Research

Abstract:  We extend BLP's aggregate discrete-choice model of product differentiation to create more flexibility in the price functional form. We apply a Box-Cox specification, which relaxes the typical unit demand assumption and creates flexibility on demand curvature. The model provides a unifying framework for mixed logit and mixed CES models, while remaining computationally tractable. We provide an illustrative application to the ready-to-eat cereals market.  This shows that the cross-sectional relation between price elasticities and average prices per product is more in line with descriptive elasticity patterns, and that substitution between product pairs may be affected to some extent. 

Abstract: This paper studies the widespread price dispersion of homogeneous products across different online platforms, even when consumers can easily access price information from comparison websites. We collect data for the 200 most popular hotels in London (UK) and document that prices vary widely across booking sites while making reservations for a hotel room. Additionally, we find that prices listed across different platforms tend to converge as the booking date gets closer to the date of stay. However, the price dispersion persists until the date of stay, implying that the “law of one price” does not hold. We present a simple theoretical model to explain this and show that in the presence of aggregate demand uncertainty and capacity constraints, price dispersion could exist even when products are homogeneous, consumers are homogeneous, all agents have perfect information about the market structure, and consumers face no search costs to acquire information about the products. Our theoretical intuition and robust empirical evidence provide additional insights into price dispersion across online platforms in different institutional settings. Our study complements the existing literature that relies on consumer search costs to explain the price dispersion phenomenon.

Abstract: As opposed to consumer-directed advertising, physician-directed promotion is a controversial practice. Consumers rely on physicians' expertise for obtaining the most effective prescription drug at the lowest possible cost. Patients, however, may not receive the most optimal or cost-effective treatment when physicians receive economic incentives (e.g. kickbacks) to prescribe one brand over its competitors.  In this paper, we use the case of Dolo 650, the leading branded paracetamol product in India, to quantify the economic impact of an alleged bribery scheme to have physicians divert prescriptions towards Dolo 650 (instead of cheaper/generic versions). We estimate a structural demand model for paracetamol in India to generate counterfactual sales of each brand during the alleged bribery period. Consistent with the bribery charges, we find that the model accurately predicts sales by all paracetamol competitors during the alleged bribery period, except for Dolo 650. Our counterfactual estimates indicate that Dolo 650 increased sales during the alleged bribery period by 38%. We quantify that the bribery period reduced consumer welfare by $ 1.4 billion dollars (11 times the total bribery disbursements of $125 million US dollars).

One line summary: Increase in prices due to a merger unambiguously harms consumers, however investment incentives after a merger, leading to rearrangements in the dealership network may have heterogeneous implications for consumer welfare.

Abstract: This article investigates the effects of an automobile merger on the equilibrium dealership network and consumer welfare. I estimate a structural model of the Belgian automobile industry, where firms make endogenous decisions on prices as well as their dealership networks. I use these estimates to simulate a counterfactual world focusing on the recent acquisition of Opel brand by the PSA group. The counterfactual simulations show that car prices increase after the merger. However, the number of dealers selling cars of the merged firm and its close competitors decreases. The results suggest that, while an increase in prices following a merger unambiguously harms consumers, the investment incentives after a merger, leading to rearrangements in the dealership network may have heterogeneous implications for consumer welfare. In particular, the dealership network shrinks significantly in relatively rural regions leading to a fall in consumer welfare in those local markets. The firms however add dealers in relatively urban and more populated regions which improve consumer welfare in those geographic locations. These results have important implications for antitrust policies.

This paper studies how the ideological composition of federal courts affects hospital mergers in the United States. Hospitals merge to gain market power, raising prices and profits. Yet only large mergers face review by the Federal Trade Commission or Department of Justice under the Hart-Scott-Rodino Act. Most hospital mergers fall below that threshold and proceed without oversight. In such cases, judicial ideology acts as a latent regulatory constraint. Hospitals anticipate how judges in their circuit would view an antitrust challenge. In conservative circuits, where judges favor efficiency and are less skeptical of concentration, hospitals expect a lower risk of being blocked and are more likely to merge. In liberal circuits, where judges emphasize market structure and consumer welfare, hospitals may self-deter. The paper extends Canes-Wrone’s (2003) framework of anticipatory behavior from bureaucratic agencies to private firms. Using data from Cooper, Craig, Gaynor, and Van Reenen (2019) on hospital mergers from 2001–2014 merged with new measures of federal court ideology, I test whether hospitals in more conservative circuits are more likely to merge. The results show that even without direct judicial intervention, the composition of lower courts influences market consolidation and, through it, the prices patients ultimately pay for healthcare.

Abstract: In this paper, I estimate a structural model of the automobile industry by considering nine large European countries. I explicitly model the manufacturers' decision regarding the number of dealers to uncover fixed costs. The existing literature on the estimation of fixed costs (e.g. Pakes et al. (2015), Fan and Yang (2020)) has modeled the entry into a market as a strategic game while treating the decision about whether to enter as a discrete choice variable. In contrast, in this analysis, I treat the firm's decision on the number of dealers in a given market as a continuous variable. The assumption of the number of dealers as a continuous choice variable provides a significant advantage in lowering the computational burden while estimating the entry game. The results show that the average of the estimated fixed costs of adding a dealer under this assumption matches closely with the fixed cost of entry when the number of dealers is treated as a discrete variable.

Abstract: This paper documents the evolution of car characteristics and markups for the European automobile industry during 1970-99. I use detailed data on car prices, quantities, and other car characteristics in five European countries to estimate demand systems with flexible consumer preferences. The evidence confirms the patterns in Knittel (2011) that horsepower, size, and fuel efficiency have improved significantly over this period of time. I estimate the markup of each car model, under the assumption that the car manufacturers maximize their variable profits. I find that the markup increases by approximately 33% across all the countries. The marginal cost of production has also increased due to the increasing quality of cars and technological growth in the automobile industry, leading to higher car prices over time.

In this paper, we evaluate the location and employment effects of a merger between large retail chains in the food retail industry in the United States. We use  National Establishment Time-Series (NETS) Database, where we observe the store locations, the number of employees as well as the annual revenue by each store. We construct a structural model where stores endogenously decide on the store location choice, the number of employees. Using those estimates from the structural model, we evaluate a merger between two supermarket leaders (such as Kroger and Albertsons) and compute the equilibrium store network, and overall employment by the merged firm as well as its rivals, and its implications on consumer welfare.

In this paper, we are looking into the distortion of market entry caused by variations in regional trade taxes in Germany. Each of the approximately eleven thousand municipalities in the country establishes its own trade tax multiplier for local businesses. This multiplier determines the tax income proportionate to the firms' revenue, creating significant incentives for firms in terms of their location choices. For instance, consider the case of Mainz, where the headquarters of Biotech are situated. With the increased sales of the Biotech/Pfizer vaccine, Mainz experienced a peak in tax income. In response, the city opted to decrease the tax multiplier, aiming to encourage more firms to enter, a move that raised concerns among neighboring cities. There was apprehension that their existing businesses might relocate to Mainz (SWR, 2021; Hesseschau, 2022). In our paper, we compare the observed market outcomes with social planner solution and evaluate whether the regional taxes are set in an efficient manner.