Author: Edona Reshidi
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This thesis consists of three essays that study issues arising in vertical markets with consumer search. The first essay analyses wholesale price discrimination, the second essay examines vertical bargaining and obfuscation and the third essay evaluates the effect of regulated recommended retail prices. In the first essay we show that manufacturers have an incentive to offer different retailers different contracts. The mechanism relies on consumers having heterogeneous search costs. Expecting price dispersion in the retail market, consumers are induced to search. Low-cost retailers sell to a disproportionately larger share of low search cost consumers, while high-cost retailers also lower margins given their smaller customer base. In this way, by discriminating, manufacturers can create a more competitive retail market and increase their profits. We find that consumers can be better off under wholesale price discrimination. The second essay models manufacturer practices that impede consumer search. Examples include vertical informational restraints such as Minimum Advertised Prices (MAPs) and bans on online sales. We find that once the bargaining power rests with the manufacturer, the equilibrium involves no obfuscation. The final consumers, however, are worse off compared to settings when the retailers have all the bargaining power. We show that policies that impose caps on obfuscation may backfire since they induce higher wholesale and retail prices. Finally, the third essay studies the effect of regulation that requires some sales to take place at Recommended Retail Prices (RRPs). We argue that this regulation enables manufacturers to commit to their unobserved contracts and discriminate their retailers. Given the regulation, manufacturers are not free to deviate and sell to all retailers at lower wholesale prices that generate more profits. We show that without this regulation on RRPs only uniform pricing can be sustained as an equilibrium outcome and that consumers would be better off.
Author: Brandon James Hoffman
Publisher:
ISBN:
Category :
Languages : en
Pages : 182
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This is a collection of essays on the topic of vertical markets and resellers. The first two chapters look at the effects of mandatory dealer laws on prices and profits in vertical markets with differentiated goods. The third chapter looks at the quality of products chosen when manufacturers use resellers compared to when they do not. All three chapters show that competition is lessened when mandatory dealer laws exist. Chapter 1 addresses the US automobile market which has laws in almost every state that require sales of new vehicles go through franchised dealers, and manufacturers are not allowed to sell directly to consumers. While vertical markets can provide many benefits to both producer and consumer alike, double-marginalization is often seen as a problem for producers and consumers with vertical markets; whereby firms on different levels both have market power and thus are both able to charge a markup over cost. Contracts and implicit agreements can mitigate or lessen the negative externality associated with double-marginalization, but I develop a model to show that double-marginalization can be a good thing for producers, while simultaneously being bad for consumers. The model has a single dimension on product differentiation and different levels of vertical markets. In this model, firms either sell to consumers or other firms. How far removed the manufacturer of the good is from the final consumer determines the number of vertical markets. A market with one level consists of a manufacturer who sells directly to consumers, while a market with two levels consists of a manufacturer who sells to a reseller who in turn sells to consumers. I find that the profits of the manufacturer of the good can be up to three times as high when there are two levels instead of one and that they will always be at least twice as high. This model also shows that manufacturers can benefit from the existence of a law that requires they use dealers, even though any one single manufacturer has an incentive to not use a dealer. Chapter 2 addresses mandatory dealer laws in a setting without perfectly inelastic demand. Under a certain set of circumstances, manufacturers can earn higher profits after the introduction of these mandatory dealer laws than they would be without them. In this chapter, I remove the perfectly inelastic total demand restriction, and instead show how the elasticity of total demand plays a role in a manufacturer's preference for a mandatory dealer law. For the model used in this paper, I find that total demand does not need to be very inelastic at all, and in fact, can be elastic at the equilibrium prices and quantities. The findings in this paper run contrary to expectation, where double-marginalization is something that hurts manufacture's profits. In chapter 3, I analyze the benefit of moving first in a vertically differentiated market with manufacturers and retailers. Both retailers and manufactures are assumed to be profit-maximizing entities. Here the choice of the incumbent manufacturer creates an indifference between entering with a higher quality or entering with a lower quality for the entering manufacturer. Entry-quality decisions and wholesale pricing are related to the competition of retailers selling the manufacturers product and the degree of consumers' taste for quality. I examine the indifference of the entering manufacturer and highlight the benefits of being able to set quality first as an incumbent manufacturer when pricing stages are simultaneous. Stackelberg competition in the quality stage allows for the possibility for inferior-quality entry as well as superior-quality entry. The first-mover advantage dominates the high-quality advantage in this setting which is consistent with my findings in the dock and boat-lift markets.
Author: Feng Ruan
Publisher:
ISBN:
Category :
Languages : en
Pages : 87
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Author: Michael Rolland Sullivan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Recent years have witnessed a surge in the significance of digital platforms and online retailers. The analysis of digital firms and the industries in which they compete is useful for both furthering general economic knowledge and for informing policy. First, digital firms' activities incidentally generate digitized data that facilitate the empirical analysis of economic concepts applying to settings traditional and digital alike. Examples of such concepts include network externalities, pass-through of tariffs in vertical relationships, and consumer search. In addition, digital firms differ from traditional firms in ways that matter for the effects of regulation; this makes an understanding of digital firms crucial for intelligent policymaking in contemporary industries. To illustrate, the relative values of the fees that digital platforms charge on different sides of a market depend on industry features distinctive to platform markets, including network externalities and capacity for multihoming. The effects of platform fee regulations depend on these distinctive features. Additionally, the extent of search frictions and of seller differentiation in e-commerce may differ from those in brick-and-mortar retail. These differences have implications for the efficacy of interventions intended to remedy retailer market power -- e.g., if search frictions are low at baseline in e-commerce, then informational interventions may do little to intensify price competition among online retailers. In recognition of the value of understanding digital firms, I empirically characterize digital platform and e-commerce markets in this dissertation. This analysis includes assessments of (i) the welfare impacts of digital firms and (ii) the effects of policies targeting these firms. To study digital firms, I collect data from varied sources and develop empirical models of firm competition and consumer behaviour.In the first chapter, I evaluate caps on the commissions that food delivery platforms charge to restaurants. Commission caps may entice restaurants to join platforms, thereby benefitting consumers who value variety in platforms' restaurant listings. A reduction in platform commissions may also lead restaurants to lower their prices, further benefitting consumers. But commission caps may lead platforms to raise their consumer fees, thereby reducing consumer ordering on platforms and consequently platforms' value to restaurants. The net effects of caps on restaurant and consumer welfare are thus uncertain. To estimate caps' effects, I assemble data on restaurant orders, platform adoption, and platform fees. An initial analysis of the data suggests that caps raise platforms' consumer fees, reduce ordering on platforms, and lead restaurants to join platforms. To analyze these effects, I develop a model of platform pricing, restaurant pricing, platform adoption by restaurants, and consumer ordering. Counterfactual simulations using the estimated model imply that commission caps benefit restaurants at the expense of consumers and platforms. I estimate a total welfare reduction of caps equal to 6.2% of participant surplus from platforms.In the second chapter, I empirically evaluate the contributions of search frictions and presearch seller differentiation to limited consumer search and markups in e-commerce. The internet facilitates consumer learning and allows firms sell products without physical stores. These conditions seem capable of inducing high consumer awareness and cut-throat price competition. In practice, though, consumers exhibit limited consideration in online markets and often pay significantly above the minimum available price for a product. High search costs could explain these facts, as could pre-search seller differentiation: consumers with little aversion to search may not visit a store they believe they are unlikely to purchase from based on information known prior to search. I assess these explanations for limited consideration and market power using a model of sequential consumer search and retailer price competition. I estimate this model on data describing browsing and transactions in contact lens e-commerce. I find that pre-search seller differentiation, not search costs, is primarily responsible for limited consideration and market power in contact lens e-commerce.In the third chapter, I characterize the identifiability of demand models with network externalities. Guided by my identification analysis, I empirically evaluate how network externalities shape the effects of consolidation among US dating websites. Network externalities often arise in differentiated products markets, and especially in platform markets. I show that demand models with network externalities are generally not identified with market-level data alone. This result reflects the impossibility of independently varying product characteristics and market shares at the market level. However, an extension of results in Berry and Haile (2023) establishes that demand models with network externalities are identified under reasonable conditions with microdata linking consumers' decisions and characteristics. I estimate demand for dating websites using online browsing microdata. The estimates imply that a site's user values a 10% increase in site usership at USD6.34/month. I find that welfare losses from price rises outweigh gains from network externalities associated with monopolization. Additionally, I find that--due to platform differentiation--a firm earns higher profits from joint ownership of two large dating sites when it does not integrate these sites.
Author: Robert Bork
Publisher:
ISBN: 9781736089712
Category :
Languages : en
Pages : 536
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The most important book on antitrust ever written. It shows how antitrust suits adversely affect the consumer by encouraging a costly form of protection for inefficient and uncompetitive small businesses.
Author: Xinrong Zhu (Ph.D.)
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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In this dissertation, I study retail product assortments and how vertical relationships between manufacturers and retailers shape the retail landscape. The first chapter studies systematically the market share dispersion of national brands in 25 consumer packaged goods industries, and investigate the role of retailers in explaining the share dispersion. We first document stylized facts that the distribution of national top brand shares are asymmetric across retailers, even for retailers competing in the same geographic market, and the "share advantage" that a leading brand enjoys within a retailer is persistent across markets where the retailer is present and stable over time. We then specify and estimate a variance decomposition model to decompose the total variance in national brand shares and product assortments into a Brand * Retailer component and a Brand * Market component. We find that 50% to 60% of the total variance is accounted for by the Brand * Retailer component, while the Brand * Market component only explains about 10% to 20% of the total variance. Our results suggest that the large market share dispersion of national brands is caused by strong asymmetries in how these brands are presented in different retailers, even under similar market conditions. Finally we provide evidence that long-term vertical relationships between retailers and manufacturers is a key explanation for the strong asymmetries in national top brand shares across retailers and geographic regions. The second chapter takes the empirical evidence documented in the first chapter one step further, and studies a specific type of vertical arrangement---category captaincy contract. Category captaincy is a vertical arrangement whereby the retailer delegates pricing and assortment decisions of an entire category to one of the leading manufacturers within the category. These confidential contracts can lead to disproportionately higher market shares for the captain's products. The objective of the paper is to infer the existence of such contracts and to quantify their impacts on prices, market shares, and profits of manufacturers and retailers. I use the yogurt category as an empirical setting, in which the captain is either Dannon or Yoplait---the top two brands in the category by national market share. Using Nielsen scanner data, I first estimate a random-coefficient model of consumer demand. I use estimates of the brand-retailer specific shocks and a Bayesian inference model to classify retailers into one of the three categories: Dannon-captained retailers, Yoplait-captained retailers, or non-captained retailers. Conditional on the classified arrangements, I then apply conduct tests to infer that captains eliminate double markups from their own products, while the non-captain products still have double markups. The results from counterfactual experiments show that category captaincy arrangements increase market shares of the captain by about 50%, but they can also increase retailer profits and consumer welfare by eliminating double markups on the captain's products.
Author: Justine Shirin Hastings
Publisher:
ISBN:
Category :
Languages : en
Pages : 258
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Author: Xinrong Zhu (Ph.D.)
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this dissertation, I study retail product assortments and how vertical relationships between manufacturers and retailers shape the retail landscape. The first chapter studies systematically the market share dispersion of national brands in 25 consumer packaged goods industries, and investigate the role of retailers in explaining the share dispersion. We first document stylized facts that the distribution of national top brand shares are asymmetric across retailers, even for retailers competing in the same geographic market, and the "share advantage" that a leading brand enjoys within a retailer is persistent across markets where the retailer is present and stable over time. We then specify and estimate a variance decomposition model to decompose the total variance in national brand shares and product assortments into a Brand * Retailer component and a Brand * Market component. We find that 50% to 60% of the total variance is accounted for by the Brand * Retailer component, while the Brand * Market component only explains about 10% to 20% of the total variance. Our results suggest that the large market share dispersion of national brands is caused by strong asymmetries in how these brands are presented in different retailers, even under similar market conditions. Finally we provide evidence that long-term vertical relationships between retailers and manufacturers is a key explanation for the strong asymmetries in national top brand shares across retailers and geographic regions. The second chapter takes the empirical evidence documented in the first chapter one step further, and studies a specific type of vertical arrangement---category captaincy contract. Category captaincy is a vertical arrangement whereby the retailer delegates pricing and assortment decisions of an entire category to one of the leading manufacturers within the category. These confidential contracts can lead to disproportionately higher market shares for the captain's products. The objective of the paper is to infer the existence of such contracts and to quantify their impacts on prices, market shares, and profits of manufacturers and retailers. I use the yogurt category as an empirical setting, in which the captain is either Dannon or Yoplait---the top two brands in the category by national market share. Using Nielsen scanner data, I first estimate a random-coefficient model of consumer demand. I use estimates of the brand-retailer specific shocks and a Bayesian inference model to classify retailers into one of the three categories: Dannon-captained retailers, Yoplait-captained retailers, or non-captained retailers. Conditional on the classified arrangements, I then apply conduct tests to infer that captains eliminate double markups from their own products, while the non-captain products still have double markups. The results from counterfactual experiments show that category captaincy arrangements increase market shares of the captain by about 50%, but they can also increase retailer profits and consumer welfare by eliminating double markups on the captain's products.
Author: Kosin Isariyawongse
Publisher:
ISBN:
Category : Oligopolies
Languages : en
Pages : 204
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This dissertation addresses issues of strategic behavior of firms in oligopoly markets. In the first study we analyze how generic advertising affects brand advertising and firm profits in differentiated oligopoly markets. We develop two models, one with vertical differentiation and another with horizontal differentiation. In the case of vertical differentiation, we amend Crespi's (2007) model to show that only the high quality firm will use brand advertising. We also show that when differentiation is horizontal, the equilibrium is likely to be more symmetric in terms of each firm's profits, spending on brand advertising, and response to generic advertising. We also demonstrate that generic advertising will increase expenditures on brand advertising when firms play a supermodular game. In the second study, we analyze the interaction between generic advertising, brand advertising, and firm profits when products are differentiated either vertically or horizontally and brand advertising is purely informative. That is, brand advertising lowers consumer search costs of identifying brand characteristics. The model demonstrates that firms can benefit from investing in brand advertising that lowers consumer search costs as well as from brand advertising that is purely persuasive. In addition, the results demonstrate that whether brand advertising is persuasive or informative, the outcome is more likely to be symmetric with horizontal differentiation than with vertical differentiation. This study shows that brand advertising is a strategic complement when persuasive and a strategic substitute when informative. In the third study, we allow the choice of strategic variable, output and price, to be endogenous to the firm. We consider the case where one firm chooses output and the other firm chooses price, which we call a Cournot-Bertrand model. We provide a real world example of this "Cournot-Bertrand" behavior and show that the outcome can be a Nash equilibrium. Allowing the timing of play (early or late) as well as the strategic variable (output or price) to be endogenous, we demonstrate an outcome where one firm competes in output and the other firm competes in price can be a subgame perfect Nash equilibrium.
Author: Matthew Stephen Lewis
Publisher:
ISBN:
Category :
Languages : en
Pages : 244
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