Justin Johnson is a Professor of Economics at Cornell University's Samuel Curtis Johnson Graduate School of Management. He is an active and globally renowned researcher in economics and strategy, and a past editor at both the Journal of Industrial Economics and the International Journal of Industrial Organization, top journals in his field. Professor Johnson uses tools from economics and game theory to better understand how firms can compete and succeed in challenging environments, and what strategies they can adopt to either achieve or maintain dominance in markets.
Abstract: We investigate the ability of a platform to design its marketplace to promote competition, improve consumer surplus, and increase its own payoff. We consider demand-steering rules that reward firms that cut prices with additional exposure to consumers. We examine the impact of these rules both in theory and by using simulations with artificial intelligence pricing algorithms (specifically Q-learning algorithms, which are commonly used in computer science). Our theoretical results indicate that these policies (which require little information to implement) can have strongly beneficial effects, even when sellers are infinitely patient and seek to collude. Similarly, our simulations suggest that platform design can benefit consumers and the platform, but that achieving these gains may require policies that condition on past behavior and treat sellers in a non-neutral fashion. These more sophisticated policies disrupt the ability of algorithms to rotate demand and split industry profits, leading to low prices.
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