Three essays on differentiated product markets and competition policy
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My dissertation features three essays in industrial organization. The first two investigate aspects of potentially anticompetitive firm behavior in differentiated product markets. Contrary to previous analyses, requirements tying and bundled rebates by a firm with a monopoly in one market that competes in another may increase total surplus when product differentiation in the competitive market is endogenous. This result is stronger for tying than for bundled rebates, and holds for both horizontal and vertical differentiation (essays 1 and 2, respectively). Under requirements tying or bundled rebates, a multiproduct firm (horizontally) differentiates its product less from its rival's product than it would under independent pricing, suggesting a new efficiency consideration for requirements tying: a reduction in transport costs. A similar result prevails under vertical differentiation: when the tying firm controls either quality niche, it reduces the quality of its tied product; however, the rival may invest in the quality of its competing product. Hence, the effect on total surplus is ambiguous when tying or bundled rebates arrangements are permitted. The second essay employs an empirical model typically used to analyze differentiated product markets analyze a different economic environment: parents' decision to home school their children. Home schooling has grown in popularity as an alternative to public or private schools; some estimates place growth at 15 to 40% per year in the U.S. I empirically estimate the demand for home schooling as an alternative to these other modes of education, focusing on potential network effects in household decisions to home-school. I find support for the hypothesis that home schooling 'support groups' mitigate the cost of home schooling relative to the alternatives, but only occur in areas with a critical mass of home-schooling households. The data also suggest that as interest in home schooling grows, the local community's school district spending per child declines, increasing the probability that more parents will take their children out of public schools. Both phenomena suggest the existence of network effects in the market for primary and secondary education.