Seller Curation in Platforms (Job Market Paper)
Revise and resubmit at International Journal of Industrial Organization
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
Revise and resubmit at Experimental Economics
In many consumer search environments, searchers do not know the precise distribution of prices in the market before they begin searching. I conduct an experiment which explores a broad class of search problems with learning about the distribution of payoffs. My results support the theoretical prediction that learning results in monotonically declining reservation values, providing evidence that learning may be an explanation for declining reservation utility and recall seen in field data. However, while the theory predicts a “one step” reservation value strategy, many subjects instead choose to set a high reservation value in order to learn about the distribution before adjusting based on their observations. Additionally, I provide evidence that the consistent under-searching in search experiments may stem from a reinforcement heuristic similar to those proposed elsewhere in the literature.
How Much Does Schooling Disutility Matter?
with Guanyi Yang
Researchers studying education decisions are often inconsistent in choosing whether and how to include disutility of education terms. We show that adding a disutility term in an education choice model is equivalent to assuming a relationship between wealth, risk, and education decisions. Our theory predicts that agents may choose to work even if schooling would increase their lifetime wealth. Disutility of schooling creates a gap between the increase in utility return from education and the financial return. Moreover, utility gains from education are decreasing in wealth and increasing in riskiness of future consumption. 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. Our results also explain recent empirical findings, including a relationship between wealth and education, working between periods of schooling, and college major choices.
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.