SCHOOL QUALITY AND INFORMATION DISCLOSURE: EVIDENCE FROM THE HOUSING MARKET

In this article, we investigate the relationship between school quality and information disclosure in housing markets. When presented with the option of identifying their local public school in a real estate listing, we find that sellers with homes assigned to higher‐performing schools are more likely to provide this information. We find more evidence of selective disclosure in 2001–2002 than in 2006–2007, when the costs of gathering and disclosing information on school assignments and quality were lower. Furthermore, we find more evidence of strategic behavior among sellers of large single‐family units that presumably appeal to families with children. After controlling for school quality, information disclosure does not appear to affect housing prices. Taken together, our results support the findings of the education literature on the importance of school quality capitalization in residential real estate and they provide the first evidence of strategic information disclosure in housing markets. (JEL L15, I20, R31)     

A THEORY OF BILATERAL OLIGOPOLY

In horizontal mergers, concentration is often measured with the Hirschman–Herfindahl Index (HHI). This index yields the price–cost margins in Cournot competition. In many modern merger cases, both buyers and sellers have market power, and indeed, the buyers and sellers may be the same set of firms. In such cases, the HHI is inapplicable. We develop an alternative theory that has similar data requirements as the HHI, applies to intermediate good industries with arbitrary numbers of firms on both sides, and specializes to the HHI when buyers have no market power. The more inelastic is the downstream demand, the more captive production and consumption (not traded in the intermediate market) affects price–cost margins. The analysis is applied to the merger of the gasoline refining and retail assets of Exxon and Mobil in the western United States. (JEL L13, L41)     

DEMAND FOR DIFFERENTIATED DURABLE PRODUCTS: THE CASE OF THE U.S. COMPUTER PRINTER MARKET

This paper develops an estimation technique for analyzing the impact of technological change on the dynamics of consumer demand in a differentiated durable products industry. The paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers' expectations of future product quality and consumers' outflow from the market that arises endogenously from their purchase decisions. The timing of consumers' purchases is formalized as an optimal stopping problem. A solution to that problem defines the hazard rate of product adoptions, while the nested discrete choice model determines the alternative‐specific purchase probabilities. Integrating individual decisions over the population distribution generates rich dynamics of aggregate and product‐level sales. The empirical part of the paper applies the model to data on the U.S. computer printer market for 1998–1999. The estimates support the hypothesis of consumers' forward‐looking behavior, allowing for better demand forecasts and improved measures of welfare gains from introducing new products. (JEL L11, C35, D91)     

THE HOME MARKET EFFECT IN INTERNATIONAL ARMS TRADE

I show that military spending contributes to international arms proliferation through a push effect: large demand encourages production growth in the domestic market if transport costs are non‐negligible. Under increasing returns to scale, the country can then supply weapons on the global market at low prices. This is a manifestation of the home market effect (HME), which states that countries with higher demand for a differentiated good will be net exporters of that good. I construct a monopolistic competition model of international trade that accounts for differences in demand across countries, and test its predictions using post‐Cold War data. (JEL F1, H5, R1)     

STRATEGIC INFORMATION DISCLOSURE: THE CASE OF MULTIATTRIBUTE PRODUCTS WITH HETEROGENEOUS CONSUMERS

We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers' multidimensional preferences under which a firm, no matter whether producing a high‐ or low‐quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory. (JEL L15, L5)     

SELLING TO BIASED BELIEVERS: STRATEGIES OF ONLINE LOTTERY TICKET VENDORS

We provide evidence that sellers respond to buyers' belief biases in a collective lottery betting market, by adopting sales strategies which cater to believers in the Hot Hand and Gambler's Fallacies. Lottery players on the buyer side tend to avoid buying tickets which are similar to the previous winning ticket, in accordance with the Gambler's Fallacy (Clotfelter and Cook 1993; Terrell 1994). At the same time, buyers tend to prefer purchasing tickets from previously winning sellers, despite the fully random nature of wins, in accordance with Hot‐Hand Fallacy (Croson and Sundali 2005). These behavioral biases provide an opportunity for ticket sellers to increase their expected profits by adjusting features of the lottery portfolios they sell. We find that sellers make changes to their portfolio size, commission rate, self‐purchase rate, and number choices in response to previous events, in ways that are consistent with responding to the Hot‐Hand Fallacy belief, and which also lend a degree of support for responding to the Gambler's Fallacy belief. Our results show evidence of participants in a market accommodating their choices to the biased beliefs of other participants in order to gain an advantage in expected profits. (JEL D01, D03, D81, L86)     

ON THE OPTIMAL REALIGNMENT OF A CONTEST: THE CASE OF COLLEGE FOOTBALL

This article examines the relationship between demand and scheduling in college football. We first derive two different metrics for team quality, and then use those metrics to see how they impact attendance. We find that there is a positive interaction between the quality of the teams. Then various simulations are run to see how attendance would change under different scheduling scenarios. If teams are put into conferences based on the team quality measures, the average per game attendance only rises 1–2%. This is true if 1‐year or 10‐year quality measures are used. However, our simulation suggests that this effect would be more than offset, mainly because schools with larger capacity would play fewer home games and so aggregate attendance would fall. We discuss whether this effect would be mitigated by capacity adjustments in the longer term. (JEL L83, Z20, C78)     

A LABORATORY STUDY OF DUOPOLY PRICE COMPETITION WITH PATIENT BUYERS

This article reports a duopoly experiment in which sellers compete to sell to a potentially patient buyer. Each period sellers simultaneously post prices and the buyer costlessly observes either one or both prices. The buyer can then either accept an observed price or reject all offers. Following a rejection, sellers may have an opportunity to post prices again in another round. We study how the duopolists' pricing behavior responds to changes in the likelihood of the buyer observing multiple prices, γ, and the probability of continuing to another round, δ. The unique stationary equilibrium features mixed strategies. Consistent with the equilibrium, observed prices are decreasing in γ and δ. Contrary to the equilibrium, however, buyers sometimes reject profitable price offers, and average prices are lower than predicted when only one round of offers is possible and higher than predicted in the multiple‐round game. (JEL D43, D83, L13)     

DOES WAL‐MART SELL INFERIOR GOODS?

I estimate the aggregate income elasticity of Wal‐Mart's and Target's revenues using quarterly data for 1997–2006. I find that Wal‐Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal‐Mart selling “inferior goods” in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal‐Mart's wares is ?0.5. (JEL L81, D12)     

OFFSHORING AND THE POLARIZATION OF THE DEMAND FOR CAPITAL

In the past decades, the importance of different capital goods has gradually changed, which has led to a structural shift in the composition of the demand for capital at the expense of more traditional capital inputs such as machinery and equipment. In this paper, we focus on a novel driver of this development by analyzing the effect of offshoring on the demand for capital by asset class using a rich country-sector panel dataset. Estimating a system of factor demand equations, we document that offshoring reduces the relative demand for non-ICT capital, thereby polarizing the demand for capital. (JEL F14, F62, E22)     

BILATERAL OLIGOPOLY IN POLLUTION PERMIT MARKETS: EXPERIMENTAL EVIDENCE

We experimentally investigate behavior in a bilateral oligopoly using a supply function equilibria model discussed by Klemperer and Meyer (1989), Hendricks and McAfee (2010), and Malueg and Yates (2009). We focus on the role that market size and the degree of firm heterogeneity have on the market equilibrium. Our results indicate that subjects within the experiment recognize the strategic incentives in a bilateral oligopoly, but they do not exploit these incentives to the exact magnitude predicted by theory. We find weaker support for predicted market outcomes, as market efficiency does not depend on market size, and in some cases buyers or sellers are more successful at extracting the rents from the market. (JEL L13, Q5, C9)     

THE VALUE OF CONSUMER CHOICE AND THE DECLINE IN HMO ENROLLMENTS

Health insurance contracts may restrict consumers' choice of medical provider (e.g., hospital) in order to minimize moral hazard inefficiencies. In this article, I assess the economic value of this strategy by comparing the estimated “option value” that consumers assign to provider choice to the negotiated discounts that insurers can achieve by negotiating with a restricted set of providers (i.e., volume discounts). Using a panel of federal employees' health plan choices from 1999 to 2003, I show that the practice of selective contracting (SC) with a limited set of hospitals reduced health maintenance organization (HMO) plans' expected utility by $62–$118, on average, for a standard reduction in the provider choice set. I also conduct simulations which show that by 2003 health plans using SC were theoretically unable to achieve sufficiently large volume discounts from hospital providers to fully compensate for the associated utility losses. My results help to explain the flight from HMO enrollments that occurred in the early 2000s. (JEL I10, I11, L15, D83, D12)     

STRATEGIC EXCLUSION OF THE HIGHEST‐VALUED BIDDERS IN WHOLESALE AUTOMOBILE AUCTIONS

By restricting bidders to be qualified dealers, wholesale automobile auctions exclude the bidders who place the highest value on the vehicles: consumers. This article provides an explanation for this puzzling entry restriction by modeling the inventory‐management decisions of a firm. If an automobile dealer has more vehicles in inventory than is optimal, it cannot reduce its inventory by selling directly to consumers without impacting the demand for the automobiles that remain. However, if the dealer sells his/her excess inventory to a competitor, the demand for his/her remaining vehicles increases as the competitor responds by acquiring fewer additional vehicles. We demonstrate that for any market demand function and any cost of the competitor acquiring additional vehicles, a dealer with excess inventory does better by selling a subset of its vehicles to a competitor rather than directly to consumers. We discuss the market for wholesale automobiles in relation to other markets where goods are also auctioned but where entry is not restricted to qualified dealers. Doing so allows us to compare our inventory‐management explanation to common explanations provided by industry practitioners. We find that intuitive alternative stories do not consistently explain practices across markets. (JEL D44, L11, L62)     

INFORMATION SHARING AND TACIT COLLUSION IN LABORATORY DUOPOLY MARKETS

This paper reports 45 laboratory duopoly markets that examine the importance of information sharing in facilitating tacit collusion under conditions of demand uncertainty. Sellers in these repeated laboratory markets generally shared information when possible to reduce their demand uncertainty, which led to output reductions in some demand states. Risk aversion is a likely explanation for this sharing, but some sellers also appeared to employ a strategy of information concealment to punish non-colluding rivals. Nevertheless, output choices were similar in control treatments that forced sellers to share or conceal information, so the information sharing itself did not substantially increase tacit collusion. ( JEL C92, D80, L13)     

THE IMPACT OF A PUBLIC OPTION IN THE U.S. HEALTH INSURANCE MARKET

We develop a game‐theoretical framework to examine the implications of the introduction of a nonprofit “public option” in the U.S. health insurance market. In this model, heterogeneous consumers have to choose between two competing insurance plans. One plan is offered by a profit‐maximizing private insurer; the other by social‐welfare‐maximizing public option. In equilibrium, the distinct objectives of the two insurers induce adverse selection in consumer choice: the public option covers the less healthy consumers, yielding the more profitable segment of market to the private insurer. However, our empirical results suggest that both insurers will capture significant parts of the health insurance market. (JEL I11, L10, L21, L32)     

PROCUREMENT AUCTIONS WITH RENEGOTIATION AND WEALTH CONSTRAINTS

Renegotiation is a common practice in procurement auctions which allows for postauction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer. (JEL C91, D44, D82)     

NOT ALL RIVALS LOOK ALIKE: ESTIMATING AN EQUILIBRIUM MODEL OF THE RELEASE DATE TIMING GAME

I develop a new empirical model for discrete games and apply it to study the release date timing game played by distributors of movies. The results suggest that release dates of movies are too clustered around big holiday weekends and that box office revenues would increase if distributors shifted some holiday releases by one or two weeks. The proposed game structure could be applied more broadly to situations where competition is on dimensions other than price. It relies on sequential moves with asymmetric information, making the model particularly attractive for studying (common) situations where player asymmetries are important. (JEL C13, C51, L13, L15, L82)     

DO REAL ESTATE BROKERS ADD VALUE WHEN LISTING SERVICES ARE UNBUNDLED?

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal‐agent problem, the broker may not deploy services in ways that promote the seller's interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers' knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability unbundling of MLS listings. We estimate the effect of a seller's decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open‐access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9% to 7.7%, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin. (JEL D12, R31, L85)     

REPUTATION AND EARNINGS: THE ROLES OF QUALITY AND QUANTITY IN ACADEME

We examine the determinants of professional reputation. Does quantity of exposures raise reputation independent of quality? Does quality of the most important exposure have extra effects on reputation? In a very large sample of academic economists, there is little evidence that a scholar's most influential work provides any extra enhancement of reputation. Quality rankings matter more than absolute quality. Quantity has a zero or even negative effect on proxies for reputation. Data on salaries, however, show positive effects of quantity independent of quality. We test explanations for the differences between the determinants of reputation and salary. (JEL L14, J31)     

FREE PRODUCT TRIALS: DISCLOSING QUALITY AND MATCH VALUE

A prepurchase trial allows a consumer to learn both a product's quality and how well it matches her idiosyncratic taste. By offering a trial, the marginal seller thus shifts up demand by increasing perceived quality and rotates demand by revealing match. In contrast to classic results,a trial is offered only when quality is sufficiently high, and sometimes not at all. Fewer trials are offered when match is more important and when there are fewer gains from trade. “Cooling off” rules allowing free returns are effectively mandatory trials, benefiting consumers but decreasing welfare when there are sufficient gains from trade. (JEL D18, L15, L5)