Thought Leadership: BTMA faculty members in Conference

BTMA faculty members attended IS conferences this month including Conference on Information Systems and Technology (CIST) 2024 from October 19 -20 and INFORMS 2024 from October 20-23, both in Seattle, Washington. Assistant Professor Vaarun Vijairaghavan, Ph.D. along with Assistant Professor Hooman Hidaji, Ph.D. and Distinguished Professor Barrie R. Nault, Ph.D., and Assistant Professor Sule Nur Kutlu, Ph. D., presented co-authored working papers.

CIST 2024

Vijairaghavan, V., Hidaji, H., Kundisch, D., & Zimmermann, S. (October 2024) Platform Competition and Price Coercion.

Abstract

Some dominant retail platforms that operate using the agency model (taking a percentage of firm revenues as their fee) have governance rules in place that restrict third-party sellers decision rights with respect to pricing thereby preventing sellers (firms) from setting their profit maximizing prices. We study the circumstances under which a dominant platform uses price coercion, and how this impacts the firms. We consider that firms, instead of listing on the dominant platform, can list on a niche platform, which due to its lack of dominance is unable to price coerce but is characterized by lower demand. Using a general game-theoretic model, we analyze this trade-off in the context of firms that are heterogeneous in terms of the loyalty of their customers. We find the following: Absent the existence of a competing niche platform, the dominant platform has an incentive to implement price coercion which reduces firm prices from profit maximizing towards revenue maximizing levels. This mis-alignment of incentives increases in the marginal costs of firms. We show that the niche platform impedes the dominant platform's price coercion strategy. Further, the presence of the niche platform leads to more firms entering the market, though these firms list on the dominant platform. Moreover, the competition between platforms may decrease consumer surplus when price coercion is considered, demarcating novel findings about the phenomenon of price coercion.

Bayram, O., Talay, I., & Nur Kutlu, S. (October 2024) Impact of Fintech Innovation on Cross-border Payments: SWIFT vs. Blockchain. 

Abstract

This paper examines the impact of fintech innovation with blockchain on the competitive dynamics and pricing strategies for the cross-border payments market, particularly in relation to the traditional SWIFT system. Our findings indicate that blockchain integration can significantly reduce costs of cross-border payments for customers, challenging the dominant position of SWIFT. The results highlight a strategic pathway for banks considering blockchain, revealing that early adopters can utilize technological benefits to capture greater market share, despite facing new risks associated with system integration and regulatory compliance. The ratio of costs stemming from systemic risks for blockchain-enabled transfers to the costs occurring at a SWIFT transfer due to the involvement of intermediaries determines the functionality of the blockchain adoption for the pioneering banks and the market. We find that this fintech innovation would increase the total user surplus in the market and translate into market leadership in terms of market share for the pioneering bank. However, this would not always translate into a higher profit for the pioneering bank if the risks involved with blockchain technology are too high. The study contributes to the theoretical understanding of fintech innovations in financial markets and offers managerial insights into the adoption of new technologies for cross-border transfers.

INFORMS 2024

Vijairaghavan, V., & Nault, B.R. (October 2024) Platform Intermediation and Firm Investments. 

Abstract

Through the use of a varying coefficient model, we build a structural econometric specification using the Cobb-Douglas to evaluate the effect of IT on energy productivity. In addition, given the large completed and planned investments in the Smart Electricity Grid, we posit that IT has a large impact on the output elasticity of electric energy. We use U.S. industry level data collected from the Bureau of Economic Analysis and the Bureau of Labor Studies, and find that IT increases energy productivity, and that IT's effect on electricity productivity is an order of magnitude larger than its effect on non-electric energy.