The digital transformation of markets can remove traditional geographic restrictions, democratizing access to previously unattainable products, and enable individuals to extract rent from their personal assets. However, these digital innovations often have competitors and complementors that are not immune to the impact of local factors such as the local market structure, economic condition, and even demographics. This dissertation examines the geographic and demographic heterogeneity driven disparities in two digitally transformed markets, the financial and accommodations sectors respectively.
First, we study the impact of local financial market competition in managing online peer-to-peer loans. With the boom of financial technologies (FinTech), a critical question is whether the local financial market structure still matters. Unlike traditional retail financial institutions that are predominantly territorial, FinTech-based platforms, in particular peer-to-peer (P2P) lending, provide individuals equal access to funds by removing typical geographic restrictions. Combined with other benefits such as ease-of-use and lower interest rates, P2P lenders are increasingly threatening the traditional local lenders. A largely unanswered question in the literature is whether the local retail financial institutions strategically respond to the rise of such P2P platforms. Moreover, if the strategic reaction of traditional institutions continues the legacy of being territorial, borrowers will ultimately gain unevenly from the competition. That is, where a borrower lives may still matter. In this chapter, we devise multiple strategies to empirically analyze the extent and nature of the strategic response of traditional institutions to P2P lending. This includes: (1) utilization of a Probit model that leverages the richness of our local market data and (2) exploitation of bank mergers as exogenous shocks to local market structure. We find consistently that a borrower from a more competitive market is more likely to prepay, suggesting that local market structure plays a pivotal role in P2P borrowers' debt management. We validate the underlying mechanism by studying the improving credit profiles of borrowers and platforms' (exogenous) changes in pricing in moderating the main effect. This mechanism reveals that traditional banks, especially when their local market conditions support, credibly responds to the growth of P2P and are successful in attracting consumers back to traditional financial products. Relatedly, we document heterogeneity in the benefits that borrowers gain from the local market structure (using a machine learning algorithm) and verify the robustness of our main findings. We discuss the implications for P2P lending, other crowd-based markets, and local retail financial markets.
Second, we examines the heterogeneous economic spillover effects of a home sharing platform---Airbnb---on the growth of a complimentary local service---restaurants. By circumventing traditional land-use regulation and providing access to underutilized inventory, Airbnb is attracting visitors of a city to vicinities that are not traditional tourist destinations. Although visitors generally bring significant spending power, it is, however, not clear if the visitors use Airbnb primarily for lodging, thus, not contributing to the adjacent vicinity economy. To evaluate this, we focus on the impact of Airbnb on the restaurant employment growth across vicinities in New York City (NYC). Our results indicate that if the intensity of Airbnb activity (Airbnb reviews per household) increases by 1\%, the restaurant employment in an average area grows by approximately 1.03\%. We also investigate the role of demographics and market concentration in driving the variation. Notably, restaurants in areas with a relatively high number of Black residents do not benefit from the economic spillover of Airbnb activity. Also, restaurants in more competitive areas reap the benefit from this spillover most. We validate the underlying mechanism behind the main result by evaluating the impact of Airbnb on Yelp visitor reviews -- areas with increasing Airbnb activity experience a surge in their share of NYC visitor reviews. This result is further validated by evaluating the impact of a unique Airbnb neighborhood level policy recently implemented in New Orleans.