Thesis (Ph. D.)--University of Chicago, Dept. of Political Science, December 2002. / Includes bibliographical references. Also available on the Internet.

Doctor of Philosophy / Department of Economics / Lance Bachmeier / This dissertation consists of one essay in financial econometrics and two essays in quantitative industrial organization. The first essay studies the relationship between stock return volatility and current and prior shocks to oil price volatility. We study the behavior of aggregate stock markets as well as individual industry sectors. Our results show that lagged stock return volatility is the main determinant of current stock return volatility in aggregate markets, with oil price volatility providing no additional information that can be used to forecast stock return volatility. For individual industry sectors, we find a robust and stable prediction relationship only for the chemicals industry. Additional estimation exercises confirm the robustness of these results. The second essay uses a Bertrand-Nash price-competition framework to models a vertically integrated provider (VIP) that is a monopoly supplier of an essential input for downstream production. An input price that is “too high” can lead to inefficient foreclosure and one that is “too low” creates incentives for nonprice discrimination. The range of non-exclusionary input prices is circumscribed by the input prices generated on the basis of upper-bound and lower-bound displacement ratios. The admissible range of the ratio of downstream to upstream “price-cost” margins for the VIP is increasing in the degree of product differentiation and reduces to a single ratio in the limit as the products become perfectly homogeneous. The third essay explores the relationship between upstream input prices and downstream market exclusion under a Stackelberg quantity-competition framework. Market exclusion is a concern when input prices are “too high” and “too low” because it can result in inefficient foreclosure and sabotage, respectively. Consistent with the results obtained in the second essay, the safe harbor range of downstream to upstream “price-cost” margin ratios is decreasing in the degree of product homogeneity and approaches a single ratio in the limit as the products become perfectly homogeneous. This single margin ratio preserves equality between the VIP’s wholesale and retail “price-cost” margins. A key finding for competition policy is that the bounds of non-exclusionary input prices are markedly wider under Bertrand-Nash competition than they are under Stackelberg competition. Hence, it is critical that the antitrust and regulatory authorities understand the nature of the industry competition so that rules governing permissible conduct are properly calibrated to yield efficient outcomes.

Despite expectations in the late 1990s that the Internet would lead to frictionless commerce, empirical research shows that electronic commerce is characterized by persistent price dispersion. This paper examines reasons why online price dispersion exists in the books, CDs, and consumer electronics retail sectors. The Internet allows for multi-channel retailing, and it influences supply, demand, and market-related factors for both retailers and consumers. These factors shape retailers’ price-setting abilities which, in turn, shape their pricing strategies. I find that different pricing strategies result in online price dispersion, and I ultimately predict that retail e-commerce markets, which are oligopolistic in nature, will continue to exhibit persistent price dispersion. In particular, price dispersion will decrease the most in the CDs sector, followed by the books and then the consumer electronics sectors.

This dissertation consists of three essays which examine the effects of government intervention into the economy and the resulting effects on the environment and on growth. These essays use natural variation in observed behaviors and outcomes to gauge the impact of government action using either a reduced form or structural model. The first essay measures the environmental benefits of renewable energy subsidies. Production subsidies for renewable energy have been a popular program due to their perceived environmental benefits. Wind energy in particular has taken advantage of federal subsidies. However, little empirical research has been conducted which would quantify such benefits. Taking investment in wind capacity as given, I am able to identify the short run substitution patterns between wind power and conventional power for large electricity grid in Texas. I exploit the randomness of wind to identify plant level substitution of wind generated electricity for conventionally generated electricity. I then quantify the avoided emissions and associated costs using plant level emissions information, market clearing prices for pollution permits, and estimates of the social costs of pollution. The end result is the value of avoided emissions due to government subsidies. I find that the value of subsidies hinges on the value placed on reducing carbon dioxide emissions. The second essay assess the effectiveness of potential environmental regulations to reduce carbon dioxide emissions from the electricity producers. Climate change, driven by rising carbon dioxide (CO₂) levels, has become one of the most pressing economic and political issues. Governments around the world are implementing environmental regulations that tax or price carbon dioxide emissions or significantly increase renewable energy production. Electricity producers are the leading emitters of CO₂ and other pollutants. They make their output decisions in response to fluctuating prices for electricity given their costs of production, which include substantial startup costs. In this essay I recover the cost parameters of the industry with a dynamic price taking model. The parameters are used to solve for equilibrium prices and to simulate the supply of electricity, consumer surplus and firm profits under counterfactual environmental policies. Preliminary results evaluating a carbon tax policy show that total emissions from the industry do not change significantly when faced with tax rates at the levels currently under consideration by legislators. Even a very large carbon tax of ten times that of expected levels lowers emissions by only 9% in the short run. The third essay, co-authored with Dr. Price Fishback, examines the growth of local economies which were the target of large government expenditures. Studies of the development of local economies often point to large-scale World War II military spending as a source of long-term economic growth, even though the spending declined sharply after the demobilization. We examine the longer term impact of the temporary war spending on county economies using a variety of measures of socioeconomic activity: including per capita retail sales, the extent of manufacturing, population growth, the share of women in the work force, housing values and ownership, and per capita savings over the period 1940-1950. We find that in the longer term counties receiving more war spending per capita during the war experienced extensive growth due to increases in population but not intensive growth, as the war spending had very small impacts on per capita measures of economic activity.

This dissertation contains three essays describing experiments in game theory and economics. Chapter one studies mixed strategies by asking whether game players are willing to pay for randomization. A natural intuition for mixed strategies is randomization for unpredictability, but this is theoretically fragile. A player should only randomize between strategies if indifferent, and then could choose a disequilibrium strategy. Various theories describe mixed strategies not as random play, but heterogeneous pure-strategy play. I conduct experiments in which players can choose to pay a fee to use a randomization device, applied to O’Neill’s zero-sum game. If subjects did so, it would show a strict preference for randomization over any available pure strategy. In fact, very few chose to use the randomization device. Subjects’ descriptions of their decision process were consistent with the notion of purification. Chapter two also studies mixed strategies, asking whether randomization is a property of individual choice or game play. In two experiments, game players are mirrored by guessers who make predictions about game play, distinguishing best-responding from game playing. In a Matching Pennies game, I find that game players are they are both more interested in unpredictability and actually more random. In an Asymmetric Matching Pennies game, I look at whether players are willing to forgo expected payoff in order to be unpredictable, and find little difference between players and guessers, with players being somewhat better at exploiting disequilibrium play. Chapter three experimentally implements markets for competing goods with network effects. Markets with strong network effects often have multiple equilibria, including winner-take-all equilibria in which one firm has a monopoly. Firms may compete dynamically with the aim of locking-in to a favorable equilibrium. In this paper we create an experimental market with differentiated products and network effects. When lock-in is created by simulating naïve buyers, monopoly does arise with sellers setting high prices. With human buyers, markets without switching costs are extremely competitive, with no support for stories of lock-in and monopoly. Markets with switching costs are inefficient, but this is overwhelmingly due to the individual switching costs rather than monopoly.

High-technology platform companies have emerged in large numbers in recent years, seeing great success and high valuations. In this paper, I examine whether platform companies have a significantly greater probability of achieving exceptional market value than non-platform companies. I do not find enough evidence to suggest that platform companies are significantly more likely than non-platform companies to achieve a high-value market capitalization within the 5 years after their initial public offering (IPO), conditional on their market value not being high-value at the time of IPO. However, I do find evidence to support that platform companies are significantly more likely to achieve a high-value market capitalization at the time of their IPO. Therefore, this study suggests that there is a significant positive effect of platform business models on market capitalization, which is incorporated into a company’s market value at the time of IPO, consistent with the efficient market hypothesis.

The emergence of the sharing economy has disrupted several industries. Controversies about multi-sided sharing platforms have arisen as incumbent firms assert that the platforms benefit from unfair competition by sidestepping regulations. This paper attempts to quantify the impact of Airbnb, one prominent example of a sharing platform, on the hotel industry in the Coachella Valley. I find that from 2011 to 2016, the increase in Airbnb supply in the Coachella Valley has a negative impact on city-level hotel revenue. For different hotel segments in the Coachella Valley, I do not observe significant differences in the magnitude of impact across the three categories.

There is a growing awareness that information technology plays a critical role in helping determine organizational structure. Unfortunately, that role has not been adequately defined. This study provides a foundation for an increase in our understanding of the relationship between information technology and organizational structure by defining a new set of information technology variables and identifying differences in organizational structure based on these new variables.

Thesis advisor: Peter Ireland / In Daubert v. Merrill Dow Pharmaceuticals, the Supreme Court ruled that judges are the gatekeepers of scientific evidence, thereby bringing the debate about economic methodology to the bench. Debate about the admissibility of scientific evidence, contentious even in the natural sciences, is amplified if the discipline incorporates numerous methodological approaches. In this paper, I will consider three different approaches to economic questions—theory, experiment, and econometrics—and examine how a judge can evaluate these approaches as evidence in the courtroom. The expansion of economic reasoning in law means that this question needs to be answered in a number of areas of law, but to give a thorough examination of the different methodological approaches, this paper will limit discussion to economic evidence in tying law. / Thesis (BA) — Boston College, 2010. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

O principal índice usado para medir concentrações horizontais é o Hirschmann-Herfindahl Index (HHI). Este índice tornou-se popular nos últimos anos devido ao seu apelo teórico e a sua simplicidade computacional, entretanto, apesar desta conveniência, o HHI é inaplicável na análise de mercados em que os compradores possuem poder de mercado. Isso ocorre porque o modelo de Cournot supõe que apenas os vendedores podem influenciar os preços. O erro causado pela aplicação inadequada do HHI é ainda maior quando o mercado considerado apresenta firmas verticalmente integradas. Diante disso, o objetivo deste trabalho é aplicar o MHI, medida de concentração sugerida por Hendricks e Mcafee (2007), na análise da aquisição da Agip pela BR, com vistas a identificar os impactos da operação sobre a concorrência, comparando os resultados com a análise da SEAE e a decisão do CADE. O MHI é capaz de captar a mudança de incentivos de todas as firmas do mercado estudado após o Ato de Concentração, e permite que o efeito líquido da integração seja medido através das variações das margens preço/custo das firmas da indústria. / The main index that is used to measure horizontal concentrations is the Hirschmann-Herfindahl Index (HHI). This index became popular in the last years due to its theoretical appeal and its computational simplicity. However, despite this convenience, the HHI is inapplicable in the analysis of markets where the purchasers have market power. This happens because the Cournot model assumes that only the sellers can influence the prices. The error caused by inadequate application of HHI is even bigger when the considerate market shows vertically integrated firms. In front of this, the objective of this work is apply the MHI, the concentration measure suggested by Hendricks e McAfee (2007), in the analysis of Agip acquisition by BR, with the purpose of identify the operation impacts in the competition, comparing the results with the SEAE analysis and the CADE decision. MHI is capable of catch the incentive change in all firms of the analyzed market after the Concentration Act, and allows that the operations net effect is measured through the price-cost margin variation.