Essays on the Design and Industrial Organization of Online Markets

The internet has revolutionized marketing. Firms use the internet to procure advertising content, reach consumers, and offer a convenient channel of purchase. Given the growing importance of the internet, marketers must learn to take advantage of new marketplaces and channels. This research examines how the economic design of electronic marketplaces and online channels affects consumer and firm behavior. The first chapter examines the effects of prize structure and entry limits on participant behavior and idea quality in a freelance marketplace where popular advertisers such as P&G and Unilever organize contests to procure ideas for advertising content. It presents a structural model and uses counterfactual simulations to show that although the number of prizes does not appear to affect contest outcomes, prize amount and submission limits may have a significant impact that depends on participant heterogeneity and information. The second chapter uses a structural model and counterfactual simulations to explore how different expiration and pricing policies in a marketplace that offers deeply discounted but expiring deals for products affects the purchase and redemption behavior of consumers and the pricing decisions of merchants. This chapter sheds light on recent marketing regulation that befell the daily deals industry. The third and final chapter studies the decisions of retailers who operate both an online and a store channel to match their own prices across channels in a variety of competitive settings. It uses an analytical game theory model to show that different self-matching configurations may emerge in equilibrium, and that self-matching pricing policies may increase retailer profits.