Essays on empirical industrial organization

Gonzalez, Julia

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https://hdl.handle.net/2142/105183 Copy

Description

Title

Essays on empirical industrial organization

Author(s)

Gonzalez, Julia

Issue Date

2019-04-12

Director of Research (if dissertation) or Advisor (if thesis)

Marshall, Guillermo

Doctoral Committee Chair(s)

Marshall, Guillermo

Committee Member(s)

• Bernhardt, Mark D.
• Deltas, George
• Lemus, Jorge

Department of Study

Economics

Discipline

Economics

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Industrial Organization
• retail gasoline markets
• Edgeworth cycles
• airline mergers
• flight delays
• new product introduction
• quality labeling
• welfare evaluation.

Abstract

This dissertation is composed by three essays in Empirical Industrial Organization. They analyze different industries and utilize different types of data and methodologies, but they all fall under the umbrella of studying the behavior of firms and markets through the use of empirical techniques and data-based approaches. The first chapter, written in collaboration with Carlos Hurtado, investigates the pricing strategies of gas stations in the United States. Retail gasoline markets feature high cross-sectional price dispersion and asymmetric cycles in price dynamics, two puzzling phenomena that have gone unrelated largely because the literature defines price cycles at the market level. The aim of this chapter is to identify different pricing strategies–indicated by cycling behavior–at the gas station level, measure their consequences for price-level variability, and explore their determinants. We use daily, station-level gas prices in the United States, and propose a new cycling indicator that overcomes issues with the existing one. Our results uncover a high degree of heterogeneity in pricing strategies within retail gasoline markets, even among gas stations in close proximity, and regardless of the brand. We exploit this intra-market variation in cycling behavior as an identification strategy, before unavailable, for the estimation of a cycle-induced price gap of -3.43 cents. With respect to the reasons that motivate cycling behavior, we rule out conventional forms of collusion and show that some testable predictions of the theory of Edgeworth cycles do not hold. We contribute to the explanation of cycling heterogeneity by showing the existence of consumer sorting into different stations according to their strategy: non-cycling stations attract inelastic consumers, while cycling stations attract price-sensitive, search-intensive consumers. The second chapter is joint work with Jorge Lemus and Guillermo Marshall; it measures how the challenges of organizational disruption after a merger impact quality provision, through the study of the case of airline mergers. Merger-induced efficiencies may enhance firm performance, but the challenges associated with organizational consolidation may offset these gains. We use administrative data from the United States airline industry to measure the quality added from a merger over time. We leverage unique industry features to separate organizational from non-organizational effects of a merger on quality provision. Organizational effects are found to cause a long-lasting and significant reduction in the quality supplied by a merged firm. Also, we find that merged firms may perform poorly relative to the merging firms' pre-merger performance. The third chapter, coauthored with Victoria Lacaze, proposes a methodology to assess the impact of the introduction of a new product on market outcomes when this new product possesses a novel attribute that does not exist in the market yet, with an application in a food industry. We estimate the effect on market shares and consumer surplus of the introduction of a Good Agricultural Practices (GAP)-labeled product in the frozen fried potato (FFP) industry. We first estimate a model of household demand in Mar del Plata, Argentina, using scanner data and demographic information. We find that higher income individuals are more concerned about health and nutrition, and that younger and lower-income consumers are more price-sensitive. Then we postulate that a properly GAP-labeled FFP is available in the market, and we assess its effect by using the estimated utility function and prior information about consumers' declared willingness to pay for sustainably produced potatoes. Our results indicate that this would increase the combined market share of the inside goods, and that potato processing companies could profitably pay farmers between 10% an 20% more for GAP potatoes–which are more costly to obtain–instead of paying the same price than for conventional ones, which is the current practice. This result emphasizes the importance of both agronomic aspects and farmers interests, as well as consumers' preferences, for the success of any strategy that seeks to introduce a sustainable food product in the market.

Graduation Semester

2019-05

Type of Resource

text

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Copyright and License Information

Copyright 2019 Julia Gonzalez

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