Theoretical and Empirical Innovations in I.O. Models
Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM
- Chair: Patrick J. Kehoe, Stanford University
Multiproduct-firm Oligopoly: An Aggregative Games Approach
AbstractWe develop an aggregative games approach to study oligopolistic price competition with multiproduct firms. We introduce a new class of demand systems, derived from discrete/continuous choice, and nesting CES and logit demand systems. The associated pricing game with multiproduct firms is aggregative and a firm's optimal price vector can be summarized by a uni-dimensional sufficient statistic, the iota-markup. We prove existence of equilibrium using a nested fixed-point argument, and provide conditions for equilibrium uniqueness. In equilibrium, firms may choose not to offer some products. We analyze the pricing distortions and provide monotone comparative statics. Under CES and logit demands, another aggregation property obtains: All relevant information for determining a firm's performance and competitive impact is contained in that firm's uni-dimensional type. Finally, we re-visit classic questions in static and dynamic merger analysis, and study the impact of a trade liberalization on the inter- and intra-firm size distributions, productivity and welfare.
Dynamic Competition in Era of Big Data
AbstractThe advent of rich and highly--detailed information on individual web--browsing and purchase histories (an instance of so--called "Bigdata") has begun to make feasible sophisticated forms of personalized pricing, heretofore considered too informationally demanding to implement. We argue these pricing strategies are especially relevant in markets for differentiated experience goods. Taking the view that this ability to price discriminate both intertemporally and interpersonally will become increasingly relevant in the future, here we investigate its implications on the dynamics of prices and on efficiency in such markets. In particular, we derive a simple characterization of the equilibrium pricing rule that shows how prices contain a variety--specific dynamic component that depends on the relative informativeness of competing varieties about consumers' tastes. Over time, this pricing rule leads to discontinuous price changes that take the form of fluctuating price discounts for a given consumer, reminiscent of those observed in the data. We also investigate the limits to which efficiency results typical of duopoly models with one variety per firm can be extended to multi--variety and multi--firm settings, and provide simple, intuitive examples of the type of inefficiencies characteristic of these more general environments. Finally, we provide evidence on the gains associated with these sophisticated forms of price discrimination using eBay data.
Valuing School Choice: Using a Randomized Experiment to Validate Welfare Evaluation of Private School Vouchers
AbstractWhile parents and students value schools for many reasons, evaluation of school choice programs often focuses on impacts on student outcomes alone. In this paper, we pursue a unique research design to credibly identify the welfare benefits of private school vouchers. We first develop and estimate a model of school choice with credit constraints using rich control group data from a randomized controlled trial of private school vouchers in rural India. We then externally validate the estimates by simulating a voucher program in the control group to compare with the experimental outcomes. We find that accounting for credit constraints is important for accurately predicting voucher takeup and implies substantial welfare gains to recipients.
Michael H. Riordan,
- L0 - General