Essays in Industrial Organization and Applied Microeconomics

University of Pennsylvania ScholarlyCommons Publicly Accessible Penn Dissertations 2017 Essays In Industrial Organization And Applied Microeconomics Peichun Wang University of Pennsylvania, [email protected] Follow this and additional works at: https://repository.upenn.edu/edissertations Part of the Economics Commons Recommended Citation Wang, Peichun, "Essays In Industrial Organization And Applied Microeconomics" (2017). Publicly Accessible Penn Dissertations. 2629. https://repository.upenn.edu/edissertations/2629 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/edissertations/2629 For more information, please contact [email protected]. Essays In Industrial Organization And Applied Microeconomics Abstract This dissertation consists of three essays in the areas of Industrial Organization and Applied Microeconomics. The first essay studies high-tech firms' product portfolio choices under competition. I develop a model of dynamic portfolio adjustments in the context of the Chinese smartphone market, using the product life cycle as an empirically tractable heuristic to capture firms' dynamic incentives in new product introductions. I first show that product life cycles endogenously arise in markets with rapid technological innovations, are heterogeneous across products, and are affected by the level of market competition. I then estimate smartphone demand and manufacturers' variable, maintenance and sunk introduction costs on a detailed monthly market-level dataset of Chinese smartphones between 2009 and 2014. Finally, I use a 2012 large-scale pro-competitive policy introduced by the Chinese government as an experiment to decompose the handset manufacturers' incentives to introduce new products and show that the increased competition reduces the average product's short-run profits yb 5% but its lifetime profits yb 41% by shrinking its product life cycle. These dynamic incentives have large implications for both consumer welfare gains from product variety and the speed of technology adoption in this market. In the second essay, my co-authors and I explore the sensitivity of the U.S. government's ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior ot the auction and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. We analyze a potential rule change that reduces the distortion in payouts to license holders by up to 80%, but find that lower participation could greatly increase payouts and exacerbate strategic effects. The third essay studies whether liberalizations of gun permits in the U.S. deterred violent crimes. Setting off an ongoing controversy, Lott and Mustard (1997) famously contended that so-called shall-issue laws (SILs) deterred violent crime. In this controversy the weapon of choice has been the differences-in- differences (DD) estimator applied to state and county panel data spanning various intervals of time. By treating violent crime as a career choice, this essay brings to bear a more general method, a cohort panel data model (CPDM) that incorporates the fundamental dynamic insights regarding entering and exiting a career. Our model distinguishes among three key parameters that jointly determine the effect of SILs on crime, (i) a direct effect on entry decisions, (ii) a surprise effect on exit decisions by individuals who entered criminal careers prior to the passage of SILs, and (iii) a selection effect on exit decisions by those who entered in the presence of SILs. We find significant and time-invariant results that reject the deterrence hypothesis as well as the DD model specification. Our esultsr suggest that passages of SILs contribute to about one third of total violent crimes in 2011, particularly through higher turnover of violent criminals. Degree Type Dissertation Degree Name Doctor of Philosophy (PhD) Graduate Group Applied Economics First Advisor Ulrich Doraszelski Subject Categories Economics This dissertation is available at ScholarlyCommons: https://repository.upenn.edu/edissertations/2629 ESSAYS IN INDUSTRIAL ORGANIZATION AND APPLIED MICROECONOMICS Peichun Wang A DISSERTATION in Applied Economics For the Graduate Group in Managerial Science and Applied Economics Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy 2017 Supervisor of Dissertation Ulrich Doraszelski, Professor of Business Economics and Public Policy Graduate Group Chairperson Catherine Schrand, Celia Z. Moh Professor, Professor of Accounting Dissertation Committee Katja Seim, Associate Professor of Business Economics and Public Policy Michael Sinkinson, Assistant Professor of Business Economics and Public Policy ESSAYS IN INDUSTRIAL ORGANIZATION AND APPLIED MICROECONOMICS © COPYRIGHT 2017 Peichun Wang This work is licensed under the Creative Commons Attribution NonCommercial-ShareAlike 3.0 License http://creativecommons.org/licenses/by-nc-sa/3.0/ Dedicated to my mother and father, Aiping and Tong, for the values, knowledge, and love they have instilled in me. iii ACKNOWLEDGEMENTS I am deeply indebted to my thesis advisors, Ulrich Doraszelski, Katja Seim, and Michael Sinkinson, without whom this dissertation would not have been possible. I owe my de- velopment throughout graudate school, both professionally and personally, to them, and I aspire to continue my career as an economist after them. I would further like to thank my undergraduate advisors from Duke University, Mar- jorie B. McElroy, Andrew Sweeting, and James W. Roberts, for their encouragement to pursue economics and their continued support since. I am grateful for helpful feedback from many others in the Business Economics and Public Policy Department at the Wharton School, the Department of Economics at the University of Pennsylvania, and elsewhere: Thomas Wollmann, Aviv Nevo, Kent Smet- ters, Robert Miller, Peter Newberry, Sarah Moshary, Ying Fan, Greg Lewis, Ben Lockwood, Corinne Low, Yao Luo, Todd Sinai, Jessie Handbury, Kevin Williams, Mike Abito, Joe Mazur, Dan Sacks, Joseph Harrington, Ashley Swanson, Ana Gazmuri, Juan Pablo Atal, Matthew Grennan, David Schindler and Matthew Weinberg. Many helpful conversations on China have also emerged from the research group with Ann Harrison, Marshall Meyer, Linda Zhao, and Minyuan Zhao. I especially thank Ann Harrison for her guidance since the early stage of my research. Yifan He and Siyang Xu provided excellent research assistance. I thank the Mack Insti- tute for Innovation Management and Penn Center for the Study of Contemporary China for their financial support. I was fortunate to work with the Applied Economics Ph.D. Coordinators Fernando V. Ferreira and Joseph Harrington, staff members Diana Broach and Christine Palumbo, and iv Gidget Murray from the Wharton Doctoral Programs, who collectively run an excellent graduate program. Finally, I thank my friends and family for their unconditional love and encouragement throughout the writing of this dissertation. In particular, I thank my classmates Jin Soo Han, Xingtan Zhang, Ben Hyman, Lindsay Relihan, Boris Vabson, Andy Wu, Jeremy Yoo, Hongyu Xiao and Amanda Chuan, and my parents, Aiping and Tong. v ABSTRACT ESSAYS IN INDUSTRIAL ORGANIZATION AND APPLIED MICROECONOMICS Peichun Wang Ulrich Doraszelski This dissertation consists of three essays in the areas of Industrial Organization and Applied Microeconomics. The first essay studies high-tech firms’ product portfolio choices under competition. I develop a model of dynamic portfolio adjustments in the context of the Chinese smartphone market, using the product life cycle as an empirically tractable heuristic to capture firms’ dynamic incentives in new product introductions. I first show that product life cycles endogenously arise in markets with rapid technological innovations, are heterogeneous across products, and are affected by the level of market competition. I then estimate smartphone demand and manufacturers’ variable, maintenance and sunk introduction costs on a detailed monthly market-level dataset of Chinese smartphones between 2009 and 2014. Finally, I use a 2012 large-scale pro-competitive policy introduced by the Chi- nese government as an experiment to decompose the handset manufacturers’ incentives to introduce new products and show that the increased competition reduces the average product’s short-run profits by 5% but its lifetime profits by 41% by shrinking its product life cycle. These dynamic incentives have large implications for both consumer welfare gains from product variety and the speed of technology adoption in this market. In the second essay, my co-authors and I explore the sensitivity of the U.S. government’s ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior to the auc- vi tion and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. We analyze a potential rule change that reduces the distortion in payouts to

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