Essays in Applied Industrial Organization

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I examine horizontally differentiated firms in three different contexts. First, I look at an industry where firms can develop self-customizable products -- products which appeal to different consumers for different reasons. This addition results in an unexpected conclusion that sometimes more differentiated firms can end up with lower profits than less differentiated firms. The result is due to the fact that more differentiated firms engage in a prisoner dilemma type competition, making their products more and more self-customizable, and ending up with higher costs in the end. In the equilibrium consumers derive more welfare than is socially optimal. We, with Martin Lariviere, go on to examine why capacity constrained restaurants offer reservations for consumers. It does not make sense for a monopolist to offer free reservations in a homogenous market, since it leaves the monopolist with empty seats due to some of the consumers not honoring their reservations. We find that even in a heterogeneous market with competition two restaurants with the same total capacity as a monopolist, under some parameters, offer reservations when the monopolist does not. Moreover, whenever the monopolist offers reservations, so do the two firms. In the third chapter we, together with George Deltas and Daniel Spulber, examine two sided market where intermediaries are horizontally differentiated both upstream and downstream. The comparative statics in competition have similar properties to those in the monopoly case in the standard Hotelling model -- as firms become more differentiated (downstream), their profits become lower. We use the model for several applications, for example to explain why malls generally have comparatively lower priced apartment buildings around them, even though living close to the mall would be of great benefit for the regular shoppers.

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  • 05/22/2018
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