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Essays on Industrial Organization

  • Author(s): Caoui, El Hadi
  • Advisor(s): Asker, John W
  • et al.
Abstract

This dissertation consists of two essays in the area of Industrial Organization.

In Chapter 1, I investigate the role of network effects in explaining the within-firm rate of technology adoption. I study the conversion of movie distribution and exhibition from 35mm film to digital technology. These industries constitute a hardware-software system with indirect network effects. I specify and estimate a dynamic oligopoly game of digital hardware adoption by movie theaters and digital movies (software) supply by movie distributors. Crucially, theaters' technology-adoption decisions are made at the screen level so diffusion occurs both within and across firms. Counterfactual simulations establish that: (1) at the industry level, diffusion occurs mainly within rather than across firms; (2) differences in technology adoption across firms, which are commonly attributed to scale economies and strategic incentives, are in part due to larger firms' ability to initially adopt the technology at a smaller scale. Therefore, explicitly accounting for intra-firm adoption dynamics is important to better explain aggregate diffusion and firm heterogeneity in technology adoption.

In Chapter 2, I study how non-cartel firms adjust their pricing to the supra-competitive level sustained by a cartel, and in doing so, may harm consumers via so-called "umbrella" damages. Such damages arise, in particular, when contracts are awarded through first-price procurement auctions. This chapter examines the bidding behavior of non-cartel firms bidding against the Texas school milk cartel between 1980 and 1992. Evidence is found that the largest non-cartel firm bid significantly higher when facing the cartel. Structural estimation of damages and inefficiencies due to the cartel agreement reveals that per contract: (1) damages from non-cartel firms overbidding are at least 47% of damages caused by the cartel, (2) when the outcome of the auction is inefficient, damages due to misallocation amount to 64% of cartel damages. Finally, inefficiencies raise the winner's cost by 3.7%. These results shed light on the potential importance of umbrella damages from a civil liability perspective.

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