Seller Curation in Platforms
International Journal of Industrial Organization (2020)
Market platforms must decide how much effort to put into screening out low-quality sellers. Increasing quality of the sellers on a market increases consumer confidence and participation, but other factors may reduce the incentive to screen. This article explores why market platforms do not screen out low-quality sellers when screening costs are minimal. Consumers must search for a seller whose product is a good match. The presence of low-quality sellers reduces search intensity, softening competition between sellers, increasing equilibrium price and hence the platform’s revenue per sale. If sellers compete with sufficient intensity then the platform admits some low-quality sellers. This might initially seem contradictory to the practice of platform recommendations, but recommending a high-quality seller and search obfuscation are complementary strategies. The low-quality sellers enable the recommended seller to attract many consumers at a high price and the effect of the recommendation is strengthened as low-quality sellers become more adept at imitating high-quality sellers.
Learning While Shopping: An Experimental Investigation Into the Effect of Learning on Recall in Consumer Search
Experimental Economics (2020)
In many search environments, searchers are learning about the distribution of offers in the market. I conduct an experiment exploring a broad class of search problems with learning about the distribution of payoffs. My results support the prediction that learning results in declining reservation values, providing evidence that learning may be an explanation for recall. Theory predicts a “one step” reservation value strategy, but many subjects instead choose to set a high reservation value in order to learn about the distribution before adjusting based on their observations. Under-searching in search experiments may stem from a reinforcement heuristic and lack of negative feedback after using sub-optimal strategies.
How Much Does Schooling Disutility Matter?
Research in Economics (2020)
with Guanyi Yang
We show that adding a disutility term in education choice models is equivalent to assuming a relationship between wealth, risk, and education decisions. Utility gains from education are increasing in the riskiness of future consumption, implying that a riskier environment will lead agents to choose human capital investment options which maximize future income. If the degree of risk increases heterogeneously across human capital investment options, then risk aversion and the precautionary savings motive can compound or negate each other depending which option has a greater increase in risk.
Content-hosting platforms: discovery, membership, or both?
with Tat-How Teh
We develop a model that classifies platforms in the “creator economy”—e.g. Youtube, Patreon, and Twitch—into three broad business models: pure discovery mode (providing recommendations to help consumers search for creators); pure membership mode (enabling individual creators to monetize their viewers through direct transactions); and a hybrid mode which combines both. Creators respond to platforms’ decisions by individually choosing to supply content designed along a broad-niche spectrum, which involves a trade-off between viewership size and per-viewer revenue. These design changes create a trade-off between advertising revenue and transaction commission revenue. In a monopoly platform benchmark moving from pure discovery to hybrid always increases platform revenue while making content weakly more niche. However, moving from pure membership to hybrid may reduce platform revenue if providing advertising is not sufficiently lucrative. In a duopoly setup these tradeoffs can change dramatically depending on the level of platform competition and homing behavior of creators and consumers.
Permanently (probably) Working Papers
Media Provision With Outsourced Content Production
I use a model with a platform facilitating interaction between consumers, advertisers, and content creators to explore the effects of introducing a subscription which allows consumers to avoid ads. The subscription increases provision of niche content, but increased advertising and a high subscription price may reduce the welfare of consumers who enjoy mass market content. The effect on total welfare depends on how much the platform increases payments to content creators as a result of the subscription.
Going the Last Mile: Access Regulation and Vertical Integration
In many markets entry requires a significant infrastructure investment which can lead to inefficiently low competition and even monopolies in many cases. One solution adopted by many countries is to require the owner of this infrastructure to allow competitors to rent access at a regulated price. In this case the network owner becomes a wholesale provider of infrastructure services who is also participating in the retail market. Another solution is to separate the network owner into a wholesale firm and a vertically separate retail firm. This paper compares infrastructure quality investment incentives for the network owner under these two regimes. Retail prices will be higher under the vertically separated regime, meaning that quality investment will attract more consumers with a separated firm, but the ability to participate on the retail market in addition to the heavily regulated wholesale market means that a vertically integrated owner will have more incentive to invest when there is significant horizontal differentiation between retail firms.