Michael Sullivan

Working papers

Price controls in a multi-sided market

Presented at Young Economist Symposium (2022, Yale University) and at Amazon Core AI Internal Seminar (2022)

Link [online appendix]

This paper evaluates caps on the commissions that food delivery platforms (e.g., DoorDash) charge to restaurants. Commission caps benefit restaurants that partner with platforms, all else equal. This may entice restaurants to join platforms, thereby benefitting consumers who value variety in platforms’ restaurant listings. A reduction in platform commissions may also lead restaurants to lower their prices, further benefitting consumers. But commission caps may lead platforms to raise their consumer fees, thereby reducing consumer ordering on platforms and consequently platforms’ value to restaurants. The net effects of caps on restaurant and consumer welfare are thus uncertain. To estimate caps' effects, I assemble data on consumer restaurant orders, restaurants' platform adoption, and platform fees. An initial analysis of the data suggests that caps raise platforms' consumer fees, reduce consumer ordering on platforms, and lead restaurants to join platforms. To analyze these effects and their welfare implications, I develop a model of platform pricing, restaurant pricing, platform adoption by restaurants, and consumer ordering. Counterfactual simulations using the estimated model imply that commission caps bolster restaurant profits, but they do so at the expense of consumers and platforms. I estimate a total welfare reduction of caps equal to 6.2% of participant surplus from platforms.

Sources of limited consideration and market power in e-commerce

Link 

Presented at Young Economist Symposium (2021, Princeton University) and the 5th Doctoral Workshop on the Economics of Digitization (2022, Ifo Institute)

This paper empirically evaluates the contributions of search frictions and pre-search seller differentiation to limited consumer search and to markups in e-commerce. The internet facilitates consumer learning about product offerings, and it allows firms sell products without physical stores. These conditions seem capable of inducing high consumer awareness and cut-throat price competition. In practice, though, consumers exhibit severely limited consideration in online markets and often pay significantly above the minimum available price for a product. High search costs could explain these facts, as could pre-search seller differentiation: consumers with little aversion to search may not visit a store they believe they are unlikely to purchase from based on information known prior to search. I assess these alternative explanations for limited search using a model of sequential consumer search and retailer price competition. I estimate this model on data describing browsing and transactions in contact lens e-commerce. My approach exploits the panel nature of my data to estimate the extent of state dependence and consumers' persistent unobserved tastes for sellers. I find that pre-search seller differentiation, not search costs, is primarily responsible for limited consideration and market power in contact lens e-commerce.

Cross-channel competition and complementarities in US retail

Link [online appendix]

Joint with Hiroki Saruya

We estimate the effects of offline stores on online spending using data on US store locations and on internet browsing and transactions. The direct effect of a multi-channel retailer’s offline stores on its online sales depends on two opposing forces: (i) a negative cannibalization effect and (ii) a positive cross-channel complementarity, which may reflect offline customer service for items purchased online or brand awareness effects of offline stores. The direct effects of an offline store on rival retailers’ online sales similarly depend on (i) a negative business-stealing effect and (ii) a positive showrooming effect, which arises when offline stores bolster consumer interest in a product category. Our empirical approach captures consumer heterogeneity through variables characterizing the categories of websites that consumers visit, which proxy for unobserved tastes, as well as the demographic profiles of consumers' neighbourhoods. Our estimates for 2007–2008 imply that a multichannel retailer's online sales fall by 1.1–3.8% on average when a rival adds an offline store. These sales increase by 7.1–32.3% when the retailer adds an offline store of its own, suggesting that cross-channel complementarities exceed cannibalization effects. Additionally, our estimated effects of offline stores on rivals' online sales vary across retailers and categories. Notably, offline stores often boost Amazon's sales, suggesting the relevance of showrooming effects.

Demand with network externalities: identification and an application to the dating websites industry

Link 

This paper characterizes the identifiability of demand models with network externalities. Guided by my identification analysis, I empirically evaluate how network externalities shape the welfare effects of consolidation in the US dating websites industry. Network externalities often arise in differentiated products markets, and especially in platform markets. I show that demand models with network externalities are generally not identified with market-level data alone. This result reflects the impossibility of independently varying product characteristics and market shares at the market level. However, an extension of results in Berry and Haile (2022) establishes that demand models with network externalities are identified under reasonable conditions with microdata linking consumers' decisions and characteristics. I estimate demand for dating websites using online browsing microdata. Under my preferred estimates, a user of a site values a 10% increase in the site's usership at $6.34/month. I find that welfare losses from increased prices outweigh the gains from network externalities associated with monopolization. Additionally, I find that—due to platform differentiation—a firm earns higher profits from joint ownership of the two largest dating websites when it does not integrate these sites.

Publications

Market design for personal data

Yale Journal on Regulation, forthcoming

Link

Joint with Katja Seim, Dirk Bergemann, Jacques Crémer, David Dinielli, Carl-Christian Groh, Paul Heidhues, Maximillian Schaefer, Monika Schnitzer, and Fiona M. Scott Morton