The impact of online reputation on ethnic discriminatioN

with Xavier Lambin, December 2019 (JOB MARKET PAPER)

This paper shows that reputation systems can mitigate ethnic discrimination by enabling ethnic minority sellers to accrue high reputation quickly, leading buyers to update their beliefs. Using data from a ridesharing platform, we find that minority drivers with no reviews make 12% less revenue relative to similar nonminority drivers. This disparity gradually shrinks and almost disappears for experienced drivers. To understand the mechanism behind this process, we construct a model of career concerns’ of discriminated sellers in the presence of a reputation system. The model’s estimates show that minority drivers, who just entered the platform, face overly pessimistic beliefs about the quality of their service. To alter these beliefs, they exert high effort and offer low introductory prices, swiftly boosting their reputation. Counterfactual simulations reveal that the cost of incorrect prior beliefs is high and that the reputation system strictly benefits minority drivers.

Pay-for-Delay with Settlement Externalities

with Matias Pietola, May 2019, R&R – The RAND Journal of Economics

Motivated by recent antitrust cases in the pharmaceutical industry, this article studies the interplay between pay-for-delay settlements, licensing deals and litigation. Our analysis highlights the externalities that they generate: pay-for-delay settlements reduce competition which encourages entry; licensing and litigation make entering less profitable. Faced with multiple entrants, the incumbent exploits these externalities by offering licensing deals to some entrants or by pursuing litigation in order to decrease the cost of delaying contracts offered to others. The number of delayed entrants increases with patent strength. Entrants without pay-for-delay settlements pursue litigation for patents of intermediate strength; otherwise, they receive licensing deals.

  • This paper won the AdC Award 2018, for the best unpublished paper on competition economics
  • Policy report for the Yearbook of the Finnish Competition Law Association , April 2019

Price is right!

with Rossi Abi Rafeh, August 2019

Prices in online markets frequently pose an empirical puzzle: entrant sellers, with no reviews, set higher prices than incumbents. In the context of a popular ride-sharing platform, we show that this is due to selection on unobserved heterogeneity in sellers’ marginal costs. Accounting for the heterogeneity in marginal costs, we find that sellers increase their prices as they gain reviews. The high-cost sellers set high prices for their first listings and leave the platform early on. We rationalize this behavior in a dynamic oligopoly model where sellers are heterogeneous in their opportunity and marginal costs. We estimate a model of demand and use the recovered parameters to calibrate a simulation of market dynamics with long-lived drivers and their reputation as a state variable. Simulations allow us to recover the empirically observed dynamics of prices and exit decisions.

Competition-Innovation Nexus: Product vs. Process, does it matter?

 December 2015

This paper extends the model of Aghion et al. 2005 by considering both product and process innovations. Product innovations increase the differentiation between firms, while process innovations reduce marginal costs. First, I show that the level of competition that maximizes investment in process innovations is higher than in the case of product innovations. Second, I use a rich dataset on innovation expenditures of European firms to empirically test this proposition. I find an inverted U-shape relationship between competition and innovation expenditures for both types of innovations. Finally, I find that the level of competition that maximizes innovation expenditures is higher in sectors dominated by process innovations.

Work in progress

  • What’s in a rating? The dynamics of homophily on a platform, with Xavier Lambin, June 2019