FIELDS OF INTEREST

Industrial Organization, Environmental Economics, Chinese Economy

WORKING PAPER

Abstract: Copyright enforcement in China has heightened competition among music streaming services for obtaining exclusive licenses from music labels. The competition is driven by the existence of switching costs for consumers in choosing among services. Exclusivity attracts users for service, benefiting the service in the future when switching costs can be exploited as a lock-in device. This paper estimates switching costs and other key parameters in a dynamic structural model using aggregate data from China's music streaming market over 2014-2017.  With the model estimates, I simulate market outcomes that had two alternative policies, a compulsory licensing provision, and a mandatory data portability policy, been enforced. The counterfactual analysis shows that a compulsory licensing that enforces non-exclusive distribution would increase market concentration, enlarging the market share gap between the leading and small services. However, the analysis suggests using data portability to reduce the switching cost because it attracts more streaming users, benefiting all services in the market. 

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 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.

  • Quality Upgrading 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)