Essays on new product introduction, bargaining power, and school choice

Abstract

This dissertation combines three essays on the industrial organization and the industrial organization of education markets. These three essays study how the strategic behavior of firms influences market outcomes and consumer decisions. The first chapter examines the manufacturer’s product variety and its relation to the manufacturer’s bargaining power with retailers. The second chapter focuses on the empirical analysis of the economic impact of new product introduction. The third chapter considers the role of state laws in student’s school choice. The first essay, co-authored with Dr. Philip G. Gayle, analyzes how a manufacturer’s preexisting number of distinct product lines, and the number of horizontally differentiated products within each line affects its bargaining power with retailers, where a manufacturer’s bargaining power is measured by the share of variable profits retained by the manufacturer when contracting with retailers to sell its products. We find that a manufacturer’s expanded provision of horizontally differentiated products under a given line and the number of distinct product lines do not have a statistically significant impact on its bargaining power with retailers, i.e., do not change the manufacturer’s share of the profit pie with retailers. However, consistent with existing theory, we find evidence that product menu expansions increase the manufacturer’s variable profit, no doubt owing to an expansion in the size of the full variable profit pie shared with retailers. As such, the evidence suggests that it is profit-maximizing for manufacturers to product proliferate, even though this strategy has no effect on its bargaining power with retailers. In the second essay, co-authored with Dr. Philip G. Gayle, we investigate the market impacts associated with the introduction of Greek yogurt in the U.S. yogurt industry. With the entrance of Chobani to the U.S. yogurt market in 2007, the popularity of Greek yogurt has risen widely in the U.S. To assess the market impacts of the introduction of Greek yogurt, first, we estimate a structural econometric model of demand and supply, then use the estimated model to perform counterfactual experiments where we remove Greek-type yogurt from the consumer’s choice set. Our analyses reveal that the presence of Greek-type products causes the price of Non-Greek yogurt products to be lower by a mean 39.85% and increases the quantity demand of Non-Greek products by a mean 45.22%. In addition, we find the fraction of consumers choosing not to purchase yogurt products decreases, which shows that the introduction of Greek-type yogurt has a market expansionary effect on the U.S. yogurt market. Student loan default is an important policy concern; for example, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows the U.S. Department of Education to suspend payments on student loans, stop collections on defaulted loans and use a 0% interest rate due to economic challenges surrounding the COVID-19 pandemic. One policy aimed at reducing student loan default that has received little attention by researchers is the 1990 recommendation by the U.S. Department of Education that states should “deny professional licenses to defaulters until they take steps to repayment”. In the third essay, co-authored with Dr. Philip G. Gayle and Dr. Amanda Gaulke, we study the impacts of state laws that deny, revoke, or suspend state licenses due to student loan default (LSD laws). We estimate a structural econometric model of students’ college choice and find that students become more sensitive to cohort default rates (CDRs) after LSD laws are implemented. Despite the student response putting downward pressure on CDRs, schools’ response may counteract that effect due to facing higher marginal cost to reduce default. Thus, we find mixed results of LSD laws’ impact on CDRs: an overall increase in CDRs for some states, but an overall decrease for some states.