Industrial Organization, Economics of Digitization, Applied Microeconomics
Endogeneous Product Characteristics, Non-price Competition, Machine Learning
The digitization of consumer goods gives firms the ability to monetize and update already purchased products, changing firms’ product innovation incentives. I develop and estimate a structural model of the smartphone application (app) industry, to study how the availability of these tools affects the frequency and content of product updates. I construct a novel database of apps on Apple’s mobile platform, and employ natural language processing and machine learning techniques to classify product updates and define precise categorical markets. I find that the availability of these tools via digitization result in an increase in the frequency of product updates of 63% to 142%, and, in particular, lead to an increase in the relative frequency of major, feature-adding updates compared to more minor, incremental updates. These results show that the manner in which product digitization changes firms’ product innovation incentives has a significant effect on firm behavior, and should be accounted for in future research on digital and digitizing industries.
Public Communication and Tacit Collusion in the Airline Industry (with Gaurab Aryal and Federico Ciliberto)
We investigate whether the top management of all legacy U.S. airlines used their quarterly earnings calls as a mode of communication with other airlines to reduce the number of seats sold in the U.S. We build an original and novel dataset on the public communication content from the earnings calls and process it using Natural Language Processing techniques from computational linguistics, and we use it to estimate a causal relationship between communication and the carriers’ market-level capacity decisions. The estimates show that when all legacy carriers communicate about artificially reducing the number of seats, i.e., engage in “capacity discipline,” prior to a given quarter, it leads to a substantial reduction in the number of seats in that quarter. We find that the effect is driven entirely by legacy carriers, with a larger reduction in smaller markets. We also propose a novel approach to implement placebo falsification tests where our “treatment” (communication) is in the form of text, and, as a consequence, there can be numerous placebos to test against. Through these tests we verify that our result — legacy airlines use public communication regarding capacity discipline to collude — is not driven by placebo effects.
Works in Progress
The Role of Online Platforms in Informing Educational Choice: Parents' Search Processes for Early Childhood Education on Yelp (with Daphna Bassok, Benjamin L. Castleman, Justin B. Doromal, and Michael Luca)
A Fresh Start: Strategic Manipulation of Product Ratings in Online Markets