Rossi ABI RAFEH 's HDR Thesis, September 9th

September 09, 2022 Research

Rossi ABI RAFEH will defend his thesis on Friday 9 September at 3:00 PM (Auditorium 3).
« Essays on Industrial Organization»

1, Esplanade de l'université, 31000 Toulouse
To attend the conference, please contact the secretariat Ludmila Namolovan

Supervisor: Professor Pierre DUBOIS

Memberships are:

  • Pierre DUBOIS, Université Toulouse 1 Capitole, Supervisor
  • Sarah MOSHARY, Haas School of Business, UC Berkeley, Rapporteure 
  • Helena PERRONE,University of Mannheim, Department of Economics, Rapporteure 
  • Bruno JULLIEN, Université Toulouse 1 Capitole, Examinator
  • Rachel GRIFFITH, University of Manchester, Examinator

Abstract :

This thesis explores topics in the industrial organization of advertising markets and platform markets.

The first chapter studies the passthrough of advertising cost onto the prices of goods in the products market. I provide a model of advertising where the pass-through is made explicit. Unlike other production inputs, advertising changes the shape of the demand curve an advertiser faces. Changes in the cost of advertising change the incentives to advertise and consequently the prices set on the product market. The sign and magnitude of the pass-through depend on the effect of advertising on demand, particularly the effect of ads on demand price sensitivity. To empirically quantify this pass-through, I exploit the variation in the cost of advertising on television in the US in the period from 2010 until 2016, and its effect on the prices of 79 brands belonging to 17 leading product categories in 15000 stores in the US. I use the political cycle to isolate a variation in the cost of advertising that is exogenous to the prices of products in fast-moving consumer market categories and compare the price of the same brand across geographic markets. I find that a 1 percent increase in the price of 1000 TV impressions leads to heterogeneous effects across product categories and the median product categories sees a slightly negative pass-through.

The second chapter studies the effect of a tax on market structure accounting for a response in advertising. It takes the context of soda taxes in the UK. Soda taxes are commonly used to reduce sugar consumption. The effects of taxes on prices and consumption have been widely studied, however, there is less work on the impact of taxes on firms’ strategic choices over advertising spending. We study how soda taxes affect both the pricing and advertising strategies of firms in a dynamic oligopoly game. We use rich longitudinal data to estimate an equilibrium model of the cola market. We exploit an institutional feature of the advertising market that involves cola firms delegating decisions over advertising spots to agencies. This allows us to model the rich impacts of advertising on demand while solving the otherwise intractable dynamic equilibrium impact of the introduction of a tax. We find that the dynamic competition game between the main players (Coca-Cola and Pepsi) results in asymmetric responses in advertising spending, with both firms reducing advertising expenditure in response to a sugary soda tax.

The third chapter studies the entry and pricing decisions of sellers in a market with a reputation system. We provide a model of reputation, pricing and entry with heterogeneity in marginal and opportunity costs and individual reputation as a state variable. We show that new sellers are generally less likely to reenter the platform than incumbents and sellers who have a lower chance of entering in subsequent periods set on average higher prices. The mechanism behind these findings is selection on marginal costs. Our model rationalizes stylized facts we observe in two large online marketplaces. We showcase a negative correlation of tenure on the platform, measured by the number of reviews, and prices set by sellers. However, after accounting for sellers’ unobserved characteristics, which we interpret as marginal costs, we find a positive relationship. We provide, further, evidence of the selection on unobservables by studying reentry decisions. We estimate the de- mand and cost parameters of our model using data from a ride-sharing platform, and we use the estimates to assess the role of cost heterogeneity in pricing, and the value of reputation. We counter-factually decrease the reputation state of incumbent sellers and find that they would need to be compensated by an economically significant sum for the loss of their reputation signals. We interpret this finding as an informational switching cost that prevents incumbent sellers from moving to new or competing platforms.