Miscellaneous research papers of interest

Gabel, David, Joan Nix, and Bruce Mcnevin. “Net Neutrality and Its' Repeal: Small Firms' Shareholders Shrug While Large Firms' Shareholders Turn.” Available at SSRN 3427573 (2019).
Abstract:

The FCCs decision to repeal Net Neutrality governance of Internet traffic has not ended the debate over whether such protections are needed. This paper investigates the effects of changes in Net Neutrality regulation through an event study that unlike previous studies, employs as a baseline model, the Fama/French Three-Factor model to capture differences in rm size. The results are striking: for the most part, investors in both small and large firms are indifferent to changes in Net Neutrality rules. However, the selection of Chairman Pai is a signifi cant negative event for the group of largest rms. One explanation consistent with this finding is that the appointment of Pai gave a green light not only for Net Neutrality’s repeal but also signalled that the FCC would take a favorable stance towards merger activity. Large firms in a given industry are more likely to operate as acquirers and therefore, more likely to realize losses in shareholder value.

Hildebrandt, Christian, and Lukas Wiewiorra. “Zero-Rating and Sponsored Data Strategies of Internet Service Providers: A Systematic Review of the Literature.” Available at SSRN 3427263 (2019).
Abstract:

Internet service providers have recently introduced “zero-rating” and “sponsored data” as new tariff components in mobile communications markets, which exempt the data traffic of certain content and services providers or even certain types (e.g., social networking, gaming, music and video streaming) from counting against the monthly data cap of consumers. Despite the growing literature on this topic, a conceptualization of both practices and a synthesis of the literature is missing. We provide a systematic review of the literature and propose a framework using the price structure, bandwidth per consumer, and the degree of discrimination, to map the different strategies with and configurations of zero-rating and sponsored data. Moreover, we systematically analyze the findings from the literature and derive strategy-specific insights. Finally, we scrutinize both practices in the context of net neutrality, make recommendations to regulators, and identify promising areas for future research. We find zero-rating and sponsored data to be non-neutral data accounting practices, which represent a problematic type of discrimination if Internet service providers combine them with a non-neutral data cap enforcement policy.

Murciano-Goroff, Raviv, Ran Zhuo, and Shane Greenstein. Hidden Software and Veiled Value Creation: Illustrations from Server Software Usage. No. w28738. National Bureau of Economic Research, 2021.
Abstract:

How do you measure the value of a commodity that transacts at a price of zero from an economic standpoint? This study examines the potential for and extent of omission and misattribution in standard approaches to economic accounting with regards to open source software, an unpriced commodity in the digital economy. The study is the first to follow usage and upgrading of unpriced software over a long period of time. It finds evidence that software updates mislead analyses of sources of firm productivity and identifies several mechanisms that create issues for mismeasurement. To illustrate these mechanisms, this study closely examines one asset that plays a critical role in the digital economic activity, web server software. We analyze the largest dataset ever compiled on web server use in the United States and link it to disaggregated information on over 200,000 medium to large organizations in the United States between 2001 and 2018. In our sample, we find that the omission of economic value created by web server software is substantial and that this omission indicates there is over $4.5 billion dollars of mismeasurement of server software across organizations in the United States. This mismeasurement varies by organization age, geography, industry and size. We also find that dynamic behavior, such as improvements of server technology and entry of new products, further exacerbates economic mismeasurement.

Corporate Purpose and Acquisitions Claudine Gartenberg & Shun Yiu University of Pennsylvania Working Paper, March 2021

Abstract:

This study analyzes the relationship between acquisitions – a centerpiece of corporate strategy – and employees’ sense of purpose. Using data from more than 1.5 million employees, we find that purpose is substantially weaker in companies following recent acquisitions. This association is driven by unique acquisitions and those with opaque disclosed rationales. We explore the performance implications of this relationship. We first isolate the component of purpose directly attributable to the deal, and then relate this component to subsequent performance. We find that deals associated with stronger purpose outperform, and those with weaker purpose do not. Together, our evidence suggests a possible tension between strategic and motivational determinants of acquisition success: while firms benefit strategically from uniqueness, it may also erode the sense of purpose within firms.

Koutsky, Thomas M. and McGovern, Chris and Noriega, Raquel, Let’s Make a Deal: Price Sensitivity and Willingness to Pay in the American Broadband Market (August 21, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2033415 or http://dx.doi.org/10.2139/ssrn.2033415

Abstract:

Although nearly every American household has access to a broadband network, nearly one in three American homes still do not subscribe to the service. For many households the cost of home broadband service is the barrier that prevents them from subscribing. As the federal government joins with broadband service providers and non-profit groups to determine the best way to overcome this cost obstacle, key questions raised are how much are current non-adopters willing to pay for broadband service at home, and, as a result, how large should effective price discounts or subsidies be in order to overcome this barrier.

To that end, this study uses a rich data set collected by Connected Nation in 2011 through Random Digit Dial (RDD) telephone interviews with 15,082 adult heads of households who do not subscribe to home broadband service across a heterogeneous selection of states. This survey research aims to better understand demographic and socioeconomic characteristics of non-adopters and assess key barriers to broadband adoption.

This study finds that a majority of non-adopters would not be willing to subscribe to home broadband service at any price, indicating that there are other barriers to entry beyond affordability at play. Yet price remains a key barrier to broadband adoption among many. Connected Nation’s data estimates that 39% of non-adopters report that they would subscribe to home broadband service if it were offered at a price they consider acceptable. This study analyzes price sensitivity across non-adopters of various demographic groups and finds that there are significant variations between different socioeconomic groups.

Using a binary logistic regression, the study estimates the marginal impact of geographic and socioeconomic factors on non-adopters’ price sensitivity. Results show that the marginal impact of socioeconomic factors including race, ethnicity, age, rural/non-rural differences, the presence of children in the household, educational attainment, and employment status all have significant marginal impacts (positive or negative) on non-adopters’ willingness to subscribe to broadband at a price they consider acceptable. By contrast, the impact of having a disability does not have a marginal effect on the likelihood of a non-adopter being price sensitive.

In addition, this study employs a Van Westendorp Price Sensitivity analysis to measure how much non-adopters would be willing to pay to have broadband service at home. The goal of this research is to inform the policy debate regarding consumers’ range of acceptable prices to promote universal adoption of broadband technology. The study estimates an optimal target subsidy level or price discount of $25.30 per month to best promote home broadband adoption among price sensitive non-adopters. This same test is applied to various demographic groups of non-adopters to examine price effects across different demographic groups. Estimated optimal subsidies are relatively consistent across socioeconomic groups that are characterized by lower rates of broadband adoption, such as low-income households, minorities, people with disabilities, and the elderly. This result suggests that policies aimed to maximize broadband adoption among price sensitive households that remain disconnected should focus on a constant price subsidy or discount regardless of the socioeconomic group targeted.

By contrast, estimated optimal price subsidies across the jurisdictions studied are significant. In Alaska, for example, a state showcasing the highest adoption rates across all studied, optimal price subsidies or discounts are estimated at $40.19 per month. This result is partially driven by the fact that current retail prices for broadband services are significantly higher in Alaska than in other jurisdictions. This result suggests that a one-size-fits-all policy may not be optimal in some jurisdictions with divergent market or socioeconomic conditions at play.

Broadband demand elasticities

Read: https://ddtoolkits.worldbankgroup.org/broadband-strategies/driving-demand/achieving-affordability

Stancik, Juraj and Biagi, Federico, Characterizing the Evolution of the EU-US R&D Intensity Gap Using Data from Top R&D Performers (March 23, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2027817 or http://dx.doi.org/10.2139/ssrn.2027817

Abstract:

In this paper we look at the evolution of the R&D intensity gap between the EU and its major competitors using data from the Industrial Scoreboard covering the period 2002-2010. We focus on R&D intensity as it is normally recognized as an important determinant of the competitiveness of economic regions and we assess whether the gaps relative to major competitors arise from differences in industrial composition (structural component) or differences within sectors (intrinsic component). This is important from a policy perspective since the task of modifying the industrial structure is a much harder one. The paper is divided in two parts.

In the first part of the paper we first present the evolution of the R&D intensity gap between the EU and its major competitors (US, Japan, BRIC, Asian Tigers) and then we look more closely at the role and evolution of the structural and intrinsic component for each pair-wise comparison, by looking at four basic macro-sectors defined in term of their R&D intensity.

In the second part of our work we concentrate on the EU-US R&D intensity gap and, by applying firm level analysis, we test whether the results obtained by the statistical decomposition of aggregate R&D intensity are confirmed. The evidence provided by this exercise is especially important because it allows us to perform a comparison where the ceteris paribus condition is more likely to be satisfied. In particular we test whether there is evidence of across-sector variability in R&D intensity and whether, within sectors, EU and US firms are performing differently. To do this we have to control for various factors such as size, cyclical effects, common macroeconomic shocks and company’s age. Age is important for at least two reasons. First, young companies might have more problems in finding access to funds necessary in order to invest in R&D. Second, young companies might have to be especially aggressive in terms of innovation if they want to enter and succeed in markets where incumbents already exist. More generally, company age is important because it takes time to build, test and eventually change a given business model and there is plenty of evidence that young firms are those exhibiting the highest dynamism. Therefore, our aim here is also to document the age profile for R&D intensity and to verify whether the R&D intensity gap between EU and non-EU companies is related to age of the firm. Finally we check if R&D intensity is affected by the abundance of internal funds (as captured by the profit/sales ratio), if this relationship changes with the age of the company and if the latter shows across-regional variation.

Our results indicate that there is evidence of strong across-sector variation and some evidence of within-sectors-across-region variation, which –however- is not always in favour of the US. This allows us to conclude that firm level analysis confirms the results from the aggregate analysis. Moreover we find that R&D intensity tends to decrease as firm size increases (as measured by the number of employees), that the age profile for R&D intensity behaves very differently in the two regions and that young and middle age companies in the EU exhibit a much higher reactivity to lagged profits-to-sales ratio, when compared to their US counterpart. We believe that this is an indication that the conditions for accessibility and cost of funds differ significantly across the two regions.

Schejter, Amit M. and Nonnecke, Brandie Martin, If You Build It – Will They Come? Understanding the Information Needs of Users of BTOP Funded Broadband Internet Public Computer Centers (March 31, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2032181 or http://dx.doi.org/10.2139/ssrn.2032181

This study on the users of three public computer centers (PCCs) operating in a city in the Midwest region of the US attempts to further understand the localized value of broadband Internet access for members of low-income communities. These PCCs primarily serve low-income members of the African American community and offer free access to laptop computers, broadband Internet, and computer skills training. The study analyzes usage access data collected by the PCCs in which actual usage patterns of users in real time is presented, on site visits to the computer centers and observation of the activities taking place in them, and interviews conducted with users of the PCCs as well as with the staff operating them and the planners of the project. The interview protocol is based on the concept of “information use environments.” Interviews focused on how PCC users resolve their information needs taking into account the impacts of access and the ability to effectively use information technology. Findings revealed diverse needs of users; a disparity between reported use and actual use; intended and unintended consequences, as well as externalities, all of which need to be taken into account when designing future policy; the attractiveness of the PCCs as a place providing free access; the factors that may contribute to determining the “haves,” “have-nots” and “have-less,” among the inner city poor, and a general sense that the PCCs, while utilized according to users’ individual needs, are a vital component of an access policy.

Seltzer, Wendy, Privacy, Option Value, and Feedback (August 15, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2032100 or http://dx.doi.org/10.2139/ssrn.2032100

Abstract:

This article aims to do three things: 1. Apply the tools of option value to explain the “harm” of technological and contextual breaches of privacy. The financial modeling of real options helps to describe and quantify the value of choice amid uncertainty. Even without knowing all the potential consequences of data misuse, or which ones will in fact come to pass, we can say that unconsented to data collection deprives the individual of options: to disclose on his or her own terms, and to act inconsistent with disclosed information. 2. Introduce a notion of privacy-feedback to bridge the gap between contextual privacy and the secrecy paradigm. Privacy-feedback, through design and social interaction, enables individuals to gauge the publicity of their activities and to modulate their behavior in response. 3. Propose a broader framework for architectural regulation, in which technological feedback can enable individual self-regulation to serve as an alternative to command-and-control legal regulation. Feedback then provides a metric for evaluating proposed privacy fixes: does the fix help its users get meaningful feedback about the degree of privacy of their actions? Does it enable them to preserve disclosure options?

Cho, Daegon and Ferreira, Pedro and Telang, Rahul, The Impact of Mobile Number Portability on Switching Costs and Pricing Strategy (August 15, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2032287 or http://dx.doi.org/10.2139/ssrn.2032287

Abstract:

Using 47 mobile carriers’ quarterly data from 15 European countries in the period from 1999 to 2006, our empirical tests demonstrated that MNP implementation decreased a price by 7.6 percent, on average, by using fixed effects specification with robust-clustering standard errors.

Wu, Felix T., Defining Privacy and Utility in Data Sets. 84 University of Colorado Law Review 1117 (2013), 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2031808 or http://dx.doi.org/10.2139/ssrn.2031808

Abstract:

Is it possible to release useful data, while preserving the privacy of the individuals whose information is in the database? This question has been the subject of considerable controversy, particularly in the wake of well-publicized instances in which researchers showed how to re-identify individuals in supposedly anonymous data. Some have argued that privacy and utility are fundamentally incompatible, while others have suggested that simple steps can be taken to achieve both simultaneously. Both sides have looked to the computer science literature for support.

What the existing debate has overlooked, however, is that the relationship between privacy and utility depends crucially on what one means by “privacy” and what one means by “utility.” Apparently contradictory results in the computer science literature can be explained by the use of different definitions to formalize these concepts. Without sufficient attention to these definitional issues, it is all too easy to over-generalize the technical results. More importantly, there are nuances to how definitions of “privacy” and “utility” can differ from each other, nuances that matter for why a definition that is appropriate in one context may not be appropriate in another. Analyzing these nuances exposes the policy choices inherent in the choice of one definition over another, and thereby elucidates decisions about whether and how to regulate data privacy across varying social contexts.

Fortunato, Michael and Bridger, Jeffrey and Alter, Theodore R. and Emmerling, Grace and Ortbal, Kathryn and Schwartz, Myron and Sterner, Glenn and Shuffstall, William, Promoting Fair Local Organizing for Broadband Delivery: Suggestions for Community-Level Action in Persistently Underserved Communities (March 30, 2012). 2012 TRPC, Available at SSRN: https://ssrn.com/abstract=2031816 or http://dx.doi.org/10.2139/ssrn.2031816

Abstract:

Despite a wealth of research on broadband proliferation across rural and urban areas, the well-researched digital divide still persists in many rural communities, hindering social, community, and economic development. Policy remedies like the 2009 Broadband Technology Opportunities Program (BTOP) have improved broadband development in some areas, while other areas continue to be underserved, or served only by expensive and insufficient broadband options. The continued persistence of the divide challenges policy assumptions about the universality of coverage through federal and state-level initiatives, and brings the focus of successful broadband development to the community level.

This paper presents the results of a USDA National Institute of Food and Agriculture (NIFA)-funded research project conducted in Maine, Pennsylvania, and Wisconsin, intended to uncover community-level factors that have either encouraged or inhibited independent, local broadband network development in persistently underserved communities. Evidence is presented from six study sites across the three states illustrating a variety of delivery strategies, and underscoring the role of communities, culture, and local institutions in the network development process. The paper develops a series of alternative policy ideas and suggestions for supporting and promoting successful local initiatives, designed specifically to enhance citizen-driven efforts in persistently underserved areas.

Conkling, Thomas S., Private Competition for the Provision of a Government Benefit: Evidence from the Federal Lifeline Program (September 12, 2014). 2014 TPRC Conference Paper, Available at SSRN: https://ssrn.com/abstract=2417788

Abstract:

The federal Lifeline program, which subsidizes phone service for low-income households with the goal of achieving universal service, expanded in 2008 to allow entry of competing low-cost wireless providers. The expansion spurred huge growth in program enrollment and spending, driven primarily by providers offering free monthly service. This paper studies the interaction of competition and oversight for these new wireless providers. In particular, this research suggests a level of regulation that achieves gains from competition but limits over-enrollment and entry by potentially inefficient providers.

There is large state-level variation in how Lifeline is administered, as each state has the authority to approve or deny entry by service providers within their state. In general, the regulator wants the enrollment- and quality-enhancing benefits of competition and the lower administrative costs of privatization. However, loose oversight leads to the entry of less productive firms, who are only profitable under lax regulation. What is useful here is that regulatory environments vary widely between states, from those with essentially free entry to others that admit no low-cost wireless providers. Using these sources of variation, I address the effects of competition and regulation with cross-state comparisons of outcomes.

The data on enrollment come from publicly available subsidy claims from the Universal Service Administrative Company. These provide monthly enrollment figures for individual firms by state. Since the data span though the implementation of the 2012 Lifeline Reform Order, they also reveal the percentage of subscribers each firm is able to verify as eligible. The portion of subscribers that can be verified varies greatly across both firms and states.

Based on the trends in the data, I estimate a model in which firms vary in their ability to enroll eligible consumers and their compliance with regulatory rules, and states vary in their level of oversight. Given this information, firms decide which states to enter. The states that a firm can profitably enter as a Lifeline provider will be dictated by a combination of competition and regulatory oversight. Utilizing data on firm-by-state-level enrollments that spans the pre- and post-reform periods, this paper can jointly assess the effects of competition and oversight on enrollment, compliance, and entry decisions.

From preliminary results, I find that the benefits and costs of competition in the wireless segment of the Lifeline market depend on the identities or types of firms in a given market. Cases where large fractions of subscribers are unable to be verified as eligible are concentrated amongst a small number of firms, which operate only in states with fairly lenient oversight. Additionally, compliance behavior varies much more across firms than it does within-firm, across states. From the regulator’s standpoint, the largest costs of loose oversight come not from firms adjusting their behavior, but from the selection effect on which firms enter the market.

Brown, Stephen M and Browning, Kyle G. and Clements, Michael E., Rural Utilities Service Broadband Loans and Economic Performance in Rural America (March 27, 2015). TPRC 43: The 43rd Research Conference on Communication, Information and Internet Policy Paper, Available at SSRN: https://ssrn.com/abstract=2586016 or http://dx.doi.org/10.2139/ssrn.2586016

Abstract

This paper examines the Rural Utilities Service’s (RUS) Rural Broadband Access Loan and Loan Guarantee Program, which finances the development of broadband infrastructure in rural areas, and provides estimates of the effects of the program on economic performance. Access to broadband is often seen as vital to economic growth and improved quality of life, and broadband access is no less and perhaps more critical in rural areas, where the possibilities of advanced communications can reduce the isolation of remote communities and individuals. Provision of broadband infrastructure in rural areas has occurred at a slower pace than in more densely populated areas. Issues of density, among other factors, affect the expected returns to rural telecommunications projects. Profit-motivated lenders or other providers of project financing may rationally view the expected revenues derived from rural broadband projects as insufficient to justify investments in them. In response to limited funding from private sources, the Congress authorized the RUS broadband loan program, which finances the construction of broadband projects in rural areas.

We use information on the RUS broadband loan program to estimate the effects of the loans on economic performance. From program records, we know the geographic footprints of projects that submitted loan applications to RUS. We know whether RUS approved or rejected the loan application, and in the case of approvals, we know the timing of that approval. We map the geographic footprint of projects into counties served. While county level observations may not be a perfect level of observation, previous studies have used county-level data as there are advantages with respect to data availability. We develop a time series data set of county-level measures of employment, payroll, and the number of business establishments over the relevant time period, and examine different rural definitions to filter the set of counties used in the analysis.

Using a panel model with county and year fixed effects, we produce estimates of the effect of the broadband loan on the three measures of economic performance. Our estimation technique is best thought of in treatment terms, where the loan approval represents the treatment. The selection of control groups is important in a treatment context, and to this end, we develop several distinct control groups of rural counties. Specifically, we develop a control group of rural counties that were in the footprint of projects rejected for RUS funding; this control group represents a set of counties that may be similar to the treatment group in unobservable ways. We also use a propensity scoring technique to generate two control groups based on demographic characteristics of approved counties and on the pattern of economic growth leading up to the evaluation time period. Finally, we define a control group of rural counties adjacent to the set of counties with approved loans.

In general, we found modest but statistically significant relationships between the RUS broadband loan program and county employment and payroll, but no relationship between the program and the number of business establishments. These estimates suggest that economic performance was in the range of 1 to 4 percent higher in counties receiving a RUS broadband loan. These results were robust across the set of control groups. However, very few loans went to projects in the most rural of counties, such as those with only very small towns. Results restricting the sample to this set of rural counties showed no relationship between the RUS broadband loan program and economic performance.

Hargittai, Eszter and Marwick, Alice E., ‘What Can I Really Do?': Explaining Online Apathy and the Privacy Paradox (March 30, 2015). TPRC 43: The 43rd Research Conference on Communication, Information and Internet Policy Paper, Available at SSRN: https://ssrn.com/abstract=2587188

Abstract:

While many people claim to be concerned about privacy, their behavior, especially online, often belies these concerns. Researchers have hypothesized that this “privacy paradox” (Barnes 2006) may be due to a lack of understanding of risk; a lack of knowledge about privacy-protective behaviors (Hargittai & Litt 2013); or the social advantages of online self-disclosure (Taddicken 2014). This is especially salient for young people for whom social media may be intrinsic to social life, school, and employment. Using data from ten focus groups totaling 40 participants ages 19-35 administered during summer 2014, we examine young adults’ understanding of Internet privacy issues. Specifically, our research question asks whether the privacy paradox can be attributed to users’ lack of Internet experiences and skills.

While our focus group data do suggest some lack of understanding of risk, misunderstandings around the efficacy of certain privacy-protective behaviors, and lack of knowledge of privacy-related current events, some participants demonstrated use and knowledge of a variety of privacy-protective behaviors. These included configuring social network site settings, use of pseudonyms in certain circumstances, switching between multiple accounts, turning on incognito options in their browser, opting out of certain apps or sites, deleting cookies, using Do-Not-Track browser plugins, and so forth. The simultaneous presence of both lack of knowledge of risk and use of privacy-protective behaviors suggests that the privacy paradox cannot be attributed solely to either a lack of understanding or a lack of interest in privacy.

Instead, participant comments suggest that users have a sense of apathy or cynicism about online privacy, specifically that privacy violations are inevitable and opting out is not an option (“I feel like [pause], then you have the choice between not using the Internet and therefore keeping free of the surveillance, or living with it. So, I do care; but I guess I don’t care enough not to use the Internet. And I’m not sure what the alternative is at the moment.”). We explain this apathy using the construct of networked privacy (Marwick & boyd 2014), which suggests that in highly-networked social settings, the ability of individuals to control the spread of their personal information is compromised by both technological and social violations of privacy. Understanding this, young adults turn to a variety of imperfect, but creative, social strategies to maintain control and agency over their personal data. While participants engaged in a range of privacy-protective behaviors, they recognized that these were insufficient in the face of online data-mining, widespread identity theft, ever-changing privacy-settings, and highly-networked social situations (“I don’t consider myself a tech-savvy person and so just the idea of there being people out there who just with a computer in front of them can hack this database or get my information. To some extent, I think like, ‘Oh I better add a few random numbers in this password,’ or do this or that, but you know besides that I’m also wondering, what can I really do?”).

Our data suggest that fatigue surrounding online privacy and the simultaneous presence of concern over privacy and widespread self-disclosure is not necessarily paradoxical, but a realistic response to the contemporary networked social environment given existing US policy and corresponding business-sector affordances.

Prado, Tiago S., Kill Zones? Measuring the Impact of Big Tech Start-up Acquisitions on Venture Capital Activity (February 17, 2021). Available at SSRN: https://ssrn.com/abstract=3787127 or http://dx.doi.org/10.2139/ssrn.3787127

Abstract:

This paper investigates the influence of the five largest U.S. digital platforms on venture capital activity worldwide. In the last 20 years, the big techs have been intensive in acquiring promising start-ups in their early stages of development, a strategy to defend their established markets that may quench innovation. Some authors have suggested the existence of “kill zones for innovation”, that are industry segments in which the presence and strategic interests of digital platforms discourage investments from venture capitalists. Our analysis does not support such a claim. We use an event-study empirical design with heterogenous treatment timing to identify the impact of big tech’s main acquisitions on the number of venture deals, as well as on the amount of venture investments driven towards start-ups of more than 170 industry sectors. Using a rich dataset of more than twenty-five thousand venture capital deals reported worldwide from 2010 to 2019, we found a persistent positive impact of the big tech start-up acquisitions on the appetite of venture capitalists to also invest in start-ups of similar industry segments. Moreover, the results suggest that this effect on venture capital activity is greater outside the U.S. than inside, what may be explained by the more dynamic and intense venture capital activity in the U.S. when compared to other countries. This empirical analysis may contribute to the debate on whether platforms significatively harm innovation, and how such processes may vary across countries of different geographic regions and with different levels of economic development.

Koutsky, Thomas M. and McGovern, Chris and Sun, Hongqiang, Using Empirical Estimates of Broadband Utilization to Target Broadband Adoption Incentive Programs (August 19, 2015). TPRC 43: The 43rd Research Conference on Communication, Information and Internet Policy Paper, Available at SSRN: https://ssrn.com/abstract=2588125

Abstract:

Encouraging low-income Americans to subscribe to home broadband service has proven to be an uphill battle for broadband proponents. While the monthly cost of broadband service is one obvious barrier to adoption within this population, other factors also play a role. Some may lack the necessary digital literacy skills, while others may lack a home computer or rely on other resources like libraries or computing centers for their broadband access. It is therefore important to measure barriers to broadband adoption within this portion of society, as well as determine what steps would have the greatest impact on closing the digital divide in a given geographic area.

This study attempts to measure the marginal impact of various behavioral and demographic variables and their impacts on home and mobile broadband adoption. In addition, those marginal impacts will be used to build a model by which policymakers can estimate the number of low-income households in a given geographic region that do not subscribe to broadband. This procedure will allow policymakers to estimate the number of low-income non-adopters in a given area that might be more responsive to price incentives (potential Lifeline discounts), the number that may require digital skills before adopting (regardless of price incentives), and the population to which more aggressive outreach may be needed beyond price and skill training. The procedure would allow for proper sizing of these various contents of a broadband adoption toolkit.

This study relies on multiple data sources. Early data collected through the Lifeline Pilot project sheds light on low-income respondents and their decision-making process when offered various incentives to subscribe to home broadband service. In addition, using a rich dataset collected through random digit dial telephone surveys with 8,442 low-income respondents across eight heterogeneous states (Iowa, Michigan, Minnesota, Nevada, Ohio, South Carolina, Tennessee and Texas) between 2010 and 2014, this study uses a logistic regression model to predict home and mobile broadband adoption decisions among low-income households. The regression models use binary dependent variables that indicate whether or not the household subscribes to home broadband service, and whether the household uses mobile broadband. The models incorporate independent variables for demographic factors such as the urban/rural location of the household, homeowner age, race, ethnicity, employment status, disability status, and the presence of children in the home. In addition, these models incorporate behavioral factors such as the presence of a computer in the household and use of the Internet at locations outside of the home (such as at work or a library) as independent variables.

The Lifeline Pilot Project data, coupled with early applications of the model, suggest that in addition to the demographic factors that have been shown to have a significant marginal impact on both home and mobile broadband adoption, behavioral factors that had not previously been incorporated into such models also have a significant impact on a low-income individual’s decision whether to subscribe to home or mobile broadband service. This combination of demographic and behavioral factors help provide a more robust image of the low-income non-adopter, allow researchers to estimate the number of such non-adopters within a given area, and provide policymakers design solutions that will address the lower adoption rates within this subset of the population in a more cost effective manner.

Suggested Citation:

Prado, Tiago S., Kill Zones? Measuring the Impact of Big Tech Start-up Acquisitions on Venture Capital Activity (February 17, 2021). Available at SSRN: https://ssrn.com/abstract=3787127 or http://dx.doi.org/10.2139/ssrn.3787127

Abstract:

This paper investigates the influence of the five largest U.S. digital platforms on venture capital activity worldwide. In the last 20 years, the big techs have been intensive in acquiring promising start-ups in their early stages of development, a strategy to defend their established markets that may quench innovation. Some authors have suggested the existence of “kill zones for innovation”, that are industry segments in which the presence and strategic interests of digital platforms discourage investments from venture capitalists. Our analysis does not support such a claim. We use an event-study empirical design with heterogenous treatment timing to identify the impact of big tech’s main acquisitions on the number of venture deals, as well as on the amount of venture investments driven towards start-ups of more than 170 industry sectors. Using a rich dataset of more than twenty-five thousand venture capital deals reported worldwide from 2010 to 2019, we found a persistent positive impact of the big tech start-up acquisitions on the appetite of venture capitalists to also invest in start-ups of similar industry segments. Moreover, the results suggest that this effect on venture capital activity is greater outside the U.S. than inside, what may be explained by the more dynamic and intense venture capital activity in the U.S. when compared to other countries. This empirical analysis may contribute to the debate on whether platforms significatively harm innovation, and how such processes may vary across countries of different geographic regions and with different levels of economic development.

Dean Eckles asked,

How should we judge these kind of border analysis / geographic quasi-experiments / spatial regression discontinuity designs?

Applying RDD standards, these often seem underwhelming (huge bandwidth, plenty of interference near the cutoff). Other assumptions needed? pic.twitter.com/XXMPp0Ky0N

A response: An Overview of Geographically Discontinuous Treatment Assignments

“I don’t feel the least humble before the vastness of the heavens. The stars may be large, but they cannot think or love; and these are qualities which impress me far more than size does. I take no credit for weighing nearly seventeen stone. My picture of the world is drawn in perspective, and not to scale. The foreground is occupied by human beings and the stars are all small as threepenny bits.” — Frank Ramsey, ‘On There Being No Discussable Subject’, 1925

The SNAFU principle (people are unlikely to tell the truth in a high-punishment environment) needs to be better known.

Does the wait and see approach really apply to vaccines? Real option analysis.


First published Jun 16, 2021