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on Industrial Organization |
| By: | Daron Acemoglu; Daniel Huttenlocher; Asuman Ozdaglar; James Siderius |
| Abstract: | We present a model where social media platforms offer plans that intermix entertaining content with digital advertising (“ads”). Users derive utility from entertainment and learn about their valuation for a product from ads. While some users are fully rational, others naïvely perceive digital ads as more informative than they actually are. We characterize the profit-maximizing business model of the platform and show that welfare is lower when the platform monetizes through advertising instead of subscription both for naïfs (because they are targeted by intense digital advertising, which makes them over-optimistic about product quality and over-purchase the product) and for sophisticates (because the inflated demand from naïfs increases the firm’s price). This negative welfare effect is intensified when the platform can offer mixed business models that separate the naïve and sophisticated users into different plans. Our results are robust to firm-level and platform-level competition, because digital ads soften competition between both firms and platforms. We also show how digital ad taxes can improve welfare. |
| JEL: | D43 D83 L13 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33017 |
| By: | Danhou Li (Department of Economics, National University of Singapore, Singapore); Ce Matthew Shi (Department of Economics, Chinese University of Hong Kong, Hong Kong SAR) |
| Abstract: | This paper examines theoretically and empirically the welfare effects of differential pricing for Internet traffic in a network market. We begin by analyzing a model of differential pricing by a monopolist Internet service provider (ISP), wherein charges are levied on content providers for traffic flow and on consumers for Internet access. Content providers differ in terms of their demand for Internet traffic and their value to consumers (“network effects†). Under linear demands, we show that compared to uniform pricing, differential pricing based solely on network effects is welfare-enhancing, while purely elasticity-based differential pricing reduces content provider surplus and social welfare. The welfare effects become ambiguous when both network effects and demand elasticities differ across content providers. Using a unique dataset on monthly transactions between a large ISP and major content providers in China (where ISPs legally own Internet traffic services in the form of CDN), we estimate the model and quantify the welfare effects using the demand and cost estimates. Our counterfactual analysis shows that consumer surplus and content provider surplus increase under differential pricing; however, a disproportionate share of the welfare gain is captured by several big content providers, while smaller content providers tend to become worse off. |
| Keywords: | differential pricing; Internet traffic; network industry; welfare |
| JEL: | L12 L86 L96 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2409 |
| By: | Hoang Le; Ricardo Marto |
| Abstract: | Growth in the digital advertising market has allowed big tech companies to better target consumer tastes, potentially increasing firms’ market power. |
| Keywords: | digital (directed) advertising |
| Date: | 2024–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:98970 |
| By: | José Ignacio Heresi (Facultad de Economía y Negocios, Universidad Alberto Hurtado, Santiago Chile.); Yassine Lefouili (Toulouse School of Economics, University of Toulouse Capitole, 1, Esplanade de l'Université, 31080 Toulouse, Cedex 06, France.) |
| Abstract: | We study how an app store's decision about its ad-valorem fee affects the business models chosen by app developers. We derive optimal choices for the app store and their effects on industry profits, consumers, and total welfare. Surprisingly, the platform's optimal ad-valorem fee may be lower than the socially optimal one. Our findings provide insights into recent antitrust disputes and regulatory debates. |
| Keywords: | business model, ad-valorem fee, platform, app store. |
| JEL: | D21 L21 L40 L50 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2404 |
| By: | Joonkyu Choi; Nathan Goldschlag; John Haltiwanger; J. Daniel Kim |
| Abstract: | Using administrative data from the U.S. Census Bureau, we introduce a new public-use database that tracks activities across firm growth distributions over time. With these new data, we uncover several key trends for high-growth firms---critical engines of innovation and economic growth. First, the share of firms that are high-growth has steadily decreased over the past four decades, driven not only by falling rates of entrepreneurship but also languishing growth among existing firms. Second, this decline is particularly pronounced among young and small firms, while the share of high-growth firms has been relatively stable among large and old firms. We also find rich variation across states and sectors. To facilitate future research, we highlight how these data can be used to address various research questions. |
| Keywords: | Organizational Growth; Entrepreneurship; High-Growth Firms; Business Dynamism; Publicly Available Dataset |
| JEL: | L11 L25 L26 O30 O40 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-74 |