Many markets exhibit substantial heterogeneity -- e.g.~in ability, in preferences, in products, in strategies. Allowing for this (sometimes multi-dimensional) heterogeneity can change both the theoretical predictions of models and the results of empirical analyses. This dissertation consists of three essays on markets and games with different forms of heterogeneity.
The first chapter introduces preference heterogeneity and multi-dimensional skill heterogeneity into the analysis of labor markets. In matching markets, agents have heterogeneous preferences over potential partners, so welfare depends on which agents are matched to each other in equilibrium. Taxes in matching markets can generate inefficiency by changing who is matched to whom, even if the number of workers at each firm is unaffected. This ``allocative distortion'' is not evident in traditional models of income taxation that do not allow for workers to have multi-dimensional preference and productivity heterogeneity. For markets in which workers refuse to match without a positive wage, higher taxes decrease match efficiency.
However, in more balanced matching markets where transfers may flow in either direction, such as the student--college market, lowering taxes may decrease match efficiency because an agent can transfer enough to ``buy'' an inefficient partner (only to be ``bought back'' when taxes are lowered further). Simulations show that, in matching markets, traditional deadweight loss estimates based on the change in taxable income can be substantially biased in either direction.
The second chapter builds on the merger analysis literature that recognizes the importance of product heterogeneity. Both merger simulations and the more recent ``first-order'' approach to merger analysis recognize that because product heterogeneity can vary, market concentration is not always a good measure of the competitiveness of the market. We derive approximations of the expected changes in prices and welfare generated by a merger, using information local to the pre-merger equilibrium. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the diversion ratio and incorporating the change in anticipated accommodation. To convert pricing pressures into quantitative estimates of price changes, we multiply them by the merger pass-through matrix.
Pass-through rates can vary by industry and the same pricing pressure can lead to very different price changes, depending on the pass-through rates. Weighting the price changes by quantities gives the change in consumer surplus.
The third chapter uses data on thousands of players who play a game over a hundred times to do a with-in player analysis of play and allow for heterogeneity in the mixed strategies that players use. We use of data from a Facebook application where users play a simultaneous move, zero-sum game -- rock-paper-scissors -- with varying information to provide empirical insights into whether play is consistent with extant theories. We report three major insights. First, we observe that many employ strategies consistent with Nash, at least some of the time. Second, players predictably respond to incentives in the game. For example, out of equilibrium, players strategically use information on previous play of their opponents, and they are more strategic when the payoffs for such actions increase. Third, experience matters: players with more experience use information on their opponents more efficiently than less experienced players, and are more likely to win as a result. We also explore the degree to which the deviations from Nash predictions are consistent with various non-equilibrium models. We find that both a level-k framework and a quantal response model have explanatory power: whereas one group of people employ strategies that are close to $k_1$, there is also a set of people who use strategies that resemble quantal response. / Economics
| Identifer | oai:union.ndltd.org:harvard.edu/oai:dash.harvard.edu:1/17467179 |
| Date | 17 July 2015 |
| Creators | Jaffe, Sonia Patricia |
| Contributors | Fryer, Roland |
| Publisher | Harvard University |
| Source Sets | Harvard University |
| Language | English |
| Detected Language | English |
| Type | Thesis or Dissertation, text |
| Format | application/pdf |
| Rights | open |
Page generated in 0.0018 seconds