Distorted Innovation: Does the Market Get the Direction of Technology Right?
NBER Working Paper, February 2023
In the presence of markup differences, externalities and other social considerations, the equilibrium direction of innovation can be systematically distorted. This paper builds a simple model of endogenous technology, which generalizes existing comparative static results and characterizes potential distortions in the direction of innovation. I show that empirical findings across a number of different areas are consistent with this framework's predictions and I use data from several studies to estimate its key parameters. Combining these numbers with rough estimates of differential externalities and markups, I provide suggestive evidence that equilibrium distortions in the direction of technology can be substantial in the context of industrial automation, health care, and energy, and correcting these distortions could have sizable welfare benefits.
Misinformation on Misinformation: Conceptual and Methodological Challenges
Sacha Altay, Manon Berriche & Alberto Acerbi
Social Media + Society, January 2023
Alarmist narratives about online misinformation continue to gain traction despite evidence that its prevalence and impact are overstated. Drawing on research examining the use of big data in social science and reception studies, we identify six misconceptions about misinformation and highlight the conceptual and methodological challenges they raise. The first set of misconceptions concerns the prevalence and circulation of misinformation. First, scientists focus on social media because it is methodologically convenient, but misinformation is not just a social media problem. Second, the internet is not rife with misinformation or news, but with memes and entertaining content. Third, falsehoods do not spread faster than the truth; how we define (mis)information influences our results and their practical implications. The second set of misconceptions concerns the impact and the reception of misinformation. Fourth, people do not believe everything they see on the internet: the sheer volume of engagement should not be conflated with belief. Fifth, people are more likely to be uninformed than misinformed; surveys overestimate misperceptions and say little about the causal influence of misinformation. Sixth, the influence of misinformation on people’s behavior is overblown as misinformation often “preaches to the choir.” To appropriately understand and fight misinformation, future research needs to address these challenges.
Killing Not Just Weeds: Unexpected Consequences of Combating Misinformation
Yuchen Liu, Elina Hwang & Stephanie Lee
University of Washington Working Paper, November 2022
Social platforms employ interventions to combat the rapid spread of misinformation. This study focuses on one such intervention by Twitter that aims to suppress misinformation by helping users find accurate information. In particular, this study seeks to provide a holistic view of the intervention's effectiveness by investigating its impact on both true and false information diffusion. To this end, we utilize the quasi-experiment setting and estimate the effect. Our results reveal that the intervention suppresses not only the spread of false news, but also true information. To understand this unexpected finding, we further collect data using Amazon Mechanical Turk and find that true information is suppressed because people have difficulty discerning its truthfulness. We provide insights into the tweet characteristics that tend to mislead people's perceptions.
Does Amazon Exercise Its Market Power? Evidence from Toys“R”Us
Leshui He, Imke Reimers & Benjamin Shiller
Journal of Law and Economics, November 2022, Pages 665–685
Since its founding, Amazon has established a reputation for being consumer friendly by consistently offering lower prices than its market position would seem to allow. However, recent antitrust concerns about dominant online platforms have revived questions about whether Amazon’s growing market share threatens consumer welfare. Given its reputation, regulators have proposed a new focus on conduct unrelated to prices. We ask whether such a move is premature. Using the sudden and unanticipated US exit of Toys“R”Us as a natural experiment, we find that Amazon’s toy prices on its US site increased by almost 5 percent in the wake of the exit relative to similar products and to toys on its Canadian site. Thus, despite Amazon’s long-standing reputation, it may exploit increases in market power in traditional ways as competing retailers cease operating.
Self-Preferencing at Amazon: Evidence from Search Rankings
Chiara Farronato, Andrey Fradkin & Alexander MacKay
NBER Working Paper, January 2023
We study whether Amazon engages in self-preferencing on its marketplace by favoring its own brands (e.g., Amazon Basics) in search. To address this question, we collect new micro-level consumer search data using a custom browser extension installed by a panel of study participants. Using this methodology, we observe search positions, search behavior, and product characteristics. We find that Amazon branded products are indeed ranked higher than observably similar products in consumer search results. The prominence given to Amazon brands is 30% to 60% of the prominence granted to sponsored products.
Ride-Sharing Markets Re-Equilibrate
Jonathan Hall, John Horton & Daniel Knoepfle
NBER Working Paper, February 2023
Following Uber-initiated fare increases, drivers make more money per trip and, initially, more per hour-worked. Drivers begin to work more hours. However, this increase in hours-worked -- combined with a reduction in demand from a higher fare -- has a business stealing effect, with drivers spending a smaller fraction of working hours transporting passengers. This market adjustment brings the hourly earnings rate back to about the rate that prevailed before the fare increase, in roughly two months. Passengers are partially compensated for higher prices by shorter wait times, but during the period covered by our data, fare increases likely reduced passenger welfare.
The Formality Effect
Elizabeth Linos et al.
Harvard Working Paper, January 2023
This paper documents the existence of a “Formality Effect” in government communications. Across three online studies and three field experiments in different policy contexts (total N = 67,632), we show that, contrary to scholar and practitioner predictions, formal government communications are more effective at influencing resident behavior than informal government communications. In exploring mechanisms, we show that formality operates as a heuristic for credibility and importance. Recipients view the source of a formal letter as more competent and trustworthy, and view the request itself as more important to take action on, despite no change in comprehension nor in perceived ease of taking action. These findings have immediate implications for government communicators and open the door for a renewed focus on how the design and presentation of information impacts behavior.
Commercialization on “Sharing Platforms”: The Case of Airbnb Hosting
Mehmet Cansoy & Juliet Schor
American Behavioral Scientist, forthcoming
An underdeveloped theme in scholars’ understanding of the personal services sector of the platform economy -- also known as the “sharing economy” -- is change. Most research on ride-hail, food delivery, accommodations, and other personal services has offered largely essentialist accounts. In this paper, we focus on how platforms have become increasingly “commercialized.” In labor-intensive services, commercialization occurs as a growing fraction of the work is done by a core of full-time, dedicated workers. However, platforms that rely primarily on capital may display similar dynamics, in which a small number of participants account for the majority of activity and capture the largest share of value. In this paper, we present the first comprehensive account of commercialization of a major platform. We analyze how Airbnb markets in the 10 largest short-term rental markets in the United States changed between 2015 and 2019. We find considerable evidence of commercialization, as a rising majority of properties are rented on a very frequent basis, and casual listings, while still present, are a small and falling percentage. Relying on an original database of regulations, we show that enactment of even the strictest regulations has not durably reduced the number of listings and has had limited success in altering the mix of commercialized and casual listings over this period. We also consider the impact of COVID-19 on this platform and the sharing sector. We conclude that the short-term rental market on Airbnb has become a fairly conventional one, with little of the peer-to-peer character of its earlier days.
Information Technology, Firm Size, and Industrial Concentration
Erik Brynjolfsson, Wang Jin & Xiupeng Wang
Stanford Working Paper, February 2023
Information flows, and thus information technology (IT) are central to the structure of firms and markets. Using data from the U.S. Census Bureau, we provide firm-level evidence that increases in IT intensity are associated with increases in firm size and concentration in both employment and sales. Results from instrumental variables and long-difference models suggest that the effect is likely causal. The effect of IT on size is more pronounced for sales than employment, which leads to a decline in the labor share, consistent with the “scale without mass” theory of digitization. Furthermore, we find that IT provides greater benefits to larger firms by increasing their capability to replicate their operations across establishments, markets, and industries. Our findings provide empirical evidence suggesting that the substantial rise in IT investment is one of the main driving forces for the increase in firm size, decline of labor share, the growth of superstar firms, and increased market concentration in recent years.
Jeanine Miklós-Thal et al.
NBER Working Paper, February 2023
When a user shares multi-dimensional data about themselves with a firm, the firm learns about the correlations of different dimensions of user data. We incorporate this type of learning into a model of a data market in which a firm acquires data from users with privacy concerns. User data is multi-dimensional, and each user can share no data, only non-sensitive data, or their full data with the firm. As the firm collects more data and becomes better at drawing inferences about a user’s privacy-sensitive data from their non-sensitive data, the share of new users who share no data (“digital hermits”) grows. At the same time, the share of new users who share their full data also grows. The model therefore predicts a polarization of users’ data sharing choices away from non-sensitive data sharing to no sharing and full sharing.
The Cost of Curbing Externalities with Market Power: Alcohol Regulations and Tax Alternatives
Christopher Conlon & Nirupama Rao
NBER Working Paper, January 2023
Products with negative externalities are often subject to regulations that limit competition. The single-product case may suggest that it is irrelevant for aggregate welfare whether output is restricted via corrective taxes or limiting competition. However, when products are differentiated curbing consumption through market power can be costly. Firms with market power may not only reduce total quantity, but distort the purchase decisions of inframarginal consumers. We examine a common regulation known as post-and-hold (PH) used by a dozen states for the sale of alcoholic beverages. Theoretically, PH eliminates competitive incentives among wholesalers selling identical products. We assemble unique data on distilled spirits from Connecticut, including matched manufacturer and wholesaler prices, to evaluate the welfare consequences of PH. For similar levels of ethanol consumption, PH leads to substantially lower consumer welfare (and government revenue) compared to excise, sales or Ramsey taxes by distorting consumption choices away from high-quality/premium brands and towards low-quality brands. Replacing PH with volumetric or ethanol-based taxes could reduce consumption by over 9% without reducing consumer surplus, and increase tax revenues by over 300%.