Abstract: 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.
Coordinated Capacity Reductions and Public Communication in the Airline Industry (with Gaurab Aryal and Federico Ciliberto)
Abstract: We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in oﬀering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication. Our estimates show that when all legacy airlines in a market discuss the concept of “capacity discipline,” they reduce oﬀered seats by between 1.13% to 1.45%. We verify that this reduction materializes when airlines communicate concurrently, and that it cannot be explained by the possibility that airlines are simply following through with their announcements. Additional evidence from conditional-exogeneity tests and control function estimates conﬁrms our interpretation.
Works in Progress
A Fresh Start: Strategic Manipulation of Product Ratings in Online Markets