ESSAYS ON EMPIRICAL INDUSTRIAL ORGANIZATION

Xinlong Tan

In the first chapter, I quantify two mega airline mergers’ effects on travelers’ welfare using the most popular identification technique, the difference-in-differences (DID) approach, in retrospective analysis of mergers. I find that the DID method does not generally provide an accurate measurement when follow-up mergers are close to the merger of interest in calendar time. I then develop and estimate a two-level model of consumer demand. The result shows that fare and frequency have opposite effects on consumer welfare for both mergers in which the positive frequency effect dominates. In the short run, both mergers have little impact on consumer welfare. In the long run, however, travelers gain from both mergers. In chapter two, we design a novel quasi-experiment approach, DID-Matching with regression adjustment approach, to estimate the effects of Low-Cost Carriers’ (LCCs) expansions on fares. We decompose the overall effect of LCC entry into three effects: actual entry, potential entry and adjacent entry. For each type of entry, we select treated routes to exclude the contamination of other types of entry. The controlled routes are matched from routes that were entered by the same LCC in later years. We find that LCC entry caused at most a 20% and 30% price drop in EU and U.S. markets, respectively. In EU markets, fare reductions are mainly caused by LCCs’ actual entries. Potential entries can cause big price drop in U.S. markets. Our results also imply that concerns about market consolidation can be reduced if cabotage rights were granted. Chapter three investigates the performance of consumer reviews in addressing endogeneity in discrete choice models with an application to individuals’ choices among smartphone options. Instead of identifying unobserved product quality as a scalar, I explicitly express the control variable as a function of feature sentiments, which are extracted from reviews using a machine learning technique. I find that the estimated price coefficient is biased in the positive direction without endogeneity correction while it is adjusted in the expected way after including review variables. The findings indicate that consumer reviews provide alternative sources of information in dealing with endogeneity.

ESSAYS ON EMPIRICAL INDUSTRIAL ORGANIZATION

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