Demand Spillovers Research Articles

More is (sometimes) merrier: Heterogeneity in demand spillovers and competition on a digital platform

AbstractResearch SummaryPlatforms create value by connecting users to complementors offering goods or services. Complementors compete on platforms but may also benefit each other by drawing demand to the platform, which may then “spillover” from one complementor to another. This tension raises the question: When are relationships between complementors competitive versus complementary? To help address this question, I apply theory on agglomeration‐driven demand spillovers to examine when on‐platform demand spillovers created by peer product launch are larger versus smaller. Studying the Spotify platform, I find spillovers are larger, and peer album release more beneficial to an artist, when the peer stimulates greater demand expansion, platform‐mediated inter‐complementor proximity is higher, and the artist benefits more from consumer learning. Findings extend literature on on‐platform competition and inform complementor strategy.Managerial SummaryOn digital platforms, complementor product launch may hurt peer performance by causing substitution or may benefit peer performance by drawing demand to the platform which may then “spillover” from the complementor to a peer. Studying the Spotify platform, I examine when such spillovers are larger versus smaller, shedding light on when peer product launch is beneficial versus detrimental for complementors competing on digital platforms. On Spotify, demand spillovers are larger, and peer album release more beneficial to an artist, when peer album release draws listeners to the platform, Spotify recommendations connect the artist to the peer, and the artist reaches new or unfamiliar listeners. The findings suggest that, on platforms featuring demand spillovers, complementors can take strategic actions to leverage spillovers and improve performance.

Recharging Retail: Estimating Consumer Demand Spillovers from Electric Vehicle Charging Stations

Problem definition: We estimate the impact of electric vehicle (EV) charging stations on volumes of consumer foot traffic received by nearby retail establishments. We also explore the conditions under which any effects manifest. Methodology/results: We use a differences-in-differences design, exploiting the staggered introduction of Tesla Supercharger stations across the United States. We combine data on Supercharger installations with mobile phone–based estimates of retailer foot traffic. We explore heterogeneity in the treatment effect, in terms of EV charger characteristics, visitor characteristics, establishment type, and local physical context. We estimate that establishments experience an average 4% increase in monthly visits following the installation of a Tesla Supercharger. These effects arise primarily for retailers that offer relatively quick services (e.g., fast food) and for those located very near to the charger (within 150 meters). The effects are also more pronounced when the Supercharger is one of the first EV chargers introduced into the local area. Managerial implications: We document evidence of the positive retail demand spillovers arising from EV charging station infrastructure. We also document the conditions under which the benefits manifest. Insights for EV network operators, retailers, and policymakers are included. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0519 .

The Demand for Internal Auditors following Accounting and Operational Failures

ABSTRACT Using a comprehensive database of U.S. internal auditor job postings, we find that firms are about 10 percent more likely to post an internal auditor job after the revelation of accounting and operational failures. Also, the demand for internal auditors is stronger when a failure is more severe. Among firms posting internal auditor jobs, firms demand higher-quality internal auditors in response to a failure compared with when there has not been a recent failure. We find evidence of internal audit demand spillovers through connected directors, which helps mitigate concerns that the primary results are due to replacing internal auditors that recently left or due to endogenous links between hiring internal auditors and failure revelations. Overall, our evidence suggests that firms demand internal auditors to help ensure high-quality financial reporting and effective operations. JEL Classifications: G34, J23, M41, M42.

Research on the Supply-side Structure Reform of China's Company Law

At present and in the future, China's economic development faces some problems about supply and demand, but the main contradiction lies in the supply side. Facts have proved that China's problem is that the supply cannot change with the changing demand, that is, the lack of effective supply capacity leads to a large number of "demand spillovers", leading to a serious outflow of consumption capacity. To solve these structural problems, people must make efforts from the supply side and find the right position in the world supply market. In other words, Chinese government must take improving the supply side structure as the main direction of attack, and realize the leap from the low level of supply and demand balance to the high level of supply and demand balance. Among them, the company system plays a vital role in the company's survival and supply-side structural reform. In 1993, after 30 years of double-digit growth, South Korea ranked among the "four Asian dragons" from the poorest country in the world, and its per capita income rose from 82 to 8449 dollars. In this process, all countries in the world clearly believe that the supply-side structural reform of the Jin Yongsan government is indispensable. At present, some problems faced by Chinese companies are also unprecedented. The reform of China's company law is not simply a change of departmental rules, but more importantly, it can improve the competitiveness of the country and social reform and development through the revision of the company law. In this case, this paper uses the methods of comparative study and case analysis to analyze the common problems of the company system, in order to deepen the supply-side reform of the system and promote the comprehensive modernization of the company law.

Category expansion through cross-channel demand spillovers

Does the local presence of premium branded stores with strong associations to a product group help promote the relevant category as a whole? Based on the Starbucks example, this paper documents such a demand spillover effect for coffee across channels and firms: The firm’s stores stimulate coffee demand in mass-market grocery channels, benefiting rival firms that target consumption at home. I show the spillover at the household level, as well as with retail scanner data, employing a demand model to account for supply-side responses. To establish causality, I use a strict fixed effects specification with trend controls, and also validate the findings using instrumental variables based on the supply-side advantage to operating chain stores in proximate markets. In a representative market, the presence of a Starbucks stores boosts rival packaged coffee sales by 1.2%. The increase appears consistent a consumption stimulation effect of Starbucks stores acting as environmental cues for coffee, their main product. Evidence from other chains confirms the spillover, mainly from more premium brands with high demand-stimulating potential to lower-end mass products. The effect builds over time, and as cue theories predict, interacts positively with past consumption, suggesting a reinforcing effect on consumption habits.

Managing product upgrades and rollover under demand uncertainty

We study the optimal product upgrades and rollover strategies of a risk-averse firm that is uncertain about future demand. For this purpose, we develop a two-period model based on whether the firm makes upgrading investments and if so which product rollover (solo or dual) strategy it adopts. Analysis of the equilibrium outcomes shows that if the firm is moderately risk-averse, it is unprofitable to upgrade and therefore only sells the first-generation product over two periods. Otherwise, the firm benefits from upgrading investments. In this case, the (solo-) dual-rollover guarantees the maximum total payoff if the degree of risk aversion is (low) high. Our sensitivity analysis demonstrates that: (i) the dual-rollover strategy can be seen as a hedge against increased demand uncertainty; (ii) the firm has a higher likelihood of using the dual-rollover strategy as cannibalization intensifies or intertemporal demand spillovers increase; and (iii) a lower payoff discount rate generally discourages the firm from upgrading the product. When upgrading investments happen, the optimal product rollover strategy is contingent upon the degree of risk aversion and the payoff discount rate.

Positive Demand Spillover of Popular App Adoption: Implications for Platform Owners’ Management of Complements

As platform owners interact with end users and complementors, their demand-side characteristics and performance affect the overall value creation of ecosystems. This research investigated how the emergence of popular complements on a mobile communication platform impacts the usage of other complements by the platform’s end users and how platform owners can benefit from such demand spillovers. Using individual user-level app usage data, we empirically demonstrated how the presence of a popular app alters the demand structure of a platform through changes in the usage of other apps operating within it. The findings reveal that popular app adoption by users increases the app usage, excluding the usage of popular apps, only within the platform offering a popular app, supporting the existence of positive spillovers from popular complement adoption on a platform. Such positive within-platform spillovers occur through the increased usage of both existing and new apps, with stronger positive spillovers for new apps. These findings imply that platform owners can reap benefits by coordinating the launch of new complements and the promotion of less-known counterparts to end users with the emergence of a popular app. All these results shed light on how platform owners can manage their complements and create value from popular complements.

Exclusivity strategies for digital products across digital and physical markets

Digital technologies allow versioning a product (e.g., a movie) for different physical and digital sequential distribution channels to target heterogeneous consumer segments, thereby creating exclusive offers. Extant literature on sequential distribution for movies largely concentrates on the theater-to-home-video window length (e.g., DVD), thus, neglecting digital distribution channels, particularly the potential of exclusive digital offers when multiple subsequent home video channels are available. We empirically examine the impact of exclusive digital movie offers on demand in digital and physical distribution channels. We fit a system of equations to a unique sample of 260 movies distributed in theaters, digital purchases, digital rentals, and physical purchases channels. Overall, the results indicate substantial profits from exclusive offers. Rather than sales cannibalizations, we find positive cross-channel demand spillovers from exclusive digital offers to delayed physical purchases. Exclusive home video offers outperform mere reductions in the theatrical exclusivity period; thus, implementing exclusive digital home video releases is a promising alternative to avoid conflict-prone reductions of the overall theater-to-home-video release window. Our findings are also relevant to industries that use different online and offline release windows (book publishers) or give exclusive access across different platforms (game publishers).

Estimating the Stockout-Based Demand Spillover Effect in a Fashion Retail Setting

Problem definition: In brick-and-mortar fashion retail stores, inventory stockouts are frequent. When a specific size of a fashion product is out of stock, the unmet demand might not be completely lost because of spillovers to adjacent sizes of the same style or to other styles. Little research has been done to study consumer response to stockouts of fashion products because researchers had limited access to proprietary data of fashion retailers and because it is challenging to estimate stockout-based demand spillover patterns using existing approaches due to the enormous number of stockkeeping units (SKUs) and frequent stockouts in fashion retail stores. To fill this void in the literature, we empirically estimate the stockout-based demand spillover effect in a fashion retail setting. Methodology/results: We obtain a large-scale data set from a fashion retail chain selling world-renowned sportswear brands. The retail stores in the sample are dedicated to products of a single brand. Using around 1.5 million granular and real-time sales and inventory records of 217 stores, 503 men’s footwear products, and 4,024 SKUs over a two-year period, we develop a difference-in-differences framework to estimate the stockout-based cross-size demand spillover effect. We demonstrate the validity of this framework by conducting a pretrend test and a placebo test. We find that roughly 51.7% of the unmet demand of an out-of-stock SKU spills over to adjacent sizes of the same style when they are in stock: 25.1% to the adjacent-larger size and 26.6% to the adjacent-smaller size. The cross-size demand spillover effect is larger in regular stores than in flagship stores, larger for casual sports shoes than for specialized sports shoes, and larger for low-price products than for high-price products. Adapting an existing attribute-based demand model to our setting, we estimate that roughly 20.2% of the unmet demand of an out-of-stock SKU spills over to different styles when they are in stock. Taken together, these estimations suggest that about 28.1% of the unmet demand of an out-of-stock SKU becomes lost sales. We further find that when stockouts are widespread among SKUs, stockout-based demand spillovers are significantly reduced, resulting in much increased lost sales. Managerial implications: First, we empirically quantify the stockout-based cross-size demand spillover effect and its impact on lost sales in a brick-and-mortar fashion retail setting. Second, our simulation analysis shows that incorporating the cross-size demand spillover effect into the sportswear retail chain’s proactive transshipment decision can substantially reduce its transshipment cost and improve its profitability. Funding: S. Li and S. Huang were supported by the National Natural Science Foundation of China [Grant 72188101] and the Center for Data Centric Management in the Department of Industrial Engineering at Tsinghua University. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2022.1135 .

Racing with or Against the Machine? Evidence from Europe

A fast-growing literature shows that technological change is biased towards routine tasks, changing the structures of employment and wages in developed economies. This paper is the first to estimate the absolute rather than relative employment effects of routine-biased technological change (RBTC) for Europe as a whole and at the level of 238 European regions. We develop and estimate a task model of regional labor demand in tradable and non-tradable industries, building on Goos et al. (2014), and distinguish the main channels through which technological change affects labor demand. These channels include the direct substitution of capital for labor in task production, but also the compensating effects operating through product demand and local demand spillovers. We empirically estimate the contributions of the channels in our model to analyze how RBTC affects both aggregate and regional employment. Our results indicate that RBTC has on net created more than 11 million jobs across 27 European countries over 1999-2010, comprising half of total employment growth, and can account for some 40 percent of the observed European regional variation in employment growth over this period.

Labor leverage, coordination failures, and aggregate risk

This paper studies an economy in which demand spillovers make firms’ production decisions strategic complements. Firms choose their operating leverage trading off higher fixed costs for lower variable costs. Operating leverage governs firms’ exposures to an aggregate labor productivity shock. In equilibrium, firms exhibit excessive operating leverage because they do not internalize that an economy with higher aggregate operating leverage is more likely to fall into a recession following a negative productivity shock. Welfare losses coming from firms’ failure to coordinate production are amplified by suboptimal risk-taking, which magnifies the impact of productivity shocks onto aggregate output.

Is Clean Development Always Possible? The Role of Environmental Policy in Developing Countries in the Presence of Aggregate Demand Spillovers

Is Clean Development Always Possible? The Role of Environmental Policy in Developing Countries in the Presence of Aggregate Demand Spillovers

Friends in High Places: Demand Spillovers and Competition on Digital Platforms

By lowering transaction costs, digital platforms may foster complementary dynamics across offerings that compete in other settings. In a study of the Spotify music streaming platform, I study the effect of peer expansion on provider performance and consider when demand spillovers outweigh substitution across providers on a digital platform. I find that, on average, increases in peer demand improve provider performance on the Spotify platform, however provider characteristics moderate this effect. Expansion by popular peers improves provider performance, while expansion by niche peers does not generate sufficient spillovers to overcome the negative effects of substitution. I explore how platform recommendation systems magnify spillovers and consider the strategic implications of these market dynamics. In doing so, I highlight that digital platforms alter how firms compete and whom they compete with.

Global Demand Spillovers Near the Zero Lower Bound

This paper revisits the Zero Lower Bound (ZLB) irrelevance hypothesis from a multi-country perspective, investigating country-specific adjustment to external world shocks across a panel of 17 advanced economies from 1979 to 2019. To quantify world shocks, a broad set of real commodity prices are used to proxy global demand pressures. I then document a robust threshold in policy rates lying between 2.5% and 3.5%, below which global demand spillovers to domestic financial markets and economic activity rise substantially. These magnified spillovers near the ZLB persist after controlling for the post-2008 period, economic boom-bust cycles, secular time trends, and commodity exporters. Estimates from a threshold-augmented VAR further show that global demand shocks near the ZLB induce magnified financial and real adjustment along with rising real interest rates. Meanwhile, the economic expansion associated with a 1 percentage point drop in idiosyncratic long-term bond yield innovations offsets completely the average impact of global demand spillovers near the ZLB. This suggests that magnification near the ZLB is relevant, yet potentially countered by endogenous unconventional monetary policies targeting long-term yields over the same period.

Politics, Pandemics & Pharmaceuticals: Evidence from COVID-19 POTUS endorsement of HCQ & Global Demand Spillovers in India

How does misinformation spill over spatially? We examine this question using novel sales data from 2018-2020 in the Indian market for anti-malarial drugs impacted by the spatial spillover of misinformation around HCQ usage in COVID-19 endorsed by the former POTUS Donald Trump. Using a difference-in-difference approach, where Hydroxychloroquine (HCQ) and Chloroquine (CQ) are our treated product markets (other anti-malarial drugs being controls), we find that the HCQ endorsement by Donald Trump resulted in a revenue growth rate increase of 1.1% and 0.67% for HCQ and CQ in India. Analogous figures for sales were 0.96% and 0.67%. Results were robust controlling for molecule, region, time, molecule-region, and region-time specific unobserved heterogeneity. The effects are most prominent in top Indian regions with urban populations, better internet penetration, and population density. Our findings have important implications for spatial spillover of misinformation, global health policy and pharmaceutical markets.

The 'My Name is Khan' Effect: Unexpected Celebrity Destigmatization and Demand Spillovers in Pharmaceutical Markets

Does unexpected celebrity destigmatization cause healthcare demand spillovers? We test this question in Indian pharmaceutical markets and using the exogenous release of My Name is Khan (MNIK), a Bollywood blockbuster movie where the protagonist, superstar Shahrukh Khan, suffers from Asperger’s Syndrome (AS). Using a difference-in-differences design, we find supporting evidence of a positive and statistically significant effect of MNIK on demand, product differentiation and physician prescribing behavior in the market for antipsychotic medicines used to clinically treat AS. Results are consistent using synthetic controls and with other robustness checks. Our findings imply welfare effects of ‘edutainment’ in healthcare contexts with sticky demand.

Real estate boom and resource misallocation in manufacturing industries: Evidence from China

Resource misallocations between firms have been found to have substantial impacts on the aggregate total factor of productivity. This study examines the impacts of a real estate boom on resource misallocations. We propose that real estate booms drive up demand in real estate-linked industries and that these ‘windfall’ demand spillovers reduce intra-industry competition and increase productivity inequality within industries. Using the difference-in-differences approach, we document that industries that are more linked to the real estate sector experienced increased dispersion in firm productivity in the post-boom era. Real estate booms therefore increase intra-industry resource misallocation.

Global Demand Spillovers in Corporate Bond Issuance: The Effect of Underwriter Networks

Using novel data and a difference-in-differences strategy, I find that central bank corporate bond purchases spillover to foreign jurisdictions through bond underwriting networks. The diff-in-diff exploits the European Central Bank's 2016 corporate sector purchase program. I compare U.S. firms connected to underwriters with more or less Eurozone clients. Firms connected with banks with more European clients had larger orderbooks and issued more at lower costs. Treated firms do not increase real investment, but rather increase equity payouts. I identify a novel channel through which demand shocks spread across borders: the bond underwriting network. These results matter for understanding the overall impact of corporate quantitative easing programs.

Firm Scope and Spillovers From New Product Innovation: Evidence From Medical Devices

We use detailed panel data at the buyer level to understand the size and nature of spillovers across product categories in medical devices. Difference-in-differences regressions identify spillovers in usage (accounting for 21 percent of market share) across categories that share physical features. All categories exhibit spillovers in contracting (accounting for 7 to 18 percent of the probability of contracting). These buyer-level spillovers represent up to half of all potential demand spillovers and one-third of the overall correlation in shares across categories, suggesting meaningful implications for firm strategy and antitrust policy for firms selling in multiple product categories.

Operating Leverage, Risk Taking and Coordination Failures

This paper studies an economy where demand spillovers make firms' production decisions strategic complements. Firms choose their operating leverage trading off higher fixed costs for lower variable costs. Operating leverage governs firms' exposures to an aggregate labor productivity shock. In equilibrium, firms exhibit excessive operating leverage as they do not internalize that an economy with higher aggregate operating leverage is more likely to fall into a recession following a negative productivity shock. Welfare losses coming from firms' failure to coordinate production are amplified by suboptimal risk-taking, which magnifies the impact of productivity shocks onto aggregate output.