Most recent papers:

• Reserve Price Signaling With Public Information: Evidence From Online Auto Auctions.
  Junyan Guan, Boli Xu.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 245-266, Spring 2026. ", "\nABSTRACT\nThis article considers an auction model in which a seller's choice of reserve price signals her private information about the object's quality. We show that the signaling incentive would lower the seller's payoff and the probability of sale. We estimate the model using a novel dataset from a large online auto auction platform. Counterfactual simulations suggest that a secret reserve price could shut down the signaling incentive and improve both the seller's payoff and the probability of sale, which supports the prevalent use of secret reserve prices in practice."]

  March 25, 2026   doi: 10.1111/1756-2171.70047   open full text
• Multi‐Product Monopolist and Information Design.
  Fanqi Shi, Yutong Zhang, Litian Chen.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 16-38, Spring 2026. ", "\nABSTRACT\nWe study the information design and pricing decision of a multi‐product monopolist who faces a buyer with unit demand. Under omniscient disclosure, we show that one profit‐maximizing menu reveals the identity of the highest quality product and allocates that product, provided a type‐specific quality threshold is met. This menu remains optimal under private disclosure if the buyer's value has constant differences in quality and type, or if the value has non‐decreasing differences in quality and type and the threshold type is independent of quality. We also characterize the conditions under which an ex‐ante and non‐discriminatory posted price mechanism is optimal."]

  March 25, 2026   doi: 10.1111/1756-2171.70033   open full text
• Optimal Job Design and Information Elicitation.
  Arijit Mukherjee, Zijian Qi, Luis Vasconcelos.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 176-204, Spring 2026. ", "\nABSTRACT\nWhen managers rely on their subordinates for local information but cannot commit to how such information is used, the incentives for effort and information elicitation become intertwined. This incentive problem influences the firm's job design decision, that is, whether to assign all tasks in a job to one worker (“individual assignment”) or split those among a group (“team assignment”). Team assignment facilitates information elicitation but suffers from diseconomies of scope in incentive provision. The optimal job design is driven by the workers' likelihood of being informed (about local conditions) and the noise in the performance measure used to reward them."]

  March 25, 2026   doi: 10.1111/1756-2171.70037   open full text
• Fossil Fuels and Renewable Energy: Mix or Match?
  Natalia Fabra, Gerard Llobet.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 140-157, Spring 2026. ", "\nABSTRACT\nThis article investigates the influence of technological ownership on pricing strategies and productive efficiency. Our motivation comes from the evolving landscape of electricity markets where firms are transitioning from diversified to specialized portfolios, focusing on renewable energy or fossil fuels. Our theoretical model demonstrates that diversified firms compete more vigorously than their specialized counterparts. Conversely, specialized firms exhibit higher productive efficiency but only when thermal sources dominate. The magnitude of our theoretical predictions is assessed through simulations using data from the Spanish electricity market. Methodologically, our analysis offers novel insights for studying multi‐unit auctions with cost heterogeneity and privately known capacities."]

  March 25, 2026   doi: 10.1111/1756-2171.70044   open full text
• Optimal Refund Mechanism With Consumer Learning.
  Qianjun Lyu.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 205-224, Spring 2026. ", "\nABSTRACT\nThis article studies the optimal refund mechanism when an uninformed buyer learns about their valuation over time. We consider various refund mechanisms including simple return policies (no returns or free returns), and stochastic return policies, which allow the buyer to keep the product with some probability upon receiving a refund. We show that the optimal refund mechanism is deterministic and takes a simple form: either the seller deters buyer learning by offering a low price without returns, or encourages maximal learning by setting a high price with free returns. Interestingly, free returns are optimal only for intermediate prior beliefs."]

  March 25, 2026   doi: 10.1111/1756-2171.70046   open full text
• Redistribution Through Efficiency: Theory and Evidence from Three Electricity Markets.
  Matti Liski, Iivo Vehviläinen.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 225-244, Spring 2026. ", "\nABSTRACT\nUsing micro‐data on over 160 million bids to buy and sell from three major electricity markets, we study efficiency improvements resulting from technologies such as storage. Consumer benefits arise not from stabilized prices but from changes in general price levels. To unpack the findings, we develop a set of price‐theory results, demonstrating that the convexity of market excess demand, derived from the bids, serves as a novel measure that strongly predicts consumer benefits across all markets. This analysis highlights that even small allocative improvements can lead to significant redistributions of surplus, ultimately benefitting consumers."]

  March 25, 2026   doi: 10.1111/1756-2171.70048   open full text
• Purchase History and Product Personalization.
  Laura Doval, Vasiliki Skreta.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 78-102, Spring 2026. ", "\nABSTRACT\nProduct personalization opens the door to price discrimination. A rich product line allows firms to better tailor products to consumers' tastes, but the mere choice of a product carries valuable information about consumers that can be leveraged for price discrimination. We study this trade‐off in an upstream ‐ downstream model, where a consumer buys a good of variable quality upstream, followed by an indivisible good downstream. The downstream firm's use of the consumer's purchase history for price discrimination introduces a novel distortion: The upstream firm offers a subset of the products that it would offer if, instead, it could jointly design its product line and downstream pricing. By controlling the degree of product personalization the upstream firm curbs ratcheting forces that result from the consumer facing downstream price discrimination."]

  March 25, 2026   doi: 10.1111/1756-2171.70007   open full text
• Search and Competition in Expert Markets.
  Yiran Cao, Yongmin Chen, Yucheng Ding, Tianle Zhang.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 158-175, Spring 2026. ", "\nABSTRACT\nWe analyze a model where consumers sequentially search experts for treatment recommendations and prices, facing either zero or a positive search cost, whereas experts simultaneously compete in these two dimensions. In equilibrium, experts may “cheat” by overstating the severity of a consumer's problem and recommending an unnecessary treatment, prices follow distributions depending on the problem type and the treatment, and consumers employ Bayesian belief updating about their problem types during search. Paradoxically, as search cost decreases, expert cheating and prices can both increase stochastically. However, if search cost is sufficiently small, competition will force all experts to behave honestly."]

  March 25, 2026   doi: 10.1111/1756-2171.70049   open full text
• Stable Price Dispersion under Heterogeneous Buyer Consideration.
  David P. Myatt, David Ronayne.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 103-121, Spring 2026. ", "\nABSTRACT\nWe study the pricing of homogeneous products sold to customers who consider different sets of suppliers. We identify prices that are stable in the sense that no firm wishes to undercut a rival or to raise its price when rivals are able to respond by offering special deals. We derive stable and dispersed prices across several price‐consideration specifications. We contrast the implications against those of conventional approaches."]

  March 25, 2026   doi: 10.1111/1756-2171.70018   open full text
• Ad Valorem Taxation in a Multiproduct Monopoly.
  Anna D'Annunzio, Antonio Russo.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 3-15, Spring 2026. ", "\nABSTRACT\nWe study the pass‐through of ad valorem taxes with a multiproduct monopolist. We characterize two mechanisms whereby an ad valorem tax on one good reduces all prices (Edgeworth's paradox), depending on the goods being substitutes or complements. We also find that the tax can increase the supply of all goods. Hence, consumer surplus and welfare can increase even when the goods are underprovided compared to the social optimum. We provide several applications where these results hold. Our findings indicate that in a multiproduct setting the effects of unit and ad valorem taxes on market outcomes and welfare are fundamentally different."]

  March 25, 2026   doi: 10.1111/1756-2171.70025   open full text
• Network Competition in the Airline Industry: An Empirical Framework.
  Zhe Yuan, Panle Jia Barwick.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 39-59, Spring 2026. ", "\nABSTRACT\nThis article proposes an empirical framework and a novel equilibrium concept to analyze network competition in the airline industry. A two‐stage entry model links direct and indirect flights, using a technological relationship estimated from data to mimic the hub‐and‐spoke network. It employs revealed‐preference arguments to bound fixed cost parameters, estimated using state‐of‐the‐art econometric methods. Ignoring network externality undervalues the benefits of additional flights by 13.2% and leads to 21.5% fewer one‐stop flights. A hypothetical merger between Alaska and Virgin in 2014 could increase consumer surplus as the merged airline would offer more flights with muted post‐merger prices."]

  March 25, 2026   doi: 10.1111/1756-2171.70031   open full text
• Horizontal Mergers and Incremental Innovation.
  Marc Bourreau, Bruno Jullien, Yassine Lefouili.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 122-139, Spring 2026. ", "\nABSTRACT\nWe study the impact of horizontal mergers on the incentives of merging firms to invest in incremental innovation. We provide a decomposition of this impact that clarifies the various forces at work and the differences between demand‐enhancing and cost‐reducing innovation. Moreover, we derive sufficient conditions for a merger to either reduce or raise the merging firms' incentives to innovate, and show that the comparison of the price diversion ratio and the innovation diversion ratio can help screen mergers. We also uncover a useful connection between the level of production synergies induced by a merger and its impact on innovation."]

  March 25, 2026   doi: 10.1111/1756-2171.70045   open full text
• Asymmetric Platform Oligopoly.
  Martin Peitz, Susumu Sato.
  The RAND Journal of Economics. March 25, 2026
  ["The RAND Journal of Economics, Volume 57, Issue 1, Page 60-77, Spring 2026. ", "\nABSTRACT\nWe propose a tractable model of asymmetric platform oligopoly with logit demand in which users from two distinct groups are subject to within‐group and cross‐group network effects and decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees for each user group. We explore the effects of platform entry, a change of incumbent platforms' quality under free entry, and the degree of compatibility. We show how the analysis can be extended to partial user participation."]

  March 25, 2026   doi: 10.1111/1756-2171.70008   open full text
• Demand Estimation with Text and Image Data.
  Giovanni Compiani, Ilya Morozov, Stephan Seiler.
  The RAND Journal of Economics. March 23, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nWe propose a demand estimation approach that leverages unstructured data to infer substitution patterns. Using pre‐trained deep learning models, we extract embeddings from product images and textual descriptions and incorporate them into a mixed logit demand model. This approach enables demand estimation even when researchers lack data on product attributes or when consumers value hard‐to‐quantify attributes such as visual design. Using a choice experiment, we show this approach substantially outperforms standard attribute‐based models at counterfactual predictions of second choices. We also apply it to 40 product categories offered on Amazon.com and consistently find that unstructured data are informative about substitution patterns."]

  March 23, 2026   doi: 10.1111/1756-2171.70052   open full text
• Consumer‐Minded Informational Intermediary and Welfare Losses.
  Wenji Xu, Kai Hao Yang.
  The RAND Journal of Economics. March 17, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nThis article examines the welfare implications of third‐party informational intermediation. A seller sets the price of a product that is sold through an intermediary, who discloses information about the product to consumers. In a model where the intermediary is consumer‐minded—has a payoff that depends on both the seller's revenue and the consumer surplus, we show that total welfare may decrease in the Pareto sense, as the intermediary's consumer‐mindedness increases. Furthermore, we show that consumer‐mindedness emerges endogenously when a revenue‐maximizing intermediary is forward‐looking and the consumer base is increasing in past consumer surplus."]

  March 17, 2026   doi: 10.1111/1756-2171.70050   open full text
• Full Discretion is Inevitable.
  Wenhao Li.
  The RAND Journal of Economics. March 17, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nThis article studies a dynamic project‐selection game between a Principal and an Agent with conflicting interests. Only the Agent knows what projects are feasible. In each period before a project is selected, the Principal imposes a restriction set. The Agent can select any feasible project within this set, thereby ending the game. The Agent can also stay silent, in which case the game will proceed to the next period. Importantly, the Principal cannot commit to her future restriction sets. I show that when the Agent is sufficiently patient, the Principal fully delegates to the Agent in the unique equilibrium."]

  March 17, 2026   doi: 10.1111/1756-2171.70051   open full text
• Network Structure and the Efficiency Gains from Mergers: Evidence from U.S. Freight Railroads.
  Yanyou Chen.
  The RAND Journal of Economics. March 17, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nThe trade‐off between market power and efficiency gains is central to antitrust analyses of mergers, but empirical evidence quantifying efficiencies remains limited. Using transaction‐level data from U.S. freight railroads (1985–2005), this article quantifies merger‐induced cost efficiencies, driven mainly by eliminating inter‐railroad interchange costs and reoptimization of routing and resource allocation within integrated networks. I develop a spatial equilibrium model with oligopolistic competition to assess equilibrium merger effects. Counterfactual analyses show mergers reduce shipment costs by 12.9% and prices by 8.8%. Markups increase by 7.2%, driven primarily by non‐merging firms reallocating resources away from regions where merged firms achieve large cost reductions."]

  March 17, 2026   doi: 10.1111/1756-2171.70043   open full text
• Physicians as Persuaders: Evidence from Hospitals in China.
  Jia Xiang.
  The RAND Journal of Economics. February 08, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nI estimate a Bayesian persuasion model to examine how financial incentives and asymmetric information shape physician–patient interactions. This approach offers new insights into the role of insurance. First, the model predicts that patients' coinsurance moderates physicians' responsiveness to increases in service fees. This prediction is supported by a difference‐in‐differences analysis using Chinese health insurance claims data with random variation in physicians' reimbursement and patients' coinsurance rates. Second, the model implies that lower coinsurance rates reduce both patient price elasticity and skepticism, increasing the likelihood of physicians misdirecting patients toward unnecessary treatments. Using structural model estimates, I show that for a diagnosis where surgical treatment is discretionary, nearly half of the patients who received surgery would not have done so were they fully informed. Such misdirection from physicians is greater when coinsurance rates decrease, highlighting a new inefficiency channel beyond moral hazard. I decompose the effect of lowering coinsurance into moral hazard and the novel greater misdirection effect. Counterfactual analysis shows that, while patients benefit from lower out‐of‐pocket costs, greater misdirection nearly offsets these welfare gains."]

  February 08, 2026   doi: 10.1111/1756-2171.70041   open full text
• Strategic Trading and Blockholder Dynamics.
  Iván Marinovic, Felipe Varas.
  The RAND Journal of Economics. January 22, 2026
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nWe study strategic trading by a privately informed blockholder who monitors a company and trades its shares. Private information results in larger block sizes in good states, but by increasing the speed of the blockholder's selling, it can result in lower block sizes in bad states. Despite the heterogeneous impact on expected block size, we show that asymmetric information leads to Pareto improvements: it raises stock prices, benefits small uninformed shareholders, and benefits the block owner, despite the negative impact on liquidity."]

  January 22, 2026   doi: 10.1111/1756-2171.70040   open full text
• Why Is Exclusivity in Broadcasting Rights Prevalent and Why Does Simple Regulation Fail?
  David Martimort, Jerome Pouyet.
  The RAND Journal of Economics. December 22, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nPay‐TV firms compete both downstream to attract viewers and upstream to acquire broadcasting rights. Because profits inherited from downstream competition satisfy a convexity property, allocating rights to the dominant firm maximizes the industry profit. Such an exclusive allocation of rights emerges as a robust equilibrium outcome but may fail to maximize welfare. We analyze whether a ban on resale and a ban on package bidding may improve welfare. These corrective policies have no impact on the final allocation but lead to profit redistribution along the value chain."]

  December 22, 2025   doi: 10.1111/1756-2171.70039   open full text
• Acquisitions, Innovation and the Entrenchment of Monopoly.
  Vincenzo Denicolò, Michele Polo.
  The RAND Journal of Economics. December 15, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nWe analyze a dynamic model of repeated innovation where inventors may either be acquired by an incumbent or else resist takeover and challenge for leadership. In the short run, acquisitions always spur innovation because of the invention‐for‐buyout effect. In the longer run, however, they may stifle it because of a countervailing effect, the entrenchment of monopoly. The latter occurs when the incumbent's dominance depends on past levels of activity and is therefore reinforced by recurrent acquisitions. We show that if the entrenchment effect is sufficiently strong, forward‐looking policymakers should prohibit acquisitions in anticipation of the long‐run negative impact on innovation. This argument sets out a new theory of harm that can be used to block acquisitions that could otherwise go unchallenged."]

  December 15, 2025   doi: 10.1111/1756-2171.70038   open full text
• Inflated Recommendations.
  Martin Peitz, Anton Sobolev.
  The RAND Journal of Economics. November 24, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nBiased recommendations arise naturally in markets with heterogeneous consumers. We study a model in which a monopolist offers an experience good to a population of consumers with heterogeneous tastes and makes personalized purchase recommendations. We provide conditions under which a firm makes welfare‐reducing purchase recommendations with positive probability, resulting in inflated recommendations. We extend this insight to a setting in which an intermediary makes the recommendations, whereas a seller sets the retail price. Regulatory interventions that forbid inflated recommendations may lead to higher social welfare or may backfire."]

  November 24, 2025   doi: 10.1111/1756-2171.70036   open full text
• Dynamic Pricing With Recommendation and Consumer Feedback.
  Wenji Xu, Shuoguang Yang.
  The RAND Journal of Economics. November 03, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nA long‐lived seller sells a new product of unknown value by offering prices and recommendations to short‐lived consumers in continuous time. The seller receives consumer feedback about the product at a rate that increases with the instantaneous sales volume. The optimal selling mechanism features episodes of price discounts, during which the seller discontinuously lowers the price and offers unwarranted recommendations to consumers. The optimal pricing strategy depends on the nature of consumer feedback and may involve early or late discounts, dynamic price backtracking, and below‐cost pricing."]

  November 03, 2025   doi: 10.1111/1756-2171.70016   open full text
• Storage games.
  Sergei Balakin, Guillaume Roger.
  The RAND Journal of Economics. October 29, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nWe study a long‐horizon, oligopolistic market with random shocks to demand that can be arbitraged by two storage operators with finite capacity. This problem applies to any storable commodity—that is, most commodities. Because the arbitrage spread is so sensitive to market power, storage operators face strong incentives to restrain quantities by tacitly colluding. This cooperation takes new forms thanks to the multiplicity of actions they must take: selling, buying, or both. We construct payoff‐maximizing equilibria of this stochastic game, and uncover a new form of Partial Cooperation that trades off quantities and delay. While collusive, Partial Cooperation delivers higher consumer surplus thanks to the market power effect. Head‐on competition is not always an equilibrium of the long‐horizon game when market power becomes large enough. We draw implications for policy and suggest poorly competitive storage is a negative externality to the development of the underlying commodity—for example, renewable energy."]

  October 29, 2025   doi: 10.1111/1756-2171.70015   open full text
• The Political Economy of Patent Buyouts.
  Amal Ahmad, Dominik Naeher, Sebastian Vollmer.
  The RAND Journal of Economics. October 15, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nIncentivizing innovation through buyouts may alleviate the social costs associated with patent power, but the political economy and feasibility of this potentially important financing mechanism have been understudied. We study an international setting of countries with different innovation and financing capabilities, and where financing governments rely on taxes to fund buyouts and care about the electoral popularity of their decisions. Subsequent distributional conflict arises between countries as some may benefit from the now‐public knowledge without contributing equally to financing, whereas taxpayers within a country may disagree over the desired extent of tax financing for buyouts. We show that these conflicts reduce the feasibility of buyouts relative to patents, identify the conditions under which this harms global welfare, and discuss possibilities for overcoming these constraints. The international public good and public financing dimensions of buyouts emerge as essential for understanding their potential to supplant patents and to improve social welfare."]

  October 15, 2025   doi: 10.1111/1756-2171.70017   open full text
• On the Optimality of Full Disclosure.
  Emiliano Catonini, Sergey Stepanov.
  The RAND Journal of Economics. October 15, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nA privately informed sender can commit to any disclosure policy toward a receiver, whose actions affect the utility of the sender. We show that full disclosure is optimal under a sufficient condition with some desirable properties. First, it speaks directly to the parties' utility functions, as opposed to the sender's indirect utility function; this makes it easily interpretable and verifiable. Second, it does not require the sender's payoff to be a function of the posterior mean state. Third, it is weaker than the conditions obtained in the literature for some specific settings."]

  October 15, 2025   doi: 10.1111/1756-2171.70013   open full text
• Buyer‐Optimal Platform Design.
  Daniele Condorelli, Balazs Szentes.
  The RAND Journal of Economics. October 06, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nA platform matches a unit mass of sellers, each owning a single product of heterogeneous quality, to a unit mass of buyers with differing valuations for unit‐quality. After matching, sellers make take‐it‐or‐leave‐it price‐offers to buyers. Initially, valuations of buyers are only known to them and the platform, but sellers make inferences from the matching algorithm. The efficient matching is positive assortative, but buyer‐optimal matchings are stochastically negative assortative when there are few low‐value buyers (i.e., compared to lower‐quality sellers, high‐quality ones are matched to buyers with lower expected valuation). Although everyone trades, generating rents for the side lacking bargaining power results in inefficient matching."]

  October 06, 2025   doi: 10.1111/1756-2171.70014   open full text
• Strategic Influencers and the Shaping of Beliefs.
  Akhil Vohra.
  The RAND Journal of Economics. September 10, 2025
  ["The RAND Journal of Economics, EarlyView. ", "\nABSTRACT\nInfluencers, from propagandists to sellers, expend vast resources targeting agents who amplify their message through word‐of‐mouth communication. While agents differ in network position, they also differ in their bias: Agents may naturally read articles with a particular slant or buy products from a certain seller. Absent competition, an influencer prefers targeting central agents and those biased against it. If agents are unbiased, competition leads to influencers targeting more central agents. However, when agents have heterogeneous biases and competition is intense, the incentive to deter one's rival dominates. Influencers protect their base, targeting those with similar beliefs in equilibrium."]

  September 10, 2025   doi: 10.1111/1756-2171.70012   open full text
• Optimal disclosure decisions when there are penalties for nondisclosure.
  Ronald A. Dye.
  The RAND Journal of Economics. August 15, 2017
  We study a seller of an asset who is liable for damages if the seller fails to disclose to buyers an estimate of the asset's value he knew prior to the sale. Our results include as either the “damages multiplier” that determines the size of the damages the seller must pay buyers increases, or as the probability the seller is caught withholding his estimate from buyers increases, the seller discloses his estimate less often, and as the precision of the seller's estimate increases, he sells a larger fraction of the asset.

  August 15, 2017   doi: 10.1111/1756-2171.12197   open full text
• Demand for nondurable goods: a shortcut to estimating long‐run price elasticities.
  Helena Perrone.
  The RAND Journal of Economics. August 15, 2017
  When consumers stockpile, static demand models overestimate long‐term price responses. This article presents a dynamic model of demand with consumer inventories and proposes a shortcut to estimate the long‐run price elasticities without having to solve the dynamic program. Using French data on food purchases, I find elasticities consistent with those that result from the full‐blown estimations found in the literature.

  August 15, 2017   doi: 10.1111/1756-2171.12194   open full text
• Interviewing in two‐sided matching markets.
  Robin S. Lee, Michael Schwarz.
  The RAND Journal of Economics. August 15, 2017
  We introduce the interview assignment problem, which generalizes classic one‐to‐one matching models by introducing a stage of costly information acquisition. Firms learn preferences over workers via costly interviews. Even if all firms and workers conduct the same number of interviews, realized unemployment depends also on the extent to which agents share common interviewing partners. We introduce the concept of overlap that captures this notion and prove that unemployment is minimized with perfect overlap: that is, if two firms interview any common worker, they interview the exact same set of workers.

  August 15, 2017   doi: 10.1111/1756-2171.12193   open full text
• Mergers with interfirm bundling: a case of pharmaceutical cocktails.
  Minjae Song, Sean Nicholson, Claudio Lucarelli.
  The RAND Journal of Economics. August 15, 2017
  Pharmaceutical cocktails often consist of two or more drugs produced by competing firms. The component drugs are often also sold as stand‐alone products. We analyze the effects of a merger between two pharmaceutical firms selling complements for colorectal cancer treatment. In this setting there are two merger effects: the standard upward pricing pressure due to firms internalizing the substitution between the stand‐alone products, and an additional effect where the firms internalize the impact of selling complements and reduce the price of the cocktail product. The net impact of a merger is a modest price increase, or even a price decrease.

  August 15, 2017   doi: 10.1111/1756-2171.12192   open full text
• Agenda chasing and contests among news providers.
  Zsolt Katona, Jonathan A. Knee, Miklos Sarvary.
  The RAND Journal of Economics. August 15, 2017
  This article studies competition in contests with a focus on the news industry that is increasingly influenced by social media. The model assumes publishers to pick a single topic from a large pool based on the topics' prior “success” probabilities, thereby “chasing” potentially successful topics. Firms that publish topics that become successful divide a “reward” which can change with the number of competing firms and the number of successful topics. The results show that share structures can be categorized into three types that, in turn, lead to qualitatively different outcomes for the contest.

  August 15, 2017   doi: 10.1111/1756-2171.12191   open full text
• Energy efficiency and household behavior: the rebound effect in the residential sector.
  Erdal Aydin, Nils Kok, Dirk Brounen.
  The RAND Journal of Economics. August 15, 2017
  This article investigates the rebound effect in residential heating, using a sample of 563,000 households in the Netherlands. Using instrumental variable and fixed‐effects approaches, we address potential endogeneity concerns. The results show a rebound effect of 26.7% among homeowners, and 41.3% among tenants. We corroborate the findings through a quasiexperimental analysis, using a large retrofit subsidy program. We also document significant heterogeneity in the rebound effect, determined by household wealth and income, and the actual energy use intensity. The findings in this article confirm the important role of household behavior in determining the outcomes of energy efficiency improvement programs.

  August 15, 2017   doi: 10.1111/1756-2171.12190   open full text
• An offer you can't refuse: early contracting with endogenous threat.
  Bruno Jullien, Jerome Pouyet, Wilfried Sand‐Zantman.
  The RAND Journal of Economics. August 15, 2017
  A seller has private information on the future gains from trade with a buyer, but the buyer has the option to invest to produce the good internally. Both the buyer and the seller can efficiently trade ex post under complete information. Despite the lack of information, the buyer sometimes gains by making an early contract offer to the seller. The early contract divides the different types of sellers according to their information, which renders the threat of producing the good in‐house credible and enables the buyer to extract a larger share of the gains from trade. Several extensions are investigated.

  August 15, 2017   doi: 10.1111/1756-2171.12196   open full text
• Apple's agency model and the role of most‐favored‐nation clauses.
  Øystein Foros, Hans Jarle Kind, Greg Shaffer.
  The RAND Journal of Economics. August 15, 2017
  The agency model used by Apple and other digital platforms delegates retail‐pricing decisions to upstream content providers subject to a fixed revenue‐sharing rule. Given competition both upstream and downstream, we consider how, under the agency model, retail prices depend on the firms' revenue‐sharing splits and the degrees to which consumers view the platforms and the goods sold on the platforms to be substitutes. We show that the agency model may not be universally adopted even if adoption would mean higher profits for all firms. Use of most‐favored‐nation clauses in these settings can ensure industry‐wide adoption and increase retail prices.

  August 15, 2017   doi: 10.1111/1756-2171.12195   open full text
• Auctions versus negotiations: the effects of inefficient renegotiation.
  Fabian Herweg, Klaus M. Schmidt.
  The RAND Journal of Economics. August 15, 2017
  For the procurement of complex goods, the early exchange of information is important to avoid costly renegotiation. If the buyer can specify the main characteristics of possible design improvements in a complete contingent contract, scoring auctions implement the efficient allocation. If this is not feasible, the buyer must choose between a price‐only auction (discouraging early information exchange) and bilateral negotiations with a preselected seller (reducing competition). Bilateral negotiations are superior if potential design improvements are important, if renegotiation is very costly, and if the buyer's bargaining position is strong. Moreover, negotiations provide stronger incentives for sellers to investigate design improvements.

  August 15, 2017   doi: 10.1111/1756-2171.12189   open full text
• Advertising, consumer awareness, and choice: evidence from the U.S. banking industry.
  Elisabeth Honka, Ali Hortaçsu, Maria Ana Vitorino.
  The RAND Journal of Economics. August 15, 2017
  How does advertising influence consumer decisions and market outcomes? We utilize detailed data on consumer shopping behavior and choices over bank accounts to investigate the effects of advertising on the different stages of the shopping process: awareness, consideration, and choice. We formulate a structural model with costly search and endogenous consideration sets, and show that advertising in the U.S. banking industry is primarily a shifter of awareness as opposed to consideration or choice. Advertising makes consumers aware of more options, search more, and find better alternatives. This increases the market share of smaller banks and makes the industry more competitive.

  August 15, 2017   doi: 10.1111/1756-2171.12188   open full text
• Hospital systems and bargaining power: evidence from out‐of‐market acquisitions.
  Matthew S. Lewis, Kevin E. Pflum.
  The RAND Journal of Economics. August 15, 2017
  Analyses of hospital mergers typically focus on acquisitions that alter local market concentration. However, as prices are negotiated between hospital systems and insurers, this focus may overlook the impact of cross‐market interdependence in the bargaining outcome. Using data on out‐of‐market acquisitions occurring across the United States from 2000–2010, we investigate the impact of cross‐market dependencies on negotiated prices. We find that prices at hospitals acquired by out‐of‐market systems increase by about 17% more than unacquired, stand‐alone hospitals and confirm that out‐of‐market mergers result in a relaxation of competition, the prices of nearby competitors to acquired hospitals increase by around 8%.

  August 15, 2017   doi: 10.1111/1756-2171.12186   open full text
• Monopoly regulation under asymmetric information: prices versus quantities.
  Leonardo J. Basso, Nicolás Figueroa, Jorge Vásquez.
  The RAND Journal of Economics. August 15, 2017
  We compare two instruments to regulate a monopoly that has private information about its demand or costs: fixing either the price or quantity. For each instrument, we consider sophisticated (screening) and simple (bunching) mechanisms. We characterize the optimal mechanisms and compare their welfare performance. With unknown demand and increasing marginal costs, the sophisticated price mechanism dominates that of quantity, whereas the sophisticated quantity mechanism may prevail when marginal costs decrease. The simple price mechanism dominates that of quantity when marginal costs decrease, but the opposite may arise if marginal costs increase. With unknown costs, both instruments are equivalent.

  August 15, 2017   doi: 10.1111/1756-2171.12187   open full text
• Raising search costs to deter window shopping can increase profits and welfare.
  Greg Taylor.
  The RAND Journal of Economics. May 17, 2017
  Consumers tend to browse products they are interested in and firms often invest resources in selling to them. A consequence, I show, is that it is optimal for a firm to increase the cost of browsing (even though this drives away potential customers) because doing so allows it to target sales efforts at those consumers most likely to buy. Despite representing pure waste, this can increase welfare by facilitating efficient allocation of sales or marketing resources. For a similar reason, consumers often benefit from search costs in aggregate, and prefer them to other means of screening, such as price increases.

  May 17, 2017   doi: 10.1111/1756-2171.12180   open full text
• Costly search with adverse selection: solicitation curse versus acceleration blessing.
  Kyungmin Kim, Marilyn Pease.
  The RAND Journal of Economics. May 17, 2017
  We analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes. A low‐quality seller benefits more from trade and, therefore, searches more intensively than a high‐quality seller. This makes a seller's contact carry negative information but a seller's availability become a stronger indicator of high quality. In the stationary environment, the two effects exactly offset each other, and reducing search costs is weakly beneficial to the seller. In the nonstationary environment, the relative strengths of the two effects vary over time, and reducing search costs can be detrimental to the seller.

  May 17, 2017   doi: 10.1111/1756-2171.12185   open full text
• How do nonprofits respond to negative wealth shocks? The impact of the 2008 stock market collapse on hospitals.
  David Dranove, Craig Garthwaite, Christopher Ody.
  The RAND Journal of Economics. May 17, 2017
  The theory of cost shifting posits that nonprofit firms “share the pain” of negative financial shocks with their stakeholders, for example, by raising prices. We examine how nonprofit hospitals responded to the sharp reductions in their assets caused by the 2008 stock market collapse. The average hospital did not raise prices, but hospitals with substantial market power did cost shift in this way. We find no evidence that hospitals reduced treatment costs. Hospitals eliminated but left unchanged their offerings of profitable services. Taken together, our results provide mixed evidence on whether nonprofits behave differently from for‐profits.

  May 17, 2017   doi: 10.1111/1756-2171.12184   open full text
• Ad valorem platform fees, indirect taxes, and efficient price discrimination.
  Zhu Wang, Julian Wright.
  The RAND Journal of Economics. May 17, 2017
  This article explains why platforms such as Amazon and Visa rely predominantly on ad valorem fees, fees which increase proportionally with transaction prices. It also provides a new explanation for why ad valorem sales taxes are more desirable than specific taxes. The theory rests on the ability of ad valorem fees and taxes to achieve efficient price discrimination, given that the value of a transaction to buyers tends to vary proportionally with the cost of the good traded.

  May 17, 2017   doi: 10.1111/1756-2171.12183   open full text
• Performance feedback in competitive product development.
  Daniel P. Gross.
  The RAND Journal of Economics. May 17, 2017
  Performance feedback is ubiquitous in competitive settings where new products are developed. This article introduces a fundamental tension between incentives and improvement in the provision of feedback. Using a sample of 4294 commercial logo design tournaments, I show that feedback reduces participation but improves the quality of subsequent submissions, with an ambiguous effect on high‐quality output. To evaluate this trade‐off, I develop a procedure to estimate agents' effort costs and simulate counterfactuals under alternative feedback policies. The results suggest that feedback on net increases the number of high‐quality ideas produced and is thus desirable for a principal seeking innovation.

  May 17, 2017   doi: 10.1111/1756-2171.12182   open full text
• Estimating dynamic R&D choice: an analysis of costs and long‐run benefits.
  Bettina Peters, Mark J. Roberts, Van Anh Vuong, Helmut Fryges.
  The RAND Journal of Economics. May 17, 2017
  This article estimates a dynamic structural model of discrete Research and Development (R&D) investment and quantifies its cost and long‐run benefit for German manufacturing firms. The model incorporates linkages between R&D choice, product and process innovations, and future productivity and profits. The long‐run payoff to R&D is the proportional difference in expected firm value generated by the investment. It increases firm value by 6.7% for the median firm in high‐tech industries but only 2.8% in low‐tech industries. Simulations show that reductions in maintenance costs of innovation significantly raise investment rates and productivity, whereas reductions in startup costs have little effect.

  May 17, 2017   doi: 10.1111/1756-2171.12181   open full text
• A model of recommended retail prices.
  Dmitry Lubensky.
  The RAND Journal of Economics. May 17, 2017
  Manufacturers frequently post nonbinding public price recommendations, but neither the rationale for this practice nor its impact on prices is well understood. I develop a model in which recommendations signal a manufacturer's production cost to searching consumers, who then form beliefs about retail prices. Increasing search makes consumers reject offers for the manufacturer's and competitors' products more often, and I show that both consumers and the manufacturer prefer more search when the production cost is low and less search when it is high. With incentives thus aligned, manufacturer recommendations inform consumers via cheap talk, and their removal harms both parties.

  May 17, 2017   doi: 10.1111/1756-2171.12179   open full text
• Relational contracting and endogenous formation of teamwork.
  Akifumi Ishihara.
  The RAND Journal of Economics. May 17, 2017
  We study a relational contracting model with two agents where each agent faces multiple tasks: effort toward the agent's own project and helping effort toward another agent's project. We show that the optimal task structure is either specialization without help or teamwork with a substantial amount of help: teamwork with a small amount of help is never optimal. Specialization with high‐powered incentives can be implemented by relative performance evaluation. However, under teamwork, the evaluation scheme must be substantially different to overcome the multitasking problem. Consequently, a small amount of help is dominated by specialization with high powered incentives.

  May 17, 2017   doi: 10.1111/1756-2171.12178   open full text
• The optimal allocation of decision and exit rights in organizations.
  Helmut Bester, Daniel Krähmer.
  The RAND Journal of Economics. May 17, 2017
  We show that in a bilateral relation with conflicting preferences and transferable utility it is unambiguously optimal to assign the authority over project decisions to the privately informed rather than the uninformed party. This holds irrespective of the degree of conflict and the distribution of private information. Under the optimal contract, the uninformed party is protected by an exit option, which it will exert when the decision maker has not chosen the promised decision. Exit terminates the relation and diminishes the project surplus. We show that the first‐best efficient solution can be obtained by such a contract.

  May 17, 2017   doi: 10.1111/1756-2171.12177   open full text
• Optimal contracts for research agents.
  Yaping Shan.
  The RAND Journal of Economics. February 07, 2017
  We study the agency problem between a firm and its research employees under several scenarios characterized by different Research and Development (R&D) unit setups. In a multiagent dynamic contracting setting, we describe the precise pattern of the optimal contract. We illustrate that the optimal incentive regime is a function of how agents' efforts interact with one another: relative performance evaluation is used when their efforts are substitutes, whereas joint performance evaluation is used when their efforts are complements. The optimal contract pattern provides a theoretical justification for the compensation policies used by firms that rely on R&D.

  February 07, 2017   doi: 10.1111/1756-2171.12169   open full text
• Dynamic limit pricing.
  Flavio Toxvaerd.
  The RAND Journal of Economics. February 07, 2017
  I study a multiperiod model of limit pricing under one‐sided incomplete information. I characterize pooling and separating equilibria and their existence and determine when these involve limit pricing. For some parameter constellations, the unique equilibrium surviving a D1 type refinement involves immediate separation on monopoly prices. For others, there are limit price equilibria surviving the refinement in which different types may initially pool and then (possibly) separate. Separation involves setting prices such that the inefficient incumbent's profits from mimicking are negative. As the horizon increases or as firms become more patient, limit pricing becomes increasingly difficult to sustain in equilibrium.

  February 07, 2017   doi: 10.1111/1756-2171.12176   open full text
• Provider performance reports and consumer welfare.
  Henry Y. Mak.
  The RAND Journal of Economics. February 07, 2017
  A provider's performance report consists of his service average outcome and volume. The two variables depend on the provider's private quality type and current demand, but he can raise his average outcome by dumping vulnerable consumers. Prospective consumers infer providers' qualities from their reports. Performance reporting drives some providers to dump consumers when competition is intense, but it may not reveal providers' qualities when their average quality is high. Statistical adjustment aiming at making reports independent of consumer characteristics can lead to more dumping, less informative reports, or both. There is more dumping when volume information is withheld and less dumping when ratings information is coarse.

  February 07, 2017   doi: 10.1111/1756-2171.12175   open full text
• Collusion and heterogeneity of firms.
  Ichiro Obara, Federico Zincenko.
  The RAND Journal of Economics. February 07, 2017
  We examine the impact of heterogeneous discounting on collusion in dynamic Bertrand competition. We show exactly when collusion can be sustained and how collusion would be organized efficiently with heterogeneous discounting. First, we show that collusion is possible if and only if the average discount factor exceeds a certain threshold, with or without capacity constraints. Next, we identify a dynamic pattern of market share that characterizes efficient collusion and obtain the unique long‐run prediction despite the presence of multiple equilibria. In the long run, the most patient firm and the most impatient firm tend to dominate the market.

  February 07, 2017   doi: 10.1111/1756-2171.12174   open full text
• Managing buzz.
  Arthur Campbell, Dina Mayzlin, Jiwoong Shin.
  The RAND Journal of Economics. February 07, 2017
  We model the incentives of individuals to engage in word of mouth (or buzz) about a product, and how a firm may strategically influence this process through its information release and advertising strategies. Individuals receive utility by improving how others perceive them. A firm restricts access to information, advertising may crowd out word of mouth, and a credible commitment not to engage in advertising is valuable for a firm.

  February 07, 2017   doi: 10.1111/1756-2171.12173   open full text
• Can mergers increase output? Evidence from the lodging industry.
  Arturs Kalnins, Luke Froeb, Steven Tschantz.
  The RAND Journal of Economics. February 07, 2017
  We find that hotel mergers increase occupancy. In some specifications, price also rises. Because these effects occur only in markets with high capacity utilization and high uncertainty, we reject simple models of price or quantity competition in favor of models of “revenue management,” where firms price to fill available capacity in the face of uncertain demand.

  February 07, 2017   doi: 10.1111/1756-2171.12172   open full text
• The impact of firm size on dynamic incentives and investment.
  Chang‐Koo Chi, Kyoung Jin Choi.
  The RAND Journal of Economics. February 07, 2017
  Recent studies conclude that small firms have higher but more variable growth rates than large firms. To explore how this empirical regularity affects moral hazard and investment, we develop an agency model with a firm size process having two features: the drift is controlled by the agent's effort and the principal's investment decision, and the volatility is proportional to the square root of size. The firm improves on production efficiency as it grows, and wages are back‐loaded when size is small but front‐loaded when it is large. Furthermore, there is underinvestment in a small firm but overinvestment in a large firm.

  February 07, 2017   doi: 10.1111/1756-2171.12171   open full text
• Prices and heterogeneous search costs.
  José Luis Moraga‐González, Zsolt Sándor, Matthijs R. Wildenbeest.
  The RAND Journal of Economics. February 07, 2017
  We study price formation in a model of consumer search for differentiated products in which consumers have heterogeneous search costs. We provide conditions under which a pure‐strategy symmetric Nash equilibrium exists and is unique. Search costs affect two margins—the intensive search margin (or search intensity) and the extensive search margin (or the decision to search rather than to not search at all). These two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density.

  February 07, 2017   doi: 10.1111/1756-2171.12170   open full text
• Pass‐through in a concentrated industry: empirical evidence and regulatory implications.
  Nathan H. Miller, Matthew Osborne, Gloria Sheu.
  The RAND Journal of Economics. February 07, 2017
  We estimate pass‐through with 30 years of data from the portland cement industry. Robust econometric evidence supports that fuel cost changes are more than fully transmitted downstream in the form of price changes. This validates an implicit pass‐through assumption made in recent academic research and regulatory analyses. We combine the econometric results with estimates of competitive conduct obtained from the literature to evaluate the incidence of market‐based CO2 regulation. Producers bear roughly 11% of the regulatory burden and could be compensated with 16% of the revenues obtained.

  February 07, 2017   doi: 10.1111/1756-2171.12168   open full text
• Mediated audits.
  Martin Pollrich.
  The RAND Journal of Economics. February 07, 2017
  I study optimal contracting where the principal can verify the agent's private information via auditing but cannot contractually commit to audit frequency. Optimal contracting requires sophisticated communication: the agent reports his information to a mediator, who randomly selects a contract. Mediation allows for fine‐tuning the information flow, because the principal observes the selected contract but not the agent's report. Simply offering a menu of contracts is, in general, not optimal. I characterize optimal mediated contracts, determine conditions for when auditing is profitable, and analyze contractual distortions. Mediated contracts can be implemented via negotiated rulemaking procedures, and potentially via sequential communication.

  February 07, 2017   doi: 10.1111/1756-2171.12167   open full text
• Investment in concealable information by biased experts.
  Navin Kartik, Frances Xu Lee, Wing Suen.
  The RAND Journal of Economics. February 07, 2017
  We study a persuasion game in which biased—possibly opposed—experts strategically acquire costly information that they can then conceal or reveal. We show that information acquisition decisions are strategic substitutes when experts have linear preferences over a decision maker's beliefs. The logic turns on how each expert expects the decision maker's posterior to be affected by the presence of other experts should he not acquire information that would turn out to be favorable. The decision maker may prefer to solicit advice from just one biased expert even when others—including those biased in the opposite direction (singular)—are available.

  February 07, 2017   doi: 10.1111/1756-2171.12166   open full text
• Resale price maintenance and manufacturer competition for retail services.
  Matthias Hunold, Johannes Muthers.
  The RAND Journal of Economics. February 07, 2017
  We investigate the incentives of two manufacturers with common retailers to use resale price maintenance (RPM). Retailers provide product‐specific services that increase demand and manufacturers use minimum RPM to compete for favorable retail services for their products. Minimum RPM increases consumer prices and can create a prisoner's dilemma for manufacturers without increasing, and possibly even reducing, the overall level of retail services. If manufacturer market power is asymmetric, minimum RPM may distort the allocation of services toward the high‐priced products of the manufacturer with more market power. These results challenge the service argument as an efficiency defense for minimum RPM.

  February 07, 2017   doi: 10.1111/1756-2171.12165   open full text
• No news is good news: voluntary disclosure in the face of litigation.
  Iván Marinovic, Felipe Varas.
  The RAND Journal of Economics. November 11, 2016
  We study disclosure dynamics when the firm value evolves stochastically over time. The presence of litigation risk, arising from the failure to disclose unfavorable information, crowds out positive disclosures. Litigation risk mitigates firms' tendency to use inefficient disclosure policies. From a policy perspective, we show that a stricter legal environment may be an efficient way to stimulate information transmission in capital markets, particularly when the nature of information is proprietary. We model the endogeneity of litigation risk in a dynamic setting and shed light on the empirical controversy regarding whether disclosure preempts or triggers litigation.

  November 11, 2016   doi: 10.1111/1756-2171.12156   open full text
• Preferences, entry, and market structure.
  Paolo Bertoletti, Federico Etro.
  The RAND Journal of Economics. November 11, 2016
  We provide a unified approach to imperfect (monopolistic, Bertrand, and Cournot) competition when preferences are symmetric over a finite but endogenous number of goods. Markups depend on the Morishima elasticity of substitution and on the number of varieties. The comparative statics of free‐entry equilibria is examined, establishing the conditions for markup neutrality with respect to income, market size, and productivity. We compare endogenous and optimal market structures for several non‐CES examples. With a generalized linear direct utility, the markup can be constant and optimal under monopolistic competition, and nonmonotonic in the number of firms under Bertrand or Cournot competition.

  November 11, 2016   doi: 10.1111/1756-2171.12155   open full text
• Dynamic auction environment with subcontracting.
  Przemyslaw Jeziorski, Elena Krasnokutskaya.
  The RAND Journal of Economics. November 11, 2016
  This article provides evidence on the role of subcontracting in the auction‐based procurement setting with private cost variability and capacity constraints. We demonstrate that subcontracting allows bidders to modify their costs realizations in a given auction as well as to control their future costs by reducing backlog accumulation. Restricting access to subcontracting raises procurement costs for an individual project by 12% and reduces the number of projects completed in equilibrium by 20%. The article explains methodological and market design implications of subcontracting availability.

  November 11, 2016   doi: 10.1111/1756-2171.12154   open full text
• Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry.
  Lee Branstetter, Chirantan Chatterjee, Matthew J. Higgins.
  The RAND Journal of Economics. November 11, 2016
  This article estimates welfare effects of accelerated generic entry via Paragraph IV challenges. Using data from 2000–2008 for hypertension drugs in the United States, we estimate demand using a random‐coefficients logit model. We find consumers gain $42 billion whereas producers lose $32.5 billion from entry. This modest $9.5 billion gain in social welfare is consistent with our observation that overall consumption does not increase after entry—generic sales displace branded sales, shifting surplus downstream from producers to consumers, insurance companies, and retailers. We demonstrate significant cross‐molecular substitution and discuss challenges in determining what fraction of downstream surplus actually goes to consumers.

  November 11, 2016   doi: 10.1111/1756-2171.12157   open full text
• Passive vertical integration and strategic delegation.
  Matthias Hunold, Konrad Stahl.
  The RAND Journal of Economics. November 11, 2016
  With backward acquisitions in their efficient supplier, downstream firms profitably internalize the effects of their actions on their rivals' sales, while upstream competition is also relaxed. Downstream prices increase with passive, yet decrease with controlling acquisition. Passive acquisition is profitable when controlling acquisition is not. Downstream acquirers strategically abstain from vertical control, thus delegating commitment to the supplier, and with it high input prices, allowing them to charge high downstream prices. The effects of passive backward acquisition are reinforced with the acquisition by several downstream firms in the efficient supplier. The results are sustained when suppliers charge two‐part tariffs.

  November 11, 2016   doi: 10.1111/1756-2171.12158   open full text
• Procurement under public scrutiny: auctions versus negotiations.
  Vitali Gretschko, Achim Wambach.
  The RAND Journal of Economics. November 11, 2016
  We compare two commonly used mechanisms in public procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent of the buyer. The agent has private information about the buyer's preferences and may collude with one of the sellers. We provide a general characterization of both mechanisms based on public scrutiny requirements and show—contrary to conventional wisdom—that an intransparent negotiation always yields higher social surplus than a transparent auction. Moreover, there exists a lower bound on the number of sellers such that the negotiation also generates a higher buyer surplus.

  November 11, 2016   doi: 10.1111/1756-2171.12159   open full text
• Information acquisition, referral, and organization.
  Simona Grassi, Ching‐to Albert Ma.
  The RAND Journal of Economics. November 11, 2016
  Each of two experts may provide a service to a client. Experts' cost comparative advantage depends on an unknown state, but an expert may exert effort to get a private signal about it. In a market, an expert may refer the client to the other for a fee. In equilibrium, only one expert exerts effort and refers, and the equilibrium allocation is inefficient. Referral efficiency can be restored when experts form an organization, in which a referring expert must bear the referred expert's cost. However, the referred expert shirks from work effort because of the lack of cost responsibility.

  November 11, 2016   doi: 10.1111/1756-2171.12160   open full text
• Horizontal mergers and divestment dynamics in a sunset industry.
  Masato Nishiwaki.
  The RAND Journal of Economics. November 11, 2016
  Industries with declining demand tend to be riddled with chronic excess capital due to the presence of a business‐stealing effect and fixed costs. This article highlights the potential of mergers to internalize this business‐stealing effect and thereby promote divestment. Using the case of mergers in the Japanese cement industry, it examines whether such merger‐induced divestment improves total welfare based on a dynamic model of divestment. The findings suggest that merged firms indeed tended to reduce capital more actively and that, as a result of these mergers, total welfare improved despite a reduction in the consumer surplus.

  November 11, 2016   doi: 10.1111/1756-2171.12161   open full text
• The welfare cost of unpriced heterogeneity in insurance markets.
  Valentino Dardanoni, Paolo Donni.
  The RAND Journal of Economics. November 11, 2016
  We consider the welfare loss of unpriced heterogeneity in insurance markets, which results when private information or regulatory constraints prevent insurance companies to set premiums reflecting expected costs. We propose a methodology which uses survey data to measure this welfare loss. After identifying some “types” which determine expected risk and insurance demand, we derive the key factors defining the demand and cost functions in each market induced by these unobservable types. These are used to quantify the efficiency costs of unpriced heterogeneity. We apply our methods to the US Long‐Term Care and Medigap insurance markets, where we find that unpriced heterogeneity causes substantial inefficiency.

  November 11, 2016   doi: 10.1111/1756-2171.12164   open full text
• Push‐me pull‐you: comparative advertising in the OTC analgesics industry.
  Simon P. Anderson, Federico Ciliberto, Jura Liaukonyte, Régis Renault.
  The RAND Journal of Economics. November 11, 2016
  We derive equilibrium incentives to use comparative advertising that pushes up own brand perception and pulls down the brand image of targeted rivals. Data on content and spending for all TV advertisements in Over‐The‐ Counter (OTC) analgesics enable us to construct matrices of rival targeting expenditures and estimate the structural model. Using brands' optimal choices, these attack matrices identify diversion ratios, from which we derive comparative advertising damage measures. We find that comparative advertising causes more damage to the targeted rival than benefit to the advertiser. We simulate banning comparative advertising to find industry profits rise.

  November 11, 2016   doi: 10.1111/1756-2171.12162   open full text
• Understanding in‐house transactions in the real estate brokerage industry.
  Lu Han, Seung‐Hyun Hong.
  The RAND Journal of Economics. November 11, 2016
  About 20% of residential real estate transactions in North America are in‐house transactions, for which buyers and sellers are represented by the same brokerage. We examine to what extent in‐house transactions are explained by agents' strategic incentives as opposed to matching efficiency. Using home transaction data, we find that agents are more likely to promote internal listings when they are financially rewarded and such effect becomes weaker when consumers are more aware of agents' incentives. We further develop a structural model and find that about one third of in‐house transactions are explained by agents' strategic promotion, causing significant utility loss for home buyers.

  November 11, 2016   doi: 10.1111/1756-2171.12163   open full text
• The optimal extent of discovery.
  Frances Z. Xu Lee, Dan Bernhardt.
  The RAND Journal of Economics. July 27, 2016
  We characterize how the process of publicly gathering information via discovery affects strategic interactions between litigants. It allows privately informed defendants to signal through the timing of settlement offers, with weaker ones attempting to settle prediscovery. Discovery reduces the probability of trial. Properly designed limited discovery reduces expected litigation costs. Stronger defendants gain more (lose less) from a given amount of discovery. We find that the court should grant more discovery when defendants are believed to be stronger and should grant discovery on more efficient sources of information, leaving less efficient ones to trial.

  July 27, 2016   doi: 10.1111/1756-2171.12137   open full text
• Deterring fraud by looking away.
  Deniz Okat.
  The RAND Journal of Economics. July 27, 2016
  Individuals being audited potentially learn how to exploit the weaknesses inherent in any audit methodology if they face the same method many times. Hence, an auditor better deters fraud by randomizing her choice of methodology over time, thereby frustrating a would‐be fraudster's ability to learn. In the extreme, an auditor benefits from refusing to audit, even though audits are costless to her.

  July 27, 2016   doi: 10.1111/1756-2171.12140   open full text
• Selling substitute goods to loss‐averse consumers: limited availability, bargains, and rip‐offs.
  Antonio Rosato.
  The RAND Journal of Economics. July 27, 2016
  This article derives the optimal pricing and product‐availability strategies for a retailer selling two substitute goods to loss‐averse consumers and shows that limited‐availability sales manipulate consumers into an ex ante unfavorable purchase. The seller maximizes profits by raising the consumers' reference point through a tempting discount on a good available only in limited supply (the bargain), and cashing in with a high price on the other (the rip‐off), which consumers buy if the bargain is not available to reduce their disappointment. The seller might prefer to offer a deal on the more valuable product, using it as a bait.

  July 27, 2016   doi: 10.1111/1756-2171.12139   open full text
• Employee referrals as a screening device.
  Emre Ekinci.
  The RAND Journal of Economics. July 27, 2016
  This article develops a career‐concerns model to examine the screening function of employee referrals. First, I show that employees' reputational concerns provide them with an incentive to refer high‐ability applicants. This result explains how firms that offer fixed payments, rather than bonuses contingent on the referral's posthire performance, can elicit high‐ability referrals from their employees. Second, I consider the promotion competition as a potential mechanism that creates a conflict of interest between a firm and its employees concerning referral hiring. I show that referrals may still serve a screening function even when the promotion competition distorts employees' referral decisions.

  July 27, 2016   doi: 10.1111/1756-2171.12141   open full text
• Procurement with specialized firms.
  Jan Boone, Christoph Schottmüller.
  The RAND Journal of Economics. July 27, 2016
  We analyze optimal procurement mechanisms when firms are specialized. The procurement agency has incomplete information concerning the firms' cost functions and values high quality as well as low price. Lower type firms are cheaper (more expensive) than higher type firms when providing low (high) quality. With specialized firms, distortion is limited and a mass of types earns zero profits. The optimal mechanism can be inefficient: types providing lower second‐best welfare win against types providing higher second‐best welfare. As standard scoring rule auctions cannot always implement the optimal mechanism, we introduce a new auction format implementing the optimal mechanism.

  July 27, 2016   doi: 10.1111/1756-2171.12143   open full text
• Nonlinear pricing and exclusion:II. Must‐stock products.
  Philippe Choné, Laurent Linnemer.
  The RAND Journal of Economics. July 27, 2016
  Dominant firms often are unavoidable trading partners. Buyers may consider switching a fraction of their requirements to rival products, but that fraction is highly uncertain in rapidly evolving industries. Nonlinear pricing serves to adjust the competitive pressure placed on rival firms, depending on the joint distribution of the buyer willingness to pay for the rival's good and the share of contestable demand. Concave price‐quantity schedules erect barriers to entry. Convex parts in schedules introduce barriers to expansion. Dominant firms use all‐units discounts to create high entry barriers for rival firms with intermediate levels of contestable demand.

  July 27, 2016   doi: 10.1111/1756-2171.12138   open full text
• Demand or productivity: what determines firm growth?
  Andrea Pozzi, Fabiano Schivardi.
  The RAND Journal of Economics. July 27, 2016
  We disentangle the contribution of unobserved heterogeneity in demand and productivity to firm growth using Italian data containing unique information on firm‐level prices. Demand and total factor productivity (TFP) shocks are equally important in shaping firm growth. However, the pass‐through of shocks to growth is highly incomplete, more so for productivity shocks. We argue that incompleteness and asymmetry of the pass‐through can be explained by frictions that, unlike those studied by the literature on factor misallocation, have differential effects according to the nature of the shock. We propose hurdles to firms' ability to reorganize as an example of these types of frictions.

  July 27, 2016   doi: 10.1111/1756-2171.12142   open full text
• Diversification of geographic risk in retail bank networks: evidence from bank expansion after the Riegle‐Neal Act.
  Victor Aguirregabiria, Robert Clark, Hui Wang.
  The RAND Journal of Economics. July 27, 2016
  The 1994 Riegle‐Neal Act (RN) removed restrictions on branch‐network expansion for banks in the United States. An important motivation was to facilitate geographic risk diversification (GRD). Using a factor model to measure banks' geographic risk, we show that RN expanded GRD possibilities in small states, but only some large banks took advantage. Using our measure of geographic risk and an empirical model of branch‐network choice, we identify preferences toward GRD separately from other factors possibly limiting network expansion. Counterfactuals show that risk negatively affected bank value but was counterbalanced by economies of density/scale, reallocation/merging costs, and local market power concerns.

  July 27, 2016   doi: 10.1111/1756-2171.12136   open full text
• Optimal public funding for research: a theoretical analysis.
  Gianni Fraja.
  The RAND Journal of Economics. July 27, 2016
  This article studies how a government should distribute funds among research institutions and how it should allocate them to basic and applied research. Institutions differ in reputation and efficiency and have an information advantage. The government should award funding for basic research to induce the most productive institutions to carry out more applied research than they would like. Institutions with better reputation a do more research than otherwise identical ones, and applied research is inefficiently concentrated in the most efficient high‐reputation institutions. The article provides theoretical support for a dual‐channel funding mechanism but not for full economic costing.

  July 27, 2016   doi: 10.1111/1756-2171.12135   open full text
• Optimal product variety in radio markets.
  Steven Berry, Alon Eizenberg, Joel Waldfogel.
  The RAND Journal of Economics. July 27, 2016
  A vast theoretical literature explores inefficient market structures in free‐entry equilibria, and previous empirical work demonstrated that excessive entry may obtain in local radio markets. We extend that literature by relaxing the assumption that stations are symmetric, allowing for endogenous horizontal and (unobserved) vertical station differentiation. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants eliminates 50%–60% of the observed stations. In 80%–94.9% of markets where high‐quality stations are observed, welfare could be unambiguously improved by converting one such station into low‐quality broadcasting, suggesting local overprovision of quality.

  July 27, 2016   doi: 10.1111/1756-2171.12134   open full text
• Welfare‐increasing third‐degree price discrimination.
  Simon Cowan.
  The RAND Journal of Economics. April 22, 2016
  When demand functions in different markets are derived from distributions of reservation prices that differ only in their means, conditions exist such that third‐degree price discrimination leads to greater total output and greater total welfare. Welfare is higher with discrimination than with a uniform price when demand functions are derived from logistic distributions with different means. Welfare and consumer surplus are higher with discrimination for demands derived from a distribution related to the Pareto. In general, whether discrimination increases total output depends on demand being more convex in markets in which prices fall with discrimination than in those in which prices rise.

  April 22, 2016   doi: 10.1111/1756-2171.12128   open full text
• The road not taken: competition and the R&D portfolio.
  Igor Letina.
  The RAND Journal of Economics. April 22, 2016
  This article examines the effects of market structure on the variety of research projects undertaken and the amount of duplication of research. A characterization of the equilibrium market portfolio of R&D projects and the socially optimal portfolio is provided. It is shown that a merger decreases the variety of developed projects and decreases the amount of duplication of research. An increase in the intensity of competition among firms leads to an increase in the variety of developed projects and a decrease in the amount of duplication of research.

  April 22, 2016   doi: 10.1111/1756-2171.12133   open full text
• An empirical study of observational learning.
  Peter W. Newberry.
  The RAND Journal of Economics. April 22, 2016
  This article provides an empirical examination of observational learning. Using data from an online market for music, I find that observational learning benefits consumers, producers of high‐quality music, and the online platform. I also study the role of pricing as a friction to the learning process by comparing outcomes under demand‐based pricing to counterfactual pricing schemes. I find that employing a fixed price (the industry standard) can hamper learning by reducing the incentive to experiment, resulting in less consumer surplus, but more expected revenue for the platform.

  April 22, 2016   doi: 10.1111/1756-2171.12132   open full text
• Measuring consumer switching costs in the television industry.
  Oleksandr Shcherbakov.
  The RAND Journal of Economics. April 22, 2016
  In this article, I develop and estimate a model of dynamic consumer behavior with switching costs in the market for paid‐television services. I estimate the parameters of the structural model using data on cable and satellite systems across local US television markets over the period 1992–2006. The results suggest switching costs range from $159 to $242 for cable and from $212 to $276 for satellite providers in 1997 dollars. Using a simple dynamic model of cable providers, I demonstrate that switching costs of these magnitudes can significantly affect the firms' optimal strategies.

  April 22, 2016   doi: 10.1111/1756-2171.12131   open full text
• Spinoffs and clustering.
  Russell Golman, Steven Klepper.
  The RAND Journal of Economics. April 22, 2016
  Geographic clustering of innovative industries is associated with the entry and success of spinoff firms. We develop a model to explain the multiple empirical patterns regarding cluster growth and spinoff formation and performance, without relying on agglomeration externalities. Clustering naturally follows from spinoffs locating near their parents. In our model, firms grow and spinoffs form through the discovery of new submarkets based on innovation. Rapid and successful innovation creates more opportunities for spinoff entry and drives a region's growth. Our model provides baseline estimates of levels of agglomeration that can be attributed to this process of innovation and spinoff formation.

  April 22, 2016   doi: 10.1111/1756-2171.12130   open full text
• Explaining adoption and use of payment instruments by US consumers.
  Sergei Koulayev, Marc Rysman, Scott Schuh, Joanna Stavins.
  The RAND Journal of Economics. April 22, 2016
  Motivated by recent policy intervention into payments markets, we develop and estimate a structural model of adoption and use of payment instruments by U.S. consumers. Our structural model differentiates between the adoption and use of payment instruments. We evaluate substitution among payment instruments and welfare implications. Cash is the most significant substitute to debit cards in retail settings, whereas checks are the most significant in bill‐pay settings. Furthermore, low income consumers lose proportionally more than high income consumers when debit cards become more expensive, whereas the reverse is true when credit cards do.

  April 22, 2016   doi: 10.1111/1756-2171.12129   open full text
• Competition in the presence of individual demand uncertainty.
  Marc Möller, Makoto Watanabe.
  The RAND Journal of Economics. April 22, 2016
  This article offers a tractable model of (oligopolistic) competition in differentiated product markets characterized by individual demand uncertainty. The main result shows that, in equilibrium, firms offer advance purchase discounts and that these discounts are larger than in the monopolistic benchmark. Competition reduces welfare by increasing the fraction of consumers who purchase in advance, that is, without (full) knowledge of their preferences.

  April 22, 2016   doi: 10.1111/1756-2171.12127   open full text
• The formation of financial networks.
  Ana Babus.
  The RAND Journal of Economics. April 22, 2016
  Modern banking systems are highly interconnected. Despite various benefits, linkages between banks carry the risk of contagion. In this article, I investigate whether banks can commit ex ante to mutually insure each other, when there is contagion risk in the financial system. I model banks' decisions to share this risk through bilateral agreements. A financial network that allows losses to be shared among various counterparties arises endogenously. I characterize the probability of systemic risk, defined as the event that contagion occurs conditional on one bank failing, in equilibrium interbank networks. I show that there exist equilibria in which contagion does not occur.

  April 22, 2016   doi: 10.1111/1756-2171.12126   open full text
• Contracting officer workload, incomplete contracting, and contractual terms.
  Patrick L. Warren.
  The RAND Journal of Economics. May 07, 2014
  This article estimates the causal effect of retirement‐induced workload spikes on the selection of procurement terms. In a sample of 150,000 contracts from 85 procurement offices over 11 years, increases in workload decrease reliance on competitive acquisition procedures, decrease reliance on firm‐fixed‐price contracts, increase risk of renegotiation, and increase costs. These estimates are consistent with a model of endogenously incomplete contracting. The US federal government has experienced exceptional growth in acquisitions contracting over the past decade but limited growth in acquisitions manpower. This article provides some of the facts necessary to evaluate the consequences of these shifts.

  May 07, 2014   doi: 10.1111/1756-2171.12056   open full text
• Patent examination outcomes and the national treatment principle.
  Elizabeth Webster, Paul H. Jensen, Alfons Palangkaraya.
  The RAND Journal of Economics. May 07, 2014
  One of the principles enshrined in all international patent treaties is that equal treatment should be provided to inventors regardless of their nationality. Little is known about whether this “national treatment” principle is upheld in practice. We analyze whether patent examination outcomes at the European and Japanese patent offices vary systematically by inventor nationality and technology area, using a matched sample of 47,947 patent applications. We find that domestic inventors have a higher likelihood of obtaining a patent grant than foreign inventors and that the positive domestic inventor effect is stronger in areas of technological specialization in the domestic economy.

  May 07, 2014   doi: 10.1111/1756-2171.12053   open full text
• Information technology and agency in physicians' prescribing decisions.
  Andrew J. Epstein, Jonathan D. Ketcham.
  The RAND Journal of Economics. May 07, 2014
  Patients rely on physicians to act as their agents when prescribing medications, yet the efforts of pharmaceutical manufacturers and prescription drug insurers may alter this agency relationship. We evaluate how formularies, and the use of information technology (IT) that provides physicians with formulary information, influence prescribing. We combine data from a randomized experiment of physicians with secondary data to eliminate bias due to patient, physician, drug, and insurance characteristics. We find that when given formulary IT, physicians' prescribing decisions are influenced by formularies far more than by pharmaceutical firms' detailing and sampling. Without IT, however, formularies' effects are much smaller.

  May 07, 2014   doi: 10.1111/1756-2171.12057   open full text
• Domain knowledge, ability, and the principal's authority relations.
  Nadav Levy.
  The RAND Journal of Economics. May 07, 2014
  I consider how different managerial traits affect the authority relation between a principal and his agent. An increase in the principal's domain knowledge—which enhances his capability to verify the agent's recommendations—leads to an increase in the proportion of the agent's recommendations that are approved, an increase in the agent's initiative, and is unambiguously beneficial to the principal and to the agent. In contrast, an increase in the principal's general ability to explore additional alternatives on his own leads to the principal making a larger proportion of the decisions. This discourages the agent's initiative and can adversely affect the principal.

  May 07, 2014   doi: 10.1111/1756-2171.12055   open full text
• Subjective evaluations with performance feedback.
  Ján Zábojník.
  The RAND Journal of Economics. May 07, 2014
  Firms use subjective performance evaluations to provide employees with both incentives and feedback. This article shows that if an objective measure of performance, however imperfect, is available, subjective evaluations with incentive effects can be sustained even without repeated interaction. Although full efficiency cannot be achieved in general, it is achievable if the firm can commit to a forced distribution of evaluations and employs a continuum of workers. When the number of workers is small, a forced distribution is useful only if the objective measure is poor. The model also shows that a leniency bias in evaluations can improve incentives.

  May 07, 2014   doi: 10.1111/1756-2171.12054   open full text
• Discrete games with flexible information structures: an application to local grocery markets.
  Paul L. E. Grieco.
  The RAND Journal of Economics. May 07, 2014
  Game‐theoretic models are frequently employed to study strategic interaction between agents. Empirical research has focused on estimating payoff functions while maintaining strong assumptions regarding the information structure of the game. I show how to relax informational assumptions to enhance the credibility of empirical analysis in discrete games. I apply the method to data on the entry and exit patterns of grocery stores. The model provides useful bounds on equilibrium outcomes. In addition, the empirical analysis indicates that more restrictive informational assumptions can generate qualitatively misleading counterfactual outcomes.

  May 07, 2014   doi: 10.1111/1756-2171.12052   open full text
• Conversation with secrets.
  Bernhard Ganglmair, Emanuele Tarantino.
  The RAND Journal of Economics. May 07, 2014
  We analyze the sustainability of a conversation when one agent might be endowed with a piece of private information that affects the payoff distribution to its benefit. Such a secret can compromise the sustainability of conversation. Even without an obligation, the secret holder will disclose its secret if it prevents preemptive termination of the conversation. The nonsecret holder lacks this possibility and stops the conversation. Competition and limited effectiveness of the conversation amplify this result of early disclosure and render the conversation process less sustainable. We discuss policy and managerial implications for industry standard development and joint ventures.

  May 07, 2014   doi: 10.1111/1756-2171.12051   open full text
• Optimal auction design in two‐sided markets.
  Renato Gomes.
  The RAND Journal of Economics. May 07, 2014
  A key feature of online markets for advertising (e.g., sponsored links) is that clicking rates depend on the searchers' expectations that the platform selects relevant advertisers. This article studies auction design by a platform that maximizes profits in the long run, where clicking rates are mechanism dependent. In line with the practice of the major search engines, the revenue‐maximizing mechanism is a scoring auction that combines the willingness to pay and the relevance to searchers of advertisers. By trading off rent extraction and clicking volume, this mechanism works as a cross‐subsidization device between searchers and advertisers.

  May 07, 2014   doi: 10.1111/1756-2171.12050   open full text
• Spatial differentiation and price discrimination in the cement industry: evidence from a structural model.
  Nathan H. Miller, Matthew Osborne.
  The RAND Journal of Economics. May 07, 2014
  We estimate a structural model of the cement industry that incorporates spatial differentiation and price discrimination, focusing on the US Southwest over 1983–2003. We leverage the structure of the model to obtain consistent estimates of the underlying parameters using data on market outcomes that are substantially aggregated. Our results indicate that transportation costs around $0.46 per tonne‐mile rationalize the data. This friction enables relatively isolated plants to obtain higher prices from nearby customers. We further find that disallowing price discrimination would create $30 million in consumer surplus annually and show how the model can identify suitable divestitures in merger analysis.

  May 07, 2014   doi: 10.1111/1756-2171.12049   open full text
• Multidimensional heterogeneity and the economic importance of risk and matching: evidence from contractual data and field experiments.
  Charles Bellemare, Bruce Shearer.
  The RAND Journal of Economics. June 18, 2013
  We measure the cost of risk and the benefits of matching heterogeneous workers to risk levels within a firm that pays its workers piece rates. The workers of this firm are heterogeneous in two dimensions: risk preferences and ability. Our results suggest that workers’ willingness to pay to avoid risk is heterogeneous. It can attain 40% of their expected net earnings but averages to only 1%. Moreover, the benefits to the firm of matching are relatively small: profits are predicted to increase by only 2.3%, 4% if we restrict attention to cases where matching is possible. Although labor‐market sorting contributes to this result (the workers in this firm are relatively risk tolerant), it is not the primary cause. More important is the relative homogeneity of risk conditions in this firm that give rise to limited opportunities for matching.

  June 18, 2013   doi: 10.1111/1756-2171.12023   open full text
• Estimating network economies in retail chains: a revealed preference approach.
  Paul B. Ellickson, Stephanie Houghton, Christopher Timmins.
  The RAND Journal of Economics. June 18, 2013
  We measure the effects of chain economies, business stealing, and heterogeneous firms’ comparative advantages in the discount retail industry. Traditional entry models are ill suited for this high‐dimensional problem of strategic interaction. Building upon recently developed profit inequality techniques, our model admits any number of potential rivals and stores per location, an endogenous distribution network, and unobserved (to the econometrician) location attributes that may cause firms to cluster their stores. In an application, we find that Wal‐Mart benefits most from local chain economies, whereas Target shows a greater ability to respond to rival competition. Kmart exhibits neither of these strengths. We explore these results with counterfactual simulations highlighting these offsetting effects and find that local chain economies play an important role in securing Wal‐Mart's industry leader status.

  June 18, 2013   doi: 10.1111/1756-2171.12016   open full text
• “Upping the ante”: how to design efficient auctions with entry?
  Laurent Lamy.
  The RAND Journal of Economics. June 18, 2013
  Of primary importance in auction design is the set of strategies available to the seller at the auction stage. We first formalize hold‐up regarding entry costs that preys on second‐price auctions when the seller may engage in a costly shill‐bidding activity. We derive the optimal reserve and show how shill bidding can make posted prices outperforming auctions. Second, we advocate for a new regulation where shills would be banned but with the possibility of canceling sales ex post, which offers some valuable flexibility: the English auction with jump bids implements, then, the first best in general environments.

  June 18, 2013   doi: 10.1111/1756-2171.12017   open full text
• The impact of advertising regulation on industry: the cigarette advertising ban of 1971.
  Shi Qi.
  The RAND Journal of Economics. June 18, 2013
  This article studies the impact of the 1971 TV/radio advertising ban on the cigarette industry. Data indicate that industry advertising spending decreased sharply immediately following the ban but recovered and actually exceeded the preban level within five years. A dynamic oligopoly model of advertising is developed to incorporate two potential explanations. The estimated model fully accounts for the puzzling trend, with 74% of the postban advertising spending increase explained by industry dynamics, and 26% explained by learning. Furthermore, this article uses the new concept of nonstationary oblivious equilibrium to handle intractable state space and accelerate equilibrium computation.

  June 18, 2013   doi: 10.1111/1756-2171.12018   open full text
• The impact of credit scoring on consumer lending.
  Liran Einav, Mark Jenkins, Jonathan Levin.
  The RAND Journal of Economics. June 18, 2013
  We study the adoption of automated credit scoring at a large auto finance company and the changes it enabled in lending practices. Credit scoring appears to have increased profits by roughly a thousand dollars per loan. We identify two distinct benefits of risk classification: the ability to screen high‐risk borrowers and the ability to target more generous loans to lower‐risk borrowers. We show that these had effects of similar magnitude. We also document that credit scoring compressed profitability across dealerships, and provide evidence consistent with the view that credit scoring may have substituted for varying qualities of local information.

  June 18, 2013   doi: 10.1111/1756-2171.12019   open full text
• Trading and enforcing patent rights.
  Alberto Galasso, Mark Schankerman, Carlos J. Serrano.
  The RAND Journal of Economics. June 18, 2013
  We study how the market for innovation affects enforcement of patent rights. We show that patent transactions arising from comparative advantages in commercialization increase litigation, but trades driven by advantages in patent enforcement reduce it. Using data on trade and litigation of individually owned patents in the United States, we exploit variation in capital gains tax rates across states as an instrument to identify the causal effect of trade on litigation. We find that taxes strongly affect patent transactions, and that trade reduces litigation on average, but the impact is heterogeneous. Patents with larger potential gains from trade are more likely to change ownership, and the impact depends critically on transaction characteristics.

  June 18, 2013   doi: 10.1111/1756-2171.12020   open full text
• Patent quality and incentives at the patent office.
  Florian Schuett.
  The RAND Journal of Economics. June 18, 2013
  Patent examination is a problem of moral hazard followed by adverse selection: examiners must have incentives to exert effort, but also to truthfully reveal the evidence they find. I develop a theoretical model to study the design of incentives for examiners. The model can explain the puzzling compensation scheme in use at the U.S. patent office, where examiners are essentially rewarded for granting patents, as well as the variation in compensation schemes and patent quality across patent offices. It also has implications for the retention of examiners and for administrative patent review.

  June 18, 2013   doi: 10.1111/1756-2171.12021   open full text
• Days on market and home sales.
  Catherine Tucker, Juanjuan Zhang, Ting Zhu.
  The RAND Journal of Economics. June 18, 2013
  In 2006, Massachusetts adopted a new policy that prohibits home sellers from resetting their properties’ days on market through relisting. Massachusetts homes exposed to the policy change experienced a $16,000 reduction in sale price relative to Rhode Island homes. Slow‐moving homes suffered a greater reduction, but newer listings only had a small increase in sale price. One reason is that some buyers were unaware of sellers’ manipulation of days on market and thus unable to recognize authentically new listings. Sellers reacted to the new policy by cutting listing prices, although in towns where listing price history was transparent, sellers raised listing prices to dampen the stigma of slow sales.

  June 18, 2013   doi: 10.1111/1756-2171.12022   open full text