FIELD OF INTEREST
Industrial Organization, Environmental Economics, Chinese Economy
Abstract: Copyright enforcement in China since 2015 has heightened competition among music streaming services for obtaining exclusive licenses. The competition is driven by the existence of multi-homing and switching costs for consumers in choosing among services. I specify and estimate a structural model that allows consumers to tradeoff between multi-homing and switching. I use estimates to simulate market outcomes had a compulsory licensing provision been enforced. I find that with compulsory licensing, the market will evolve to a "tipping" equilibrium in which all users choose to exclusively subscribe to a same service that is of better quality. Although providing more music content, smaller services would lose significant market shares. This is because multi-homing users of smaller services would switch away from their services when the music content were less differentiated from others. The result suggests that a compulsory provision does not benefit the smaller services and may lead to a higher market concentration.
Abstract: The efficiency of resource allocation is often analyzed in the static framework with a focus on the cross-sectional heterogeneity among users. When the resource is durable in nature, the temporal heterogeneity among users could be important in comparing different allocation mechanisms such as auctions and lotteries. This paper uses a dynamic model to empirically quantify the dynamic efficiency in resource allocation for durable goods with forward-looking agents. In the context of the vehicle license lottery in Beijing, we find that households on average participate in the lottery system at least four years earlier than they would be in a counterfactual environment of no quantity constraint. Dynamic inefficiency accounts for the majority of welfare loss from the misallocation.
Abstract: 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 counterfactual analysis based on several specifications all show that the design elements to achieve environmental benefits significantly limit the program impact on demand stimulus: the cost of vehicle demand stimulus after netting out environmental benefits can be up to 77 percent higher under the program than that from an alternative policy design without the design elements aimed 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.
The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs, (with Shanjun Li and Chao Wei) August 2020
WORKING IN PROGRESS
Summary: This projects investigates how does firms' incentive toward quality upgrading interact with market competition, shift in demand and government policy. We examine the 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 upgradation.
Quality Upgradation in China's Automobile Industry
(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.
On the Linkage Between Used Automobile Market Development and New Car Sales
(with Panle Jia Barwick and Shanjun Li)