Essays in Empirical Industrial Organization

This thesis comprises three essays addressing questions related to pricing, competition, and consumer welfare in imperfectly competitive industries characterised by the existence of demand and supply side frictions. Chapter 1 studies a dynamic pricing game amongst differentiated multiproduct oligopolists who have incentives to temporarily lower prices to attract new consumers who are more likely to purchase the same product again at a higher price due to inertia. The novel feature of the model, which allows to explain persistence in the observed patterns of retail prices, is the possibility of costly price adjustment. The magnitude of adjustment costs is estimated using scanner data on purchases of a category of dairy products by UK households. The main results suggest that adjustment costs can be substantial for manufacturers, but they are passed through to the consumers only on a very limited scale. Chapter 2 explores an alternative explanation for price dispersion by introducing a model with search frictions and private information about marginal costs. Consumers decide how many sellers to visit who in equilibrium set prices in a fashion similar to bidding in a reverse first-price auction with an unknown number of competitors. The chapter shows how the distributions of search costs and firm heterogeneity can be nonparametrically identified and analyses convergence rates of the proposed estimators. Chapter 3 uses an extension of the search model proposed earlier to study the value of information provided by mortgage brokers in the UK. Prospective borrowers can either directly search and apply for mortgages with different lenders or use a broker who finds the best rate on their behalf. The main finding suggests that, on average, the existence of brokers substantially fosters competition between lenders, leads to lower monthly payments in equilibrium and reduces the deadweight loss arising as a result of costly search