FIELDS OF INTEREST

Industrial Organization, Environmental Economics, Chinese Economy

WORKING PAPER

Competition for Exclusivity and Customer Lock-in: Evidence from Copyright Enforcement in China

Job Market Paper

Copyright law grants the exclusive right to copyright owners so that they have adequate financial incentives to create and innovate. However, when firms are copyright owners, they can leverage the exclusive right to sell or distribute products exclusively. This paper studies the music streaming industry, where streaming services compete for exclusive licenses from music labels. Service providers use exclusive content to attract users, tailoring their services to individual preferences that create switching costs leading to user lock-in. I first use theoretical analysis and descriptive empirics to show that exclusivity confers advantages in competition to a service that can generate larger lock-in effects. I then construct a dynamic structural model in which consumers face switching costs when making subscription decisions. I estimate the model using the monthly data from China's music streaming market over 2014-2017.  Finally, I simulate market outcomes under two alternative policies, a compulsory licensing provision, and a mandatory data portability policy. The policy simulation shows that compulsory licensing that enforces non-exclusive distribution would not improve market competition by "leveling the field" between dominant and small services as intended. On the contrary, the policy increases market concentration, enlarging the gap in market share between dominant and small services. In contrast, mandatory data portability that reduces switching costs would reduce market concentration, bringing more users to smaller services. 

Abstract:

The Dynamic Efficiency in Resource Allocation: Evidence from Vehicle License Lotteries in Beijing

with Shanjun Li and Caixia Shen

Revise and resubmit at Rand Journal of Economics

The efficiency of resource allocation is often analyzed in static frameworks with a focus on the cross-sectional heterogeneity in the willingness to pay among users. When the resource is durable in nature, the temporal heterogeneity could be important in assessing the efficiency properties of different allocation mechanisms. This paper uses a dynamic model to empirically quantify the efficiency outcome of using lotteries to allocate scarce resources among forwardlooking consumers. In the context of the lottery policy for vehicle licenses in Beijing, our analysis shows that lotteries significantly affect intertemporal decisions in that households participate in lotteries at least four years earlier on average than they would be in a counterfactual environment of no quantity constraint. The welfare loss due to temporal heterogeneity and resulting changes in participation decisions accounts for over half of the total welfare loss from the lottery policy. The analysis highlights the importance of taking dynamic efficiency into account in designing resource allocation mechanisms.

Abstract:

The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs

with Shanjun Li and Chao Wei

Revise and resubmit at International Economic Review

During the great recession, many countries have adopted stimulus programs designed to achieve two goals: to stimulate economic activity in lagging durable goods sectors, and to protect or even enhance environmental quality. The environmental benefits are often viewed and much advocated as co-benefits of economic stimulus. This paper investigates the potential tradeoff between the stimulus and environmental objectives in the context of the popular U.S. Cash-for-Clunkers (CFC) program by developing and estimating a dynamic discrete choice model of vehicle ownership. Results from the counterfactual analysis show that design elements to achieve environmental benefits could significantly limit the program impact on demand stimulus: the cost of demand stimulus after netting out environmental benefits under the program could be 25% higher in terms of vehicle sales and 24%

higher in terms of consumer spending than that from alternative policy designs without explicitly aiming at the environmental objective. Our findings serve as a cautionary tale for similar green stimulus proposals to address the current economic crisis from the coronavirus pandemic.

Abstract:

WORKING IN PROGRESS

On the Linkage Between Used Automobile Market Development and New Car Sales

with Panle Jia Barwick and Shanjun Li

Summary:

This project investigates whether the government’s stimulus on used car sales can have an effect on boosting new car sales. China car sales has dropped continuously in the past two years (2018 and 2019). The downward trend is intensified in the first quarter of 2020 due to the impact of Coronavirus pandemic. On the other hand, China's used car market is still small relative to other large markets such as U.S.. Expanding the used car market might help to overturn the downward trend of new car sales. Because an efficient and frictionless used car market provides consumers with a better opportunity to resell, the effective price (retail price minus the expected resale price) that forward-looking consumers pay for buying a new car will be much lower than the retail price.

Quality Upgrading in China's Automobile Industry

with Panle Jia Barwick and Shanjun Li

Summary:

This project investigates how do firms' incentives toward quality upgrading interact with market competition, shift in demand, and government policy. We examine China's automobile industry of the past ten years (2009-2018), during which China's automakers had been steadily closing the quality gap with their overseas rivals. The quality increase is potentially driven by changes in both supply and demand side. We take an empirical analysis of this market to explore the causes and welfare consequences of quality upgrading.