DANIEL ERSHOV

RESEARCH

WORKING PAPERS


"The Effect of Consumer Search Costs on Entry and Quality in the Mobile App Market" (2018)

(PDF)

(Online Appendix)

Abstract:

This paper examines the effects of consumer search costs on entry, product design and quality in online markets. Using new Android app store data, I take advantage of a natural experiment that reduced search costs for game apps. I find that entry increased relative to the control group (non-games), and that most additional entry was by “niche” products. Lower search costs also reduced new entrant quality. Welfare estimates from a structural model of demand, search and firm entry suggest that US Android consumers gained $100-140M per month: mostly through lower marginal search costs, with smaller gains from increased variety.

"Mergers in a Model with Complementarity" (2018)

with Scott Orr and Jean-William P. Laliberte

(NEW VERSION COMING SOON)

Abstract:

Standard discrete choice models used to evaluate mergers assume that different product varieties are substitutes. However, legal defences in some recent high-profile mergers rested on demand complementarity (e.g., GE/Honeywell). Since complements tend to be priced lower by a monopolist than by a duopoly, standard models will overstate consumer harm in these mergers. We use consumer level data from AC Nielsen look at two products with natural demand complementarities and a history of regulatory activity - potato chips and carbonated soda. We set up and estimate a discrete choice model that allows for demand complementarity and simulate a number of anti-trust counterfactuals in the chips and carbonated soda market. Once demand complementarity is taken into account, a merger between the chips/soda producer PepsiCo/Frito-Lay and the soda producer Dr. Pepper will reduce both chip and soda prices, on average. By contrast, the standard discrete choice model predicts that soda prices would always increase following the merger. An additional counterfactual breaking up the PepsiCo/Frito-Lay conglomerate suggests that both chip and soda prices will increase as a result.

"Competing with Superstars in the Mobile App Market" (2018)

NET Institute Working Paper 18-02

(PDF)

Abstract:

Firms considering to enter into online markets face significant demand uncertainty and consumer search costs, with consumers most likely finding previously successful products in the market. This leads to a trade-off for potential entrants. Consider the appearance of a new very popular product ("superstar") in a particular niche. The popular product resolves demand uncertainty but also increases search costs for new entrants relative to the superstar. The interaction between these two forces could result in too much entry by low quality products, or not enough entry. I empirically examine these effects using 2012- 2013 data on mobile games in the Android mobile app store. I show that there are large increases in entry in niches where the superstar appears, unless they were already popular niches ("discovered"). I also show that the superstar reduces the quality of the new entrants and intensifies price competition.

"Estimating the Effects of Deregulation in the Ontario Wine Retail Market" (2016)

with Victor Aguirregabiria and Junichi Suzuki

(PDF)

Abstract:

This paper studies the impact of competition in the Ontario wine market and evaluates the effects of alternative deregulation policies. The wine retail market of Ontario, Canada, is characterized by the coexistence of the government-owned Liquor Control Board of Ontario (LCBO) and two private companies. These private firms can sell only a limited subset of Ontario wines, and they are restricted on the number of stores they can operate. Our empirical results build on the estimation of a spatial demand model for differentiated products using a unique dataset from LCBO with information on store sales, prices, and product characteristics for every store and product in this retail chain over a two year period. Given the estimated demand model, we then simulate the effects of deregulation proposals (relative to a pure monopoly): (i) allowing for retail competition from the two privately-owned retail chains; (ii) removing the current restriction on selling non-Ontario wines by the two private wine retailers; and, (iii) allowing for price competition among the retailers. We show that compared to a pure monopoly market, the entry of additional competitors increases consumption and consumer welfare. By contrast, expanding the product range of existing competitors also increases consumer welfare, but keeps consumption stable

WORK IN PROGRESS:


"Do Consumers Prefer Local? Evidence from Ontario's Wine Industry"

with Jessica Burley and Michael Gilraine


"Zeros in Market Shares for Differentiated Products: An Indirect Inference Approach"

with Mathieu Marcoux and Scott Orr


"Valuing Reputation: Evidence from Online Scams"

with Scott Orr and Marc-Antoine Schmidt

PUBLICATIONS:


“Market Incentives for Business Innovation: Results from Canada”

with Charles Bérubé and Marc Duhamel

Journal of Industry, Competition and Trade, Vol. 12(1), pp.47-65, 2012