Lesley Chiou

Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue

Abstract Differences in excise taxes across jurisdictions create incentives for consumers to cross the border and to purchase in lower-tax jurisdictions. This paper introduces a discrete choice model to examine tax avoidance and state border crossing in the market for cigarettes. We exploit a rich dataset of consumer location choices and demographics to estimate a consumers tradeoff between distance and price when choosing a location to maximize utility. Using the estimates from our location and demand models, we reconsider a recent public policy issue among states and simulate tax avoidance under alternative cigarette excise tax levels.

Paywalls and the demand for news

Given the preponderance of free content on the Internet, news media organizations face new challenges over how to manage access to and the pricing of their content. It is unclear whether content should be free or whether customers should pay via a “paywall.” We use experimental variation from a media publisher’s field test of paywalls to examine demand for online news across several local media markets. We find a 51% drop in visits after the introduction of a paywall and a far larger drop for younger readers.

Empirical Analysis of Competition between Wal-Mart and Other Retail Channels

This paper quantifies the degree of competition between Wal-Mart and different retail channels by exploiting a unique dataset that describes a consumers choice of store. Using a discrete choice model, I estimate a consumers choice of retailer in the sales market for DVDs among online, mass merchant, electronics, video specialty, and music stores. Wal-Mart competes more intensely with other mass merchants, and conditional on price and distance, the average consumer still prefers Wal-Mart to most other stores. I also consider a counterfactual experiment regarding the entry of Wal-Mart into 15 proposed store sites into California.

Consumer Response to Cigarette Excise Tax Changes

We use a rich dataset of weekly cigarette sales to examine how consumers adapt their behavior before and after excise tax increases - whether by reducing demand, stockpiling, traveling to low-tax jurisdictions, or substituting towards lower-cost brands. Consumer response varies substantially for different types of cigarettes. Stockpiling primarily occurs for discount cigarettes and is most pronounced at stores far from lower-tax jurisdictions. Border-crossing is greatest at stores close to low-tax jurisdictions and occurs primarily for cigarettes sold by the carton. Finally, we find modest short-run substitution towards lower-cost brands following a tax-increase, consistent with consumers smoothing the transition to higher cigarette taxes. These differences in consumer behavior lead to meaningful differences in tax incidence - pass-through is higher for discount cigarettes which have more inelastic demand. Pass-through is lower near low-tax borders, especially for cigarettes sold by the carton for which cross-border evasion is greatest.

How Does the Use of Trademarks by Third-Party Sellers Affect Online Search?

Firms that sell via a direct channel and via indirect channels have to decide whether to allow third-party sellers to use trademarked brand names of products in their advertising. This question has been particularly controversial for advertising on search engines. In June 2009, Google started allowing any third-party reseller of a product to use a trademark such as “DoubleTree” in the text of its ad, even if the reseller did not have the trademark holders permission. We study the effects of this change empirically within the hotel industry. We find some evidence that allowing third-party sellers to use a trademark in their online search advertising weakly reduced the likelihood of a consumer clicking on a trademark holders paid search ads. However, the decrease in paid clicks was outweighed by a large increase in consumers clicking on the unpaid links to the hoteliers website within the main search results. Our evidence shows that when a third-party seller focuses on a trademarked brand in its ads, the ads become less distinct, and customers are more likely to ignore the advertised offers and buy from the direct channel.

Content Aggregation by Platforms: The Case of the News Media

The digital revolution means that consumers can now quickly and easily access content that is aggregated from many online sources. However, digital aggregation has tested the boundaries of copyright law. It is not clear whether allowing extracts of copyrighted works to be distributed by others benefits or harms copyright holders. We ask whether digital aggregation encourages users to “skim” or to investigate content in depth. We exploit a contract dispute that led a major aggregator to remove information from a content provider. We find that after the removal, users were less likely to investigate additional content in depth. The relaxation of copyright protection benefited horizontally or vertically differentiated content the most. JEL classification: L86 keywords: digitization, information, consumer search, Internet ∗Economics Department, Occidental College, CA †MIT Sloan School of Management, MIT, Cambridge, MA and National Bureau of Economic Research. ‡An earlier version of this paper was circulated under the title “News and Online Aggregators.” We thank Robert Seamans useful comments. We thank Christopher Hafer of Experian Hitwise. We also thank Sara Mcknight for excellent research assistance. Financial support from the NBER Innovation Policy Group and NET Institute (www.NETinst.org) is gratefully acknowledged.

Trust, reputation and bidding behaviour in online mystery auctions

ABSTRACT We use transactions from a distinctive online environment of ‘mystery’ auctions to examine the role that trust plays and how it impacts bidding behaviour when the exact characteristics of a good being auctioned are purposefully concealed from buyers. We show that buyers are generally trusting seller claims in online transactions and that seller reputation becomes significantly more important to buyers (as demonstrated by their bids) when the quality (or value) of the good is unspecified. Our findings can be extrapolated to consider broader economic implications of bidding behaviour impacted by trust, such as in financial markets, where over-bidding may lead to price bubbles.

Vertical Integration and Antitrust in Search Markets

Antitrust regulators are concerned that vertical integration may allow a dominant firm in one market to lever market power into another market. Theoretically, the effects of vertical integration on other firms in the market are ambiguous. This paper studies how a dominant search engine Google in the upstream market of Internet search enters into different downstream markets. I find that Googles vertical integration either decreases or increases clicks to other sites, depending upon whether firms compete in pricing or quality and whether consumers are very price-sensitive. The results have direct public policy implications as regulators determine antitrust policy in newly emerging markets.

How Do Restrictions on Advertising Affect Consumer Search

Advertising is often criticized for presenting only partial or selective information about products. This criticism is particularly pronounced for health products, where large asymmetries in information may exist between consumers and firms. This paper explores how government restrictions designed to prevent selective advertising affect the types of information to which consumers are exposed. We exploit a natural experiment in the form of an FDA crackdown that prevented pharmaceutical companies from using selectively chosen information in their Internet search ads. Since companies could not adequately document side-effects within the advertising space allowed, they removed their ads. Our results suggest that, after the ads were removed, consumers were more likely to seek information from websites based on user-generated content or websites that focused on medical treatments not regulated by the FDA, such as Canadian pharmacies and sites promoting herbal remedies.

Introductory Microeconomics and One Big Firm

This paper illustrates the use of Wal-Mart Stores, Inc. as a lens through which introductory microeconomic principles can be taught. We argue that the central concepts of a principles course can be mapped effectively to the operations of a single firm and to public debates surrounding it. Using the method of problem based learning, we develop a series of case studies on key aspects of Wal-Mart. Each case corresponds to a specific section of the microeconomics course and either illustrates an economic concept or presents a decision-making challenge to students.