Browsing by Subject "Product differentiation"
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Item Empirical Essays on the U.S. Airline Industry(2014-04-27) Lee, JinkookThis dissertation studies the effects of firm's collaborative strategy on both demand and supply, and equilibrium to derive various welfare implications. I explain both horizontal mergers and vertical relationships, focusing on the U.S. airline industry. In the first study, I address significant limitations of traditional merger simulations which have focused solely on price changes while constraining the set of product characteristics to be identical pre- and post-merger. To overcome the limitations, I endogenize both prices and product characteristics by specifying a two-stage oligopoly game. After estimating demand and supply system, I simulate the effect of the Delta and Northwest Airlines merger on prices, product characteristics, and welfare. The simulation results show that the merged rm tends to increase product differentiation post-merger, the higher product differentiation reduces the firm's incentive to raise prices, and the changes in characteristics and prices increase not only the merged firm's profit but also consumer welfare. I also compare the predicted to actual post-merger outcome and find that endogenizing product characteristics is essential to better predict the actual outcome. The second study investigates the impact of contractual agreements regarding gates between airports and carriers on major carrier's market power. Competition Plans reported by thirty one hub airports provide information on a carrier's gate- occupancy, sublease agreement, and Majority-In-Interest clauses at an airport. I estimate the effects of these contractual practices on passengers' utility and carriers' marginal costs. The main results show that a carrier's gate dominance has a positive effect on the demand side through passengers' utility, and business travelers have a higher willingness to pay for gates than tourists. On the supply side, a carrier's gate dominance decreases its own marginal cost, especially when the airport is congested. Furthermore, the existence of sublease agreement at an airport is likely to increase non-signatory carriers' marginal costs, whereas the provision of Majority-In-Interest clauses increases signatory carriers' marginal costs. Based on the estimates, I execute a counterfactual analysis and nd that regulatory limits on gate occupancy can reduce the di erentials in costs and pro ts between signatory and non-signatory airlines.Item Three essays on differentiated product markets and competition policy(2009-05) Ferguson, Abigail Britton; Sibley, David S. (David Summer), 1947-; Wiseman, Thomas E., 1974-My dissertation features three essays in industrial organization. The first two investigate aspects of potentially anticompetitive firm behavior in differentiated product markets. Contrary to previous analyses, requirements tying and bundled rebates by a firm with a monopoly in one market that competes in another may increase total surplus when product differentiation in the competitive market is endogenous. This result is stronger for tying than for bundled rebates, and holds for both horizontal and vertical differentiation (essays 1 and 2, respectively). Under requirements tying or bundled rebates, a multiproduct firm (horizontally) differentiates its product less from its rival's product than it would under independent pricing, suggesting a new efficiency consideration for requirements tying: a reduction in transport costs. A similar result prevails under vertical differentiation: when the tying firm controls either quality niche, it reduces the quality of its tied product; however, the rival may invest in the quality of its competing product. Hence, the effect on total surplus is ambiguous when tying or bundled rebates arrangements are permitted. The second essay employs an empirical model typically used to analyze differentiated product markets analyze a different economic environment: parents' decision to home school their children. Home schooling has grown in popularity as an alternative to public or private schools; some estimates place growth at 15 to 40% per year in the U.S. I empirically estimate the demand for home schooling as an alternative to these other modes of education, focusing on potential network effects in household decisions to home-school. I find support for the hypothesis that home schooling 'support groups' mitigate the cost of home schooling relative to the alternatives, but only occur in areas with a critical mass of home-schooling households. The data also suggest that as interest in home schooling grows, the local community's school district spending per child declines, increasing the probability that more parents will take their children out of public schools. Both phenomena suggest the existence of network effects in the market for primary and secondary education.