Research Articles on the Digital Economy

Dirk Bergemann, Alessandro Bonatti, and Tan Gan. RAND Journal of Economics. This paper studies a model in which a data intermediary collects information about consumers' preferences and sells these data in a product market wherein these data affect firms’ and consumers’ decisions. The paper emphasizes the role of data externalities, i.e., the effects that one consumer’s data has on related consumers owing to the fact that one consumer’s data predicts the behavior of the other consumers.

Dirk Bergemann, Tibor Heumann, and Stephen Morris. 2021. American Economic Review: Insights, forthcoming. This paper considers a seller’s information disclosure problem in the context of a second-price auction, e.g., what much information a website should disclose about its viewers to potential advertisers in auctions for digital ad impressions. In this context, more information leads to better matches between ads and viewers but reduces competition among advertisers. The paper characterizes the seller’s optimal information disclosure strategy, which falls in between no disclosure and full disclosure.

Dirk Bergemann and Marco Ottaviani. 2021. Handbook of Industrial Organization: Volume 4, 593-672. This paper surveys literature on the production and exchange of information in market and nonmarket settings. Specific topics considered by the survey include: ratings, predictions, recommendation systems, forecasting contests, and organization of scientific institutions.

Dirk Bergemann, Edmund Yeh, and Jinkun Zhang. 2021. Games and Economic Behavior: 130, 62-84. This paper considers a seller’s problem in choosing a finite number of combinations of products to offer to buyers, and the loss associated with constraining the seller to offer a finite menu of product combinations rather than allowing buyers to flexibly choose quantities of each available product.

Dirk Bergemann, Ben Brooks, and Stephen Morris. 2021. Journal of Political Economy: 129, 2275-2319. This paper studies the role of consumer search in determining prices of a homogeneous product sold by competing firms; in particular, it provides an upper bound on distribution of prices as a function of the number of price quotes that consumers obtain. A consequence of the paper’s results is that firms’ belief that consumers may only obtain one price quote can lead to high prices.

Alessandro Bonatti, Munther Dahleh, Thibaut Horel, and Amir Nouripour. 2022. Working paper. Digital platforms that sell targeted advertising indirectly sell consumer information to advertisers who compete in a downstream market. This paper characterizes how a data seller can sell consumer information in such an environment to optimize social welfare and to optimize its own revenue.

Rossella Argenziano and Alessandro Bonatti. 2021. Working Paper. This paper studies the use of data from a consumer’s interaction with one firm by other firms (e.g., the use of a consumer’s transactions records at an online store for targeted advertising by another firm), which the paper calls data linkages. The paper shows that data linkages can benefit consumers when the firms involved are similar to each other. The paper additionally analyzes the effects of privacy regulations on consumer welfare via their influence on data linkages

Jacques Créme, Gary Biglaiser, and André Veiga. 2022. RAND Journal of Economics, forthcoming. This paper studies incumbency advantage in platform markets with network externalities. Network externalities are effects of other agents’ platform adoption choices on a given agent’s choice of platform; agents, for example, may prefer to join social media platforms on which they can interact with a larger number of people. In the paper’s framework, giving agents more opportunities to migrate to another platform increases the incumbency advantage.

Guy Aridor, Yeon-Koo Che, and Tobias Salz. 2021. NBER Working Paper 26900. This paper uses data from an online travel platform to study the effects of the European Union's General Data Protection Regulation (GDPR), which requires websites to have web users' consent to process their data. The paper finds that some web users took advantage of the opportunities to opt out of tracking introduced by GDPR, although the remaining web users were more easily trackable by the platform The paper additionally finds that GDPR did not significantly decrease the platform's ability to predict consumer behavior.

J. Niels Rosenquist, Fiona Scott Morton, and Samuel Weinstein. 2022. 100 North Carolina Law Review: 431. This paper analyses the consequences of addictive technologies for the regulation of digital media. Among other things, the paper emphasizes that output, which is often used as a proxy for consumer welfare in antitrust, is not necessarily positively related to consumer wellbeing in social media markets on account of social media’s addictiveness.

Giulio Federico, Fiona Scott Morton, and Carl Shapiro. 2019. Innovation Policy and the Economy: 20. This paper analyses the effects of market competitiveness on innovation. The paper’s consideration on this topic include: incentives for competing firms to innovate to steal business from competitors, inter-firm synergies that may make mergers innovation-enhancing despite their anti-competitive effects, and exclusionary conduct by dominant firms that forecloses disruptive rivals and thereby reduces dominant firms’ incentives to innovate.

Fiona Scott Morton (chair), et al. 2019. George J Stigler Center for the Study of the Economy and the State, the University of Chicago Booth School of Business. This report characterizes aspects of digital markets that give rise to dominant firms, barriers to entry, and consequent harms to consumers. The report also discusses solutions to problems facing digital markets; these solutions include the creation of a specialist competition court and a digital regulator. The paper also calls for vigorous enforcement of existing antitrust law informed by an up-to-date understanding of digital markets’ workings.

Jonathan B. Baker and Fiona Scott Morton. 2018. Yale Law Journal: 127:7. This paper argues that digital platforms’ most favored nation (MFN) provisions, which prohibit providers to a platform from offering their services at lower prices on rival platforms, can have anticompetitive effects. The paper also discusses the prospect of legal action against platform MFNs.

Jean-François Houde, Peter Newberry, and Katja Seim. 2021. NBER Working Paper 23361. This paper studies economies of density in Amazon’s network of distribution facilities and their implications for nexus tax laws that compel online retailers to collect sales taxes only in states where they are physically present. The paper finds that Amazon’s expansion of distribution facilities substantially reduced its shipping costs on account of economies of density, and that nexus tax laws distort Amazon’s distribution center network in a manner that increases shipping costs by 28%.

J. Niels Rosenquist, Fiona Scott Morton, and Samuel Weinstein. 2022. 100 North Carolina Law Review: 431.This paper analyses the consequences of addictive technologies for the regulation of digital media. Among other things, the paper emphasizes that output, which is often used as a proxy for consumer welfare in antitrust, is not necessarily positively related to consumer wellbeing in social media markets on account of social media’s addictiveness.

Giulio Federico, Fiona Scott Morton, and Carl Shapiro. 2019. Innovation Policy and the Economy: 20. This paper analyses the effects of market competitiveness on innovation. The paper's consideration on this topic include: incentives for competing firms to innovate to steal business from competitors, inter-firm synergies that may make mergers innovation-enhancing despite their anti-competitive effects, and exclusionary conduct by dominant firms that forecloses disruptive rivals and thereby reduces dominant firms' incentives to innovate.

Fiona Scott Morton (chair) et al. 2019. George J Stigler Center for the Study of the Economy and the State, the University of Chicago Booth School of Business. This report characterizes aspects of digital markets that give rise to dominant firms, barriers to entry, and consequent harms to consumers. The report also discusses solutions to problems facing digital markets; these solutions include the creation of a specialist competition court and a digital regulator. The paper also calls for vigorous enforcement of existing antitrust law informed by an up-to-date understanding of digital markets’ workings.

Jonathan B. Baker and Fiona Scott Morton. 2018. Yale Law Journal: 127:7. This paper argues that digital platforms’ most favored nation (MFN) provisions, which prohibit providers to a platform from offering their services at lower prices on rival platforms, can have anticompetitive effects. The paper also discusses the prospect of legal action against platform MFNs.

Jean-François Houde, Peter Newberry, and Katja Seim. 2021. NBER Working Paper 23361.This paper studies economies of density in Amazon’s network of distribution facilities and their implications for nexus tax laws that compel online retailers to collect sales taxes only in states where they are physically present. The paper finds that Amazon’s expansion of distribution facilities substantially reduced its shipping costs on account of economies of density, and that nexus tax laws distort Amazon’s distribution center network in a manner that increases shipping costs by 28%

Sinkinson, Michael. 2020. Working paper. This paper studies the effects of exclusive handset contracts in the US telecommunications sector, e.g., Apple and AT&T’s contract that made the iPhone exclusively available on AT&T’s network from 2007 to 2011. The paper emphasizes that such exclusive contracts’ overall effects on consumer welfare are ambiguous given that they both exert upward pressure on prices and encourage entry.

Andrew Rhodes and Jidong Zhou. 2021. Working Paper. This paper studies the effects of personalized pricing—i.e., the practice of tailoring prices to individual consumers—in an industry with several competing firms. The authors find that the impact of personalized pricing in the short run depends on market primitives such as cost and the number of firms, while in the long run when firms can freely enter and exit the market, personalized pricing leads to a socially optimal market structure benefiting consumers. The paper also studies consumer privacy choice under personalized pricing.

Zhiguo He, Jing Huang, and Jidong Zhou. 2021. Working paper. This paper theoretically studies the welfare effects of open banking, a term that describes initiatives intended to provide consumers with greater control over their financial data. The paper focuses on giving borrowers control over data informative about their credit worthiness, and finds that such a policy could leave borrowers worse off.

Mark Armstrong and Jidong Zhou. 2022. American Economic Review 112 (2): 534–577. This paper studies the effects of providing product information to consumers (e.g., by platforms) on markets featuring price competition. Providing more information helps the consumer find products that better match the consumer’s tastes, but it also limits competition by advantaging firms selling the consumer’s preferred products. The authors find that providing coarse information (e.g., informing consumers of their most preferred product but nothing else) can be optimal for firm profit, and that the optimal level of information for consumers must lead some consumers to purchase products other than their preferred ones.

Maximilian Schaefer and Geza Sapi. 2022. Working Paper. This study analyzes the potential of anticompetitive effects from “big data.” The paper emphasizes that statistical learning processes are likely to benefit from complementarities between different dimensions of data aggregation. The authors test this hypothesis using real-world search engine data from Yahoo! and find evidence consistent with locally increasing returns to scale.

Christoph Carnehl, Maximilian Schaefer, André Stenzel, and Kevin Ducbao Tran. 2021. Working Paper. Ratings systems are an essential ingredient for the success of peer-to-peer marketplaces. Using a stylized model, the paper derives testable hypotheses about the effect of prices on ratings. The authors’ empirical findings, which are based on Airbnb data, provide evidence for a negative price-effect and host behavior consistent with strategic exploitation thereof.

Steffan Altmann, Armin Falk, Paul Heidhues, Rajshri Jayaraman, and Marrit Teirlinck. 2019. Review of Economics and Statistics 101 (5): 808–826. This paper uses a field experiment to study the effects of default settings on an online charitable giving platform. This experiment provided users with varying default values of donations to organizations and of “co-donations” to the platform. The paper finds that defaults affected individual donations values but not aggregate donation levels, although co-donations increased in the default co-donation rate.

Jacques Crémer and Gary Biglaiser. 2020. American Economic Journal: Microeconomics 12 (4): 229–269. This paper studies competition for the market in a dynamic model with network externalities. The authors propose a representation of the strategic advantages of incumbency and embed it in a dynamic framework with heterogeneous consumers. Then, they identify the conditions under which inefficient equilibria with several platforms emerge; analyze why these inefficient equilibria arise; and compute the value of incumbency; and analyze why static models generally exaggerate this value.