Robin S. Lee

Working Papers

Vertical Integration and Exclusivity in Platform and Two-Sided Markets, April 2008
This paper develops techniques to analyze the adoption decisions of consumers and firms for competing platform intermediaries in two-sided markets, and applies them to empirically measure the impact of vertical integration and exclusive contracting in the sixth-generation of the U.S. videogame industry (2000-2005). I first introduce a framework to structurally estimate consumer demand in platform-intermediated markets which (i) simultaneously estimates both hardware platform and software adoption decisions; (ii) accounts for dynamic issues including the durability of goods, agents' timing of purchases, and selection of heterogeneous consumers across platforms and time; and (iii) explicitly provides the marginal contribution of an individual software title to each platform's installed base of users. Demand results show that a platform provider's gains from exclusive access to certain software titles can be large, and failure to account for dynamics, consumer heterogeneity, and multiple hardware purchases significantly biases estimates. I next specify a dynamic network formation game to model the hardware adoption decisions of software providers, and use estimates to determine the new equilibrium industry structure if exclusive vertical arrangements were prohibited. Counterfactual experiments indicate that exclusivity benefited the smaller entrant platforms and not the dominant incumbent, which stands contrary to the interpretation of exclusivity as primarily a means of foreclosure and entry deterrence.

Interviewing in Two-Sided Matching Markets (with Michael Schwarz), November 2007
We introduce the interview assignment problem, which generalizes the one-to-one matching model of Gale Shapley (1962) by including a stage of costly information acquisition. Agents do not know their preferences over potential partners unless they choose to conduct costly interviews. Although there may exist many equilibria in which all agents are assigned the same number of interviews, we show the efficiency of the resultant match can vary significantly depending on the degree of overlap — the number of common interview partners among agents — exhibited by the interview assignment. Among all such equilibria, the one with the highest degree of overlap yields the highest probability of being matched for any agent. Our analysis is used to motivate new and explain existing coordinating mechanisms prevalent in markets with interviewing.

Signaling Preferences in Interviewing Markets (with Michael Schwarz), September 2007
in Computational Social Systems and the Internet, ed. by P. Cramton, R. Müller, E. Tardos, and M. Tennenholtz, no. 07271 in Dagstuhl Seminar Proceedings, Dagstuhl, Germany.

Exclusivity and Control (with Andrei Hagiu), April 2008
We analyze platform competition for content in the presence of strategic interactions between content distributors and content providers. We provide a model of bargaining and price competition within these industries, and show that whether or not a piece of content ends up exclusive to one platform depends crucially on whether or not the content provider maintains control over the pricing of its own good. If the content provider sells its content outright and relinquishes control over its price, the content will tend to be exclusive unless there are sufficient market expansion effects. On the other hand, if the content provider maintains control of its pricing, the strategic interaction between prices set by the content provider and by the platforms leads to a non-monotonic relationship between exclusivity and content quality: both high and low quality content will multihome and join both platforms, but there will be a range of content that will maintain exclusivity despite foreclosing itself from selling to a portion of the market. In addition, we show that contrary to standard results on double marginalization and pricing of complementary goods, a platform who already has exclusive access to content may prefer to relinquish control over pricing and associated revenues from the content to the content provider in order to reduce price competition at the platform level.
[HBS Working Paper Summary | Media Mentions: 1, 2]

Competing Platforms, April 2008
This paper focuses on platform-intermediated markets where there are a small number of firms on one side of the market, and analyzes the strategic competition among platforms to get the oligopolistic side on-board. Due to the prevalence of both same and cross-side externalities, previous bilateral contracting approaches have been inadequate for studying these types of markets. I provide a model of platform competition for firms that allows for general externalities across both contracting and non-contracting partners, and address when a market will sustain a single or multiple platforms. When firms can join only one platform, I provide conditions under which market-tipping and/or market-splitting equilibria may exist, and illustrate how outcomes may still be inefficient despite the presence of contingent contracts.

Working Projects

Oligopolistic Bundling and Pass-through
(with Kyna Fong)

Pricing and Screening in Two Sided Markets
(with Peter Coles)