Pricing Interrelated Goods in Oligopoly

In this paper we propose a two-good model of price competition in an oligopoly where the two goods can be complements or substitutes and each retailer has a captive consumer base `a la Burdett and Judd (1983). We find that the symmetric Nash Equilibrium of this model features atomless pricing strategies for both goods. When the two goods are complements the prices charged by any retailer are, at least locally, negatively correlated so if one of the goods is priced high the other one is on a discount. This finding is supported by an empirical observation that simultaneous discounts of complements are infrequent. In contrast, if the goods are substitutes or independently valued the prices will be randomized independently unless the less valuable substitute is not sold at all. In the case of complements the retailers earn higher profit relative to the case of selling both goods only as a bundle. The ability to "discriminate" between the captives and the shoppers through keeping the sum of the two prices high while setting one of the prices low drives the result. Such discrimination is impossible when the goods are substitutes as consumers switch to buying the lower priced substitute. Additionally, we provide some insights on bundling in the price dispersion setting.

Consumer Search and Vertical Relations: The Triple Marginalization Problem

This paper shows that the double marginalization problem signicantly underestimates the ineciencies arising from vertical relations in markets where consumers who are uninformed about the wholesale arrangements be- tween manufacturers and retailers search for the best retail price. Consumer search provides manufacturers an additional incentive to substantially increase wholesale prices. Consequently, all market participants are worse o and we call this phenomenon the triple marginalization problem. We also show that, when the wholesale price is unknown, retail prices decrease and industry prof- its and consumer surplus increase in search cost, whereas the opposite is true when the wholesale price is known.

Imperfect information in a quality-competitive hospital market. A comment on Gravelle and Sivey

I show that the equilibrium derived in Gravelle and Sivey (2010) cannot hold for rational consumers. I then partially characterize the continuum of possible equilibria for rational consumers

Sales competition with heterogeneous firms

To better understand sales behavior and price dispersion, this paper presents a substantially generalized clearinghouse framework. The framework can permit multiple dimensions of rm heterogeneity, and views rms as competing directly in utility rather than prices. As such, the paper can i) reproduce and extend many equilibria from the existing literature, ii) offer a range of new results on how rm heterogeneity affects sales behavior and market performance, iii) provide original insights into the number and type of rms that engage in sales, and iv) offer a foundation to assess and extend current empirical procedures

Imperfect information in a quality-competitive hospital market. A comment on Gravelle and Sivey

I show that the equilibrium derived in Gravelle and Sivey (2010) cannot hold for rational consumers. I then partially characterize the continuum of possible equilibria for rational consumers

A generalized model of advertised sales

To better understand temporary price reductions or ‘sales’, this paper presents a generalized ‘clearinghouse’ framework of advertised sales and explores some applications. By viewing the firms as competing in utility and amending the conventional tie-break rule, we allow for multiple dimensions of firm heterogeneity in complex market environments. Moreover, we i) provide original insights into the number and types of firms that use sales, ii) offer new results on how firm heterogeneity affects market outcomes, iii) extend a common empirical ‘cleaning’ procedure, and iv) analyze a family of activities in sales markets, including persuasive advertising and obfuscation

Costly participation and default allocations in all-pay contests

Some important forms of contests have participation costs and `default allocations’ where the contest prize is still awarded even when no-one actively competes. We solve a general, all-pay contest model that allows for flexible forms of these features under arbitrary asymmetry. We then use our framework to better connect the literatures on contests and sales price competition, and use this connection to solve some long-standing problems. Finally, we analyze how participation costs and default allocations can be used as novel, practical tools in contest design. Throughout, the combined presence of participation costs and default allocations often reverse otherwise familiar intuitions

Towards personalized data-driven bundle design with QoS constraint

Singapore National Research Foundation under its International Research Centre @ Singapore Funding Initiativ

Markets with Frictions

Esta tesis consta de tres capítulos en donde analizo mercados con fricciones. En los dos primeros capítulos, estas fricciones surgen debido a la carencia información completa acerca de los precios por parte de los consumidores. Puntualmente, en el primer capítulo, se estudia como se desarrolla la competición de precio multiproducto en este tipo de ambiente. Se encuentra que la búsqueda por precios bajos por parte de los consumidores conlleva a que las firmas fijen los precios de los productos complementarios de manera correlativamente inversa. De esta manera, las firmas buscan incrementar sus ganancias valiéndose de aquellos consumidores que no investigan lo suficiente. En el siguiente capítulo se analiza cuales son los efectos que genera la búsqueda de mejores precios en la determinación de los mismos cuando las firmas tienen diferentes costos marginales. Se demuestra que firmas con diferentes estructuras de costos no pueden fijar los mismos precios en equilibrio. Debido a esto, mayores costos conllevan a mayores precios promedios. Finalmente, en el tercer capítulo, las fricciones emergen debido a que las firmas no tienen acceso a todos los mercados. Se analiza la competición en cantidades que se desarrolla luego de la etapa de inversión en capacidad productiva. Se demuestra que la capacidad productiva es mayor que la generada en un modelo Cournot estándar debido los incentivos pro-competitivos presentes en los mercados fragmentados.This thesis consists of three chapters analyzing markets with frictions. In the first two chapters frictions result from consumers not knowing all the prices and searching for them. The first chapter studies multiproduct price competition in this environment. It finds that consumer search induces firms to negatively correlate prices of complements in order to rip-off consumers who do not search enough. The second chapter studies the effects of consumer search on price competition when firms have different marginal costs. It demonstrates that firms with different costs cannot charge common prices in equilibrium. Due to this, the higher are the costs the higher are the average prices charged by firms. In the third chapter frictions emerge because firms do not have access to all the markets. It analyzes quantity competition following a capacity investment stage to show that equilibrium capacity is larger than in a standard Cournot model because of pro-competitive incentives in fragmented markets