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.
Discovery vs. Membership Platforms
with Tat-How Teh
We model a market where content creators compete for a discovery platform’s recommendation via a Tullock contest where effort is measured by the creation of public content. They can also create exclusive content for a membership platform. Both a pure discovery platform and an integrated monopolist always set a high public content commission because discovery is an essential input for creators. Time investment in both content types is determined by the exclusive content commission. The monopolist internalizes this interdependence, leading to greater social welfare. When the discovery platform can change recommendation weights for different creator types then both profits and social welfare are convex in these weights under both market structures. The monopolist is more likely to assign the socially optimal weight as its profits depend on the value of content while a pure discovery platform maximizes the number of views.
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.