<p>This dissertation extends the empirical industrial organization literature with two essays on strategic decisions of firms in imperfectly competitive markets and one essay on how inertia in consumer choice can result in significant welfare losses. Using data from the airline industry I study a well-known puzzle in the literature whereby incumbent firms decrease fares when Southwest Airlines emerges as a potential entrant, but is not (yet) competing directly. In the first essay I describe this so-called Southwest Effect and use reduced-form analysis to offer possible explanations for why firms may choose to forgo profits today rather than wait until Southwest operates the route. The analysis suggests that incumbent firms are attempting to signal to Southwest that entry is unprofitable so as to deter its entry. The second essay develops this theme by extending a classic model from the IO literature, limit pricing, to a dynamic setting. Calibrations indicate the price cuts observed in the data can be captured by a dynamic limit pricing model. The third essay looks at another concentrated industry, mobile telecoms, and studies how inertia in choice (be it inattention or switching costs) can lead to consumers being on poorly matched cellphone plans and how a simple policy proposal can have a considerable effect on welfare.</p> / Dissertation

With the fast progress of the Internet the Swedish gambling monopoly is no longer able to control the market. Gambling companies licensed in foreign countries can compete with Svenska Spel via the Internet offering lower prices. The authors investigated whether the competition has lead Svenska Spel to lower their prices. Focus has been put on the years 2000-2006 and on Svenska Spel’s sports betting section Oddset since competition here is high. To help analysing Svenska Spel’s pricing behaviour the dynamic limit pricing model of optimal pricing when faced with entry was used. The effect on Svenska Spel´s advertising expenditures following the competition was also investigated. For this part A dynamic model of advertising and market shares was used. The analysis indicates that when the number of firms on the market increased, prices decreased and Svenska Spel’s advertising expenses increased.

<p>With the fast progress of the Internet the Swedish gambling monopoly is no longer able to control the market. Gambling companies licensed in foreign countries can compete with Svenska Spel via the Internet offering lower prices. The authors investigated whether the competition has lead Svenska Spel to lower their prices. Focus has been put on the years 2000-2006 and on Svenska Spel’s sports betting section Oddset since competition here is high. To help analysing Svenska Spel’s pricing behaviour the dynamic limit pricing model of optimal pricing when faced with entry was used.</p><p>The effect on Svenska Spel´s advertising expenditures following the competition was also investigated. For this part A dynamic model of advertising and market shares was used.</p><p>The analysis indicates that when the number of firms on the market increased, prices decreased and Svenska Spel’s advertising expenses increased.</p>

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