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Theoretical and Empirical Innovations in I.O. Models

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Marriott Philadelphia Downtown, Meeting Room 414
Hosted By: Econometric Society
  • Chair: Patrick J. Kehoe, Stanford University

Nonparametric Identification and Estimation of Productivity Distributions and Trade Costs

Ayse Ozgur Pehlivan
,
Bilkent University
Quang Vuong
,
New York University

Abstract

This paper studies the nonparametric identification and estimation of productivity distributions and trade costs in an Eaton and Kortum (2002) type Ricardian trade model. Our identification and estimation strategy gains insights from the empirical auction literature, however, our methodology is novel since we face additional problems resulting from the nature of the trade data. Our methodology does not require data on prices which are usually quite hard to obtain and manages to identify the underlying structure by using disaggregated simple bilateral trade data consisting only of trade values (expenditures) and traded quantities. We recover destination-source-sector specific productivity distributions and trade costs nonparametrically. The fact that these productivity distributions and trade costs are both country and sector specific provides important insights about not only cross country differences in productivity distributions and trade costs but also differences across sectors. Moreover, in Eaton and Kortum (2002) and variants, the productivity distributions of countries are assumed to come from a certain parametric family, Fréchet, and it has now become a common tradition in models of international trade to use either Fréchet or Pareto distributions to represent the distribution of productivities. These parametrizations provide great analytical convenience; however, recent studies show that gains from trade estimates are very sensitive to these parametrizations. In order to quantify the welfare gains from trade and answer related policy questions, checking the validity of these parametrizations and analyzing how productivity distributions behave is very important. In view of this, using a flexible structure for productivity distributions and trade costs we perform similar counterfactuals as in Eaton and Kortum (2002) and variants, and compare the estimated welfare results to those of the current literature.

Multiproduct-firm Oligopoly: An Aggregative Games Approach

Volker Nocke
,
University of Mannheim
Nicolas Schutz
,
University of Mannheim

Abstract

We develop an aggregative games approach to study oligopolistic price competition with multiproduct firms. We introduce a new class of demand systems, derived from discrete/continuous choice, and nesting CES and logit demand systems. The associated pricing game with multiproduct firms is aggregative and a firm's optimal price vector can be summarized by a uni-dimensional sufficient statistic, the iota-markup. We prove existence of equilibrium using a nested fixed-point argument, and provide conditions for equilibrium uniqueness. In equilibrium, firms may choose not to offer some products. We analyze the pricing distortions and provide monotone comparative statics. Under CES and logit demands, another aggregation property obtains: All relevant information for determining a firm's performance and competitive impact is contained in that firm's uni-dimensional type. Finally, we re-visit classic questions in static and dynamic merger analysis, and study the impact of a trade liberalization on the inter- and intra-firm size distributions, productivity and welfare.

Dynamic Competition in Era of Big Data

Patrick J. Kehoe
,
Stanford University
Bradley Larsen
,
Stanford University
Elena Pastorino
,
Stanford University

Abstract

The advent of rich and highly--detailed information on individual web--browsing and purchase histories (an instance of so--called "Bigdata") has begun to make feasible sophisticated forms of personalized pricing, heretofore considered too informationally demanding to implement. We argue these pricing strategies are especially relevant in markets for differentiated experience goods. Taking the view that this ability to price discriminate both intertemporally and interpersonally will become increasingly relevant in the future, here we investigate its implications on the dynamics of prices and on efficiency in such markets. In particular, we derive a simple characterization of the equilibrium pricing rule that shows how prices contain a variety--specific dynamic component that depends on the relative informativeness of competing varieties about consumers' tastes. Over time, this pricing rule leads to discontinuous price changes that take the form of fluctuating price discounts for a given consumer, reminiscent of those observed in the data. We also investigate the limits to which efficiency results typical of duopoly models with one variety per firm can be extended to multi--variety and multi--firm settings, and provide simple, intuitive examples of the type of inefficiencies characteristic of these more general environments. Finally, we provide evidence on the gains associated with these sophisticated forms of price discrimination using eBay data.

Valuing School Choice: Using a Randomized Experiment to Validate Welfare Evaluation of Private School Vouchers

Peter Arcidiacono
,
Duke University
Karthik Muralidharan
,
University of California-San Diego
Eun-young Shim
,
University of California-San Diego
John D. Singleton
,
Duke University

Abstract

While parents and students value schools for many reasons, evaluation of school choice programs often focuses on impacts on student outcomes alone. In this paper, we pursue a unique research design to credibly identify the welfare benefits of private school vouchers. We first develop and estimate a model of school choice with credit constraints using rich control group data from a randomized controlled trial of private school vouchers in rural India. We then externally validate the estimates by simulating a voucher program in the control group to compare with the experimental outcomes. We find that accounting for credit constraints is important for accurately predicting voucher takeup and implies substantial welfare gains to recipients.
Discussant(s)
Rodrigo Adao
,
Princeton University
Michael H. Riordan
,
Columbia University
Dirk Bergemann
,
Yale University
Adam Kapor
,
Columbia University
JEL Classifications
  • L0 - General