Research
Working Papers
2024
- Internet (Power) to the People: How to Bridge the Digital DivideJulian Hidalgo, and Michelle SovisnkyCEPR Discussion Paper No. 18354, 2024
Almost half of world households are not yet connected to the internet - with the majority of those offline in poorer countries. Finding strategies to narrow the digital divide is at the forefront of public policy. We examine the impact of a pricing subsidy in Colombia to learn about what hinders low-income populations from adopting internet services. Our model allows take-up to depend on the types of plans offered as well as the rate of diffusion in the neighborhood. Pricing subsidies reduce the digital divide by about 7% points but a large portion of that is due to the impact on the diffusion rate. We find that increasing the diffusion rate (via internet literacy programs) is more beneficial to takeup among households in the lowest socioeconomic markets relative to a pricing subsidy. Our results suggest that non-price policies are equally important to bridge the digital divide.
- Market Structure and Adoption of Internet Services in ColombiaJulian Hidalgo2024Recipient of the CRESSE & CPI 2023 Best Digital Economy Paper Award for Young Researchers.
This paper analyzes (i) how changes in market structure affect welfare and consumer choices, and (ii) how the overall effect can be decomposed into two components: the price effect and the product variety effect. I address this analysis in the context of the Internet services market in Colombia and exploit the entry of a large telecom operator in 2007. I estimate a discrete-choice demand model and use a two-stage model with endogenous product and pricing decisions to conduct various counterfactual predictions. The empirical findings indicate that market entry increased the take-up of Internet services by 7.3 percentage points and rose consumer surplus by $10.3 million (32% of the post-entry sales). The decomposition of the overall effect reveals that, on average, the price effect accounts for 61% of the total effect whereas the remaining of the overall effect can be attributed to the change of the menu of products offered by incumbent firms.
2023
- This Craft’s For You! Entry and Market(ing) Competition in the U.S. Beer Industry
Job Market PaperJulian Hidalgo2023Recipient of the Jornadas de Economia Industrial 2024 Young Economist AwardThis paper studies the advertising response of incumbents to the entry of craft brewers in the U.S. beer industry. Exploiting changes in local beer legislation and spatial variation across TV markets, I document two facts: mass-producing brewers respond by raising local advertising, and this reduces consumers’ price sensitivity. I then evaluate the implications for market power, using a structural model with persuasive advertising. The empirical model establishes that mass-producing brewers indeed had a profit incentive to respond to entry by raising advertising. Furthermore, the empirical results imply that (i) own and rival advertising can reduce price sensitivity; (ii) markups for flagship domestic brands increased from 2.6 to 3.4 for 2011-2016; and (iii) about 20% of the rising markups can be attributed to the observed increase in advertising stock.
Publications
2023
- Subsidies, Speed and Switching? Impacts of an Internet Subsidy in ColombiaJulian Hidalgo, and Michelle SovinskyReview of Industrial Organization (Forthcoming), 2023
Inequality in access to health, education, and employment opportunities is exacerbated in developing nations due to the uneven distribution of access to high speed internet connections. In Colombia, the government enacted a policy (in 2012) to subsidize internet fees for low income households to bridge the digital divide. The reductions were not granted to all plans and thus created incentives for consumers to switch between plans. We estimate a structural model of demand for internet connection plans, which we use to quantify the importance of switching behavior. We estimate the model using data on plans offered by all internet service providers to households in all socioeconomic (SES) groups across Colombia. Our results indicate that the subsidy caused a non-negligible fraction of low-SES households to switch internet plans - the majority of which switched to plans with lower speeds not higher speeds. Furthermore, the more wealthy households (of the lower SES groups) were twice as likely to switch plans than those in the lowest SES group. Our findings suggest that the impact, not only internet adoption, but also on switching behavior should be taken into account when formulating subsidies designed to bridge the digital divide.
2019
- Forensic Econometrics: Demand Estimation When Data are MissingJulian Hidalgo, and Michelle SovinskyThe Japanese Economic Review, 2019
Often empirical researchers face many data constraints when estimating models of demand. These constraints can sometimes prevent adequate evaluation of policies. In this article, we discuss two such missing data problems that arise frequently: missing data on prices and missing information on the size of the potential market. We present some ways to overcome these limitations in the context of two recent research projects. Jacobi and Sovinsky (2018), which addresses how to incorporate unobserved price heterogeneity, and Hidalgo and Sovinsky (2018), which focuses on how to use modelling techniques to estimate missing market size. Our aim is to provide a starting point for thinking about ways to overcome common data issues.
@article{https://doi.org/10.1111/jere.12242, author = {Hidalgo, Julian and Sovinsky, Michelle}, title = {Forensic Econometrics: Demand Estimation When Data are Missing}, journal = {The Japanese Economic Review}, volume = {70}, number = {3}, pages = {403-410}, doi = {https://doi.org/10.1111/jere.12242}, url = {https://onlinelibrary.wiley.com/doi/abs/10.1111/jere.12242}, year = {2019}, kind = {Publications} }
Work in Progress
2023
- Quality Labels for Internet ServicesJulian Hidalgo, and Renzo Clavijo2023
Policymakers often use labels to address important informational asymmetries about products’ quality. In the context of Internet adoption, speed labels (e.g., high vs low speed) help consumers to make informed choices, increasing the adoption of high speed services. This is particularly important in countries where the digital gap is still a first-order concern. These speed labels, however, may also give Internet providers incentives to adjust the portfolio of Internet plans, changing the competitive conditions in the market. Whether speed labels are good for consumers and for addressing the digital divide depends on the equilibrium effects of such policies. We analyze a regulation in Colombia that mandates high-speed labels (broadband) on Internet plans that exceed certain speed thresholds. Preliminary evidence suggests that Internet providers change plans such that there is bunching at the speed threshold. This change, in turn, intensifies price competition for plans at the threshold, drawing consumers from both low-speed and very-high speed segments. To evaluate the welfare effects of the regulation, we estimate a structural model with endogenous speed and price decisions. We find that while consumers value high-speed plans, this valuation increases substantially with the speed labels. On the supply side, the provision of speed is costly for firms. (In progress) We use the model to study alternative policies: no speed label, implementation of multiple speed labels (e.g., low, high and very-high speed labels), and the design of optimal label.
- Telecom Market PowerJulian Hidalgo, Giulia Canzian, and Frank Verboven2023
We analyze and document the evolution of markups for European telecom operators since 1998. Using operator-country level unconsolidated financial data, we estimate markups following the production approach proposed by De Loecker and Warzynski (2012). While the aggregate average markup has remained relatively stable at around 2 over 1998-2020, we find that there has been considerable fluctuation over time. At the beginning of the 2000s, markups start to rise from 1.9 to just below 2.6 in 2011. Next, during the 2010s, there is first a sharp decrease in aggregate market power, followed by a pronounced increase starting around 2015. We also find considerable heterogeneity in markups both across European countries and operators. The next step is to analyze the determinants of markup differences across European telecom markets (Work in progress).
Other
2022
- A Note on the Estimation of Demand for Beer Using PyBLP (Available upon request)Julian Hidalgo, Jan De Loecker, and Paul Scott2022
2014
- The Impact of Broadband Quality Standards on Internet Services Market in Colombia.Julian Hidalgo, and Oviedo Juan2014