Jonas Slaathaug Hansen defends his PhD thesis at the Department of Economics

Candidate:

Jonas Slaathaug Hansen, Department of Economics, University of Copenhagen

Title:

Essays in Empirical Industrial Organization

Supervisors:

• Bertel Schjerning, Professor, Department of Economics, University of Copenhagen
• Anders Munk-Nielsen, Associate Professor, Department of Economics, University of Copenhagen

Assessment Committee:

• Jakob Roland Munch, Professor, Department of Economics, University of Copenhagen
• Isis Durrmeyer, Professor, Department of Economics, Toulouse School of Economics
• Matthew Shum, Professor of Economics, Principal Economist at Amazon

Summary:

This thesis consists of three independent chapters about how the markets we interact with in our everyday life function. All markets have their own peculiarities resulting in different market structures. Market structure refers to the degree of competition and the institutional details that govern interactions between firms within a particular market. To ensure that markets work well and fairly, with e.g. rent-sharing and functioning competition, we often need to enforce regulation, through policies such as taxation and anti-trust. In order to design regulation that reaches its goal efficiently, it is important to have a good understanding of how different peculiarities shape different markets and to use the right tools when doing so. Each of the chapters in this thesis focuses on different aspects of the study of market structures.

The first chapter investigates the interaction between primary and secondary automobile markets through a structural model incorporating forward-looking consumers and endogenous price equilibrium. A key finding in the first chapter is that incorporating the secondary markets in the theoretical model of supply and demand for automobiles leads to more market power of automobile producers and higher prices in the primary market, compared to if the secondary market had not been there. In our model, we find that this is true if firms account for the equilibrium effects in the secondary market when they set their prices. If prices in the secondary market also go up following a price increase in the primary market, firms are losing fewer sales by increasing their price and will naturally increase their prices more, ceteris paribus.

Understanding what demand looks like is crucial to knowing how firms set their prices and instrumental for designing economic policy in product markets. The second chapter investigates the empirical properties of a newly proposed demand model for differentiated products by comparing it to the current workhorse models in the literature in an empirical application of the Danish market for new automobiles. We show that the Inverse Product Differentiation Logit model, a static discrete choice demand model, estimates substitution patterns that are as flexible as alternative models while having substantial computational benefits over the widely used Random Coefficients Logit and Nested Logit models.

Many markets are dominated by few, very large firms, known to negatively impact consumers and other firms through increased market power. The third chapter examines how large firms affect other firms in their supply chain, an important aspect to understand the full effect of large firms. We estimate the causal effect of exporting to a foreign superstar firm — i.e., the largest and most productive firms — on supplying firms. We use data on firm-to-firm international trade between firms in Denmark and Sweden and a dynamic event study approach to show that there are considerable spillover effects in terms of firm growth and productivity from gaining a new foreign superstar firm as a buyer.

An electronic copy of the dissertation can be requested here: lema@econ.ku.dk