Job Market Paper

 

Product Entry in the Global Automobile Industry 

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2024 Best Job Market Paper Award (European Economic Association and UniCredit Foundation)

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Abstract: Changes in product offerings are important for understanding changes in market outcomes in the automobile industry. In a global industry, national subsidies affect global market outcomes through firms' product portfolio decisions. This paper proposes a new model to study product entry in a multi-market setting with product differentiation and heterogeneous consumer preferences within and across countries. Methodologically, the contribution of this paper is to provide a method to estimate and solve entry games with multiple asymmetric firms, each making multiple discrete choices. Using data on global passenger vehicle sales, prices, and product characteristics, I estimate large overhead product line costs, which imply that firms have strong incentives to offer the same product in different markets to achieve sufficient scale. I quantify the effect of discriminatory production and consumption subsidies favoring US brands in the United States. I find that global product portfolio changes in response to policies cause profit shifting towards US brands worldwide and that changes in consumer surplus in response to policies vary greatly across markets due to heterogeneity in preferences.​

 

Publications

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Optimal Resilience in Multi-Tier Supply Chains (with Gene M. Grossman and Elhanan Helpman) 

The Quarterly Journal of Economics, 139(4), 2377–2425, 2024

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Abstract: Forward-looking investments determine the resilience of firms’ supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in protective capabilities, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in protective capabilities. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are nonincreasing along the chain.

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​Work in Progress

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​​Market Entry and Plant Location in Multiproduct Firms (with Juanma Castro-Vincenzi, Eugenia Menaguale and Eduardo Morales)

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Abstract: We develop a quantitative model in which firms decide where to produce and sell each of their products. Cannibalization forces imply that our model exhibits substitutabilities in the firm’s decision to sell different products in the same destination market; transport costs increasing in distance and increasing returns at the plant-product level imply our model displays complementarities in the firm decision to produce and sell the same model in geographically close markets. We provide a novel solution algorithm for multiple discrete choice single-agent problems where the sign of the interdependence between any pair of choices is known. We estimate our model using our solution method and data on the global car industry with information by firm, country, and car model on production, sales, and prices. We evaluate the effect of recently proposed production subsidies, consumption subsidies, and tariffs on the global structure of automobile production and prices and access to car varieties across countries.

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The Effects of Regulating Food-Delivery Platform Design (with Jaume Vives-i-Bastida)

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Abstract: There is rising interest amongst regulators in understanding how different platform design choices affect welfare. We focus on two important mechanisms platforms have at their disposal: (1) offering preferential treatment to producers in consumer search and (2) determining producer payments (commission fees). We study the welfare implications of different platform choices in the empirical setting of a food delivery platform that bargains with producers to set commission fees and adjudicate fixed ranking slots in the consumer search wall. Using transaction-level data and click-stream search data from a major food delivery platform, we show that both mechanisms are important. Consumers prefer producers with low commission fees, which are used to attract valuable “anchor” producers that drive consumers into the platform. Search preferencing is also important. Using an A/B test in which rank was randomized, we show that search rank is a driver of consumption. To evaluate the impact of different platform designs on consumer and restaurant welfare, we develop a structural model featuring consumer demand with search frictions, bargaining between restaurants and the platform over ranks and commission fees, and restaurant and consumer entry into the platform. Using the model, we compute counterfactual experiments to assess the impact of regulations forbidding platforms from providing preferential rank to larger restaurants and from setting differential commission fees across restaurants. 

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