Research

Publications

Continuous Spatial Monopolistic Competition: Matching Goods with Consumers

(joint with S. Kokovin and T. Tabuchi) forthcoming in Economic Theory

Our new approach enriches the general additive monopolistic competition model (AMCM) with a space of product characteristics: consumers' "ideal varieties". Unlike Hotelling, such partially localised competition involves intersecting zones of service among producers. Then, alike AMCM, the equilibrium (uniform) firms' density increases with growing population. However, now increasing/decreasing prices are determined by the increasing/decreasing elasticity of elementary utility (instead of demand elasticity in AMCM). A new characteristic - the firm's range of service - decreases. Thus, local variety and finer matching between buyers and sellers replace the (AMCM) worldwide variety in the role of benefits from a thicker market. Free entry is socially excessive, under natural preferences.

‘Vanishing cities’: Can urban costs explain deindustrialization?

(joint with S. Kokovin) Papers in Regional Science, 2016.

Anas's impossibility theorem states that monopolistic competition or economies of scale alone are insufficient to explain growth of cities in response to growing population or decreasing trade costs (under constant urban costs); cities shrink. To enhance realism of assumptions, instead of Anas's normative approach, we study stable equilibria in the presence of another sector. Still, ‘vanishing’ remains robust! Ultimately, we argue that ‘vanishing’ mechanism looks realistic and can have an explanatory power: industries, free of externalities, should locate in small towns. Moreover, the comparative statics shows how such ‘manufacturing’ towns gradually decline, whereas other cities do not.

Working Papers

Discontinuous and Continuous Stochastic Choice and Coordination in the Lab

(joint with A. Rigos) R&R in the Journal of Economic Theory

Coordination games have multiple equilibria under complete information. However, recent theoretical advances show that if players are uncertain but can acquire information about a payoff-relevant state of the world, the number of equilibria depends on whether they can implement strategies (stochastic choice rules) discontinuous in the state. We experimentally test these results in a two-player investment game. Through a minimal visual variation in the design (our treatment) we prompt participants to play strategies whereby their probability to invest is either continuous or discontinuous in the payoff-relevant state.

When they use continuous strategies, average participant behavior is consistent with risk-dominant equilibrium play, the unique theoretical prediction. When discontinuous strategies are available --- in which case there are multiple equilibria --- participant behavior is closer to the payoff-dominant equilibrium strategy. Additionally, we extend the theory to heterogeneous populations: the set of equilibria monotonically decreases in the proportion of players who use continuous strategies.

Identifying Sorting When Firms Choose Size

R&R in the European Economic Review

In this paper, I build a model with heterogeneous firms choosing both the number and type of its workers when hiring on the frictional labour market. I develop a method to non-parametrically identify the match production function and vacancy creation cost from data on workers' wages and firms' revenues and posted job vacancies. Under the proposed identification procedure, the ordering of workers and firms is identified independently, and can therefore be achieved using potentially different data sets. I show that abstraction from the intensive margin of hiring leads to downward bias in the estimation of complementarities. The model also sheds light on the question of the exporter wage premium: exporters pay higher wages because they are larger, and higher wages are required to support a larger firm size.

Work in Progress

Public Information and Higher-Order Expectations

In games of coordination, public information can serve as a focal point to the agents when the motives to coordinate are strong. An agent pays attention to public information not only because of its content but also because she expects other people to pay attention, other agents to expect her to pay attention and so on. Thus, higher-order expectations play important role in equilibrium outcomes. I experimentally study the formation of higher-order expectations.

Principle of Minimal Differentiation in Monopolistic Competition

(joint with S. Kokovin and T. Tabuchi)

We study a model of competition in product characteristic space in which firms products are additionally differentiated: two firms may choose the same product characteristics yet consumers perceive two products (brands) to be different as in monopolistic competition. We show that if demand for individual product is not very convex, firms will choose the same product characteristics (standard), thus, confirming the original intuition of Hotelling (1929). The key intuition is that although the competition level is stronger at the point of the standard, the competition impact on the firm's demand, i.e. on the demand derivative, is weaker when demand is sufficiently flat. When both the number of firms and the characteristic space are sufficiently large, multiple standards may arise.