Ming Gao - Job Market Candidate

Education

Ph.D. in Economics, London Business School, 2010 (expected)
M.Res. in Economics, London Business School, 2007
M.A. in Quantitative Economics, Ranked 1st in Class, Tsinghua University, 2003
B.A. in Economics, Cum Laude, Tsinghua University, 2001

Research Interests

Primary fields: Industrial Organization, Microeconomic Theory
Secondary field: Behavioural Economics

I am interested in incentive issues in individual and firm decisions. I endeavour to use my research to help improve our understanding of people's choices and companies' internal and external strategies, including compensation and pricing, etc, and their implications for industry development. See below for a list of my research papers.

Ph.D. Supervisors

Jean-Pierre Benoît and Leonard Waverman

Job Market Paper

• When to Allow Buyers to Sell? Bundling in Mixed Two-Sided Markets
In many examples of two-sided markets, ranging from telecommunication to stock exchange, participants act on both sides of the market. Whereas the literature has assumed buyers cannot sell and sellers cannot buy, we provide a model for two-sided markets where users can appear on both sides, which we call "mixed two-sided markets". We observe that in practice, platforms in such markets often use a "hybrid" bundling strategy: A common membership fee gives access to both buying and selling services (in a "bundle"), while the individual transaction fees are separated. The main impact of this strategy is what we call the "two-part-tariff effect": Imposing a small bundled membership fee on top of any transaction fees always leads to zero first-order losses in the demand of consumers who use both services, thus enabling the platform to extract more surplus from them. When this positive effect dominates the losses due to single-service users, hybrid bundling dominates unbundled sales. We present general conditions that guarantee such an outcome.

Working Papers

• Multiproduct Price Discrimination with Two-Part Tariffs

This paper gives a new "multiproduct" explanation of the wide application of two-part tariffs, complementary to the classical "single-product" efficiency-related explanation. We consider a monopolist provider of n (>1) products who uses two-part tariffs consisting of a membership fee common to all consumers and separate prices for different product bundles. We show that the change in demand for any bundle of m products caused by imposing an extra membership fee on top of any separate pricing strategy is proportional to the membership fee to the power of m. Therefore a small extra membership fee has no first-order impact on the demand for any multi-product bundles (m>1), which enables the firm to extract more consumer surplus. When this positive effect dominates the loss of single-product demand, two-part tariff dominates separate pricing. We present conditions that guarantee such an outcome, which generalize McAfee, McMillan and Whinston (1989)'s result from two products to multiple products. Our results suggest that two-part tariffs can achieve multidimensional price discrimination and should be subject to the same antitrust scrutiny as bundling strategies.

• A Quasi-Cumulative Weighting Function for Prospect Theory: The (ß; c) Model

We propose a simplified weighting function for cumulative prospect theory (CPT), which plays a similar role in utility models with risky choices as that of the quasi-hyperbolic discounting function in models with intertemporal choices. The continuous S-shaped weighting functions posited in CPT causes difficulties in representation which hinders its application in study of risky choices. The (ß,c) model we propose has a weighting function that is linear with slope smaller than 1 on the open interval (0,1), jumps down to 0 at end point 0, and jumps up to 1 at end point 1. We use ß for the slope and c for the intercept. This simplification preserves the "gist" of the CPT weighting functions, which is the oversensitiveness to probability changes close to impossibility and certainty and the undersensitiveness in the interim, while only sacrificing precision along the curvature of the "true" functions. It tremendously reduces the burden in representation and allows us to show implications of CPT, such as the certainty effect and reference dependence, in concise and intuitive analytical forms. We derive representations for various families of discrete and continuous lotteries and use them to explain a wide range of "anomalous" empirical findings.

Work in Progress

• What Can We Learn from AIG about Multi-Party Contracting? Risk-Sharing and the Double Agency Problem
In the AIG catastrophe, staff and managers' compensation that is (allegedly) ex ante non-contingent on superior- or peer-performance becomes adversely affected ex post by bad performances of some managers, which causes wide-spread discontent. We model this in a multi-party contracting framework with three levels of parties - the agents (staff), the mid-level managers and the principal (company owner). Given limited liability of the principal, risk of the kind in the AIG case always exists for agents and managers, and there is actually risk-sharing both between and within hierarchies. Moreover, an agent in this framework is subject to two agency problems - one caused by the difference of interest between him/herself and the manager, and the other caused by the difference of interest between the manager and the principal. The goal of this project is to find how the optimal compensation contract trades-off these incentives.

• Multiproduct Pricing with Network Effects
In a mixed two-sided market, demands of different services are connected by the indirect network effects between the two sides. The network effects serve as a channel to transfer demand changes on one market side to the other and therefore amplifies the overall impact on profit. We modify the general framework of multiproduct nonlinear pricing by Armstrong (1996) to accommodate this change in the demand functions. We show that the profitability of traditional nonlinear strategies (such as bundling) may be enhanced, undermined or overthrown in the new model. We provide conditions for these situations and discuss extensions of the model to multi-sided platforms that offer more than two kinds of services, such as Google and iPhone.

Earlier Research Papers

• Strategies for Developing China's Software Industry (with Mingzhi Li), in the Journal of Information Technologies and International Development, 2003, 1(1), pp. 61-73, MIT Press

• A Study of the Strategies for Developing China's Software Industry (in Chinese, 2003, Thesis for Master's Degree, Tsinghua University)
Downloadable Abstract in English and in Chinese

• Other downloadable abstracts in Chinese

Published Translation

• Game Theory in International Economics, by John McMillan, Peking University Press, 2004 (ISBN 7-301-06710-0/F.0724)
Links to original book on Google Books and Chinese translation

• Principles of Economics (6th edition), by Karl E. Case & Ray C. Fair, Tsinghua University Press, 2003 (ISBN 7-302-06539-X/F.517) (with three other translators)
Links to original book on Google Books and Chinese translation

Teaching

• Applied Microeconomics Seminars (Autumn 2009-2010), Masters in Management Program

• Business Statistics Tutorials (Autumn and Spring 2008-2009), MBA, Sloan and EMBA Programs

Contact Details

Address: London Business School
Regent's Park, NW1 4SA
London, United Kingdom

Email: Click Here

Office: +44 (0) 20 7000 8451

Mobile: +44 (0) 79 6250 8706

Fax: +44 (0) 20 7000 8401

Curriculum Vitae

Click here for my CV (PDF)

School Profile Page

Visit Ming Gao's profile on LBS website