Research Summary
Research Summary
Dynamic Demand Estimation in Platform and Two-Sided Markets
Description
This
paper develops techniques to structurally estimate consumer demand
in general platform-intermediated and two-sided markets. By
estimating both sides of the market simultaneously, the methodology
presented here is able to (1) endogenize the utility of a platform
as a function only of affiliated products, in turn whose utility is
to be estimated; (2) consistently account for consumer heterogeneity
and consumer selection across platforms and time; and (3) handle the
durability of goods and agents' dynamic timing of purchases. Using
aggregate market level data, I apply the framework to analyze a
canonical platform market -- the sixth-generation of the US video
game industry (2000-2005) -- and show that failure to account for
the selection of heterogenous consumers across platforms
significantly overestimates the implied quality for any given piece
of software. The demand estimates are used to calculate the gains
obtained by a platform provider from exclusive content, and explore
counterfactual regimes in the absence of compatibility constraints.