Dealer locations, mergers and consumer welfare in the Automobile industry [ Job Market Paper ] [Short video]
One line summary: Increase in prices due to a merger unambiguously harms consumers, however investment incentives after a merger, leading to rearrangements in the dealership network may have heterogeneous implications for consumer welfare.
Abstract: This article investigates the effects of an automobile merger on the equilibrium dealership network and consumer welfare. I estimate a structural model of the Belgian automobile industry, where firms make endogenous decisions on prices as well as their dealership networks. I use these estimates to simulate a counterfactual world focusing on the recent acquisition of Opel brand by the PSA group. The counterfactual simulations show that car prices increase after the merger. However, the number of dealers selling cars of the merged firm and its close competitors decreases. The results suggest that, while an increase in prices following a merger unambiguously harms consumers, the investment incentives after a merger, leading to rearrangements in the dealership network may have heterogeneous implications for consumer welfare. In particular, the dealership network shrinks significantly in relatively rural regions leading to a fall in consumer welfare in those local markets. The firms however add dealers in relatively urban and more populated regions which improve consumer welfare in those geographic locations. These results have important implications for antitrust policies.
Price dispersion across online platforms: Evidence from hotel room prices in London (UK) (with Debi Prasad Mohapatra, Ram Sewak Dubey) [Link to draft] (Revision requested, Applied Economics)
Abstract: This paper studies the widespread price dispersion of homogeneous products across different online platforms, even when consumers can easily access price information from comparison websites. We collect data for the 200 most popular hotels in London (UK) and document that prices vary widely across booking sites while making reservations for a hotel room. Additionally, we find that prices listed across different platforms tend to converge as the booking date gets closer to the date of stay. However, the price dispersion persists until the date of stay, implying that the ``law of one price’’ does not hold. We present a simple theoretical model to explain this and show that in the presence of aggregate demand uncertainty and capacity constraints, price dispersion could exist even when products are homogeneous, consumers are homogeneous, all agents have perfect information about the market structure, and consumers face no search costs to acquire information about the products. Our theoretical intuition and robust empirical evidence provide additional insights into price dispersion across online platforms in different institutional settings. Our study complements the existing literature that relies on consumer search costs to explain the price dispersion phenomenon.
Abstract: In this paper, I estimate a structural model of the automobile industry by considering nine large European countries. I explicitly model the manufacturers' decision regarding the number of dealers to uncover fixed costs. The existing literature on the estimation of fixed costs (e.g. Pakes et al. (2015), Fan and Yang (2020)) has modeled the entry into a market as a strategic game while treating the decision about whether to enter as a discrete choice variable. In contrast, in this analysis, I treat the firm's decision on the number of dealers in a given market as a continuous variable. The assumption of the number of dealers as a continuous choice variable provides a significant advantage in lowering the computational burden while estimating the entry game. The results show that the average of the estimated fixed costs of adding a dealer under this assumption matches closely with the fixed cost of entry when the number of dealers is treated as a discrete variable.
Abstract: In this article, I study the evolution of market power in the automobile industry in different European countries. I study how the market power in the industry has evolved between 1970-99 by observing dataset from five different countries i.e. Belgium, France, Germany, Italy and UK over the thirty years. The popular approaches to measure markups and understanding the trends use accounting data (as in Gopinath et al. (2011), or use production functions (as in Hall (1988), De Loecker, Eeckhout and Unger (2020)) or demand side approach (as in Grieco, Murry and Yurukoglu (2021)). Most of the studies focus on a given industry, within a specific geographic location. However given that I have access to high quality price and quantity data from automobile industry from five different countries, I focus on evolution of market power across different geographic locations. Next, I document the key data pattern using raw data. Then, I estimate a differentiated products demand model for the car market using product level data on market shares, prices, and product characteristics, and consumer level data on demographics, purchases. Using the estimates from demand model and using first order conditions, I estimate the marginal cost, and the markup for each product. I document how market power has evolved over time using my estimated markup. The evidence confirms the patterns in knittel (2011) that horsepower, size, and fuel efficiency have improved significantly over this time period. The average number of car models have increased by 70% over the years indicating that products are more differentiated over time. Consumers have preferred compact and subcompact car models more in all the five European countries as compared to intermediate, standard or luxury cars. The concentration has increased over time in Belgium in contrast to other four countries (France, Germany, Italy, UK). The average price (sales weighted) of the cars has increased over time. The estimates show that while the markup remains steady over the thirty years in all the countries, the increase in price is primarily contributed by the increase in marginal cost.
Welfare effects of physician-directed pharmaceutical promotion on prescription behaviors: evidence from India (with Debi Prasad Mohapatra and Christian Rojas)
In this paper, we study the welfare effects of physicians detailing on consumer welfare. We do our empirical analysis in the context of the pharmaceutical industry in India. We look into the accusations against drug manufacturers that their unethical physician detailing practices to promote Dolo-650 tablets during the Covid-19 pandemic led doctors to prescribe the Dolo tablets instead of its cheaper alternatives, which led to lower consumer welfare.
Effect of Bilingual Education on Academic Achievement: Evidence from India
This paper uses the Young Lives Study of Childhood Poverty's school-level data from India to investigate the effects of the bilingual medium of education on academic achievements. I find that the children who attended bilingual medium schools perform better academically as compared to single medium schools. My findings suggest that the quality of schools, parental education, and teacher's qualification play a significant role in students' academic achievement along with exposure to bilingual medium in the school.