Yang, Yang (2021) Three Essays on Industrial Organization. Toulouse School of Economics (Toulouse).

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Abstract

My thesis aims to understand the impacts of search frictions generated by the recent development of digital technology, and provide some practical policy implications. The first chapter analyzes the impact of social media on the spread of fake news when the search costs of consumers to find their favorite news are reduced by social media, and then the thesis studies the effects of price transparency in online markets in the second chapter. The third chapter analyzes a monopoly firm’s optimal information revelation strategy and return policy when consumers can choose to either buy immediately without knowing their exact match value or search to learn the exact match value. The first chapter studies a search model to frame the recent debate about social media and fake news. Social media websites have not only helped consumers to find their favorite news but have also enabled fake news producers to spread their stories more easily and widely. This chapter proposes a search model to study the effect of a social media website on the spread of fake news, and its influence on consumer surplus. More specifically, we study the effect of a lower search cost induced by the social media website. We consider a setting where one unit of consumers search sequentially on the social media website to read at most one news. Assume consumers cannot distinguish between true and fake news, and fake news producers are able to produce stories that are good enough to attract consumers. We find that a lower search cost leads to more fake news consumption, but higher consumer surplus. The second chapter is motivated by the fact that the recent development of price comparison websites has led to increasing price transparency but no quality transparency, and it studies the effect of price transparency (without quality transparency) in a setting with competition among online sellers who compete on price and quality, by comparing situations where consumers learn no information and only price information before searching. We find that price transparency leads to lower prices, and a lower price is always linked to a lower quality. Price transparency also improves consumer surplus. However, price transparency sometimes results in excessive competition on price, if retailers can improve quality with relatively low quality but they did not do that due to the fierce price competition, the efficiency loss can be very large and lead to lower total welfare. The third chapter analyses a monopoly firm’s optimal information revelation strategy and return policy when consumers can choose to either buy immediately without knowing their exact match value or search to learn the exact match value. By paying a return cost which is chosen by the firm, each consumer can return the product and obtain a refund. We find that if the firm is able to give consumers any form of match information, the firm will simply inform each consumer whether or not their match value is above a threshold. This strategy is used as a search deterrence tool, and consumers will just buy directly without knowing the exact match value. The optimal return policy is the one that makes no consumer choose to return the product. The consumer surplus is decreasing in search cost, whereas the total welfare is increasing in search cost. The total welfare reaches the socially efficient level when search cost is large enough, though the consumer surplus is zero in this situation.

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