Consumer Protection in an Online World: An Analysis of Occupational Licensing
We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.
We thank Stone Bailey, Felipe Kup, Ziao Ju, Rebecca Li, Jessica Liu, Ian Meeker, Hirotaka Miura, Michael Pollmann, Nitish Vaidyanathan, and Chuan Yu for outstanding research assistance. We thank the company employees for sharing data and insights and participants at ASSA 2018, Boston University, Collegio Carlo Alberto, FTC Microeconomics Conference, INFORMS Revenue Management and Pricing Conference, Institute for Industrial Research Stockholm, Lehigh University, NBER PRIT 2019, Marketing Science Conference, Platform Strategy Research Symposium, SITE 2019 Occupational Licensing Conference, SOLE 2019, WISE 2018, and ZEW ICT for comments. We acknowledge support from grants through the Hellman Foundation, the Laura and John Arnold Foundation, the Russell Sage Foundation, and the MIT Initiative on the Digital Economy. The company from which we obtained proprietary data reviewed the paper to make sure that confidential information was reported accurately. None of the authors have any material financial relationship with entities related to this research. The views expressed are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Erik Brynjolfsson is the director of the MIT Initiative on the Digital Economy.
- More-stringent licensing regulations are associated with less competition and higher prices, but not with better service or higher...