Jump Bidding as a Signaling Game (Job market paper)
This paper studies jump bidding in an ascending-bid auction with affiliated values using a multi-round signaling model. Bidders communicate their private information with one another via the sizes of jump bids. These signals are credible since bidders with lower private information incur a higher ex ante cost for choosing a jump bid with any given size. This prevents the bidders with lower private information from mimicking those with higher private information. In equilibrium, the signaling model predicts that the size of a jump bid placed each round is bounded above by a strategy that is equivalent to one in a first-price sealed-bid auction. The expected revenue to the seller is reduced due to bidders' abilities to send signals through jump bidding. Using data from a spectrum auction held by the Federal Communications Commission of the United States, the mean valuation estimated using the signaling model is higher compared to that of the “open exit” model. This implies that if bidders are indeed using jump bids as signals, ignoring it leads to estimates of the mean values that are biased downwards. This result is consistent with the prediction of the theoretical model that bidders pay lower prices with jump bidding than in an open exit auction. I estimate that if jump bidding was prohibited, the government could have had 8% higher revenues from the auction.
Economies of Density and Congestion in Capital Rental Markets
with Julieta Caunedo (Toronto Rotman) and Namarata Kala (MIT Sloan)
The development of rental markets for equipment is a potentially powerful mechanism to grant small scale producers access to capital and its technology. Governments in the developing world have recently engaged in stimulating rental markets through subsidies. These interventions have distributional effects as well as efficiency effects that are not well under-stood. This paper is the first one to assess the allocative efficiency of these markets in a developing economy. To do so, we combine a novel dataset of the universe of transactions from one of the largest providers of equipment rentals in India, our own census of farming households, a survey of detailed farmer characteristics and a structural model of frictional rental markets. Allocations are mediated by the distribution of service requests and providers in space and endogenous delays in service provision due to demand congestion. Small farmers are rationed out by market providers. A government subsidized first-come-first-served dispatch system benefits small-holder farmers through equipment access and declines in queuing time. However, this dispatch system entails equipment transportation costs that may well overturn the productivity gains to those farmers. Large farmers benefit from queuing with market providers and the benefit becomes stronger the larger the share of small farmers entering the rental market.
A Behavioral Approach to Durability Choice, New-product Introductions, and Planned Obsolescence (preliminary draft: not for quotation)
with Chenyang Li (Cornell University, on the job market) and Michael Waldman (Cornell University)
Observation of real-world markets suggests that many products are produced at below efficient built-in durability levels, and/or new products are introduced quickly which inefficiently reduces the useful life of durable products. Most of the prior literature on this subject explains these observations employing monopoly/market power models, but a number of the markets that exhibit these behaviors are competitive. We consider models in which consumers have time-inconsistent/present-biased preferences, as first put forth in the seminal analysis of Strotz (1955), and show that present-biased consumer preferences can lead to equilibrium durability below efficient levels and inefficiently quick new-product introductions, even in competitive markets. We also investigate circumstances in which market power aggravates these distortions. In addition to deriving these theoretical results, we relate our theory to recent regulatory changes in the light bulb industry, as well as to the behavior of the well-known Phoebus light bulb cartel of the 1920s and 1930s.
Estimating Consumer Switching Costs in Chinese Mobile Communications Market
with Yanyan Liu (IFPRI)
This paper estimates consumer switching costs in the Chinese mobile telecommunications market. Given several idiosyncratic features of the market, consumers incur high transaction costs when they switch from one mobile carrier to another. High switching costs are believed by industry experts as the key reason behind the strong customer loyalty to the mobile carriers in China. We specify a utility function that contains a switching cost parameter, which represents the loss of utility due to switching and depends on consumer attributes. Using a proprietary dataset from one of the Chinese mobile carriers, which includes individual-level payment and basic demographic information for the population of its customers in one large city for a period of 12 months, we estimate a logit model using maximum likelihood. The estimation results suggest substantial switching costs between US$82 and US$103 per month.