Essays on industrial organization

Abstract

This thesis consists of three chapters on information transmission and utilization in marketplaces and their implications on firm competition and quality discovery. The first chapter analyzes the dynamic effect of sponsored search advertising on quality discovery on the Taobao.com retail platform. In a stylized model, a new product's boosted exposure from sponsored search ads could help the platform to infer how well the product converts exposure to sales (the quality measure) and award top organic search ranks accordingly. Hence, sellers with higher private quality signals would bid more aggressively for sponsored ads, which accelerates the platform's discovery of these high-quality products. An empirical analysis echoes the stylized model and reveal a synergy between the platform's PC and mobile interfaces. The second chapter (co-authored with Sara Fisher Ellison and Christopher M Snyder) studies price dynamics for computer components sold on a price-comparison website. We estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics. The third chapter analyzes the revelation of hard information in a buyer-seller relationship. The seller can choose whether and when to credibly reveal quality information and some buyers, called prosumers, have greater taste for quality than others. This paper first analyzes an alternating bargaining game allowing endogenous delay between communications in the fashion of Admati and Perry(1987), and constructs an equilibrium with delayed revelation of quality. The paper then analyzes an informed principal problem and found that under certain conditions, both seller types choose the same truth-telling mechanism that maximizes the revenue of the seller type with high quality. In both games, a high quality seller hides his quality information before the buyer acts in order to extract surplus from prosumers.