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We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.

We study centralized many-to-many matching in markets where agents have private information about (vertical) characteristics that determine match values. Our analysis reveals how matching patterns reflect cross-subsidization between sides. Agents are endogenously partitioned into consumers and inputs. At the optimum, the costs of procuring agents-inputs are compensated by the gains from agents-consumers. We show how such cross-subsidization can be achieved through matching rules that have a simple threshold structure, and deliver testable predictions relating the optimal price schedules to the distribution of the agents' characteristics. The analysis sheds light on the practice of large matching intermediaries, such as media and business-to-business platforms, advertising exchanges, and commercial lobbying firms.

The Ethiopian health system is largely financed through household out-of-pocket payments and external donor support, increasing the risk of catastrophic health expenditures. To address these challenges, the government introduced two health insurance schemes: Community-Based Health Insurance (CBHI) targeting the informal sector and a still to be implemented Social Health Insurance (SHI) scheme for the formal sector. Although designed to operate separately, the long-term goal is to integrate them into a unified national risk pool. Achieving this integration requires cross-group solidarity, especially as formal sector employees may subsidize CBHI. This study investigates the willingness of formal sector workers to support CBHI, which is critical for long-term financial sustainability in the Ethiopian health insurance landscape. The paper is based on a survey of 1,919 formal sector workers and pensioners in major administrative regions of Ethiopia. A survey-based experiment was used to elicit support for CBHI. Respondents were randomly assigned to one of five cases that varied by the information provided on CBHI subsidies and benefits. Descriptive statistics and logit models were used to analyze willingness to support CBHI. There is strong support from urban formal sector employees for the CBHI. Regardless of the scenario presented, after adjusting for non-response, at least 66% of participants supported the scheme. Regional variations were observed, and knowledge of health insurance was positively associated with support. Existing access to formal insurance was linked with lower support. Strong evidence of solidarity among formal sector workers bodes well for further expansion of the CBHI. Despite supporting CBHI, formal sector employees are resisting SHI due to cost concerns and skepticism about its benefits, unlike CBHI's known outcomes. SHI resistance signals the need for targeted communication and trust-building as the country moves toward achieving universal health coverage.

The materials presented in the article reflect changes in the mechanism of cross-subsidization in the electric power industry, where price discrimination of consumers has taken place until recently. Historically, the established practice has been expressed in the redistribution of the burden of paying for electric energy between consumer groups, ensuring the containment of tariff growth. However, the reduction of tariffs for some categories of citizens was achieved by increasing them for others, social justice was violated and, for some buyers, the price is set above marginal costs, and for others—lower, although, in general, it led to prices corresponding to average costs. This policy was considered by the state as a measure of social support for the population but, at the same time, led to some negative consequences. The presented conceptual provisions for the creation of unified energy zones aimed at ensuring a fair redistribution of cross-subsidization between electricity consumers and a gradual reduction in its consumption will make it possible to form a unified energy space of Russia. On a concrete example, the socio-economic effects of the introduction of the author’s approach to the distribution of cross-subsidization between groups of consumers of electric power transmission services are identified and shown. They show the degree of influence of the amount of cross-subsidization paid by the consumer company on the cost of the final products that this company produces. The price of electric energy, which is part of the cost of production, significantly changes the consumer cost of energy-intensive production. The implementation of the proposals contained in the article will create economic incentives for the development of economically lagging regions and will make it possible to form an effective state tariff policy in the process of regulating the socio-economic development of the Russian Federation, defining an effective state tariff policy.

Previous research on capital investment has identified a tendency in multibusiness firms toward cross-subsidization from well-performing to poorly performing divisions, a phenomenon that has previously been attributed to principal-agent conflicts between headquarters and divisions (Stein, 2003). In this paper, we argue that cross-subsidization reflects a more general tendency toward even allocation over all divisions in multibusiness firms that is driven, at least in part, by the cognitive tendency to naively diversify when making investment decisions (Benartzi and Thaler, 2001). We observe that this tendency also leads to partition dependence in which capital allocations vary systematically with the divisions and subdivisions into which the firm is organized or over which capital is allocated. Our first study uses archival data to show that firms' internal capital allocations are biased toward equality over the number of business units into which the firm is partitioned. Two further experimental studies of experienced managers examine whether this bias persists when participants are asked to allocate capital to various divisions of a hypothetical firm. This methodology eliminates the possibility of agency conflicts. Nevertheless, allocations varied systematically with the divisional and subdivisional structure of the firm and with a centralized or decentralized capital allocation manner.

We construct an extensive form game that captures competitive markets with adverse selection. It allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists. In fact, when withdrawal is costless, the set of equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that continue to exist for small withdrawal costs. We show that the Miyazaki–Wilson contracts are the unique robust equilibrium outcome.

Nonprofit health care organizations in low- and middle-income countries often pursue a cross-subsidization business model wherein services are offered to poor patients for free through surpluses generated by serving some patients at market prices. This approach allows such organizations to fulfill their mission-oriented and revenue-generation goals. Conventional wisdom holds that mission activities need financial subsidies from revenue-generating activities. The authors examine this dependence in the context of Aravind Eye Hospitals, which delivers eye care services in India. They measure whether the marketing activities (outreach camps) of Aravind that are targeted only to poor patients produce the spillover benefit of attracting paying patients to its hospitals. Using nine years of patient-level historical data, the authors find that camps increase the flow of paying patients. These effects are comparable to the camps acting as advertising for Aravind. Using model estimates, the authors compute the incremental revenue accruing to Aravind from a camp and find that it exceeds the incremental cost of a camp. The findings challenge conventional beliefs about the subsidies required by mission activities.

Retail electric deregulation has been identified in the literature to have favorable price impacts to businesses and households because of the introduction of competition into rate-setting. Those studies often ignore the important role of regulatory intervention. They are also generally national or multi-state aggregated studies that ignore state- and utility-specific dynamics, and most rely on Energy Information Administration (EIA) price data that does not account for riders and surcharges on consumer bills, which can total more than 60 percent of bills. Using a unique panel of representative, complete electricity bill data from the Public Utilities Commission of Ohio (PUCO), this paper provides a multi-utility panel regression analysis of the effect of retail deregulation on total electric bills in Ohio. The results identify two main sources of cross-subsidization that have generally cancelled out the favorable effects of restructuring. Both types of cross-subsidies result in substantial burden shifts to residential consumers.

This article investigates the impact of credit allocation on heterogeneous wealth entrepreneurs. We show that with decreasing risk aversion and unobservable wealth, poorer borrowers exert more effort. As a consequence of endogenous adverse selection, they are either excluded from the market or necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution. Alternatively, a less likely separating equilibrium may occur, in which poor types bear the entire weight of separation in the form of excess risk taking.

Arid developing countries face growing challenges from water scarcity, which are exacerbated by deficient piped water supply infrastructures. Increasing block tariffs (IBTs), charging higher rates with increasing water consumption, can potentially reconcile cost recovery to finance these infrastructures with an equitable and affordable sharing of the cost burden. A firm understanding of the impacts of varying prices and socio-economic conditions on residential water demand is necessary for designing IBTs that promote these objectives. Consistently estimating water demand under an IBT requires a discrete/continuous choice (DCC) model. Despite this, few econometric studies of arid developing countries have applied this state-of-the-art approach. This paper applies a DCC model to estimate residential water demand under IBTs in the severely water-stressed country of Jordan, using 15,811 country-wide household-level observations from five years up to 2013. We extend Hewitt and Hanemann’s original DCC formulation in order to accommodate IBTs featuring a linearly progressive tariff block. We then use the resulting demand function to assess Jordan’s 2013 IBTs and alternative IBT designs. Under the estimated price elasticities, very few IBT designs achieve a full recovery of the financial costs of water provision, but we still identify a potential to improve cost recovery and affordability.