Jihui Chen

THE EFFECT OF MOST‐FAVORED CUSTOMER CLAUSES ON PRICES*

We study the effects of introducing a Most-Favored Customer (MFC) clause on price competition among major consumer electronics retailers. Our data spans the periods before and after the introduction of an MFC clause by Best Buy, which occurred between April 1, 2003 and March 31, 2004. After controlling for various factors (including product life-cycle and seasonality effects), we find that, on average, Best Buy lowered its prices by 1.6% after introducing the MFC clause. Its competitors responded by cutting prices further: Buy.com by 3.5%, Circuit City by 2.2%, CompUSA by 3.2%, and Sears by 0.4%. Our empirical results are robust to a variety of measures and estimation methods. We conclude that Best Buys MFC adoption reduced prices in the consumer electronics retail industry.

PRICE DISPERSION, PRODUCT CHARACTERISTICS, AND FIRMS’ BEHAVIORS: STYLIZED FACTS FROM SHOPPER.COM

We study how price dispersion varies with product characteristics at a popular online price comparison site – Shopper.com. Our primary finding suggests that price dispersion in online markets varies with product characteristics and firm behavior. We also find evidence that the level of dispersion varies with the percent of firms listing price information in multiple categories. When the percent of firms listing prices in multiple categories is relatively high (low), price dispersion is low (high).

Pricing Strategies in the Electronic Marketplace

In this chapter, I review prices and firms’ pricing strategies on the Internet through a broad survey of recent literatures on economics, information system, and marketing. In both empirical and theoretical studies, I carefully identify two causes of price dispersion, a pervasive and persistent phenomenon observed in many homogenous product markets: market friction and product differentiation. In experimental studies, I document pricing strategies arising from both laboratory and field experiments. Finally, recent studies of online pricing issues using international data are also exposited.

Demand Shocks, Airline Pricing, and High-Speed Rail Substitution: Evidence from the Chinese Market

We study the high-speed rail (HSR) substitution for air travel through the demand shocks triggered by two HSR events: the launch of Beijing-Shanghai high-speed rails (the “Jing-hu” HSRs) and the Wenzhou train accident. One novelty of our data is that the HSR events are exogenous to the airline industry, alleviating the common endogeneity concern. Using a difference-in-difference approach, we find some evidence of substitution based on the pattern of airfare adjustments during the sample period. Specifically, compared to those in the control group, mean airfares for routes along the Jing-hu HSRs decline by 30.4 per cent upon the launch, but rebound by 27.4 per cent following the accident. Furthermore, the two events have a larger impact on low-cost carriers (LCCs) and regional airlines, on tourism routes, and on flights that depart during evening hours than their counterparts, respectively. Thus, we claim that the HSRs mainly serve as a low-end substitution for air travel in China.

Gender Gap in Tenure & Promotion: Evidence from the Economics Ph.D. Class of 2008

This study examines early career outcomes (i.e., tenure and promotion) of the Economics Ph.D. class of 2008. We find that relative to males in the same cohort, female economists are less likely (by about 14%) to have received tenure and promotion eight years post-graduation. The gender gap becomes more pronounced (of 26%) among individuals of foreign origins working in the U.S. In addition, we find a similar gender bias regarding whether an individual remains in academia since the initial job placement in 2008. Our paper contributes to the literature by examining a new and growing dimension of the labor market for economics Ph.D.s, i.e., women and internationals.

Firm Efficiency, Advertising and Profitability: Theory and Evidence

This paper presents a linear-city model where firms compete on price and levels of advertising, which affects the perceived utility of products. More cost efficient firms extend their advantage with more advertising, which leads to higher profits, if advertising is sufficiently effective. We test this relationship using a unique S&P sample. Our empirical results indicate a positive relationship between profits and levels of advertising for all model specifications.

The Nature of Sales in Online Markets: Asymmetric Consumer Information or Benefits to Bulk Shopping?

Price dispersion - firms charging different prices for the same product - is widely observed in both online and traditional offline markets. While most price dispersion is explained by stylized clearinghouse models such as Varian (1980), these models do not explain why prices in offline markets are lower on weekends than during the work week, and before Christmas than after Christmas. We argue that price dispersion online is fully explained by clearinghouse models. First, because search and travel costs are lower online, these anomalous pricing patterns disappear. Second, prices charged by firms, price dispersion, the number of firms posting prices, and the minimum price in the online markets for several products vary in ways that are all consistent with the predictions of clearinghouse models.