Essays in the Industrial Organization of Internet Markets

Abstract

This dissertation contains essays that explore the incentives, mechanisms and strategies of platforms in concentrated internet markets. The first essay studies how two-sided platforms compete and set dynamic prices. In the daily deals industry, an expected increase in competition for seller participation prompted a cross-side response by the dominant platform, Groupon, to lower prices on deal coupons sold to attract platform users. I use a dynamic model of competing daily deals platforms to investigate why we observe a larger downward price response in markets where platforms have similar shares of users. Simulations show a sharp increase in value of an additional user as cross-side competition intensifies for profits from being the future platform leader. The second essay---coauthored with Benjamin G. Edelman---examines how competition is mediated by search intermediaries, looking at the design of search engines' own services and the effects on users' choices. We evaluate a natural experiment, and find that Google's prominent placement of its Flight Search service increased clicks on paid advertising listings while decreasing the clicks on organic search listings by a similar quantity. Empirical results and a controlled experiment links the mechanism to users' heterogeneous methods of search. The third essay---coauthored with Michael Egesdal and Che-Lin Su---develops empirical tools for estimating dynamic discrete-choice games. We formulate the maximum-likelihood estimator as a constrained optimization problem to be solved using state-of-the-art constrained optimization solvers. Monte Carlo results show that the constrained optimization approach has improved convergence properties over other popular computational methods.