Social Influence in Product Choice and Market Competition: Evidence from a Mobile Communication Network
Job Market Paper
Funded by CV Starr Fellowship Cornell University
Download: [Latest Draft]
Social influence is an important driver of consumption behavior, but its effect on firm competition and pricing is understudied. While social influence may create an incentive for firms to reduce initial prices to attract a larger customer base, it can also result in firms charging higher prices in the future because of a social differentiation effect. This paper investigates whether and how social influence affects product choices and firm competition, drawing on a novel dataset that consists of large scale de-identified mobile call records from a city in China. I first identify social influence using a new identification strategy that exploits the partially overlapping network of friends and residential neighbors and the intertemporal variation in friend circles. I find that the purchasing probability for a phone model doubles with 10 percent more friends using the same model. Consumers are more likely to conform to wealthier friends and choose visually distinct features, suggesting that status-seeking motivation may be an important driver of social influence. I then evaluate how social influence affects firm competition by building and estimating a structural model that incorporates social influence in consumer demand. I find that social influence favors high-quality products while reducing low-quality products' market share. In addition, a small price drop of a product would lead to larger gains through quantity expansion by peers. Social influence, on average, reduces initial prices by 0.7 percent and increases subsequent prices by 0.05 percent. It also increases the total profits of new products by 3.4 percent and increases consumer surplus by about 1.7 percent.
Information, Mobile Communication Patterns and Social Referrals
We use the universe of de-identified and geocoded cellphone records for over a million individuals from a major Chinese telecommunication provider to examine the role of information exchange in urban labor markets. We find that information flows, as measured by call volume, correlates strongly with worker flows, a pattern that persists at different levels of geographic aggregation. Conditional on information flow, socioeconomic diversity of the social contacts, especially that associated with the working population, helps to predict the worker flows. We supplement the phone records with administrative data on firm attributes and auxiliary data on job postings and residential housing prices. Referred jobs are associated with higher monetary gains, a higher likelihood to transition from part-time to full-time, reduced commuting time, and a higher probability of entering desirable jobs. Referral information is more valuable for young workers, people switching jobs from suburbs to the inner city, and those changing their industrial sectors. Firms receiving referrals are associated with more successful recruits and faster growth.
The Effects of Parental Retirement on Adult Children’s Labor Supply: Evidence From China
Funded by Small Grant in Labor Economics Cornell University
Aging and an increasing retired population are a global challenge. Previous studies suggest that retirement affects economic behaviors of the retiree and his or her spouse, including consumption, health outcome, and time use. However, little is known about the intergenerational effects of parental retirement on adult children. This paper studies the effects of parental retirement on adult children's labor supply through intergenerational time and monetary transfer. We exploit the mandatory retirement age in China as the cut-off point and apply a regression discontinuity (RD) approach to four waves of the China Family Panel Studies (CFPS) Dataset. Our findings suggest that parental retirement reduces adult children's annual hours of labor supply by 3 to 4 percent. This reduction is especially pronounced for female children. We find that the reduction can be explained by parents' increasing demand for time and care from children due to the significant drop in parents' self-rated health upon retirement. Although both male and female children increased their monetary and time transfers to parents, we find that parents tend to make more transfers to sons compared to daughters. Daughters are also more likely to make transfers to parents after they retire, both in terms of money and in terms of time. We therefore urge policy makers to increase formal eldercare provisions and provide workplace amenities such as flexible working hours, especially for female employees.
Works in Progress
"Direct and Spillover Effects of Bank Lending in Bank-Firm Networks Following Tariff Reductions"
with Yimeng Tang