Research

Published papers




    Management Science, forthcoming

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.




False advertising (with Chris Wilson)

    RAND Journal, Vol. 49, Issue 2, 2018

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. (Working paper version.)





    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 firm 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 [May 2019] (with Makoto Watanabe and Jidong Zhou)

This paper develops a new framework for studying multiproduct intermediaries when consumers demand multiple products and face search frictions. We show that a multiproduct intermediary is profitable even when it does not improve consumer search efficiency. In its optimal product selection, it stocks high-value products exclusively to attract consumers to visit, then profits by selling non-exclusive products which are relatively cheap to buy from upstream suppliers. However, relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively. As applications we use the framework to study the optimal design of a shopping mall, and the impact of direct-to-consumer sales by upstream suppliers on the retail market. (Supplementary document.)


Multiproduct Mergers and Quality Competition [April 2019] (with Justin Johnson)

We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. We find that such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satis.es certain observable features. Synergies may lower consumer surplus. Mergers are more readily profitable when an industry exhibits multiple qualities. We provide a new measure of industry concentration: the Quality-adjusted Herfindahl-Hirschman Index extends the standard Herfindahl-Hirschman Index to markets in which quality differences are central.

This paper won the 2019 Robert F. Lanzillotti prize in antitrust economics


Large-scale Demand Estimation With Search Data [March 2019] (with Tomomichi Amano and Stephan Seiler)


In many online markets, traditional methods of demand estimation are difficult to implement because assortments are very large and individual products are sold infrequently. At the same time, data on consumer search (i.e., browsing) behavior are often available and are much more abundant than purchase data. We propose a demand model that caters to this type of setting. Our approach is computationally light and allows for flexible cross-price elasticities that are informed by search patterns. We apply the model to a data set containing search and purchase information from a retailer stocking almost 600 products, recover the elasticity matrix, and solve for optimal prices for the entire assortment.


Price Dispersion, Active Search, and the Diamond Paradox” (with Martin Obradovits)


Dynamic Search” (with Alexei Parakhonyak)


Merger Remedies in Multiproduct and Multimarket Oligopoly” (with Volker Nocke)



Older (inactive) papers

 
 
 
 

 

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