Three essays on empirical industrial organization

This dissertation contains three chapters on topics in the field of empirical industrial organization. The first two chapters focus on lender and borrower strategies in the U.S. mortgage market while the third chapter addresses the asymmetric price adjustment phenomenon in the U.S. gasoline market. The first chapter shows how consumer search confers positive externalities to other consumers in the same market. These externalities can be either direct, by sharing information from prior searches and thus improving the effectiveness of the search process, or indirect, by changing the equilibrium strategies of firms. Either type of externality allows consumers to reduce their own costly search activity: a consumer in a market populated with low search cost consumers searches less than an otherwise identical consumer in another market populated with high search cost consumers, while obtaining lower prices. We present evidence in support of the presence of both direct and indirect externalities in the U.S. mortgage issuance industry, though the evidence is stronger for the former than for the latter. Given that in the mortgage industry lenders tend to charge the same mortgage rates within all markets in a state, indirect externalities operate through the composition of active firms in a market. This margin is typically ignored in the theoretical literature, as often is the possibility of direct information externalities. The second chapter investigates the systematic differences in pricing between mortgage lenders operating in many states and those operating in one or a handful of states. We provide evidence that multi-state lenders' price for a given mortgage product is influenced by the price they charge for that same product in their other markets. Moreover, the pricing of a product in a state reflects the importance of that product in all the markets a lender is active in rather than its importance in that particular state. These effects are more pronounced for non-bank lenders and for products offered to high-risk borrowers. Given the large variability in prices, most of which invisible to borrowers across state-lines, consumer aversion to geographic price discrimination is unlikely to be a factor for ''not pricing to the market''. Because a lender's cost-of-funds is unlikely to vary differentially by product from that of other lenders, cost-based explanations are also unlikely. This leaves organizational and informational factors as the most likely sources of pricing differences between multi-state and local lenders. The final chapter examines how asymmetric price adjustment speeds in the U.S. gasoline market vary across time. The 20-year sample consisting of weekly New York Harbor gasoline spot prices and U.S. retail gasoline prices from 1993 to 2013 is first studied in its entirety and then divided according to breakpoints detected by structural break tests. I use a generalized asymmetric error correction model and a time-varying coefficient model to test whether retail gasoline prices respond more quickly to increases than to decreases in spot market gasoline prices and calculate the cumulative response function along with the associated consumer costs. Estimation results not only confirm the presence of asymmetric adjustments, but also suggest the degree of asymmetry increasing across time.U of I OnlyAuthor requested U of Illinois access only (OA after 2yrs) in Vireo ETD syste