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Research

I am interested in markets for durable goods, and particularly in how the information consumers have about future versions affects current markets and incentives for innovation.

 Research Statement

“Credible Signals of the Release of New Versions,” Economic Inquiry 54(2), April 2016, 862-878.
Prices can credibly signal whether a durable-goods monopolist will offer an improved good in future periods. When the future release of a new version is private information, a monopoly seller will reveal a new version of a good with a high price, and failure to develop and market a new version with a lower price than in full information. A firm would be willing to pay more to innovate when consumers are uncertain than if they are informed ex ante, because a failure to innovate is punished by a low equilibrium price. Consumers’ uncertainty about innovation intensifies an unsuccessful innovator’s Coasian problem and increases consumer welfare.

“On Competitive Pricing and Strategic Announcement of Future Products,”  submitted.
In some industries, firms reveal forthcoming improved products through (credible) announcements. In other industries, future product improvements are not announced. In a durable good market where firms have private information about their future products, we show that competition with rival firms can create strategic incentives for firms to reveal improved future products through announcements rather than signal the same private information through prices. In particular, future products are announced if the improvement is major and price competition is not too severe. Otherwise, the market outcome is one where information about future products is signaled through prices; the signaling distortion may lead to higher or lower prices and therefore decrease or increase welfare, depending on the degree of product differentiation. This may create a case for a mandatory disclosure requirement.

“New Product Announcements with Consumer Temptation.” 
Many durable products are pre-announced, including when there are minor alterations from previous versions. We demonstrate that these announcements can be explained by consumer temptation to buy a novel product if sellers’ output is sufficiently horizontally differentiated. This announcement informs a rival seller of a tempting future version, and changes the price the rival charges in the announcer’s favor.

“Temptation and Self-control in a market for Durable Goods.”
Consumers may purchase durable goods on the basis of short-term “temptation,” as well as their long-term interests. I adapt Gul & Pesendorfer’s (2001) representation of self-control preferences to a market for durable goods. Consumers’ temptation will ameliorate a monopoly seller’s own time-inconsistency problem, and strengthen the seller’s incentive to improve the quality of the good. A low degree of temptation will hurt consumers and decrease total surplus in the market, but high enough temptation will augment consumer and total surplus.

“Process Innovation with Private Information in a Durable Goods Monopoly,” work in progress.
A seller of a durable good will only adopt a cost-reducing technology if the reduction is large enough, because consumers expect a low price after adoption and delay purchasing. This effect is intensified when the seller is privately informed whether cost reduction has taken place, as a seller without a cost reduction will seek to convey that information. We therefore expect more investment in cost-reducing technologies than under full information when sellers have non-verifiable, private information.

 

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