Research
Research
Job Market Paper
"Price Posting, Noisy Matching and Heterogeneous Sellers"
This paper studies pricing strategies of sellers when there are heterogeneous production costs and search frictions. We extend the framework of Sequentially Mixed Search (Shi 2023) to include differing production costs to explore implications for sorting of agents, distributions of prices/mark-ups and market efficiency. Buyers and sellers face two frictions: meeting and matching. First, sellers decide where to post by choosing a maximum price they commit to posting at or below, trading off higher prices against attracting fewer buyers (the directed search trade-off). Then, conditional on that decision, sellers post prices but face imperfect competition arising from noisy matching. We find that sellers do not perfectly sort by production costs; instead, they commit to the same highest price unless cost differences are very large. However, segmentation emerges within the price distribution, with higher-cost sellers posting prices above lower-cost sellers. Low-cost sellers benefit from higher surplus and the ability to undercut high-cost competitors, whereas high-cost sellers gain from meeting more buyers. Analyzing market efficiency through the lens of the social planner's problem, we find there are fewer transactions and fewer buyers, suggesting inefficiencies in the equilibrium outcome.
Work in Progress
"Fighting for Fares: Uber and the Declining Market Price of Licensed Taxicabs," with Derek Stacey
In this paper, we study how the emergence of Uber in a large North American city affects the financial value of taxicab licenses. A taxicab license provides a claim to a stream of dividends in the form of rents generated by operating the taxi or leasing the license. The introduction of Uber undoubtedly affects the anticipated stream of dividends because Uber drivers capture part of the farebox revenue that might go to the owners/drivers of licensed taxicabs if regulatory supply constraints are otherwise upheld by the municipality. At the same time, the launch of Uber's innovative technology-driven approach to the provision of ride-hailing services can be viewed as a partial obsolescence of the traditional taxicab approach, which could further depress the market value of licensed taxicabs. From a regulatory perspective, the distinction between these two price effects and the welfare consequences thereof highlight the trade-off between maintaining licensing authority in industries influenced by the sharing economy and supporting competition through new sources of innovation. By viewing the secondary market fr Toronto taxicab licenses through the lens of our asset pricing model, we learn that both the farebox and innovation effects contribute to the overall decline in market value, with the farebox effect accounting for just over half of the $170K price decline from 2011 to 2017. Consistent with the anti-Uber protests organized by Toronto taxi drivers, the welfare implications derived from counterfactual simulations reveal a high willingness to pay among license holders to prevent or postpone the launch of Uber's ridesharing services.
"Recovering Search- and Seller-Cost Heterogeneity from Advertised and Transaction Prices"
In this paper, we study why seemingly identical goods are quoted and sold for different prices. Noisy matching arising from buyers’ (potentially heterogeneous) search costs can explain dispersion in quoted or advertised prices. Cross-seller cost heterogeneity, however, is an alternative interpretation. Using transaction prices in addition to advertised prices, we develop a method to disentangle and estimate these two sources of price dispersion: namely, heterogeneity in buyers’ search costs and differences among sellers in the cost of producing/selling. We first modify a well-known model of non-sequential search to include both sources of heterogeneity. We then derive equilibrium conditions, upon which we design our estimation technique. Finally, we apply our methodology to a dataset that contains both advertised and transaction prices to uncover the main source of price dispersion in the market for taxicab licenses in the city of Toronto.