The correlation between productivity and competition is an oft observed but incompletely understood result. Some suggest that there is a treatment effect of competition on measured productivity, for ...example, through a reduction of managerial slack. Others argue that greater competition makes unproductive establishments exit by reallocating demand to their productive rivals, raising observed average productivity via selection. I study the ready-mix concrete industry and offer three perspectives on this ambivalence. First, using a standard decomposition approach, I look for evidence of greater reallocation of demand to productive plants in more competitive markets. Second, I model the establishment exit decision and construct a semiparametric selection correction to quantify the empirical significance of treatment and selection. Finally, I use a grouped instrumental variable quantile regression to test the distributional predictions of the selection hypothesis. I find no evidence for greater selection or reallocation in more competitive markets; instead, all three results suggest that measured productivity responds directly to competition. Potential channels include specialization and managerial inputs.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
Abstract
We study demand estimation in a large auction market. In our model, a dynamically evolving population of buyers with unit demand and heterogeneous and privately known preferences for a ...finite set of differentiated products compete in a sequence of auctions that occur in discrete time. We define an empirically tractable equilibrium concept in which bidders behave as though they are competing with the stationary distribution of opposing bids, characterize bidding strategies, and prove existence of equilibrium. Having developed this demand system, we prove that it is non-parametrically identified from panel data. We extend the model to consider a random coefficients demand system akin to workhorse demand models in industrial organization, and show that this too is non-parametrically identified. We apply the model to estimate demand and show how large sellers can exercise market power by using persistent reserve price policies, which induce higher bids and, therefore, revenues. Our analysis highlights the importance of both dynamic bidding strategies and panel data sample selection issues when analysing these markets.
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A leading explanation for price dispersion in posted-price markets is search costs. We incorporate this insight into a model of competing second-price auctions similar to eBay. By doing so, we extend ...the narrow literature on competing auctions to capture price dispersion, and grow the already large literature on price dispersion to include auctions. We provide evidence on search costs and price dispersion using data collected from eBay, identifying search costs by exploiting a discontinuity in the visibility of auctions due to eBay׳s search tool.
•We incorporate search frictions a la Varian (1980) and others into a model of competing auctions.•We use eBay data to show important frictions in a setting usually presumed to have minimal frictions.•We observe an actual friction that arises from eBay׳s default search algorithm.•We broaden scope of the price dispersion literature to include auction markets.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
Abstract
We study patterns of behavior in bilateral bargaining situations using a rich new data set describing back-and-forth sequential bargaining occurring in over 25 million listings from eBay’s ...Best Offer platform. We compare observed behavior to predictions from the large theoretical bargaining literature. One-third of bargaining interactions end in immediate agreement, as predicted by complete-information models. The majority of sequences play out differently, ending in disagreement or delayed agreement, which have been rationalized by incomplete information models. We find that stronger bargaining power and better outside options improve agents’ outcomes. Robust empirical findings that existing models cannot rationalize include reciprocal (and gradual) concession behavior and delayed disagreement. Another robust pattern at odds with existing theory is that players exhibit a preference for making and accepting offers that split the difference between the two most recent offers. These observations suggest that behavioral norms, which are neither incorporated nor explained by existing theories, play an important role in the success of bargaining outcomes.
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IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
We outline a framework for the empirical analysis of signaling games based on three features: sorting, incentive compatibility, and beliefs. We apply it to document cheap-talk signaling in the use of ...round-number offers during negotiations. Using millions of online bargaining interactions, we show that items listed at multiples of $100 receive offers that are 8–12 percent lower but are 15–25 percent more likely to sell, demonstrating the trade-off requisite for incentive compatibility. Those same sellers are more likely to accept a similar offer, and buyers are more likely to investigate their listings, consistent with seller sorting and buyer belief updating.
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6.
Common Ownership in America Backus, Matthew; Conlon, Christopher; Sinkinson, Michael
American economic journal. Microeconomics,
08/2021, Volume:
13, Issue:
3
Journal Article
Peer reviewed
We empirically assess the implications of the common ownership hypothesis from a historical perspective using the set of S&P 500 firms from 1980 to 2017. We show that the dramatic rise in common ...ownership in the time series is driven primarily by the rise of indexing and diversification and, in the cross section, by investor concentration, which the theory presumes to drive a wedge between cash flow rights and control. We also show that the theory predicts incentives for expropriation of undiversified shareholders via tunneling, even in the Berle and Means (1932) world of the widely held firm.
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7.
I Don’t Know BACKUS, MATTHEW; LITTLE, ANDREW T.
The American political science review,
08/2020, Volume:
114, Issue:
3
Journal Article
Peer reviewed
Political decision makers make choices in a complex and uncertain world, where even the most qualified experts may not know what policies will succeed. Worse, if these experts care about their ...reputation for competence, they may be averse to admitting what they don’t know. We model the strategic communication of uncertainty, allowing for the salient reality that sometimes the effects of proposed policies are impossible to know. Our model highlights the challenge of getting experts to admit uncertainty, even when it is possible to check predictive success. Moreover, we identify a novel solution: checking features of the question that only good experts will infer—in particular, whether the effect of policies is knowable—can induce uninformed experts do say “I Don’t Know.”
Abstract
We study disappointment and platform exit among new bidders in an online auction marketplace. In particular, we study a hybrid auction format with a “Buy-It-Now” option, which, when ...executed, will abruptly end the auction and cancel any standing bids. When this happens, if the formerly leading bidder is new to the platform, then they are 6 percentage points more likely to exit the marketplace for every additional day they spent in the lead. This is rationalized by disappointment-averse bidders with outside options and rational expectations about the likelihood of winning. Our explanation is validated by three ancillary predictions: when expectations are lowered by higher competing bids, there is no effect; sensitivity of exit is declining in prior experience; and, for bidders who do not exit, time in the lead during the first experience predicts a subsequent preference for fixed-price, rather than auction, listings.
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The common ownership hypothesis, that the presence of diversified investors with holdings in competing firms distorts behavior away from own-firm profit maximization, has generated substantial ...controversy. Here, we focus on the problem of measuring common ownership. We reflect on three approaches, in order of the degree of modeling structure imposed. First, a purely descriptive summary of investor cross holdings; second, a theoretically motivated notion of “profit weights,” which captures the distortion without modeling the strategic interaction of firms; and finally, the fully structural approach, which consists of modeling both the distortions and the strategic game itself.
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Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion ...restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the “common ownership” hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data.
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