Anita Rao

How do firms make money selling digital goods online

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm’s trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms’ revenue models from the increasing importance of the mobile Internet.

Demand for 'Healthy' Products: False Claims and FTC Regulation

Firms sometimes make selective or deceptive claims, which can have negative consequences for consumers, especially if consumers are not fully informed and the claims are hard to verify. This study aims to measure the decline in demand that a firm making such claims faces when caught. In addition, it seeks to understand which type of consumer these claims primarily affect. Using a panel data set of consumer purchases and firm advertising, the authors measure this impact by exploiting the fact that four popular products settled charges raised by the Federal Trade Commission. They further control for and document firm responses in terms of price and advertisement changes around the date of the settlement. Findings indicate a significant decline in demand following the termination of the claims, resulting in a 12%–67% monthly loss in revenue across the four products, which amounts to a

Value of Search Aggregators

.40 million–

Strategic R&D Investment Decisions in the Pharmaceutical Industry

3.82 million loss in monthly revenue. They also find that these claims primarily affect consumers who are newcomers.

Modeling Cooperative Lane Changing and Forced Merging Behavior

Aggregators are facing increased scrutiny by regulatory authorities, suggesting these sites have considerable market power. On the other extreme, firms are bypassing aggregators, choosing instead to sell directly to consumers. This raises the question as to which party has more market power: the aggregator or the individual firm. Focusing on the airline industry, we investigate who benefits the most in the airline-aggregator relationship. Specifically, we ask what would happen to airline and aggregator site visits and purchases in the absence of a comprehensive aggregator. We first explore consumers’ search patterns on Southwest, an airline that has never been part of any aggregator. In a descriptive exercise, we find that consumers who book on Southwest are the least likely to visit aggregator sites. Second, we use the 2011 American dispute with Orbitz as an exogenous event, which led to American fares no longer being displayed on Orbitz for five months. We use this dispute to identify who was hurt the most – the aggregator or the airline - in the months following the dispute. Our findings indicate the aggregator loses the most when it is not comprehensive.

Online Content Pricing: Purchase and Rental Markets

Do pharmaceutical firms respond to the actions of their competitors in R&D, and how much? Answering this has implications on the impact of a faster FDA approval process - something pharmaceutical companies are pushing for. While a faster approval process leads to quicker realization of profits and more remaining time on the firms patent, it also intensifies competition reducing per-firm profits. Which effect dominates depends on the degree of competition. To this end, I estimate a dynamic investment model using Phase-3 data. Solving the new equilibrium, I find an expedited process is beneficial only when competitors are far from launching.