Search, Awareness and Standards in Platforms and Higher Education

Lam, Honn Tai

doi:https://doi.org/10.21985/n2-ba25-9t86

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Search, Awareness and Standards in Platforms and Higher Education

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In most markets, consumers of goods and services have vastly more options available to them than they will consider closely. At the point of making a decision, consumers are choosing between only a small subset (i.e., a consideration set) of all possible alternatives. The preceding process that forms these consideration sets is the focus of this dissertation. Consumers themselves may optimally restrict their consideration set based on their preferences and search costs (i.e., cost of time). However, firms, platforms and governments all play a considerable role in influencing the consideration set of products that consumers choose between. This influence ranges widely, from awareness building through advertisements, to steering through recommendations and to legislative standards that completely remove options from the market. My dissertation investigates the process of search and information gathering that consumers undertake before choosing between alternatives and how external parties influence that process. On the Amazon.com marketplace, both Amazon and small businesses compete in offering retail products. However, Amazon chooses what products consumers see when they search. Products sold by Amazon may have a better position compared to small business products, but the effects on consumers and sellers are unclear. Policymakers have expressed antitrust concerns about this, suspecting "self-preferencing" and "gatekeeper" market power. To study this, I develop a model where heterogeneous consumers search for differentiated products arranged on an acyclic graph (i.e., tree). Firms price in response to consumer search and how their products are arranged—highlighting how search design determines market structure. The model endogenizes consideration set formation and recovers the correlated distribution of consumer preferences and search costs. Estimated on Amazon data, I show that not accounting for product arrangement (e.g., search results and BuyBox) leads to incorrect price elasticity estimates. I provide three results on market power and antitrust policies using counterfactual product arrangements. (i) To isolate the effect of Amazon's position advantage, I remove it through a "neutral" product arrangement. Profits shift from Amazon to small businesses, confirming Amazon's sizable market power. However, consumer welfare falls when consumers reduce their search intensity in response to reduced value from searching. This suggests Amazon's incentives and consumers' preferences are aligned, weakening the claim of self-preferencing. (ii) Banning the platform owner from also being a seller reduces consumer welfare through price rather than product variety. (iii) I propose an alternate policy, splitting the platform into an Amazon side and a small-business side. Giving consumers the ability to search for and "support small businesses" would alleviate the market power imbalance without harming consumers. Moving away from consumer goods markets, the higher education market likewise contends with issues of limited awareness, particularly for nascent online colleges. The share of US students enrolled in entirely-online college degrees has doubled in recent decades (from 5% in 2008 to 10% in 2015). The importance of online colleges as a differentiated product in the higher education market is likely to increase, particularly after the online learning experiment of the 2020 pandemic. However, awareness of this nascent product may be limiting its role in the higher education market. Additionally, policymakers concerned about tuition and student debt growth are interested in whether online degrees could put downwards pressure on tuition and increase access. The effect of online degrees on student choice, competition and post-graduation outcomes remains little studied. In theory, the online degree market should be highly competitive, as it lacks the geographic market power that in-person colleges wield and it is highly scalable. However, the extent to which online degrees are differentiated affects whether it simply expands the market or intensifies overall competition. I provide evidence that online colleges: (i) cater to specific segments of students (e.g., mature age students with family); (ii) deliver a wide range of post-graduation outcomes that are no worse on average than in-person colleges; and (iii) face stronger competition, but with little measurable spillover on in-person colleges. Finally, I provide causal evidence that advertising drives information search and enrollment for the advertised college. Interestingly, individual college advertising appears to have negative spillovers for broad information search (i.e., searching for all options). In the broader higher education market, minimum quality standards play an important role in restricting the consideration set of students, but these standards have received little attention. US Federal Student Aid is only extended to students enrolling at accredited higher education institutions, but the quality standards set by Accreditors is not well understood or studied. Due to historical reasons, 10 separate not-for-profit Accreditors grant accreditation to institutions in the US. Accreditors aim to set similar standards, but standards are multi-dimensional; often qualitative and quantitative; difficult to compare; and enforced with differing strictness. As such, standards may be lower (or higher) than desired by policymakers. I develop a simple revealed-preference estimation that recovers the ordering and relative strictness of quality standards set by each Accreditor. I find that the Accreditor singled out by policymakers in 2016 for accrediting now-bankrupt for-profit colleges does indeed have the lowest standards. My estimates are consistent with the common belief that National Accreditors set higher quality standards than Regional Accreditors. The estimated relative level and dispersion of quality standards should be of interest to policymakers looking to evaluate the effectiveness of the accreditation system.

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