Research Joint Ventures: The Role of Financial Constraints
with Igor Letina and Armin Schmutzler
Published in European Economic Review
Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
Add-on selling with context effects
with Christian Zihlmann
Published in Journal of Economic Behavior & Organization
Abstract: A common practice is to offer optional extras or upgrades during the purchase process. This paper studies endogenous consumer insensitivity to such additional prices: we posit that consumers are more prone to buy these overpriced extras when they represent a smaller share of total expenditure. The presence of such context-sensitive consumers softens competition in the market for the base good, jeopardizing their own surplus but also that of consumers with standard preferences. Exploitation of context effects by firms reduces total welfare.
Regulating Hidden Fees with Consumer Heterogeneity
with Alexander Rasch and Tobias Wenzel
Abstract: We study hidden prices and fees added during the purchasing process in a general framework that applies to many common demand functions. (Some) Consumers are inattentive to such additional costs, which induces excess demand. We allow for consumer heterogeneity in demand and inattention. This leads to two novel effects that are important to consider when regulating hidden prices. First, when attention and price sensitivity of demand are strongly correlated, the pass-through rate of hidden prices on the total price can be negative, and regulation leads to a higher total price. Second, inattentive consumers misperceive a positive pass-through rate to be negative. This can lead to increasing aggregate demand while the total price also increases. In this case, regulation increases consumer surplus by reducing the total price and excess demand. When the latter effect is not present, a policy has opposing effects on excess demand and the total price, leading to a trade-off for policymakers.
Merger Spillovers on Competitors
with Leyla Gilgen
Abstract: This paper explores merger spillovers on non-merging competitors. Using M&A cases reviewed by the French competition authority to identify competitors, we construct a novel database of competitors in all industries in France over the period 2010-2019. We combine the database with administrative firm-level balance sheet data and estimate the effect of an M&A event on firm-level outcomes. We find that after an M&A event, rival firms decrease their sales, but we do not find a statistically significant effect on profits and markups. The decline in sales is accompanied by a proportionate decrease in market share, employment, and tangible assets, consistent with negative spillover effects of M&A events on competitors.
Expectation Management and Misattribution of Reference Dependence
with Robin Ng
Abstract: This paper studies how a firm uses marketing to strategically manage expectations of consumers with reference-dependent preferences. Manipulating consumer beliefs about the product quality creates a trade-off between initial and subsequent demand. Higher expectations increase the likelihood of purchase but can also lead to excessive disappointment. When consumers misattribute such disappointment into reviews, this hurts subsequent demand. Depending on initial beliefs about product quality, the firm may undersell or overhype the product, or reduce the information asymmetry between the firm and consumers. When misattribution is high, it is more likely that the firm lowers consumers' expectations. When consumers' outside option is uniformly distributed, lowering expectations is optimal only if misattribution is sufficiently strong. We show that consumer misattribution can improve consumer surplus if and only if it is not too large.
Consumer Search and Limited Attention (with Özlem Bedre-Defolie and Markus Reisinger)
Default Rankings on Platforms (with Markus Reisinger)