Essays in Dynamic Industrial Organization

Public Deposited

Consumers' willingness-to-pay can change over time and can change differently for different consumers. Rational and forward-looking consumers incorporate this into their decision making. This dissertation examines the implication of such change in several dynamic IO settings. The first chapter looks at a durable goods monopoly setting where consumers' valuations decline over time. The seller cannot commit to future prices, but she can commit to a best-price policy, a promise to give her customer a refund if she reduces her price after the customer's purchase. We characterize the optimal BP policy when the seller can control both the policy length (when the promise expires) and the refund scale (what portion of the price difference is refunded). We provide conditions under which the optimal policy length is finite. A finite-length BP allows the seller to commit not to lower her price too soon, but also allows her to capture some of the benefits of intertemporal price discrimination. The second chapter looks at a setting where consumers purchase repeatedly and they have heterogeneous uncertainty in their future taste. Here, the seller can offer both long-term and short-term contracts and do history-based price discrimination. The equilibrium involves firms offering both short and long-term contracts and leads to higher profits and higher second period prices, compared to the case when only short-term contracts are allowed. Long-term contracts serve the purpose of locking in consumers with more stable taste and thus reducing the poaching incentives in the second period. We show that efficiency is also increased when long-term contracts are allowed because products are better matched with consumer preferences in the second period. The third chapter again looks at a setting where consumers purchase repeatedly. We allow switching cost and consumer taste change, and show that history-based price discrimination can increase the second period profit of both sellers, in contrast to existing results. However, this effect is countered by the increased demand elasticity in the first period which decreases first period profit. Unlike in the traditional model, price discrimination can increase efficiency if consumers' demand expands.

Last modified
  • 09/06/2018
Date created
Resource type
Rights statement