Research
Publications
“Applying Markowitz’s Critical Line Algorithm”, with Daniel Niedermayer, forthcoming, “Handbook of Portfolio Construction: Contemporary Applications of Markowitz Techniques” edited by John Guerard, London: Springer
working paper version
| We provide a Matlab quadratic optimization tool based on Markowitz's critical line algorithm that significantly outperforms standard software packages and a recently developed operations research algorithm. As an illustration: For a 2000 asset universe our method needs less than a second to compute the whole frontier whereas the quickest competitor needs several hours. This paper can be considered as a didactic alternative to the critical line algorithm such as presented by Markowitz and treats all steps required by the algorithm explicitly. Finally, we present a benchmark of different optimization algorithms' performance. |
Working Papers
Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses, with Simon Loertscher| Mechanisms where intermediaries charge a commission fee and have the sellers set the price are widely used in practice e.g. by real estate agents, stock brokers, art galleries, or auction houses. We model competition between intermediaries in a dynamic random matching model, where in every period a buyer, a seller, and an intermediary are randomly matched. In any period, every intermediary has a temporary monopoly and designs an exchange mechanism that maximizes his own expected profits. Traders' valuations for the indivisible good depend on their option value of future trade. The following results obtain. First, we show that the intermediary can achieve the highest possible profit with a fee setting mechanism. Second, we characterize when these fees are linear. Third, fee setting is an equilibrium outcome in a dynamic market. Fourth, when the rematching probability increases or, equivalently, the period length decreases, the equilibrium fees become smaller. Fifth, we show that our model can explain several of the stylized facts observed in real estate brokerage, such as the 6% fee, the relation between listing price and time on market, inefficient free entry, higher prices for houses owned by brokers, and home owners who bought during a boom asking higher prices. We also provide various extensions. |
“Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development,” NET Institute Working Paper #08-06 (with Marc Blatter, University of Bern)
|
We consider software developers who can either work on an open source project or on a closed source project. The former provides a publicly available signal about their talent, whereas the latter provides a signal only observed by their employer. We show that a talented employee may initially prefer a less paying job as an open source developer to commercial closed source projects, because a publicly available signal gives him a better bargaining position when renegotiating wages with his employer after the signal has been revealed. Also, we derive conditions under which two effects suggested by standard intuition are reversed: a pooling equilibrium (with both talented and untalented workers doing closed source) is less likely if differences in talent are large; a highly visible open source job leads to more effort in a career concerns setup. The former effect is because a higher productivity of talented workers raises not only the value but also the cost of signaling; the latter stems from more effort and the choice of a high visibility job being substitutes for the purpose of signaling. Results naturally apply to other industries with high and low visibility jobs, e.g. academic rather than commercial research, consulting rather than management.
|
“On Platforms, Incomplete Contracts, and Open Source Software”, University of Bern Discussion Paper 07-07, 2007
| We consider a firm A initially owning a software platform (e.g. operating system) and an application for this platform. The specific knowledge of another firm B is needed to make the platform successful by creating a further application. When B's application is completed, A has incentives to expropriate the rents. Netscape claimed e.g. that this was the case with its browser running on MS Windows. We will argue that open sourcing or standardizing the platform is a warranty for B against expropriation of rents. The different pieces of software are considered as assets in the sense of the property rights literature (see Hart and Moore (Journal of Political Economy, 1990)). Two cases of joint ownership are considered beyond the standard cases of integration and non-integration: platform standardization (both parties can veto changes) and open source (no veto rights). In line with the literature, the more important a party's specific investments the more rights it should have. In contrast to Hart and Moore, however, joint ownership can be optimal in our setting. Open source is optimal if investments in the applications are more important than in the platform. The results are driven by the fact that in our model firms invest in physical (and not in human) capital and that there is non-rivalry in consumption for software. |
“Does a Platform Monopolist Want Competition?”, University of Bern Discussion Paper 06-04, 2006 (Revise & Resubmit from the Journal of Economics & Management Strategy)
| We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product diversity may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft's operating system. |
Other Work
“Java vs. Microsoft: Compatibility, Innovation and Anti-Trust Law”, Extended Essay as part of the MSc Economics program, London School of Economics, 2003
“Bank Regulation: Effects of the Capital Adequacy Requirements of the New Basel Accord”, Masters Thesis, University of Bern, 2002
Current Projects
Reputation and Ownership Structure in Markets with Technological Change (Maija Halonen-Akatwijuka, University of Bristol)
Who Should Set the Price? (with Péter Esö, MIT)
Advertising and Elections (with Marina Niessner, University of Chicago)
Previous page: Andras Niedermayer
Next page: CV