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Proseminar Speaker – Feng Zhu
November 3, 2017 @ 2:00 pm - 3:00 pm
The Effect of Competition on Entrepreneurial Activities in a Platform Market
Abstract: This paper studies how competition affects the process and performance of entrepreneurial activities in a Chinese online novel-writing platform, in which authors (entrepreneurs) contract with the platform to sell books chapter-by-chapter to readers. Each author signs one of the two types of contracts with the platform: a fixed-price contract in which the author is paid a fixed rate and transfers the book ownership to the platform, or a share contract in which the author earns a fixed share of book revenue and retains partial ownership of the book. Exploiting a regulatory change that leads to massive entry of books to the platform, we find that relative to books under fixed-price contracts, with greater competition, although the quantity and innovativeness of book content under share contracts both increase, their readership decreases because the platform expands more efforts in promoting books under fixed-price contracts. These results demonstrate the importance of ownership arrangement in directing the effect of competition on entrepreneurial activities and the power of platforms.