The three essays in this dissertation deal with three problems in modern Industrial Organization. The first essay, "Price Discrimination and Exclusion in Intermediate Input Markets," assesses the role of a ban on price discrimination in intermediate input markets as mandated by the Robinson-Patman Act. Based on parameter values representing intermediate firms' technology and efficiency levels, I am able to identify the welfare effects of the ban on price discrimination. The basic result depends on the degree of asymmetry between intermediate firms. If the technology and efficiency levels of intermediate firms are moderately asymmetric, a ban on price discrimination in the input market will improve consumer welfare. However, if intermediate firms are very asymmetric, such a ban on price discrimination will reduce consumer welfare. This result can assist the antitrust authorities in separating different cases, which will facilitate the enforcement of antitrust law. There is an argument in the extant literature that if price discrimination in the input market improves consumer welfare, then it must reduce the total social welfare. In contrast, by endogenizing the input supplier's decision to exclude one of the intermediate firms under uniform pricing, I show that input price discrimination can retain more firms and competition in the final product market, therefore, improve both consumer and total social welfare simultaneously.
The second essay, "How Online Purchasing Has Affected US Airline Ticket Pricing," studies how airline ticket pricing changed after the introduction of the online travel agency. I find evidence supporting that increased search intensity associated with online ticket sales may lead to lower ticket prices and a decrease in price dispersion. The paper also discusses the welfare impact on two types of consumers. Simulation results show that too much competition online could potentially harm a group of consumers who do not search intensively for lower ticket prices. For already competitive routes, adding more competition in terms of distribution channels can result in increased price dispersion and harm a non-searcher group of consumers. I find this prediction is supported by the data. These results have policy implications for regulation of online distribution channels and point out that price dispersion can be a useful indicator for consumer welfare.
In the essay, "Why Do CEOs Take Risk," I provide a new explanation for the corporate CEO gambling behavior that is widely identified as proximate cause of the recent economic crisis. In particular, the essay explains a manager's risk taking as arising from inefficient incentive schedules in the presence of utility that follows the tenets of Prospect Theory. I show how the managerial effort and risk taking respond to the change in pay-for-performance sensitivity. I give a necessary condition for a higher pay-for-performance sensitivity to be able to reduce excessive risk taking and induce manager's effort at the same time.