Abstract

Digitization has led to a dramatic increase in the number of new creative products brought to market, challenging traditional product discovery channels such as expert critics. While technological change has also brought alternative sources of information in the form of crowed-based reviews, their nature still raises important questions about the effects of digitization. On the one hand, crowd-based reviews can inform consumers about a larger set of products than the one reviewed by expert critics. On the other hand, crowd reviews – which are usually left anonymously - can potentially suffer from lack of objectivity or even from certain types of pernicious biases. This is in contrast with reviews from professional critics who have strong incentives to appear unbiased due to reputational costs. I rely on a difference-in-differences approach to explore whether crowd-based reviews suffer from gender bias in the context of the movie industry. Using various measures of on-screen female presence and controlling for movie quality, I provide evidence consistent with audience reviewers, males in particular, being biased against female movies. Back-of-the-envelope calculations suggest that such disparities in reviewing can have significant implications for the revenues of movies with larger female presence.

Abstract

In this paper, we build a theoretical model in which an online hosting platform can develop a copyright filter to screen content that contributors wish to upload. The technology is imprecise, since non-infringing material may be incorrectly filtered out. Once the content is hosted on the platform, a right-holder may send a take-down notice if its own automated notice system, also imprecise, finds it to be copyright infringing. We investigate the efficient design of regulation and liability and we find that (i) the right-holder should be given incentives to evaluate fair use when submitting a notice and (ii) the platform should be fined if the take-down to notice ratio is above some predetermined threshold. Such dual system would achieve efficient copyright enforcement without excluding fair-use material.

Abstract

The taxation regime to which online multinational platforms are subject to has been the centre of a fierce debate in recent years. Whereas international consensus has yet to be reached, different countries have taken unilateral actions by announcing versions of a “Digital Service Tax” (DST). Using a dataset that includes stock market prices for a sample of companies potentially subject to the DST, we conduct a financial event study to provide a first evaluation of three groups of proposed taxes (global, EU and US initiatives). We identify a negative and significant impact of the initial European Commission-OECD digital tax proposal on March 2018, driven mainly by the GAFAM equity returns. On the contrary, later announcements as the US digital advertising tax, had a more limited effect. This initial evidence is fundamental to understand the impact of the DST proposal, and it also calls for in-depth further research of the mechanisms and implications.

Abstract

Time-inconsistent internet users neglect future privacy costs and release too much data to digital platforms. We study how regulations that require user consent for data processing affect platform profits, welfare and user surplus, depending on business models and the degree of time inconsistency. Consent mechanisms increase user surplus or welfare only if their design facilitates consent refusal. If platforms can make it difficult to opt out, it may be better for society if the former choose the disclosure level. Voluntary caps on usage, as recently adopted by some platforms, can raise profits by making some users consent to more disclosure.

Paper available here.

Abstract

Time-inconsistent internet users neglect future privacy costs and release too much data to digital platforms. We study how regulations that require user consent for data processing affect platform profits, welfare and user surplus, depending on business models and the degree of time inconsistency. Consent mechanisms increase user surplus or welfare only if their design facilitates consent refusal. If platforms can make it difficult to opt out, it may be better for society if the former choose the disclosure level. Voluntary caps on usage, as recently adopted by some platforms, can raise profits by making some users consent to more disclosure.

Paper available here.

Abstract

We study the strategic interaction between the media and Senate candidates during elections. While the media is instrumental for candidates to communicate with voters, candidates and media outlets have conflicting preferences over the contents of the reporting. In competitive electoral environments such as most US Senate races, this can lead to a strategic environment resembling a matching pennies game. Based on this observation, we develop a model of bipartisan races where media outlets report about candidates, and candidates make decisions on the type of constituencies to target with their statements along the campaign trail. We develop a methodology to classify news content as suggestive of the target audience of candidate speech, and show how data on media reports and poll results, together with the behavioral implications of the model, can be used to estimate its parameters. We implement this methodology on US Senatorial races for the period 1980-2012, and find that Democratic candidates have stronger incentives to target their messages towards turning out their core supporters than Republicans. We also find that the cost in swing-voter support from targeting core supporters is larger for Democrats than for Republicans. These effects balance each other, making media outlets willing to cover candidates from both parties at similar rates.

Paper available here.

Abstract

Platforms that intermediate trades, such as Amazon, Airbnb, and eBay play a regulatory role in deciding how to govern the "marketplaces" they create. We propose a framework to analyze a platform's non-price governance designs and its incentive to act in a welfare-enhancing manner. We show that the platform's governance designs can be distorted towards inducing insufficient or excessive seller competition, depending on the nature of the fee instrument employed by the platform. These results are illustrated with micro-founded applications to a platform's control over seller entry, information provision and recommendations, quality standards, and search design choices.

Paper available here.

Abstract

Privacy protection measures in online markets have ramped up in recent years, typified by both government initiatives, as well as firm-level actions such as designing web browsers which block “third-party cookies” by default. We estimate a structural model of auctions in online advertising using bid-level auction data from Yahoo. Then we simulate several counterfactual scenarios, focusing on evaluating the likely effects of Google’s announced plan, starting in 2022, to block third-party cookies by default on Chrome, its market-leading browser. We find that such a ban would reduce publisher revenue by 45%, and bidder (advertiser) surplus by 35%. Moreover, our simulations also indicate that, amidst a third-party cookie ban, bidders who are able to leverage their informational advantage on users can gain surplus from the ban.

Paper available here.

Abstract

We study strategic interactions in markets where firms sell to consumers both directly and via a competitive channel (CC), such as a price comparison website or marketplace, where multiple sellers' offers are visible at once. We ask how a CC's size influences market outcomes. A bigger CC means more consumers compare prices, increasing within-channel competition. However, we show such seemingly pro-competitive developments can raise prices and harm consumers by weakening between-channel competition. We also use the model to study relevant active policy issues including price clauses, integrated ownership structures, and access to consumers' purchase data. 

Abstract

We study strategic interactions in markets where firms sell to consumers both directly and via a competitive channel (CC), such as a price comparison website or marketplace, where multiple sellers' offers are visible at once. We ask how a CC's size influences market outcomes. A bigger CC means more consumers compare prices, increasing within-channel competition. However, we show such seemingly pro-competitive developments can raise prices and harm consumers by weakening between-channel competition. We also use the model to study relevant active policy issues including price clauses, integrated ownership structures, and access to consumers' purchase data. 

Abstract

An expert advises a sequence of principals on their actions to match a hidden, randomly evolving state. The expert privately knows her competence. The principals learn about the state and the expert’s competence from past advice and past action outcomes, both publicly observable. I find that the equilibrium can feature a “crisis of expertise,” in which principals dismiss a competent expert’s correct advice, and rely only on public information. Notably, the crisis happens precisely when the quality of public information is low, and thus when the competent expert’s knowledge is much needed. I discuss policy implications for alleviating the crisis.

Paper available here.

Abstract

Data on competitors have become increasingly accessible in recent years, raising the potential for firms to inform their decisions with a better understanding of the competitive environment. To what extent are firms aware of readily available information on key competitor decisions, and how does this information impact firms’ strategic choices? I explore these questions through a field experiment in collaboration with Yelp across 3,218 businesses in the personal care industry, where treatment firms receive easily accessible information on their competitors’ prices. At baseline, over 46% of firms are not aware of their competitors’ prices. However, once firms receive this information, they are 17% more likely to change their prices, and do so by aligning their prices with competitor offerings. If competitor information is both decision-relevant and easily accessible, why had firms not invested in this information on their own? Evidence from interviews and a follow-up experiment across control firms suggests that managers appear to have underestimated the value of paying attention to competitor information. These findings suggest that managerial inattention may be a key barrier that leads firms to fail to realize gains from even readily accessible data.

Abstract

The study of review systems has gained prominence with marketplaces, such as eBay, Airbnb and Amazon, and social media platforms, such as Facebook and Twitter. Today, there are marketplaces which focus purely on the provision of reviews, such as Google reviews, Yelp and TripAdvisor. The growing empirical evidence puts into question the exact usefulness of reviews, suggesting that ratings may be over inflated. New evidence also suggests that the provision of reviews are intrinsically motivated - by kindness towards sellers and other buyers. We develop what we consider to be the first theoretical model that attempts to explain the inflation phenomenon by incorporating kindness into a model for ratings. We find that there are multiple channels for ratings inflation and this diminishes the informativeness of ratings, it may not necessarily cause a reduction in consumer surplus.

Abstract

This paper analyzes the implications for the banking sector and the real economy of introducing a central bank digital currency (CBDC). We consider a CBDC that is potentially interest bearing and competes with bank deposits as a medium of exchange. Monopolistic banks are endowed with a screening technology that allows them to lend to productive investment projects. We study both a setting in which banks only invest in safe projects and a setting in which they hold a mixed portfolio of risky and risk-free assets. We show that low levels of interest on CBDC promote intermediation. Disintermediation does not occur due to bank risk or depositor flight to safety but rather if the interest on CBDC is high enough that it crowds out investment. Unlike conventional wisdom, when the risk dimension is incorporated, disintermediation occurs for higher CBDC interest rates. The reason is that if the banker holds risk-free and risky assets, the risk-free asset is then more valuable as not only can it provide for higher remuneration of bank deposits, along with the return on the risky asset, but it also provides insurance to depositors in the low state. As interest rate on CBDC increases, the bank reduces its risk exposure. The introduction of CBDC does generally reduce bank's profits, however overall it is welfare improving.

Abstract

We study the forces driving digital publishers’ choice to sell their advertising space via ad networks. In our model the ad network collects information on consumers across multiple publishers, thus learning their preferences for advertised goods and observing exposure to ads on each publisher. This information enables the advertisers to optimize the allocation of ads, particularly in presence of multi-homing consumers (e.g. avoiding excessive repetition across publishers). However, fully disclosing the available information is profitable to the ad network only in markets with a sufficiently large number of advertisers. In such markets, the ad network is able to generate more revenues than the publishers when selling the ads. However, because the ad network does not exploit its superior information in thin markets, the publishers may make more profit by selling ads independently. Therefore, whether the publishers gain by using the ad network depends on the thickness of the advertising market, the share of multi-homers in their audience and the quality of the publishers’ own tracking technology. We find support for the model’s predictions in a unique dataset that covers a large number of publishers, their use of first- and third-party tracking and advertising technology, as well as consumer behavior and advertiser characteristics. 

Abstract

Products that are displayed more prominently on e-commerce platforms are more likely to be found and purchased by consumers. The algorithms ranking these products, however, may condition a product’s position on its price, and can thus intensify, or weaken price competition between sellers. I set up a simple theoretical framework in which hotels offering rooms on a booking platform take into account not only the usual, direct effect of their price on demand, but also the effect of their price on their position in the ranking. Using data scraped from Expedia, I find that for a given hotel, a lower price leads to a more prominent position on the results page. For the demand side, I estimate utility parameters of a sequential search model following Ursu (2018), using additional consumer search data. The parameters on the ranking side as well as the consumer side allow me to simulate how variations to the ranking algorithm affect hotel prices and markups.

Abstract

We empirically investigate the impact of prices on seller ratings. In a stylized model, we illustrate two opposing channels through which pricing affects overall ratings and rating subcategories. Higher prices reduce the perceived value for money and worsen ratings. However, they select consumers with a higher taste-based valuation. This selection increases the average consumer's satisfaction and improves ratings. Using data from Airbnb, we document a negative relationship between prices and ratings for most subcategories indicating that the value-for-money effect dominates the selection effect. We find no significant relation for the location rating: the value-for-money effect is weaker and offset by the selection effect. We find that entrants who set low entry prices obtain better ratings and higher revenues in the medium run. Our findings suggest that the dominant value-for-money effect in the salient overall rating leads to downward price pressure.

Abstract

Digital platforms are increasingly the subject of regulatory scrutiny. In comparison to multiple competitors, a single platform may increase consumer welfare if network effects are large or may decrease welfare due to higher prices or reduction in platform variety. We study the net effect of this trade-off in the context of the merger between the two largest platforms for pet-sitting services. We exploit variation in pre-merger market shares and a difference-in-differences approach to causally estimate network effects at the platform and market level. We find that consumers are, on average, not substantially better off with a single combined platform than with two separate and competing platforms. On one hand, users of the acquiring platform benefited from the merger because of network effects. On the other hand, users of the acquired platform experienced worse outcomes. Our results highlight the importance of platform differentiation even when platforms enjoy network effects.

Paper available here.

Abstract 

This paper examines how national identity affects day to day economic behaviour. We exploit the Brexit Referendum as a shock to national identity, and measure its impact on consumer choices in the UK between British and EU grocery products. Drawing from a unique panel dataset from a major retailer with almost a billion shopping trips for 12 million shoppers, we find that consumers respond to the referendum results by increasing consumption of UK products (by 3%) and reducing demand for EU products (by 12%). We provide further evidence that changes in consumption are driven by national identity being top of mind: the increase in consumption of UK products is 4% higher in days following intense media discussions on Brexit. Consistent with the identity mechanism, effects are stronger when there is more media discussion on the politics of regaining sovereignty as opposed to the economics or the social issues associated with Brexit. These findings underscore the importance of national identity in shaping routine economic decisions, and the mediating role that political events and the media can play by keeping identity top of mind.