In my research I explore how firms behave in marketplaces, both theoretically and empirically. My current research focuses on the importance of online consumer reviews for sales, and on the ways firms use pricing to improve their online reputation. In the past I have also studied whether creating incentives for executives can affect the nature of competition in oligopolistic markets.
Abstract: I document that firms in online marketplaces use price promotions to facilitate transitions to better review tiers (similar to the number of stars on Amazon.com). I find that firms close to going one tier up are 4-9% more likely to discount. I theorize that two effects could be at play. First, a selection effect arises because customers who buy during a discount could be different from the regular ones, and could potentially leave more positive reviews. Second, a variance effect reflects the idea that positive reviews could help the firm move up a review tier, while negative reviews would keep the tier unchanged, minimizing the downside risk of giving a discount. To test my hypotheses, I estimate a simple structural model of demand and reviewing behavior, and develop a new approach to estimating demand from data on product usage. I do not find evidence that the selection effect is positive. I find evidence of the importance of the variance effect: when the selection effect is controlled for, firms close to downgrading their review tier are 6% less likely to give a discount, consistent with preferring less variance. I also find that consumers are significantly more likely to leave reviews during a discount. Additional findings include estimates of the causal effect of reviews on sales and equilibrium discount elasticities in an important market not previously studied.
Abstract: Using high-frequency data from a large video game marketplace we study the causal effect of reviews on sales. First, by restricting attention to products with unlikely quality changes and controlling for pricing behavior of firms, we make the case that panel data methods could be sufficient for identification. Second, we use a regression discontinuity approach, recently developed in the literature, to provide quasi-experimental evidence on the subject. We uncover an identification issue with this approach, and suggest a modified version, that significantly moderates the effects. We find that having better reviews increases sales by 3-7%, that the effect is stronger for games with more reviews and later in their life cycle.
Abstract: Executive compensation contracts often reward managers based on performance measures other than profits, with sales revenue being a prominent example. I study the cost of incentive provision under contracts based on profits and revenue, and find that more revenue-oriented contracts are more expensive. Such contracts could be a profit-enhancing tool for shareholders in oligopolistic markets, a phenomenon known as strategic delegation. I analyze the interplay between strategic delegation and incentive provision. Under price competition, the two reinforce each other, whereas under quantity competition they clash. Results depend nontrivially on whether the manager cuts costs or increases demand.