Thesis advisor: Fabio Ghironi / Thesis advisor: Peter Ireland / This thesis includes three essays. The first chapter analyzes how the implications of productivity shocks in an open economy can differ depending on the size of the economy relative to the rest of the world. It employs a stylized two-country general equilibrium model with love of variety, where economies differ in size and shows that a dynamic home market effect is present: productivity shocks that lower production and entry costs lead to deterioration of home terms of trade when home is small relative to the rest of the word but to improvement of terms of trade when home is large. The second chapter analyzes the role of globalization in the lack of convergence of living standards within Europe, despite integration processes. Building on theoretical and empirical literature on trade and income inequality in the U.S. this chapter proposes a model that describes how globalization affects disparities between countries in Europe. To quantitatively assess this effect, a measure of exposure to globalization is constructed, using detailed trade, employment, and output data. The chapter shows that the relative performance of countries within Europe is correlated with their exposure to globalization. In particular, countries that experienced relative declines of living standards over the past decade have been most exposed to globalization. The third chapter explores the implications of demand side pricing complementarities and endogenous markups in open economy. It shows that endogenous markups resulting from translog preferences imply richer dynamics for international relative prices that have better chances to match the data. Further, countercyclical markups lead to endogenous procyclical movement as well as cross-country correlation of measured TPF. It also shows that in a stylized model endogenous markups may act as a transmission mechanism, leading in particular to positive GDP co-movement across borders as opposed to a benchmark CES model. / Thesis (PhD) — Boston College, 2015. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Thesis advisor: Hideo Konishi / This dissertation covers three essays in modelling the market competitions with the presence of consumer search. The first two essays add on Wolinsky's (1986) model to investigate firms' optimal choice of their way of doing business in response to the changing consumer search behaviors during the information age. The third essay modifies the Varian's (1980) model to provide a new mechanism to rationalize the countercyclical markups in supermarkets. The first essay concerns the formation of referral alliance. It extends the Wolinsky's (1986) model to a three-stage game with two types of products produced by a continuum of firms with each one having strength in a single type only. In the first stage, firms simultaneously decide on the formation of referral alliances, in which each alliance consists of a pair of firms producing different types of products. In the second stage, they set price simultaneously. In the third stage, each consumer who only values one type of product searches sequentially for the right product. We show that firms with low ability to deal with the unmatched consumers are positively assorted together in the formation of referral alliance with multiple equilibrium possible. The proliferation of referral alliance always benefits consumers but not necessarily firms. One the one hand, it intensifies competition and drives down the market price. On the other hand, it increases the mass of consumers participating in the search market. The price elasticity of demand together with our stability condition govern the changes in consumer and social welfare as the search cost varies. The reduction in search cost always increases consumer and social welfare only if the equilibrium is stable with elastic demand. The policy implication from our results is that it might be more effective to improve consumer and social welfare by inducing more firms to participate in the referral alliances rather than reducing the consumers' search cost. The second essay studies the incentives for stores to invest effort in serving customers if effort is costly and might be merely persuasive that reduces consumption utility. We incorporate a sales agent to each store in Wolinsky's (1986) model, in which the sales agent is paid either by fixed wage or by commissions. The commissions motivate sales agents to provide more advice, which could be indeed useful to increase clients' willingness to pay or merely persuasive without affecting it. Consumers are sophisticated that understand the dual roles of effort before visiting firms, but they might be impressionable and therefore could not stay away from the effect of persuasion when they are making the purchasing decision. When consumers are heterogeneous in terms of their impressionability, they are sorted into stores with fixed wage and commissions in the equilibrium. The composition of stores varies with the search cost and the ability of sales agents to increase consumers' willingness to pay (effectiveness of advice). When the advice is relatively ineffective, there will be an increase in mass of fixed wage stores in response to a reduction in search cost. The reverse is true when the advice is sufficiently effective. Additionally, the mass of fixed wage stores always increases as the advice becomes less effective. The competitive equilibrium outcome might imply that there are too little commission-based stores, so it could be social welfare enhancing by encouraging more consumers to visit the stores with commissions. The third essay provides a simple mechanism that rationalizes the countercyclical markups in supermarkets with the presence of a warehouse club. We first provide a mechanism on the higher supermarket prices upon the entry of the warehouse club. The new warehouse club attracts price-sensitive consumers away from supermarkets, which reduces the price elasticity of the consumers in the supermarket regime. This relaxes price competition resulting in higher supermarket prices. After that we apply the same mechanism to explain the countercyclical markups in supermarkets. During economic booms, the time value of consumers increases making them less willing to visit the warehouse club. Thus, economic booms increase the amount of price-sensitive consumers in supermarkets, intensifying price competition and inducing a lower price relative to cost in booming times. / Thesis (PhD) — Boston College, 2015. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

TESIS PARA OPTAR AL GRADO DE MAGÍSTER EN ANÁLISIS ECONÓMICO / Este trabajo estudia la evoluci on del poder de mercado en la industria manufacturera chilena entre los a~nos 1985 y 2007. Para esto se calculan markups sobre costo marginal a nivel de establecimientos siguiendo la metodolog a propuesta por De Loecker y Warzynski (2012). Inicialmente, desde el a~no 1985 hasta 1992 el markup promedio se mantiene relativamente constante en torno a 1.35. Posterior, los markups aumentan considerablemente hasta llegar a un valor de 1.55 en 2007. Esto equivale a un alza total en el poder de mercado de un 14 %. Se encuentra que esta tendencia ser a consecuencia principalmente de un aumento en la concentraci on de la industria, motivada por un cambio en la relevancia de las empresas que fueron aumentando conjuntamente su participaci on en las ventas totales y sus markups.

<p>This thesis consists of three self-contained essays. The first two essays address the consumption of culture and are closely related in terms of the theoretical framework used. The third essay is a separate analysis of international trade and competition.</p><p>The studies of culture are motivated by the special treatment of culture consumption in most modern societies: there are usually large, government-provided subsidies, the aim of which is to stimulate both the production and the consumption of culture. The purpose of the present work is to explore reasons for this special treatment. Using a stylized theoretical framework, the essays contrast culture with another, generic, good or activity. Culture is thus regarded as an "experience good": previous consumption of the good enhances the current appreciation of the good. The generic good is one where experience is assumed not to be at all relevant for the appreciation of the good. For experience goods, decisions made today will influence future utility and future choices. This makes the intertemporal preferences essential. If, in particular, consumers have time-inconsistent preferences of the type that can be characterized as a present-bias---modeled with "multiple selves" using quasi-geometric discounting---as opposed to standard, time-consistent preferences, there will be a case for government subsidies. The first essay explores this possibility in detail in a framework where experience is mainly of importance in the short run. The second essay then studies cases where experience is more potent and can cause persistent diversity in culture consumption across individuals.</p><p>"Culture and Control: Should There Be Large Subsidies to Culture?" studies the circumstances under which public support for culture is warranted. A policy example is designed to illustrate important aspects of public support systems currently in place, and is calibrated to Swedish data. The essay concludes that, given present-biased agents with self-control problems, public support of culture can work as a commitment device and improve long-run welfare. Furthermore, it is demonstrated that welfare-maximizing subsidies to culture can be substantial if the present-bias is profound and the taste-cultivation property of culture consumption is pronounced.</p><p>"Origins of the Diversity of Culture Consumption" analyzes the diversity of culture consumption among individuals. If the culture good and the generic good are sufficiently close substitutes in a static sense, very large and persistent differences in the consumption of highbrow culture across consumers can be explained by differences in initial experience levels alone. Moreover, slight differences in preferences and time endowments can cause significant diversity between individuals, both in the long- and short-run levels of culture consumption. In addition, if consumers have time-inconsistent preferences, further diversity can be rationalized. If there is a present-bias, there may also be Pareto-ranked multiple equilibria with "optimism" and "pessimism": high (low) culture consumption of the current self is rationalized, based on the belief that future culture consumption will be high (low).</p><p>"Has international competition increased? Estimates of residual demand elasticities in export markets" studies the impact of the last decades of intense economic integration on the competitive conduct of Swedish export industries. The functional relationship between the inverted residual demand elasticity and the Lerner index is used to estimate markups in eight industries. The econometric evidence suggests a deviation from competitive behavior in all industries. Moreover, the results demonstrate a trend of decreasing market power.</p>

This thesis consists of three self-contained essays. The first two essays address the consumption of culture and are closely related in terms of the theoretical framework used. The third essay is a separate analysis of international trade and competition. The studies of culture are motivated by the special treatment of culture consumption in most modern societies: there are usually large, government-provided subsidies, the aim of which is to stimulate both the production and the consumption of culture. The purpose of the present work is to explore reasons for this special treatment. Using a stylized theoretical framework, the essays contrast culture with another, generic, good or activity. Culture is thus regarded as an "experience good": previous consumption of the good enhances the current appreciation of the good. The generic good is one where experience is assumed not to be at all relevant for the appreciation of the good. For experience goods, decisions made today will influence future utility and future choices. This makes the intertemporal preferences essential. If, in particular, consumers have time-inconsistent preferences of the type that can be characterized as a present-bias---modeled with "multiple selves" using quasi-geometric discounting---as opposed to standard, time-consistent preferences, there will be a case for government subsidies. The first essay explores this possibility in detail in a framework where experience is mainly of importance in the short run. The second essay then studies cases where experience is more potent and can cause persistent diversity in culture consumption across individuals. "Culture and Control: Should There Be Large Subsidies to Culture?" studies the circumstances under which public support for culture is warranted. A policy example is designed to illustrate important aspects of public support systems currently in place, and is calibrated to Swedish data. The essay concludes that, given present-biased agents with self-control problems, public support of culture can work as a commitment device and improve long-run welfare. Furthermore, it is demonstrated that welfare-maximizing subsidies to culture can be substantial if the present-bias is profound and the taste-cultivation property of culture consumption is pronounced. "Origins of the Diversity of Culture Consumption" analyzes the diversity of culture consumption among individuals. If the culture good and the generic good are sufficiently close substitutes in a static sense, very large and persistent differences in the consumption of highbrow culture across consumers can be explained by differences in initial experience levels alone. Moreover, slight differences in preferences and time endowments can cause significant diversity between individuals, both in the long- and short-run levels of culture consumption. In addition, if consumers have time-inconsistent preferences, further diversity can be rationalized. If there is a present-bias, there may also be Pareto-ranked multiple equilibria with "optimism" and "pessimism": high (low) culture consumption of the current self is rationalized, based on the belief that future culture consumption will be high (low). "Has international competition increased? Estimates of residual demand elasticities in export markets" studies the impact of the last decades of intense economic integration on the competitive conduct of Swedish export industries. The functional relationship between the inverted residual demand elasticity and the Lerner index is used to estimate markups in eight industries. The econometric evidence suggests a deviation from competitive behavior in all industries. Moreover, the results demonstrate a trend of decreasing market power.

This paper relates openness to the decline in inflation by using panel data for six OECD (the USA, Japan, Canada, Portugal, Finland, and Australia) countries over the period from 1980 to 2006. I obtain industrial level data for twenty industries in each of the six countries in the timeframe and estimate the effects of increases in openness, through its effect on productivity and markups on inflation. The methods used to construct the variables in this paper follow methods introduced in Chen, Imbs and Scott (2004), and the estimations follow Chen, Imbs and Scott (2007). The results suggest openness reduces the rate of inflation in the short run. Furthermore, it also reduces short run productivity and markups. The long run results are ambiguous, however. The evidence that openness leads to anti-competitive effects in the long run is weak. JEL Classification: E31, F12, F14, F15, L16 Keywords: Openness, Prices, Productivity, Markups

This manuscript is composed of three chapters.In the first chapter, I analyze the impact of key European Central Bank’s unconventional monetary policy announcements on inflation expectations, measured by Euro Area five-year Inflation Linked Swap rates five years ahead, since the aftermath of the crisis. I control for market liquidity and uncertainty measures, change in oil price shock and macroeconomic news. The results show that the impact of the European Central Bank’s announcements has been positive during the period under observation. Along the line of the expansionary monetary policy measures implemented, the agents have been revising upwards their long term inflation expectations. This means that the unconventional monetary policy measures were effective. In the second chapter, co-authored with Claudia Pacella, we construct a Bayesian vector autoregressive model with three layers of information: the key drivers of inflation, cross-country dynamic interactions, and country-specific variables. The model provides good forecasting accuracy with respect to the popular benchmarks used in the literature. We perform a step-by-step analysis to shed light on which layer of information is more crucial for accurately forecasting euro area inflation. Our empirical analysis reveals the importance of including the key drivers of inflation and taking into account the multi-country dimension of the euro area. The results show that the complete model performs better overall in forecasting inflation excluding energy and unprocessed food over the medium-term. We use the model to establish stylized facts on the euro area and cross-country heterogeneity over the business cycle. In the third chapter, using confidential firm-level data from the National Bank of Belgium, I document the heterogeneous response of firms’ markups to the 2008 financial crisis. Overall, markups increased in the aftermath of the crisis and the effect was larger for highly financially constrained firms. I show that standard heterogeneous-firm models, featuring monopolistic competition and variable markups, are unable to replicate these patterns. I then introduce endogenous demand shifters which respond to firm investment in market share (e.g. quality). I show that the interaction of an increase in the cost of procuring inputs combined with an endogenous quality downgrading can rationalize the observed changes in firm-level markups. / Doctorat en Sciences économiques et de gestion / info:eu-repo/semantics/nonPublished