Michael Sacks

David D. Reh School of Business
Clarkson University

I am an assistant professor of economics and financial studies at Clarkson University. My research falls under the umbrellas of game theory, industrial organization, social dynamics, and the economics of culture and religion. I am particularly interested in the effects of heterogeneity on markets with consumption externalities, specifically: networks, platforms, public goods, and club goods.

I hold an M.A. in mathematical behavioral sciences from the Institute for Mathematical Behavioral Sciences at the University of California, Irvine and a Ph.D. in economics from the University of California, Irvine.

Publications

(2018) "Going Along or Going Independent? A Dynamic Analysis of Nonprofit Alliances," with Jiawei Chen, B.E. Journal of Economic Analysis and Policy, 18(2).

This paper investigates strategic alliances in the nonprofit sector in the form of franchising. Using a dynamic model of local public goods with endogenous affiliation and splitting, we show that local organizations may choose to affiliate with the national organization for faster capital accumulation. Temporary alliance occurs when a local organization strategically affiliates with the national organization only to break away after accumulating enough capital. Alliance is more likely to arise and persist when the local chapter is smaller, when the local chapter’s mission is closer to the national organization’s, when the national organization is more efficient in production, and when the local chapter is more patient. Moreover, regulation that requires the local chapter to be affiliated with the national organization would be welfare reducing when the local chapter is large, when the local and national missions differ substantially, and when production at the national organization is inefficient.

(2017) "Education, Identity, and Community: Lessons from Jewish Emancipation," with Jean-Paul Carvalho and Mark Koyama, Public Choice, 171(1) pp. 119-143.

Why do some minority communities take up opportunities for education while others reject them? To shed light on this, we study the impact of Jewish Emancipation in nineteenth century Europe on patterns of education. In Germany, non-religious and Reform Jews dramatically increased their rates of education. In the less developed parts of Eastern Europe, Orthodox and ultra-Orthodox communities imposed unprecedented restrictions on secular education and isolated themselves from society. Explaining this bifurcation requires a model of education that is different from the standard human capital approach. In our model, education not only confers economic benefits but also transmits values that undermine the cultural identity of minority groups. We show that it is individually rational for agents who benefit least from rising returns to education to respond by reducing their investment in education. Group-level sanctions for high levels of education piggyback upon this effect and amplify it.

(2015) "Competition Between Open Source and Proprietary Software: Strategies for Survival," Journal of Management Information Systems, 32(3) pp. 268-295.

There are two puzzles in the software competition literature: whether both proprietary and open source software will survive and how producers of proprietary software differentiate themselves from open source competition. I address both puzzles by analyzing competition between a firm producing proprietary software and a community producing open source software. If the firm faces no competition, then the software caters to less technologically savvy individuals. When facing competition, the open source software caters to the most technologically savvy individuals, leading the firm to target even less savvy individuals than it would when acting as a monopolist in order to differentiate its software from the open source option. The open source movement, then, may not be an unalloyed success as the growth in open source can be tied to deterioration in the proprietary software. Given that both types of software survive by catering to different segments of the market, an important avenue for research will be to analyze the stability of the underlying segments and the corresponding welfare implications.

Working Papers

Radicalization (with Jean-Paul Carvalho, under review).

Drawing on cultural evolutionary theory, we identify two new factors in the formation of radical groups: (1) Prestige-biased cultural transmission and (2) Niche construction. These factors enable organizations to use dynamic radicalization strategies that activate and strengthen powerful forms of identification (e.g. religion, race). Stigmatizing participation in such a group can backfire and increase radicalization under certain conditions. Fears of extremism can be self-fulfilling. Competition among identity-based organizations limits radicalization. We apply our model to the case of European Muslims, identify problems with existing cultural policies, and set out an alternative approach to preventing radicalization.

Reimbursing Consumers' Switching Costs in Network Industries (NET Institute Working Paper #16-13, with Jiawei Chen, new draft coming soon).

This paper investigates firms’ decisions to reimburse consumers’ switching costs in network industries. Prior literature finds that switching costs incentivize firms to harvest their locked-in consumers rather than price aggressively for market dominance, thereby resulting in a lower market concentration. Using a dynamic duopoly model, we show that this result is reversed if firms have the option to reimburse consumers’ switching costs. In that case the larger firm reimburses a greater share of the switching cost than the smaller firm does, as an additional instrument to propel itself to market dominance. Consequently, an increase in the switching cost increases market concentration. Compared to the case without switching cost reimbursement, allowing firms the option to reimburse results in greater consumer welfare despite having a higher market concentration, as consumers are helped by larger network benefits and often lower effective prices.

Composition Effects in Platforms with Population Heterogeneity (new draft coming soon).

I develop a duopoly model of competition between platforms, incorporating users with heterogeneous preferences over both the platforms' characteristics and the presence of other users. Hence platforms are concerned with both the number and composition of users. The model yields novel representations of heterogeneity, size effects, and composition effects. I use these representations to decompose the relationship between the price and the size and composition of a platform. Prices need not be monotonic in the size of the installed base and profitability can similarly vary inversely. I identify conditions under which prices are increasing, decreasing, or unchanging in platform size. Given that users care about composition, nonpricing strategies to cultivate platform composition emerge when platforms cannot sufficiently leverage price discrimination. Composition effects and cultivation reframe the dominant-firm fringe-firm paradigm and explain the presence of multiproduct firms in platform markets, such as online dating.

Contact

msacks (at) clarkson (dot) edu