This paper analyzes the relationship between the competitive environment faced by depository institutions and the decisions these institutions make regarding the size of their branch networks. Specifically, we consider branches as a sunk investment that potentially increases utility for consumers and examine how local competition and product differentiation affect firms' decisions regarding whether to make such investments. We account for endogenous market structure using an equilibrium structural model, which corrects for bias caused by correlation in the unobservables associated with market structure and branching activity. We estimate the model using data from 1,882 concentrated rural markets. Our results demonstrate the importance of accounting for market structure and product differentiation, and are consistent with a potential entry-deterring effect of bank branch investments.

In this paper, we take a first step toward exploring empirically the product assortment strategies of oligopolistic firms. Our starting point is a discrete choice demand model for differentiated products. We incorporate the demand model into an equilibrium supply model, in which firms compete by first choosing which products to offer and then by setting prices. We show how modeling joint product assortment and pricing decisions enriches standard product choice models by allowing insights into how demand characteristics affect firms' product offerings in a competitive environment. We furthermore demonstrate that incorporating endogenous product choice into demand models is essential for policy simulations (e.g., mergers)as it entails at times dramatically different welfare assessments than the common assumption that product assortments are exogenous.

We assess competition among retail depository institutions in 1,884 rural markets. We estimate a model of equilibrium market structure which endogenizes the operating decisions of three types of depository institutions: multimarket banks, single-market banks and thrift institutions. Observed market structures and a game-theoretic specification of entry behavior identify the parameters of an underlying profit functions. We find strong evidence that product differentiation generates additional profits for retail depository institutions. These profits help to maintain smaller banks and thrifts, even as larger banks expand their operations. Consumers have more options, as more institutions can profitably operate as a result of product differentiation.

In their article, Chintagunta, Erdem, Rossi and Wedel provide a comprehensive survey of the contributions to the empirical marketing literature made by researchers using structural econometric modeling. More importantly, their review poses the question of whether structural methods should become more prominent in marketing research. Addressing that question requires a careful consideration of the potential gains of employing structure in this context as well as the compromises necessary for implementation. Instead of specifically referencing many of the interesting papers cited by the authors, I will focus my comment on evaluating the value of structural approaches in marketing in more general terms.

We examine the role of differentiation among Competitive Local Exchange Carriers (CLECS) in nearly 1,200 U.S. cities in 1999 and 2002, before and after a valuation crash affecting communications firms. We test and reject the null hypothesis of homogeneous competitors. We also find strong evidence that differentiated CLECs account for both potential market demand and the business strategies of competitors when making their entry decisions. Finally, product heterogeneity in markets in 1999 helps predict how the structure of markets evolved through 2002. We conclude that the policy debate for local telecommunications regulation should account for differentiated behavior.

Most of the existing empirical literature on franchising investigates the share of company-owned versus franchised establishments within large retail firms. This literature has not typically considered the decision of a business owner to operate an independent business or become a franchisee. This paper empirically analyses what determines whether independent ownership or affiliation is observed, using data on the affiliation status of 2,293 motel establishments located throughout the United States. Heterogeneity in the underlying economic environment helps explain affiliation choices at the establishment level. The results also suggest that failure to consider independent establishments may explain the puzzling negative correlation between risk and vertical integration commonly found in the empirical franchising literature.

This paper examines the effect of differentiation among Health Maintenance Organizations (HMOs) on local market competition. Most markets for HMOs appear to be sufficiently unconcentrated when considered in aggregate; however, differences among HMOs may allow for higher margins than one would expect given the number of competitors. To investigate this possibility, we divide HMOs into those that serve only the local area, and those that serve a larger regional or national area. We then analyze the extent to which one type of HMO affects the local market structure of the other using an equilibrium model of entry and product choice. We find that the two types of HMOs have strong competitive effects within segments, but that the competitive effect of differentiated firms is negligible.

The U.S. government, media, and flying public have expressed great concern in recent years over both airline market concentration and the occurrence of flight delays. This study explores potential connections between the two by examining whether the lack of competition on a particular route reduces the incentive of airlines to provide quality, resulting in worse on-time performance on that route. Analysis of data from the U.S. Bureau of Transportation Statistics in 2000 indicates that both the prevalence and duration of flight delays are significantly greater on routes where only one airline provides direct service. Additional competition is correlated with better on-time performance. Weather, congestion, and scheduling decisions also contribute significantly to explaining flight delays.

This paper analyzes the effect of market concentration and product differentiation on the observed outcomes of competition among oligopolists. The empirical framework is designed to examine whether competition is less intense in markets with equal levels of concentration, but more differentiation among the products offered. A two-stage estimation procedure is proposed to address the endogeneity problem inherent when comparing outcomes across different market structures. I estimate the competitive effects using data from a cross-section of oligopoly motel markets located along U.S. interstate highways. The results indicate that firms benefit substantially by offering differentiated products. The presence of any market competitor drives down prices, but the effect is much smaller when the competitor is a different product type. Differentiation is optimal product choice behavior because the resulting competition among firms is less tough when their products are differentiated.

I propose an empirical model to analyze product differentiation and oligopoly market structure. The model endogenizes firms' product-type decisions, measures how effects of competitors differ depending on their product types, and can incorporate alternative specifications for the product choice. I estimate using data from oligopoly motel markets along U.S. interstate highways; motel establishments are characterized by their quality choice. The results demonstrate a strong incentive for firms to differentiate. The effects of demand characteristics on product choice are also significant. Game specification is of minor importance, although differences in the games analyzed do affect equilibrium market structure predictions in some cases.

Most canonical models of competition conclude that increases in demand should (weakly) lead to more firms. However, in models where competition is in quality, and quality is produced with fixed costs, increases in demand can lead to a competitive response that brings about shakeouts – higher demand can lead to fewer firms. This paper provides empirical evidence of this effect in the context of hotels and motels in the mid-to-late 20th century, where an important element of quality competition took the form of whether firms supplied recreational amenities such as swimming pools. We first provide evidence that the completion of Interstate highways is associated greater demand for lodging, showing that it is associated with increases in employment in the sector. We then investigate how industry structure adjusts to these shocks; we show that highway completion leads to fewer (but larger) firms. On average in our sample, the completion of highways leads to shakeouts. We then examine whether this effect is greater in warmer areas where the returns to investment in outdoor recreational amenities (i.e., swimming pools) are greater. We show that while the increase in employment in this industry is the same in warmer and cooler regions, highway completion only led to shakeouts in warmer regions. Finally, we investigate whether these effects appear when looking at restaurants, an industry where quality is supplied primarily through variable costs rather than fixed costs (Berry/Waldfogel,2010). Unlike for hotels and motels, we find no evidence that highway completion is associated with shakeouts in this industry. Our evidence connects to an important, but sometimes overlooked, finding of Sutton (1992): shakeouts – which in some cases could take the form or merger or merger waves – can be catalyzed by increases in market size. The competitive responses that lead to shake-outs need not only be initiated by changes in the “technology” that produces quality, but sometimes can be initiated simply by positive demand shocks. Firms’ incentives to grow – and in some cases to merge with other firms -- in response to demand increases need not be motivated by anticompetitive incentives, but rather may be motivated by increased incentives to compete more effectively on nonprice dimensions.

We explore the microeconomic foundations of public school accountability programs, focusing on the incentives of school administrators to engage in effort to improve the performance of the campuses they are managing. In particular, we investigate the impact of administrators on school performance and the potential effects of a schools performance on the mobility and career advancement opportunities of its administrators. We exploit a unique dataset, consisting of the principals and performance (test scores) of all Texas public schools from 1989-2006 and the employment and wage histories during that same period for all administrators. These data enable us to determine what contributes to the decisions regarding hiring of administrators and how past experience affects their future labor market experience. Our preliminary analysis of the data indicates considerable turnover among school administrators less than three percent of schools have the same principal over the entire 17-year period. Individual administrators also change jobs frequently; the combination will enhance our ability (relative to the literature) to tease out the effects of individual administrators on school performance. In many cases, there are substantial changes in salary associated with job mobility and transitions. Therefore, individuals incentives to improve their schools performance may depend on factors such as the stage of their career (older principals closer to retirement having less time to benefit from higher wages) or the characteristics of their current position (and its corresponding opportunities for career advancement). Understanding the role played by individual incentives can help to sharpen policy interventions aimed at improving school performance. At the same time, the information we have collected on schools and administrators allow us to engage in a detailed study of this particular labor market. The empirical personnel economics literature has recently begun to exploit this sort of matched employer-employee dataset to test various theories about how labor markets operate. Our data are ideal for such an application for several reasons: (1) we have a complete panel with a large number of hiring organizations; (2) turnover and promotion happen almost exclusively within the schools and districts in our sample; (3) there is considerable (exogenous) variation in the size of schools and the organizational structure of school districts; (4) wage data are included and represent the bulk (e.g., no stock options to consider) of employee compensation; and (5) school test scores provide a universal metric on which the performance of employees in the dataset can be evaluated. These attractive features present the opportunity for drawing, from this particular analysis, more general conclusions about the interaction between organizational structure and both internal and external labor markets.

In December 2011 the Lego Group (TLG) announced the launch of Lego Friends, the company’s sixth attempt to market a product to girls. Lego Friends, which was supported by a $40 million global marketing campaign, was designed to introduce the fun of building with Lego bricks to girls, who represented less than 10 percent of Lego’s audience.

The company’s poorly executed brand extensions and move from free-form building sets to story-driven kits had nearly cost it its independence in 2004, so the launch of Lego Friends was strategically important. However, within hours of the product’s appearance it was heavily criticized for reinforcing gender stereotypes and damaging the valuable Lego brand.

Jørgen Vig Knudstorp, CEO since 2004, had saved TLG and ushered in an era of sales growth with a series of successful strategic initiatives. Would Lego Friends be another addition to TLG’s graveyard of failed products for girls, or would it prove popular and finally enable the company to double its sales and profits by reaching this segment?

Steve & Barry’s grew rapidly in the mid-2000s, transitioning from a chain of small stores selling inexpensive collegiate-branded merchandise near university campuses into a $1 billion mall-based giant selling a wide variety of low-priced, celebrity-endorsed apparel. While the company had a wide following, elements of its growth strategy—potentially exacerbated by economic conditions—contributed to its quick downfall. By 2008 Steve & Barry’s had declared bankruptcy, and various private equity firms were investigating whether some or all of the company should be saved. This requires analyzing the underlying business strategy pursued by Steve & Barry’s before and after its growth phase and specifically diagnosing the explanations for its failure.