Three essays in applied Industrial organization

Abstract

In this dissertation I analyze the impact of factors such as competition, technology and consumer behavior on the pricing and quality decisions of firms and service providers, as well as how certain pricing strategies can lead to unintended effects. In Chapter 1, I show three results pertaining to a firm selling to buyers who focus more on the “salient” attribute of a product relative to other attributes. First, the firm can make more profit by making quality “salient” (i.e. make the buyer focus on quality, not price). Second, whether the firm can make quality the salient attribute to the buyers depends on the firm's cost of upgrading quality and consumers' preferences for quality upgrades. Third, the firm can profitably deviate from the optimal price-discriminating menu of price and quality by granting an additional discount to consumers who value quality more or by downgrading quality of the low-quality good. In Chapter 2, using data on Uber and Lyft trips and complaints against taxi drivers, I show that increased competition from Uber has led to more complaints regarding unsafe driving, refused pick-ups etc. by taxi drivers, which is opposite to what one would expect. Finally, in Chapter 3, I show three new unintended effects of price-matching. First, a price-match guarantee may decrease firms' incentives to invest in reducing costs. Second, it may reduce the incentive to invest in enhancing quality. Third, without price-matching, low-cost firms produce too little relative to the social optimum and I show that price-matching can aggravate this problem by allowing high-cost firms to steal further market share.