- The Welfare Effects of Intertemporal Price Discrimination: An Empirical Analysis of Airline Pricing in U.S. Monopoly Markets, revise and resubmit at the American Economic Review [PDF]
This paper studies how a firm's ability to price discriminate over time affects production, product quality, and the product allocation among consumers. The theoretical model has forward-looking and heterogeneous consumers who face a monopoly firm. The firm can affect the quality and quantity of the goods sold each period. I show that the welfare effects of intertemporal price discrimination are parameter-dependent. I use this model to study the time paths of prices for airline tickets offered on monopoly routes in the U.S. Using estimates of the model's demand and cost parameters, I compare the welfare travelers receive under the current ticketing system to several alternative systems, including one in which there is free resale of airline tickets.
- Simulating the Dynamic Effects of Horizontal Mergers: U.S. Airlines, with Lanier Benkard and Aaron Bodoh-Creed, under review [PDF]
- Getting More from Less: Understanding Airline Pricing, under review [PDF] [Slides].
Motivated by pricing practices in the airline industry, the paper studies
the incentives of players to publicly and independently limit the sets of
actions they can play later in a game. I find that to benefit from
self-restraint, players have to exclude all actions that create temptations
to deviate and keep some actions that can deter deviations of others. I
develop a set of conditions under which these strategies form a subgame
perfect equilibrium and show that in a Bertrand oligopoly, firms can
mutually gain from self-restraint, while in a Cournot oligopoly they cannot.
- The Identification Power of the Markov Assumption in Dynamic Discrete Choice Models, under revision [Slides]
This paper studies the identification power of the Markov assumption in dynamic discrete choice models with unobserved heterogeneity. Based on the fact that a mixture of Markov processes violates the Markov property, I propose a test for the presence of unobserved heterogeneity and show how to recover individual policy functions from a mixture of Markov processes. This result extends the set of dynamic discrete choice models to which the two-step estimator of Bajari, Benkard, and Levin (2007) can be applied.