Essays in Industrial Organization

This dissertation extends the empirical industrial organization literature with two essays on strategic decisions of firms in imperfectly competitive markets and one essay on how inertia in consumer choice can result in significant welfare losses. Using data from the airline industry I study a well-known puzzle in the literature whereby incumbent firms decrease fares when Southwest Airlines emerges as a potential entrant, but is not (yet) competing directly. In the first essay I describe this so-called Southwest Effect and use reduced-form analysis to offer possible explanations for why firms may choose to forgo profits today rather than wait until Southwest operates the route. The analysis suggests that incumbent firms are attempting to signal to Southwest that entry is unprofitable so as to deter its entry. The second essay develops this theme by extending a classic model from the IO literature, limit pricing, to a dynamic setting. Calibrations indicate the price cuts observed in the data can be captured by a dynamic limit pricing model. The third essay looks at another concentrated industry, mobile telecoms, and studies how inertia in choice (be it inattention or switching costs) can lead to consumers being on poorly matched cellphone plans and how a simple policy proposal can have a considerable effect on welfare.

Essays on Energy Economics and Industrial Organization

The dissertation consists of three chapters related to the low-price guarantee marketing strategy and energy efficiency analysis. The low-price guarantee is a marketing strategy in which firms promise to charge consumers the lowest price among their competitors. Chapter 1 addresses the research question "Does a Low-Price Guarantee Induce Lower Prices'' by looking into the retail gasoline industry in Quebec where there was a major branded firm which started a low-price guarantee back in 1996. Chapter 2 does a consumer welfare analysis of low-price guarantees to drive police indications and offers a new explanation of the firms' incentives to adopt a low-price guarantee. Chapter 3 develops the energy performance indicators (EPIs) to measure energy efficiency of the manufacturing plants in pulp, paper and paperboard industry.

Chapter 1 revisits the traditional view that a low-price guarantee results in higher prices by facilitating collusion. Using accurate market definitions and station-level data from the retail gasoline industry in Quebec, I conducted a descriptive analysis based on stations and price zones to compare the price and sales movement before and after the guarantee was adopted. I find that, contrary to the traditional view, the stores that offered the guarantee significantly decreased their prices and increased their sales. I also build a difference-in-difference model to quantify the decrease in posted price of the stores that offered the guarantee to be 0.7 cents per liter. While this change is significant, I do not find the response in comeptitors' prices to be significant. The sales of the stores that offered the guarantee increased significantly while the competitors' sales decreased significantly. However, the significance vanishes if I use the station clustered standard errors. Comparing my observations and the predictions of different theories of modeling low-price guarantees, I conclude the empirical evidence here supports that the low-price guarantee is a simple commitment device and induces lower prices.

Chapter 2 conducts a consumer welfare analysis of low-price guarantees to address the antitrust concerns and potential regulations from the government; explains the firms' potential incentives to adopt a low-price guarantee. Using station-level data from the retail gasoline industry in Quebec, I estimated consumers' demand of gasoline by a structural model with spatial competition incorporating the low-price guarantee as a commitment device, which allows firms to pre-commit to charge the lowest price among their competitors. The counterfactual analysis under the Bertrand competition setting shows that the stores that offered the guarantee attracted a lot more consumers and decreased their posted price by 0.6 cents per liter. Although the matching stores suffered a decrease in profits from gasoline sales, they are incentivized to adopt the low-price guarantee to attract more consumers to visit the store likely increasing profits at attached convenience stores. Firms have strong incentives to adopt a low-price guarantee on the product that their consumers are most price-sensitive about, while earning a profit from the products that are not covered in the guarantee. I estimate that consumers earn about 0.3% more surplus when the low-price guarantee is in place, which suggests that the authorities should not be concerned and regulate low-price guarantees. In Appendix B, I also propose an empirical model to look into how low-price guarantees would change consumer search behavior and whether consumer search plays an important role in estimating consumer surplus accurately.

Chapter 3, joint with Gale Boyd, describes work with the pulp, paper, and paperboard (PP&PB) industry to provide a plant-level indicator of energy efficiency for facilities that produce various types of paper products in the United States. Organizations that implement strategic energy management programs undertake a set of activities that, if carried out properly, have the potential to deliver sustained energy savings. Energy performance benchmarking is a key activity of strategic energy management and one way to enable companies to set energy efficiency targets for manufacturing facilities. The opportunity to assess plant energy performance through a comparison with similar plants in its industry is a highly desirable and strategic method of benchmarking for industrial energy managers. However, access to energy performance data for conducting industry benchmarking is usually unavailable to most industrial energy managers. The U.S. Environmental Protection Agency (EPA), through its ENERGY STAR program, seeks to overcome this barrier through the development of manufacturing sector-based plant energy performance indicators (EPIs) that encourage U.S. industries to use energy more efficiently. In the development of the energy performance indicator tools, consideration is given to the role that performance-based indicators play in motivating change; the steps necessary for indicator development, from interacting with an industry in securing adequate data for the indicator; and actual application and use of an indicator when complete. How indicators are employed in EPA’s efforts to encourage industries to voluntarily improve their use of energy is discussed as well. The chapter describes the data and statistical methods used to construct the EPI for plants within selected segments of the pulp, paper, and paperboard industry: specifically pulp mills and integrated paper & paperboard mills. The individual equations are presented, as are the instructions for using those equations as implemented in an associated Microsoft Excel-based spreadsheet tool.

Nanotopography-induced changes in focal adhesions, cytoskeletal organization, and mechanical properties of human mesenchymal stem cells.

The growth of stem cells can be modulated by physical factors such as extracellular matrix nanotopography. We hypothesize that nanotopography modulates cell behavior by changing the integrin clustering and focal adhesion (FA) assembly, leading to changes in cytoskeletal organization and cell mechanical properties. Human mesenchymal stem cells (hMSCs) cultured on 350 nm gratings of tissue-culture polystyrene (TCPS) and polydimethylsiloxane (PDMS) showed decreased expression of integrin subunits alpha2, alpha , alpha V, beta2, beta 3 and beta 4 compared to the unpatterned controls. On gratings, the elongated hMSCs exhibited an aligned actin cytoskeleton, while on unpatterned controls, spreading cells showed a random but denser actin cytoskeleton network. Expression of cytoskeleton and FA components was also altered by the nanotopography as reflected in the mechanical properties measured by atomic force microscopy (AFM) indentation. On the rigid TCPS, hMSCs on gratings exhibited lower instantaneous and equilibrium Young's moduli and apparent viscosity. On the softer PDMS, the effects of nanotopography were not significant. However, hMSCs cultured on PDMS showed lower cell mechanical properties than those on TCPS, regardless of topography. These suggest that both nanotopography and substrate stiffness could be important in determining mechanical properties, while nanotopography may be more dominant in determining the organization of the cytoskeleton and FAs.

Chromosomal organization of adrenergic receptor genes.

The adrenergic receptors (ARs) (subtypes alpha 1, alpha 2, beta 1, and beta 2) are a prototypic family of guanine nucleotide binding regulatory protein-coupled receptors that mediate the physiological effects of the hormone epinephrine and the neurotransmitter norepinephrine. We have previously assigned the genes for beta 2- and alpha 2-AR to human chromosomes 5 and 10, respectively. By Southern analysis of somatic cell hybrids and in situ chromosomal hybridization, we have now mapped the alpha 1-AR gene to chromosome 5q32----q34, the same position as beta 2-AR, and the beta 1-AR gene to chromosome 10q24----q26, the region where alpha 2-AR is located. In mouse, both alpha 2- and beta 1-AR genes were assigned to chromosome 19, and the alpha 1-AR locus was localized to chromosome 11. Pulsed field gel electrophoresis has shown that the alpha 1- and beta 2-AR genes in humans are within 300 kilobases (kb) and the distance between the alpha 2- and beta 1-AR genes is less than 225 kb. The proximity of these two pairs of AR genes and the sequence similarity that exists among all the ARs strongly suggest that they are evolutionarily related. Moreover, they likely arose from a common ancestral receptor gene and subsequently diverged through gene duplication and chromosomal duplication to perform their distinctive roles in mediating the physiological effects of catecholamines. The AR genes thus provide a paradigm for understanding the evolution of such structurally conserved yet functionally divergent families of receptor molecules.

Nested dictionary learning for hierarchical organization of imagery and text

A tree-based dictionary learning model is developed for joint analysis of imagery and associated text. The dictionary learning may be applied directly to the imagery from patches, or to general feature vectors extracted from patches or superpixels (using any existing method for image feature extraction). Each image is associated with a path through the tree (from root to a leaf), and each of the multiple patches in a given image is associated with one node in that path. Nodes near the tree root are shared between multiple paths, representing image characteristics that are common among different types of images. Moving toward the leaves, nodes become specialized, representing details in image classes. If available, words (text) are also jointly modeled, with a path-dependent probability over words. The tree structure is inferred via a nested Dirichlet process, and a retrospective stick-breaking sampler is used to infer the tree depth and width.

Reconstruction of gross avian genome structure, organization and evolution suggests that the chicken lineage most closely resembles the dinosaur avian ancestor.

BACKGROUND: The availability of multiple avian genome sequence assemblies greatly improves our ability to define overall genome organization and reconstruct evolutionary changes. In birds, this has previously been impeded by a near intractable karyotype and relied almost exclusively on comparative molecular cytogenetics of only the largest chromosomes. Here, novel whole genome sequence information from 21 avian genome sequences (most newly assembled) made available on an interactive browser (Evolution Highway) was analyzed. RESULTS: Focusing on the six best-assembled genomes allowed us to assemble a putative karyotype of the dinosaur ancestor for each chromosome. Reconstructing evolutionary events that led to each species' genome organization, we determined that the fastest rate of change occurred in the zebra finch and budgerigar, consistent with rapid speciation events in the Passeriformes and Psittaciformes. Intra- and interchromosomal changes were explained most parsimoniously by a series of inversions and translocations respectively, with breakpoint reuse being commonplace. Analyzing chicken and zebra finch, we found little evidence to support the hypothesis of an association of evolutionary breakpoint regions with recombination hotspots but some evidence to support the hypothesis that microchromosomes largely represent conserved blocks of synteny in the majority of the 21 species analyzed. All but one species showed the expected number of microchromosomal rearrangements predicted by the haploid chromosome count. Ostrich, however, appeared to retain an overall karyotype structure of 2n=80 despite undergoing a large number (26) of hitherto un-described interchromosomal changes. CONCLUSIONS: Results suggest that mechanisms exist to preserve a static overall avian karyotype/genomic structure, including the microchromosomes, with widespread interchromosomal change occurring rarely (e.g., in ostrich and budgerigar lineages). Of the species analyzed, the chicken lineage appeared to have undergone the fewest changes compared to the dinosaur ancestor.

Nucleolar organization, ribosomal DNA array stability, and acrocentric chromosome integrity are linked to telomere function.

The short arms of the ten acrocentric human chromosomes share several repetitive DNAs, including ribosomal RNA genes (rDNA). The rDNA arrays correspond to nucleolar organizing regions that coalesce each cell cycle to form the nucleolus. Telomere disruption by expressing a mutant version of telomere binding protein TRF2 (dnTRF2) causes non-random acrocentric fusions, as well as large-scale nucleolar defects. The mechanisms responsible for acrocentric chromosome sensitivity to dysfunctional telomeres are unclear. In this study, we show that TRF2 normally associates with the nucleolus and rDNA. However, when telomeres are crippled by dnTRF2 or RNAi knockdown of TRF2, gross nucleolar and chromosomal changes occur. We used the controllable dnTRF2 system to precisely dissect the timing and progression of nucleolar and chromosomal instability induced by telomere dysfunction, demonstrating that nucleolar changes precede the DNA damage and morphological changes that occur at acrocentric short arms. The rDNA repeat arrays on the short arms decondense, and are coated by RNA polymerase I transcription binding factor UBF, physically linking acrocentrics to one another as they become fusogenic. These results highlight the importance of telomere function in nucleolar stability and structural integrity of acrocentric chromosomes, particularly the rDNA arrays. Telomeric stress is widely accepted to cause DNA damage at chromosome ends, but our findings suggest that it also disrupts chromosome structure beyond the telomere region, specifically within the rDNA arrays located on acrocentric chromosomes. These results have relevance for Robertsonian translocation formation in humans and mechanisms by which acrocentric-acrocentric fusions are promoted by DNA damage and repair.

Two versions of life: emotionally negative and positive life events have different roles in the organization of life story and identity.

Over 2,000 adults in their sixties completed the Centrality of Event Scale (CES) for the traumatic or negative event that now troubled them the most and for their most positive life event, as well as measures of current PTSD symptoms, depression, well-being, and personality. Consistent with the notion of a positivity bias in old age, the positive events were judged to be markedly more central to life story and identity than were the negative events. The centrality of positive events was unrelated to measures of PTSD symptoms and emotional distress, whereas the centrality of the negative event showed clear positive correlations with these measures. The centrality of the positive events increased with increasing time since the events, whereas the centrality of the negative events decreased. The life distribution of the positive events showed a marked peak in young adulthood whereas the life distribution for the negative events peaked at the participants' present age. The positive events were mostly events from the cultural life script-that is, culturally shared representations of the timing of major transitional events. Overall, our findings show that positive and negative autobiographical events relate markedly differently to life story and identity. Positive events become central to life story and identity primarily through their correspondence with cultural norms. Negative events become central through mechanisms associated with emotional distress.

Splintered memories or vivid landmarks? Qualities and organization of traumatic memories with and without PTSD

One hundred and eighty-one students answered a standardized questionnaire on Post-Traumatic Stress Disorder (PTSD): 25 reported trauma(s) and indicated a pattern of after-effects that matched a PTSD symptom profile, whereas 88 indicated trauma(s) but no PTSD symptom profile. Both groups answered a questionnaire addressing the recollective quality, integration and coherence of the traumatic memory that currently affected them most. Participants with a PTSD symptom profile reported more vivid recollection of emotion and sensory impressions. They reported more observer perspective in the memory (seeing themselves 'from the outside'), but no more fragmentation. They also agreed more with the statement that the trauma had become part of their identity, and perceived more thematic connections between the trauma and current events in their lives. The two groups showed different patterns of correlations which indicated different coping styles. Overall, the findings suggest that traumas form dysfunctional reference points for the organization of other personal memories in people with PTSD symptoms, leading to fluctuations between vivid intrusions and avoidance. Copyright © 2003 John Wiley & Sons, Ltd.

NAFTA and the apparel commodity chain: Corporate strategies, interfirm networks, and industrial upgrading

The apparel industry is one of the oldest and largest export industries in the world, with global trade and production networks that connect firms and workers in countries at all levels of economic development. This chapter examines the impact of the North American Free Trade Agreement (NAFTA) as one of the most recent and significant developments to affect patterns of international trade and production in the apparel and textile industries. Tr ade policies are changing the institutional environment in which firms in this industry operate, and companies are responding to these changes with new strategies designed to increase their profitability and strengthen their control over the apparel commodity chain. Our hypothesis is that lead firms are establishing qualitatively different kinds of regional production networks in North America from those that existed prior to NAFTA, and that these networks have important consequences for industrial upgrading in the Mexican textile and apparel industries. Post-NAFTA crossborder production arrangements include full-package networks that link lead firms in the United States with apparel and textile manufacturers, contractors, and suppliers in Mexico. Full-package production is increasing the local value added provided by the apparel commodity chain in Mexico and creating new opportunities for Mexican firms and workers. The chapter is divided into four main sections. The first section uses trade and production data to analyze shifts in global apparel flows, highlighting the emergence and consolidation of a regional trade bloc in North America. The second section discusses the process of industrial upgrading in the apparel industry and introduces a distinction between assembly and full-package production networks. The third section includes case studies based on published industry sources and strategic interviews with several lead companies whose strategies are largely responsible for the shifting trade patterns and NAFTA-inspired cross-border production networks discussed in the previous section. The fourth section considers the implications of these changes for employment in the North American apparel industry. © 2009 by Temple University Press. All rights reserved.

Economic and Social Upgrading in Global Value Chains and Industrial Clusters: Why Governance Matters

© 2014, Springer Science+Business Media Dordrecht.The burgeoning literature on global value chains (GVCs) has recast our understanding of how industrial clusters are shaped by their ties to the international economy, but within this context, the role played by corporate social responsibility (CSR) continues to evolve. New research in the past decade allows us to better understand how CSR is linked to industrial clusters and GVCs. With geographic production and trade patterns in many industries becoming concentrated in the global South, lead firms in GVCs have been under growing pressure to link economic and social upgrading in more integrated forms of CSR. This is leading to a confluence of “private governance” (corporate codes of conduct and monitoring), “social governance” (civil society pressure on business from labor organizations and non-governmental organizations), and “public governance” (government policies to support gains by labor groups and environmental activists). This new form of “synergistic governance” is illustrated with evidence from recent studies of GVCs and industrial clusters, as well as advances in theorizing about new patterns of governance in GVCs and clusters.