Essays on social effects and social media

Two significant phenomena emerge from recent internet development: consumers are influenced by social network; and consumers engage in consumption and production of user-generated content. This dissertation studies social influence and social media. In Chapter 1, we study how summer internship employer choices of MBA students at a major university are influenced by the choices made by their fellow students. We develop a simultaneous model of each individual's choice as a function of other students’ choices. Our model of interdependence in decision making is structural and equilibrium-based. Also, the model is general enough to allow both positive and negative effects of average group choices on any individual's decision. The structure of our data enables us to identify endogenous social effects separately from exogenous or correlated effects. Specifically, in our data we see each student making choices about whether or not to apply for each job opening; exogenous and correlated effects do not vary in this sample and therefore endogenous effects are identified. We employ a two-stage procedure to address the endogeneity of choices: we estimate empirical choice probabilities in the first stage, and taste parameters for employer attributes and peer influence in the second stage. Our results show that as expected, students prefer jobs with strong employer attributes (e.g. high salary, large firm size). In addition, students are influenced by their peers’ choices. However, in contrast to previous studies, we find negative (rather than positive) social effects. That is, strong attributes also make an internship employer less attractive, leading to a lower choice probability relative to cases of zero or positive social effects. This negative social effect is consistent with congestion, i.e. students are aware that a good internship will attract the interest of more students, thus lowering the odds of getting it. We find that these negative social effects are stronger for students with more work experience and stronger GMAT scores. While positive social effect leads to concentration of choices, negative social effect helps prevent concentration. In chapter 2, we analyze how large content-sharing websites operate for companies like Google and Yahoo. A content website provider needs to understand content users to achieve different objectives. Consumers searching content take sampling probability as given in deciding consumption, and producers are motivated by endorsement. Sampling probability is a key policy instrument. Endorsement may explain why a small number of producers generate most content. Individual behaviors alone cannot explain genesis and persistence of sampling probability and endorsement. Two distinguishing features of content—being free and non-rival preclude application of celebrated market equilibrium theory. We develop a content equilibrium from first principles. Consumer and producer can be compatible, and their interaction gives rise to endogenous sampling probability and endorsement. Inequality arises: higher quality producers always earn more endorsement and produce more content; and higher quality content is easier to find. Content system is optimal for consumer welfare despite inequality. Content system possesses a self-organization property to find equilibrium from other less desired states. We use this framework to show policy conflict may arise due to content firm's multiple identities.