Dissertation/Thesis Abstract

Competition and Market Evolution: Studies on the Primitives that Give Rise to Various Market Structures
by Varela, Mauricio Jose, Ph.D., Northwestern University, 2011, 139; 3456714
Abstract (Summary)

Markets arise from the interaction of consumers with suppliers. As consumers and suppliers evolve, so do markets. Changes in conduct behavior among suppliers can also cause markets to evolve. This collection of papers studies how particular factors shape demand, supply, and conduct. Regarding demand, consumers may benefit from more choice. The benefits of increasing choice of health insurance plans for employees is estimated using a proprietary data set covering over ten million Americans between 1999 and 2006. Estimates suggest consumers are willing to pay twenty percent higher premiums for more choice. I study supply by estimating sunk entry costs for multi-unit firms that expand gradually. Dis-economies of scale, arising from scarce management or lack of financial resources, may have constrained expansion in the Mexican supermarket industry between 1999 and 2006. An entry model with inter-market dependencies is developed to estimate these dis-economies. I find WalMart's per-store entry costs increase by one to two percent for each additional store opened in the same year. Firm's finances are also found to affect sunk entry costs significantly. Conduct is studied in the context of the US airline industry. A model of multimarket competition is developed, where hub-&-spoke carriers can freely readjust seat allocations across routes that share a common leg. Carriers are found to compete less aggressively when they overlap on routes in which at least one rival can readjust, but not when they overlap on other routes. This contrasts with the mutual forbearance hypothesis that states carriers compete less aggressively as the degree of overlap increases, regardless of the type of route. The predictions of the model are validated empirically using data between 1993 and 2007 and are found to be four fold stronger than those of the mutual forbearance hypothesis. Implications for merger policy are discussed.

Indexing (document details)
Advisor: Mazzeo, Michael
Commitee: Dafny, Leemore, Ho, Katherine, Hubbard, Thomas
School: Northwestern University
Department: Managerial Economics and Strategy
School Location: United States -- Illinois
Source: DAI-A 72/08, Dissertation Abstracts International
Source Type: DISSERTATION
Subjects: Economics, Economic theory
Keywords: Airlines, Choice, Consumer choice, Dis-economies of scale, Entry, Health insurance, Market evolution, Market structures, Multimarket, Walmart
Publication Number: 3456714
ISBN: 978-1-124-66303-6
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