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Platforms and Digital Economy

Paper Session

Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)

San Francisco Marriott Marquis, Foothill G1
Hosted By: Chinese Economists Society
  • Chair: Yao Luo, University of Toronto

Misinformation and Mistrust: The Equilibrium Effects of Fake Reviews on Amazon.com

Ashvin Gandhi
,
University of California-Los Angeles
Brett Hollenbeck
,
University of California-Los Angeles

Abstract

This paper investigates the impact on consumers of the widespread manipulation of reputation systems by sellers on two-sided online platforms. We focus on a relevant empirical setting, the use of fake product reviews on e-commerce platforms, which can affect consumer welfare via two channels. First, rating manipulation deceives consumers directly, causing them to buy lower quality products and pay higher prices for the products with manipulated ratings. Second, the presence of rating manipulation lowers trust in ratings, which may result in worse product matches if consumers place too little weight on quality ratings. This decrease in trust may also increase price competition and benefit consumers by lowering prices on high quality products whose quality is less easily observed. We formally model how consumers form beliefs about quality from product ratings and how these beliefs are affected by the presence of fake reviews. We use incentivized survey experiments to measure beliefs about fake review prevalence. Our model of product quality is incorporated into an empirical model of consumer demand for products and how demand is shifted by ratings, reviews, and prices. The model is estimated using a large and novel dataset of products observed buying fake reviews to manipulate their Amazon ratings. We use counterfactual policy simulations in which fake reviews are removed and consumer beliefs adjust accordingly to explore the effectiveness and welfare and profit implications of different methods of regulating fake reviews.

Platform of Platforms in Ride-Hailing

Yanyou Chen
,
University of Toronto
Yao Luo
,
University of Toronto
Zhe Yuan
,
Zhejiang University

Abstract

The platform economy has reshaped many business models. Platforms serve various purposes, including communication, networking, gaming, and services. However, many essential activities such as order management and payment are common to them, creating a new space for a platform of platforms (PoP). Despite the importance and fast development of PoP, many important research questions still need to be answered: how a PoP affects platform entry, and how different ownership structures affect the market power of platforms. This paper fills in the gap by analyzing the impacts of PoPs theoretically and empirically. We construct the first multi-sided market model of PoP, study its properties, and derive model implications. Second, we evaluate how PoP affects market equilibrium with an estimated structural model and analyze welfare implications for workers and consumers. Our empirical analysis studies PoP in the Chinese ride-hailing industry. Using data on prices and service availability for all ride-hailing platforms in all Chinese cities, we document three benefits of having a PoP. First, PoP has its own customer base, bringing extra network effects for all its affiliated operating platforms. Second, PoP pools all the customers and drivers together. As a result, once an operating platform joins the PoP, it can be matched with a larger potential set of customers and enjoy a greater cross-side network effect. Third, PoP offers the operating platforms an opportunity to enter the market at a lower cost. If an operating platform has a high entry cost, it will be more cost-effective to enter the market by joining the PoP rather than developing its own app.

Ad-funded Attention Markets and Antitrust: Youtube Content Economy

Tai Lam
,
University of California-Los Angeles

Abstract

Many valuable digital products (e.g., Youtube, Google Maps, LLMs) are provided at no charge. But they are not "free" nor costless to supply, rather the "price" consumers pay is with attention to advertising, which funds their production. The importance of ads for enabling attention product markets are not well understood and elasticities important for welfare lack study. Despite this, the Department of Justice is suing Google to improve competition in the $224b upstream advertising market, with unclear effects on downstream consumers. Lower ad prices may reduce production and increase ad load, but ad quality improvements may benefit consumers. Using data on Youtube's $29b market, I apply RDDs and IVs to derive causal estimates of ad attention (price) elasticities of demand and supply to inform the welfare consequences of proposed antitrust action. Content creators can choose between platform ads (ad rolls), and disintermediated ads (sponsorships), with an additional ad unit reducing viewership by 22% and 7%, respectively. I use a simple structural model of video consumption and content creation to analyze the effects of potential reduction in ad revenue and improved ad quality to understand consumer welfare under different antitrust outcomes.

Discussant(s)
Allen Li
,
University of Wisconsin–Madison
Yufeng Huang
,
University of Rochester
George Zhida Gui
,
Columbia University
JEL Classifications
  • D8 - Information, Knowledge, and Uncertainty