This thesis investigates questions related to the competition between firms in the context of the adoption of new technologies, with a particular focus on digitization. The decreasing costs of storing, accessing, and distributing information resulting from digitization have affected market dynamics and influenced economic outcomes. Through empirical analyses, the chapters in this thesis seek to comprehend and evaluate the economic phenomena associated with digitization.
In Chapter 1, I focus on a topic that is highly debated in antitrust policy circles by shedding new light on startup acquisitions in the software industry. Given the substantial economies of scale and scope in software markets, the main competitive force in these markets is believed to come from new, innovative entrants. Therefore, I examine the incentives of young, Venture Capital-funded startups to enter the market in light of the numerous acquisitions that have been taking place. My contributions lie in (1) collecting and assembling new data that enable to identify competing firms; (2) in producing new, policy-relevant facts on startup acquisitions in software markets; and (3) in building and estimating a stylized dynamic structural model of startup entry. My findings suggest that acquisitions can, in general ,spur the incentives for new, innovative entry. On the other hand, certain types of acquisitions, particularly those targeting very mature startups and conducted at high prices, are followed by fewer entrants, underscoring the importance of antitrust review of mergers on a case-by-case basis.
The decline in the costs of distributing information has given online platforms the role of gatekeepers that control what information users ultimately view. Chapter 2 therefore focuses on platform design, specifically the algorithms that rank listed products on e-commerce websites. By examining rankings and pricing behavior of hotels on an online travel agent, I find that the ranking algorithm used by this platform tends to intensify price competition between hotels by displaying hotels more visibly at times at which they are priced lower. By estimating a model of consumer search and simulating market outcomes under counterfactual rankings, I show that consumers would face somewhat higher prices if the ranking algorithm worked differently, leading to losses in consumer surplus. Overall, the chapter highlights the significant impact online platforms have on competition within industries.
As digitization has led to an increase in the amount of data collected on individuals, many jurisdictions have enacted privacy regulation targeted at protecting citizens’ personal data. Chapter 3 explores the effects of such privacy regulation on startup acquisitions. In particular, I focus on unintended consequences of the General Data Protection Regulation (GDPR) implemented in 2018 in the European Union. Motivating anecdotal evidence suggests that the GDPR may have increased the burden during due diligence as well as the risk of conducting an acquisition. Analyzing acquisitions of startups conducted between 2014 and 2019, I find that the number of acquisitions of VC-funded European startups has indeed declined after enactment of the GDPR compared to startups based in the US or other non-European countries.