Three essays in applied microeconomic theory
The first chapter of my dissertation characterizes how the strategic choices of product variety, quality and pricing by a brick and mortar store evolve in the face of stiffening competition from online retailers in the market. For many consumers, online purchases are imperfect substitutes for store purchases due to delayed delivery, the need for unfamiliar self-installation, etc. As online products become better substitutes and online competition intensifies, the store moves from socially-efficient provision of product qualities and varieties, to reducing the quality of its low quality products, next, to selective provision of high quality products, before returning to socially-efficient provision of product quality and product varieties. All the while, the physical store's profits decline, and it finally exits the market when the internet competition becomes so stiff that it drives operating profits below its fixed costs of operation. An extension explores outcomes when the store has an online portal, characterizing when the physical store appears to act as a loss leader. Chapter 2 analyzes the dynamics of positive and negative campaigning in primary and general elections, characterizing the strategic considerations that influence campaigning choices. Candidates devote resources to positive campaigning, which builds their reputation stocks, and to negative campaigning, which damages a rival's. An explanation is provided for why general campaigns are more negative than primary campaigns: in the general election, winning primary candidates benefit only from positive primary campaigning; and negative campaigning by a primary loser, impairs his party rival's chances. More generally, the impact of the (a) relative strengths of candidates (initial resources and reputations), (b) how much candidates care about winning vs just having their party win, and (c) the campaigning technology (effectiveness, decay in the effects of primary campaigning before the general election) on the magnitudes and composition of campaigning in both elections is characterized. In Chapter 1, consumers are assumed to have either a high or a low valuation of quality. Chapter 3 looks at how outcomes change when consumer valuation types are continuous. A numerical analysis reveals that there exists a threshold of consumer valuation of quality such that consumers with valuations below the threshold buy the low quality product while those with valuations above the threshold buy the high quality product. As online competition increases, the store initially lowers its prices in order to retain consumers who would otherwise switch to online purchases and this move initially allows it to attract more consumers than before. However, the store is unable to match the competitive offers available online for long; when the spread of consumer valuations is not too low, as online products become better substitutes, consumers with relatively low valuations increasingly switch to online products. The low quality product of the store now caters to the tastes of consumers with higher valuations than before: the store begins to increase the quality and price of its low quality products. To prevent its high valuation consumers from switching over to the low quality product, the store raises the quality of its high quality product too. All the while, its profits decline and the store eventually exits the market when it is unable to meet its fixed operating costs. The impact of a smaller spread of consumer valuations, lower marginal costs and higher travel costs on the strategic choices of the brick and mortar store is also explored.
Online Competition, Monopoly, Price Discrimination, Loss Leader, Quality Provision, Positive Campaigning, Negative Campaigning
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign