Job Market Paper:
This paper shows how subsidy design affects market outcomes in multi-product oligopolies when firms can adjust prices and product attributes. I show this in the electric vehicle (EV) market, which is characterized by subsidies and falling input prices. Using novel data from Germany, I estimate an equilibrium model of demand and supply of new cars. On the supply side, firms respond to subsidies by adjusting their electric vehicles' price and driving range. I find that the marginal cost of providing range decreased by 33% from 2012 to 2018. This decrease led to more expensive EVs with a greater range and a higher markup. Conversely, a subsidy introduced in Germany led to cheaper EVs with a smaller range and a lower markup. Finally, I compare different subsidy schemes and find that policymakers face a trade-off between maximizing diffusion, minimizing CO2 emissions, but can address distributional aspects.
Work in progress:
Price Competition and Endogenous Product Choice in Networks: Evidence from the US Airline Industry
Christian Bontemps and
The recent merger waives in airline markets have received attention by researchers and the general public alike. Most academic studies have analysed the problem using demand/supply or entry models. These contributions assume that airlines’ route networks are exogenous, or that airlines’ entry decisions are i.i.d. across routes. Instead, we estimate a two-stage model where airlines choose their route networks in the first stage and compete in prices in the second stage. The two-stage framework allows us to account for selection of airlines into interdependent routes. Moreover, it permits us to make counterfactual exercises which robustly predict changes not only in prices and markups, but also in how airlines adjust their route networks. We estimate the model using crosssectional data on the US airline market and use our results to evaluate a merger between American Airlines and US Airways. We find that after the merger consumer surplus rises by around 7% and that remedies imposed to the merging parties by the Department of Justice at Charlotte Airport were effective in preventing harm to consumers.
How do consumers approach an innovation? The case of real-time electricity pricing in New Zealand
This paper documents how consumers adopt and then gradually adhere to an innovation. We show this by studying the introduction of real-time electricity tariffs for residential consumers in New Zealand. Under this contract, consumers pay a price indexed on the spot market, which clears every half hour. Consumers can opt in or out at any point and at no cost. We document two patterns of consumer behavior: First, consumers are myopic upon deciding to adopt real-time pricing. They react to current prices rather than future expected or realized prices. Second, consumers facing a sustained period of high prices are less likely to opt out the longer they have been on real-time pricing. We exploit time lags in the roll-out of this tariff across cities to show that this phenomenon is not explained by loyal early adopters. We construct a measure of cumulative savings that corresponds to the information available to consumers on real-time pricing. This measure will allow us to test whether cumulative savings influence consumers switching decisions.