Industrial Organization
Paper Session
Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)
- Chair: Matthew Ryan Backus, University of California-Berkeley
Platform-Generated Quality Ratings: Theory, Empirics and Welfare Implications
Abstract
In order to address the issue of asymmetric information and promote market regulation, digital platforms have implemented platform-generated rating (PGR) systems to provide quality information to the market. Unlike user-generated rating (UGR) systems, PGRs rely on platform-generated data including product quality, customer service, and logistics. To better understand the impact of PGRs, we conducted a study in collaboration with a large E-commerce platform, exploring both empirical and theoretical implications on consumer beliefs, sellers' quality incentives, and market outcomes. Our empirical analysis utilized a regression-discontinuity method to examine customer response to high PGR sellers. Results indicate that customers tend to purchase more from high PGR sellers, suggesting that PGRs can be effective in signaling quality to consumers. We also found that the presence of a PGR system affects sellers' quality incentives and the distribution of equilibrium quality. These findings demonstrate that PGRs have the potential to promote quality competition among sellers in the market. Finally, we conducted a counterfactual experiment to evaluate the welfare consequences of PGR adoption. Our results suggest that PGR adoption can have a positive impact on overall welfare. Overall, our study highlights the potential benefits of PGRs in promoting market efficiency and enhancing consumer welfare.Pricing Frictions and Platform Remedies
Abstract
I quantify the extent of pricing frictions among Airbnb sellers—their difficulty in setting optimal prices when faced with complex demand and market conditions—and I study the consequences of different platform policies designed to ameliorate such frictions. To this end, I demonstrate that sellers' observed pricing policies are simpler than optimal policies given demand and market conditions, that the degree of simplicity is heterogeneous among sellers, and that the simplicity of prices is not primarily explained by fixed costs, information costs, or price-adjustment costs. Estimating a structural equilibrium model where heterogeneous sellers set constrained-optimal prices, I find significant frictions amounting to 14% loss in consumer surplus and 0-15% loss in seller profits, and I show that a platform-provided decision aid can alleviate these frictions.Real Estate Commissions and Homebuying
Abstract
We study home search and buying in the U.S. housing market and evaluate the commission for homebuyers' agents. In our model, as in practice, homebuyers receive free house showings and buyers' agents earn a 3% commission from the seller upon a home purchase. We show this commission structure deviates from cost basis, leading to excessive agent profits and inefficient home searches. Switching to a cost-based commission system could increase social welfare by $35 billion annually, driven by improved home search efficiency and reduced rent-seeking behavior by agents. We discuss the policy implications of our findings, including the recent NAR settlement.The Dynamic Efficiency of Policy Uncertainty: Evidence from the Wind Industry
Abstract
This paper investigates the dynamic efficiency of policy uncertainty in the US wind energy industry. Policy expiration embedded in the Production Tax Credit induced uncertainty among wind farm investors and expedited investment. I compile a comprehensive data set of the investment, production, and long-term contracts on the US wind energy market. I find significant bunching in the number of new wind farms at the expiration dates of the short policy windows and a large mismatch among wind farm investment timing, continuously improving upstream turbine technology, and evolving demand for wind energy. I then develop an empirical model featuring the bilateral bargaining of long-term contracts, endogenous buyer matching, and dynamic wind farm investment under policy uncertainty. Model estimates reveal that a lapse in policy extension reduced the perceived likelihood of policy renewal to 30%, and counterfactual simulations demonstrate that removing policy uncertainty postpones the entry of 53% of the affected cohort by 3.5 years. Removing policy uncertainty increases the net social surplus by 5.9 billion dollars and could save fiscal expenditure without sacrificing social welfare.The Impact of Limited Consideration on Market Outcomes in the Hospital Industry
Abstract
Existing models of hospital demand assume that patients are attentive to every available option and choose accordingly to maximize utility. However, real-life patients may find it difficult to interpret and utilize all the information required to make optimal decisions, leading them to limit the sets of hospitals being considered upon having a health shock. This paper introduces a random consideration sets model of hospital demand to analyze market interactions while relaxing the assumption that patients necessarily consider all options available from within their contracted networks of providers. The demand model identifies and estimates the probability that each patient considers and chooses each in-network hospital within a geographic radius of their home. On the supply side, hospitals compete (i) with each other for patients' consideration through advertising expenditure and (ii) with insurers through Nash-in-Nash bargaining over prices and network inclusion. Results imply that patients are more willing-to-travel than what would be estimated from a full consideration model, but this is not entirely revealed by their observed choices due to attention decreasing in travel distance. Counterfactual simulations show that patients' limited consideration decreases hospital accessibility and acts as an artificial form of product differentiation. If patients were willing and able to consider all in-network options, then all hospitals in the market studied would negotiate lower average prices with insurers. Calibrated to the national level, baseline results imply that annual US hospital expenditure could be reduced by approximately $26 billion if privately insured patients had full consideration. Next, a retrospective contested merger is used as a natural experiment, providing novel evidence that incorporating imperfect consumers into the analysis of market interactions in imperfectly competitive industries can improve predictive accuracy.JEL Classifications
- L1 - Market Structure, Firm Strategy, and Market Performance