RESEARCH
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RESEARCH FIELDS
Primary: Industrial Organization
Secondary: Public Economics, Political Economy, Microeconomics, Applied Game Theory
RESEARCH PAPERS
Abstract: In a durable good monopoly where consumers cannot observe quality prior to purchase and product improvement occurs exogenously over time, I show that uncertainty in quality may resolve the time inconsistency problem (even for low levels of product improvement). Higher dispersion in quality creates greater demand for future product by increasing the incentive of buyers with inferior quality realizations to repeat purchase and this, in turn, reduces the incentive of the seller to cut future price. For various levels of product improvement, I characterize the range of quality uncertainty for which the market equilibrium is identical to one where the monopolist can credibly precommit to future prices. I also show that the presence of quality uncertainty can lead to no trading in the primary good market.
Abstract: I consider a durable good monopoly where the seller has private information about its product quality and buyers infer quality through dynamic prices. The model is a direct extension of the static model of signaling quality through prices by Bagwell and Riordan [American Economic Review (1991)]. I analyze the effect of inability to precommit to future price on the distortion required to signal quality through prices, as well as the effect of signaling through prices on time inconsistency. I show that unlike the complete information case, inability to precommit to future price can decrease both profit and consumer surplus so that commitment devices may be welfare improving. Inability to commit to future price creates an incentive for a low-quality seller to imitate a high-quality type for one period and then reveal its true type in the next period; this tends to increase signaling distortion. On the other hand, greater variation in consumers' valuations of the high quality good implies that the high quality product is affected more by the time inconsistency problem so that inability to commit reduces the incentive of the low quality seller to imitate the high quality seller that, in turn, reduces signaling distortion. The first effect dominates when the unit costs of producing the two quality levels are far apart and the reverse holds when they are close.
Abstract: In this paper, I analyze the trade-off between economies of scale and the costs of heterogeneity in large populations by a simulation of heterogeneous individuals partitioning themselves into groups by sequential secessions from the unified group. Heterogeneity is modeled in a multidimensional setting. Group members decide whether to secede depending on the redistribution mechanism and the comparison of the respective policies of their original and new groups. I allow for both individual secessions and group secessions. I have found a striking difference between the partitions for different transfer policies. When transfers are not allowed, there is a tendency to preserve the initial partition (status quo) compared to the case where transfers are allowed.
WORK IN PROGRESS
Abstract: In this paper, I analyze the effect of adverse selection in the used durable good market on monopoly power and time inconsistency in the primary good market. The “lemons” problem in the used good market implies that higher quality goods cannot be traded in the resale market. This has two different effects on trading in the primary market. First, competition from the used goods is less intense. This benefits the seller. On the other hand, adverse selection reduces the volume of goods that can be traded in the resale market and this, in turn, reduces the volume of repeat purchases in the primary market.
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