Markets for Models

Krishna Dasaratha, Juan Ortner, Chengyang Zhu
3/4/2025
econ.THcs.LG

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Abstract

Motivated by the prevalence of prediction problems in the economy, we study markets in which firms sell models to a consumer to help improve their prediction. Firms decide whether to enter, choose models to train on their data, and set prices. The consumer can purchase multiple models and use a weighted average of the models bought. Market outcomes can be expressed in terms of the \emph{bias-variance decompositions} of the models that firms sell. We give conditions when symmetric firms will choose different modeling techniques, e.g., each using only a subset of available covariates. We also show firms can choose inefficiently biased models or inefficiently costly models to deter entry by competitors.

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Cite this paper

@article{dasaratha2025markets,
  title  = {Markets for Models},
  author = {Krishna Dasaratha and Juan Ortner and Chengyang Zhu},
  year   = {2025},
  eprint = {2503.02946},
  archivePrefix = {arXiv},
  url    = {http://arxiv.org/abs/2503.02946v3}
}

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