Shapes as Product Differentiation: Neural Network Embedding in the Analysis of Markets for Fonts

Sukjin Han, Eric H. Schulman, Kristen Grauman and Santhosh Ramakrishnan

Papers from arXiv.org

Abstract: Many differentiated products have key attributes that are unstructured and thus high-dimensional (e.g., design, text). Instead of treating unstructured attributes as unobservables in economic models, quantifying them can be important to answer interesting economic questions. To propose an analytical framework for these types of products, this paper considers one of the simplest design products-fonts-and investigates merger and product differentiation using an original dataset from the world's largest online marketplace for fonts. We quantify font shapes by constructing embeddings from a deep convolutional neural network. Each embedding maps a font's shape onto a low-dimensional vector. In the resulting product space, designers are assumed to engage in Hotelling-type spatial competition. From the image embeddings, we construct two alternative measures that capture the degree of design differentiation. We then study the causal effects of a merger on the merging firm's creative decisions using the constructed measures in a synthetic control method. We find that the merger causes the merging firm to increase the visual variety of font design. Notably, such effects are not captured when using traditional measures for product offerings (e.g., specifications and the number of products) constructed from structured data.

Date: 2021-07, Revised 2024-03
New Economics Papers: this item is included in nep-big, nep-com and nep-ind
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Citations: View citations in EconPapers (2)

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Working Paper: Shapes as Product Differentiation: Neural Network Embedding in the Analysis of Markets for Fonts (2021)
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