Casadesus-Masanell, Ramon

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Casadesus-Masanell, Ramon

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Casadesus-Masanell

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Ramon

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Casadesus-Masanell, Ramon

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Competing with Privacy
(INFORMS, 2014-10-24) Casadesus-Masanell, Ramon; Hervas-Drane, Andres
We analyze the implications of consumer privacy for competition in the marketplace. We consider a market where firms set prices and disclosure levels for consumer information, and consumers observe both before deciding which firm to patronize and how much information to provide. The provision and disclosure of information presents tradeoffs for all market participants. Consumers benefit from providing information to the firm, as this increases the utility they derive from the service, but they incur disutility from information disclosure. This, in turn, benefits the firm providing an additional source of revenue, but reduces consumer demand for the service. We characterize equilibrium information provision, disclosure levels, and prices and show that competition with privacy has several effects on the marketplace. First, competition drives the provision of services with a low level of disclosure. Second, competition ensures that services with a high level of disclosure subsidize consumers. Third, firms maximize profits at the extensive rather than the intensive margin, outperforming competitors by attracting a larger customer base. And fourth, higher competition intensity need not improve consumer privacy when consumers exhibit low willingness to pay. Our findings are particularly relevant to the business models of Internet firms and contribute to inform the regulatory debate on consumer privacy.
When Does a Platform Create Value by Limiting Choice?
(Wiley-Blackwell, 2014-10-24) Casadesus-Masanell, Ramon; Hałaburda, Hanna
We present a theory for why it might be rational for a platform to limit the number of applications available on it. Our model is based on the observation that even if users prefer application variety, applications often also exhibit direct network effects. When there are direct network effects, users prefer to consume the same applications to benefit from consumption complementarities. We show that the combination of preference for variety and consumption complementarities gives rise to (i) a commons problem (to better satisfy their individual preference for variety, users have an incentive to consume more applications than the number that maximizes joint utility); (ii) an equilibrium selection problem (consumption complementarities often lead to multiple equilibria, which result in different utility levels for the users); and (iii) a coordination problem (lacking perfect foresight, it is unlikely that users will end up buying the same set of applications). The analysis shows that the platform can resolve these problems and create value by limiting the number of applications available. By limiting choice, the platform may create new equilibria (including the allocation that maximizes users' utility); eliminate equilibria that give lower utility to the users; and reduce the severity of the coordination problem faced by users.
Business Model Evaluation: Quantifying Walmart’s Sources of Advantage
(2014-10-24) Brea-Solís, Humberto; Casadesus-Masanell, Ramon; Grifell-Tatjé, Emili
We develop an analytical framework on the basis of the economics of business performance to provide quantitative insight into the link between a firm's business model choices and its profit consequences. The method is applied to Walmart by building a qualitative representation of its business model and mapping that representation on an analytical model that quantifies the company's sources of advantage over time. The analysis suggests that the effectiveness of a particular business model depends not only on its design (its levers and how they relate to one another) but also, most importantly, on its implementation (how the levers are pulled).
Investment Incentives in Open-Source and Proprietary Two-Sided Platforms
(Wiley-Blackwell, 2014-10-24) Casadesus-Masanell, Ramon; Llanes, Gaston
We study incentives to invest in platform quality in open-source and proprietary two-sided platforms. Open platforms have open access, and developers invest to improve the platform. Proprietary platforms have closed access, and investment is done by the platform owner. We present five main results. First, open platforms may benefit from limited developer access. Second, an open platform may lead to higher investment than a proprietary platform. Third, opening one side of a proprietary platform may lower incentives to invest in platform quality. Fourth, the structure of access prices of the proprietary platform depends on (i) how changes in the number of developers affect the incentives to invest in the open platform, and (ii) how investment in the open platform affects the revenues of the proprietary platform. Finally, a proprietary platform may benefit from higher investment in the open platform. This result helps explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.
Business Model Innovation and Competitive Imitation: The Case of Sponsor-Based Business Models
(Wiley-Blackwell, 2013) Casadesus-Masanell, Ramon; Zhu, Feng
This paper provides the first formal model of business model innovation. Our analysis focuses on sponsor-based business model innovations where a firm monetizes its product through sponsors rather than setting prices to its customer base. We analyze strategic interactions between an innovative entrant and an incumbent where the incumbent may imitate the entrant's business model innovation once it is revealed. The results suggest that an entrant needs to strategically choose whether to reveal its innovation by competing through the new business model or conceal it by adopting a traditional business model. We also show that the value of business model innovation may be so substantial that an incumbent may prefer to compete in a duopoly rather than to remain a monopolist.
Decision-Making by Precedent and the Founding of American Honda (1948 - 1974)
(2017-03-21) Casadesus-Masanell, Ramon; Heilbron, John
American Honda was founded in 1959 as a wholly owned subsidiary of the Honda Motor Company to facilitate sales and distribution in the United States. The details of American Honda’s early history have long served as evidence in debates among scholars and practitioners about the managerial determinants of the subsidiary’s success. In particular, it is debated whether American Honda operated according to a deliberate or emergent strategy, i.e. whether or not strategic decisions made in the States conformed to the intentions of upper management. This paper presents evidence that Kihachiro Kawashima, President of American Honda from 1959 to 1965, made important decisions according to precedent set by his boss and mentor, Honda’s chief strategist, Takeo Fujisawa. It presents further evidence that these decisions may have contributed to the recovery of American Honda from its sales crisis during the late 1960s and its continued success thereafter. Addressing ourselves to concepts in the management literature, we argue that strategy realized by the appeal of subordinates to the historical precedent of their superiors defies categorization as deliberate or emergent.
Business Models – Nature and Benefits
(2015-05-20) Casadesus-Masanell, Ramon; Heilbron, John
This paper considers the nature of the business model and its strategic relevance to negotiations. We elaborate a substantive definition of the business model as decisions enforced by the authority of the firm; this definition enables the analysis of business models through the analysis of individual firm choices. We situate negotiation outcomes within the strategy literature by considering ‘ambivalent value’ - value produced by the interaction of partner firms that does not necessarily accrue to any of them. The extent of ‘ambivalent value’ is unclear, but its persistence, despite changing structural market features, promises to help sustain superior profits in the long run. We conclude with an exploration of some ways in which firms’ business models may impact their negotiation outcomes. Several of the proposed pathways work intuitively through the intrinsic characteristics (motivation, personality, etc.) of agents negotiating on behalf of the firm; others operate independently of those characteristics.