achieved by a central planner. Even though the players have an incentive to deviate, it is possible to create the right incentives so that the economically efficient outcome is also the Nash equilibrium. The results of the analysis have significant implications for the coordination strategies for providers in the burgeoning business model of delivering software services over the Internet.
Whether broadband service providers (BSPs) should be allowed to vertically integrate with content providers is a contentious issue. This is even more so when viewed through the lens of the net neutrality debate, since the vertically integrated firm can prioritize the delivery of its own content at the expense of that of its competitors if net neutrality is not enforced. Using a game-theoretic model, we analyze the issues of vertical integration of content and broadband services surrounding this debate from an economic perspective. Our analysis establishes the various equilibria in the game and shows that the vertically integrated BSP does not have any incentive to abide by the principles of net neutrality. If net neutrality is not enforced, social welfare might, in certain cases, decrease with vertical integration, and in such cases, the BSP's objectives are at odds with that of the social planner. With other ranges of parameter values, social welfare increases with vertical integration at the expense of the competing pure-play content provider. Interestingly, we find that it is not always true that the BSP will always degrade the delivery of the competing content, and in fact will sometimes have the incentive to prioritize the latter over its own. The analysis thus provides crucial inputs to policymakers as they decide on whether to allow vertical integration between a BSP and a content provider in the absence of net neutrality.
Sellers in eBay are often small-business owners whose livelihood depends on fast turnaround of their cash flows. Unlike in traditional auctions, these sellers are content to sell as soon as some target price is reached. While a wealth of literature exists on the final rent of the various stakeholders in a traditional auction setting, what is of interest here is to estimate the time required to reach a certain bid level in ongoing auctions. This paper introduces an analytical model to estimate the time it takes an online auction to reach a prespecified price threshold. The motivation for the research is to avoid unnecessary delays in conducting the transaction. Specifying the right duration would benefit small sellers who would realize the revenue proceeds from the sale faster. To this end, we model the bidding process as an infinite quasi-birth-death process, characterized by bursts of rapid bidding and subsequent lulls. We obtain closed-form solutions for the transient probability distribution in the frequency domain of the bid prices in an ongoing auction, which are then used to compute the transient probability distributions in the time domain. Experienced auctioneers can use these results to estimate expected ending times for their auctions. Sample observations from online auctions indicate that there may be potential room for improvement for sellers in setting their auction ending times. Simulations of the quasi-birth-death processes back up the theoretical observations.
With the advent of the Internet, and the minimal information technology requirements of a trading partner to join an exchange, the number of sellers who can qualify and participate in online exchanges is greatly increased. We model the competition between two sellers with different unit costs and production capacities responding to a buyer demand. The resulting mixed-strategy equilibrium shows that one of the sellers has a normal high price with random sales, while the other seller continuously randomizes its prices. It also brings out the inherent advantages that sellers with lower marginal costs or higher capacities have in joining these exchanges, and provides a theoretical basis for understanding the relative advantages of various types of sellers in such exchanges.