Essays in microeconomics [electronic resource]
Keywords: Business.

This dissertation consists of three essays in the field of microeconomics. In Chapter 1, I consider dynamic optimal pricing of platform membership (a durable good) and usage (a non-durable good) under network effects. Users with different outside options make platform membership decisions irregularly. Once becoming a member, a user makes platform usage decisions regularly. Examples of such a platform include a video game console and a computer operating system. I show that, in a Markov perfect equilibrium, the platform's market power is weakened by the network effect and the potential damage to future sale. If the network effect is sufficiently weak, a small platform expects slow growth and surplus extraction thus decreases with the platform size. On the other hand, if the network effect is sufficiently strong, a platform foresees a large expected market share in the long run and surplus extraction thus increases with the platform size. The intensity of the network effect and the ability to commit to a future price path decrease the risk of failure to launch and increase the mean and all higher moments of the long-run market share. Chapter 2 is a joint work with Nur Sunar. Motivated by pricing, advertising, and product diffusion of collaborative information technology services, we consider a monopolist firm that sells a non-divisible product in a connected customer network over a discrete time horizon. The seller chooses, optimally, a target agent to be awarded with promotion and sets prices for each potential customer in the network. Each agent makes purchasing decisions based on the intrinsic valuation of the product and the local network benefit, which is increasing in the number of neighbors who own the product. We demonstrate that, under the uniform pricing strategy, the seller, optimally, offers promotion to the agent with highest decay centrality with a decay parameter equal to the discount factor, and the optimal price increases with the discount factor. We also extend our analysis to a combinatorial setting in which the seller can promote the product to multiple agents in the customer network. We prove that the optimal target group size decreases with the discount factor. Moreover, contrary to the single-target selection problem, the optimal uniform price decreases with the seller's discount factor for a sufficiently high discount factor. Although the seller has complete information about the intrinsic valuation and the local network benefit, under the optimal pricing and advertising strategies, the seller may not capture the entire customer base. In Chapter 3, I study how delay in negotiations arises by analyzing a dynamic model of stochastic bilateral bargaining with proposer's advantage. The proposer in the current period has an advantage of becoming the proposer in the next period. I show that under asymmetric information about the endowment, there exists a semi-pooling Markov perfect equilibrium, under the good-faith rule and a low initial belief of the uninformed player that the informed player has a high endowment signal. In the equilibrium, the uninformed player screens among types of the informed player until the agreement is reached, and the better informed player obtains the information rent. The delay in agreement occurs from uncertainty about the identity of the proposer and the screening process of the uninformed player. If an institution can optimally set the proposer's mover advantage to minimize the expected delay in agreement at the beginning of the negotiation, the optimal proposer's advantage increases with the initial probability that the informed player proposes first and with the discount factor. The institution compensates the lack of information about the endowment to the uninformed player in the form of the proposer's advantage.