Research

Published papers


False advertising (with Chris Wilson)

    RAND Journal, forthcoming

There is widespread evidence that some firms use false advertising to overstate the value of their products. We consider a model in which a policymaker is able to punish such false claims. We characterize an equilibrium where false advertising actively influences rational buyers, and analyze the effects of policy under different welfare objectives. We establish precise conditions where policy optimally permits a positive level of false advertising, and show how these conditions vary intuitively with demand and market parameters. We also consider the implications for product investment and industry self-regulation, and connect our results to the literature on demand curvature.




    The Review of Economic Studies, Vol. 82, Issue 1, pp. 360 - 390, 2015.

We study the pricing behavior of a multiproduct .firm, when consumers must pay a search cost to learn its prices. Equilibrium prices are high, because consumers understand that visiting a store exposes them to a hold-up problem. However a fi.rm with more products charges lower prices, because it attracts consumers who are more price-sensitive. Similarly when a .firm advertises a low price on one product, consumers rationally expect it to charge somewhat lower prices on its other products as well. We therefore .find that having a large product range, and advertising a low price on one product, are substitute ways of building a `low price image'. Finally, we show that in a competitive setting each product has a high regular price, with .firms occasionally giving random discounts that are positively correlated across products.
(Previously circulated as 'Multiproduct Pricing and the Diamond Paradox')
 
Re-examining the effects of switching costs

    Economic Theory, Vol. 57, Issue 1, pp. 161-194, 2014

Consumers often incur costs when switching from one product to another. Recently there has been renewed debate within the literature about whether these switching costs lead to higher prices. We build a theoretical model of dynamic competition and solve it analytically for a wide range of switching costs. We provide a simple  condition which determines whether switching costs raise or lower long-run prices. We also show that switching costs are more likely to increase prices in the short-run. Finally switching costs redistribute surplus across time, and as such are shown to sometimes increase consumer welfare.



 
    The Economic Journal, Vol. 121, Issue 556, pp. F297-F308, 2011
 
Consumer search on the internet is rarely random. Sponsored links appear higher up a webpage and consumers often click them. Firms also bid aggressively for these 'prominent' positions at the top of the page. But why should prominence matter, when visiting an additional website is almost costless? We present a model in which consumers know their valuations for the products offered in the market, but do not know which retailer sells which product. We show that a prominent retailer earns significantly more profit than other firms, even when the cost of searching websites and comparing products is essentially zero.


 
Behavior-based pricing with experience goods (with Romain de Nijs)

    Economics Letters
, Vol. 118, Issue 1, pp. 155-158, 2013

We consider a two-period model in which duopolists sell experience goods and practice behavior-based price discrimination (BBPD). We give general conditions for when firms should offer a lower price to existing customers ('pay-to-stay') or to new customers ('pay-to-switch'). We also demonstrate that unlike previous results, BBPD may intensify competition in the first period but weaken it in the second.
 
 
 
 
Working papers and work in progress

“Multiproduct Intermediaries and Optimal Product Range” (joint with Makoto Watanabe and Jidong Zhou)

This paper develops a framework for studying the optimal product range choice of a multiproduct intermediary when consumers demand multiple products. In the optimal product selection, the intermediary uses exclusively stocked high-value products to increase store traffic, and at the same time earns profi…t mainly from non-exclusively stocked products which are relatively cheap to buy from upstream suppliers. By doing this the intermediary can earn strictly positive profi…t, including in situations where it does not improve efficiency in selling products. A linkage between product selection and product demand features such as size and shape is established. It is also shown that relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively.



A puzzling feature of many retail markets is the coexistence of large multiproduct fi…rms and smaller fi…rms with narrow product ranges. This paper provides a possible explanation for this puzzle, by studying how consumer search frictions in‡fluence the structure of retail markets. In our model single-product fi…rms which supply different products can merge to form a multiproduct fi…rm. Consumers wish to buy multiple products, and due to search frictions value the one-stop shopping convenience associated with a multiproduct fi…rm. We …find that when search frictions are relatively large all …firms are multiproduct in equilibrium. However when search frictions are smaller the equilibrium market structure is asymmetric, with different retail formats coexisting. This allows fi…rms to better segment the market, and as such typically leads to the weakest price competition. When search frictions are low this asymmetric market structure is also the worst for consumers. Moreover due to the endogeneity of market structure, a reduction in the search friction can increase market prices and harm consumers.



“Large-scale Demand Estimation With Search Data” (joint with Tomomichi Amano and Stephan Seiler)


Many online markets are characterized by sellers that stock large numbers of products and sell each product infrequently. At the same time, consumer browsing information is typically tracked by online retailers and is much more abundant than purchase data. We propose a demand model that caters to this type of setting. Our approach, which is based on search and purchase data, is computationally light and allows for flexible substitution patterns. We apply the model to a data set containing browsing and purchase information from a retailer stocking over 500 products, recover the elasticity matrix, and solve for optimal prices for the entire assortment.


“Multiproduct Mergers” (joint with Justin Johnson)


“Dynamic Search” (joint with Alexei Parakhonyak)


 
 
 
 

 

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