Know your limit

Kevin Lewis

December 18, 2017

Understanding the Price Effects of the MillerCoors Joint Venture
Nathan Miller & Matthew Weinberg
Econometrica, November 2017, Pages 1763-1791


We document abrupt increases in retail beer prices just after the consummation of the MillerCoors joint venture, both for MillerCoors and its major competitor, Anheuser-Busch. Within the context of a differentiated-products pricing model, we test and reject the hypothesis that the price increases can be explained by movement from one Nash-Bertrand equilibrium to another. Counterfactual simulations imply that prices after the joint venture are 6%-8% higher than they would have been with Nash-Bertrand competition, and that markups are 17%-18% higher. We relate the results to documentary evidence that the joint venture may have facilitated price coordination.

The Economics of the Right to Be Forgotten
Byung-Cheol Kim & Jin Yeub Kim
Journal of Law and Economics, May 2017, Pages 335-360


Scholars and practitioners debate whether to expand the scope of the right to be forgotten - the right to have certain links removed from search results - to encompass global search results. The debate centers on the assumption that the expansion will increase the incidence of link removal, which reinforces privacy while hampering free speech. We develop a game-theoretic model to show that the expansion of the right to be forgotten can reduce the incidence of link removal. We also show that the expansion does not necessarily enhance the welfare of individuals who request removal and that it can either improve or reduce societal welfare. Our analysis has implications for understanding the impact of the global expansion of the right to be forgotten on privacy and free speech.

Lowering consumer search costs can lead to higher prices
Mitsukuni Nishida & Marc Remer
Economics Letters, January 2018, Pages 1-4


We demonstrate that regulations that lower consumer search costs and make them less heterogeneous across consumers can lead to higher prices charged by firms. We estimate the distribution of consumer search costs for 366 isolated retail gasoline markets, and find that reducing the mean and standard deviation by 20% and 48%, respectively, leads to price increases in 32% of markets and an average price increase of 5.2 cents per gallon across all markets. Thus, price transparency regulation that results in higher prices may not stem from collusion, but from an equilibrium with less consumer search.

Regulation, Land Constraints, and California's Boom and Bust
Kristoffer (Kip) Jackson
Regional Science and Urban Economics, January 2018, Pages 130-147


Using new data from a survey of top local land-use officials, this paper provides a measure of both local regulatory stringency and the degree to which land constraints inhibit local development in California. After briefly exploring differences in patterns of regulation and land constraints across the state, the index is applied to a model of housing prices. While regulation did not play a meaningful role in the recent housing market boom and bust in California, this paper finds that where housing demand increased through the expansion of subprime lending, land constraints exacerbated the run-up and subsequent crash of local housing prices.

Congestion v Content Provision in Net Neutrality: The Case of Amazon's
Jose Tudon Maldonado
University of Chicago Working Paper, November 2017


Net neutrality encourages content provision but also creates congestion externalities from the increase in data traffic. I study the consequences of net neutrality in, a popular internet platform. Twitch is non-neutral because it gives priority to the most popular content providers by compressing their data, which makes them accessible to more consumers. I estimate a two-sided-market model that considers the interactions between content provision, its consumption, and congestion. Using an exogenous technological upgrade that increased data traffic, I identify the costs of congestion for content providers and for their consumers and, using exogenous time-series variations within panels, I identify the benefits of prioritization. I use the estimated preferences and technological parameters to study the counterfactual in which net neutrality is imposed in the platform, which requires priority to be allocated anonymously. Consumer welfare drops 5%, whereas content provision does not increase, but its average quality drops. I then consider a counterfactual rent-extractive platform that charges for prioritization under the non-neutral regime. In this case, net neutrality, which prohibits priority charges, increases content provision, but consumer welfare still drops due to lower content quality and congestion externalities.

Is Occupational Licensing a Barrier to Interstate Migration?
Janna Johnson & Morris Kleiner
NBER Working Paper, December 2017


Occupational licensure, one of the most significant labor market regulations in the United States, may restrict the interstate movement of workers. We analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. We also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on our results, we estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States.

Competition and Product Misrepresentation
Daniel Goetz
University of Toronto Working Paper, September 2017


This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32% within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms' strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.

Analyzing occupational licensing among the states
Morris Kleiner & Evgeny Vorotnikov
Journal of Regulatory Economics, October 2017, Pages 132-158


The study provides new evidence of the influence of occupational regulations on the U.S. economy. Our analysis, unlike previous studies, was able to obtain a representative sample of the population at the state level, which allowed us to estimate the cross-sectional effects of occupational licensing for each state. The state-level analysis demonstrates considerable variation in percentage of the workforce that has attained a license, and unlike minimum wages or unionization, licensing shows no regional patterns in the distribution of occupational licensing. The analysis also shows considerable variation in the influence of licensing on earnings across the states. The national estimates suggest that occupational licensing raises wages by about 11% after controlling for human capital and other observable characteristics. Finally, our analysis shows the influence of occupational regulation on wage inequality across the income distribution.

Innovation and Product Reallocation in the Great Recession
David Argente, Munseob Lee & Sara Moreira
Journal of Monetary Economics, forthcoming


We use detailed product- and firm-level data to study the sources of innovation and the patterns of productivity growth over the period from 2007 to 2013. We document several new facts on product reallocation. First, every quarter around 8 percent of products are reallocated in the economy, and the entry and exit of products are prevalent among different types of firms. Second, most reallocation of products occurs within the boundaries of the firm. The entries and exits of firms only make a small contribution in the overall creation and destruction of products. Third, product reallocation is strongly pro-cyclical and declined by more than 25 percent during the Great Recession. This cyclical pattern is almost entirely explained by a decline in within firm reallocation. Motivated by these facts, we study the causes and consequences of reallocation within incumbent firms. As predicted by Schumpeterian growth theories, the rate of product reallocation strongly depends on the innovation efforts of the firms and has important implications for revenue growth, improvements in products' quality, and productivity dynamics. Our estimates suggest that the decline in product reallocation through these margins has contributed greatly to the slow growth experienced after the Great Recession.

Pro-Market Policies and Major Industrial Disasters - A Dangerous Combination?
Robert Blanton & Dursun Peksen
Sociological Forum, forthcoming


Industrial disasters are tragically frequent events, yet little systematic research has been devoted to the factors that contribute to their occurrence. Seeking broader insights into the causes of major industrial disasters, we focus on the role of state policies, particularly the effect of neoliberal policy prescriptions. We formulate and test several related hypotheses that delineate how a pro-market policy environment, specifically a "business-friendly" regulatory approach, openness to global trade and capital flows, and a smaller and less economically intrusive state, affect the probability of major industrial disasters. To test these claims, we gathered time-series cross-sectional data for 127 countries for the period 1981-2011. Results point to a significant positive association between pro-market reforms and major industrial disasters. Specifically, we find that economic liberalization in general as well as the two aspects of liberalization - business regulatory environment and economic openness - are positively and significantly related to the occurrence of major industrial disasters.

Round Prices and Price Rigidity: Evidence from Outlawing Odd Prices
Itai Ater & Omri Gerlitz
Journal of Economic Behavior & Organization, December 2017, Pages 188-203


This paper exploits a legal change in Israel that banned the use of non-zero-digit price endings (e.g., 6.99) to study the relationship between digit price endings and price rigidity. We compare the propensity of product prices to change before and after the ban, while distinguishing between products whose prices ended with a zero and products whose prices did not end with a zero digit before the ban. We find that before the ban, zero-digit price endings were more likely to change, typically upward, compared with products with non-zero digit price endings. After the legal change these differences disappeared. Overall, these findings support the Price Point Theory (Blinder, 1991).

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