FIELD OF INTEREST

Industrial Organization, Environmental Economics, Chinese Economy

WORKING PAPER

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.

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.