Discussant: Oliver Falck (CESifo)
Review systems are ubiquitous in online marketplaces. I construct a game-theoretic model to study the impacts of review systems on market outcomes. I document how the emergence of review systems changes firms' branding decisions and lowers the value of brand names. Review systems improve social welfare by incentivizing firms to invest in quality, but inefficiencies persist partly due to over-investments.
Discussant: Marc Bourreau (Telecom Paris)
Many modern innovations depend on interconnectivity, which require technology standards as a common language to successfully link up. This paper develops and estimates a structural model to understand how competition between firms affects their incentives to cooperate by supplying technologies to a common standardization process. I study these incentives empirically by focusing on the standardization of the mobile telecommunications technologies. In the model, firms face two decisions. They decide whether to join a group to develop a component of the system and, in that case, how much effort to exert. When making these choices, firms consider 1) how their effort increases the common value, 2) how much of this common value they can privately appropriate through their patents, and 3) their capacity to profit from the technology in the downstream part of the market. In this setting, patents have an ambiguous effect on the development of a common innovation. On the one hand, they alleviate the free-rider problem and induce firms to exert more effort. On the other hand, they bias firms' participation towards groups with less competition over patented technologies even where their effort may be less valuable. To study the net effect of these forces in equilibrium, I estimate the model using a novel dataset on 3G and 4G technologies. I also show that the enforcement of royalty-free clauses reduces firm participation and effort, ultimately delaying the completion of the initial releases of 4G by almost 1 year. The paper is available here.