James Dana
Northeastern University, Economics, Faculty Member
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This paper develops an oligopoly model in which ï¬ rms ï¬ rst choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities creates strong competitive forces that prevent ï¬ rms from utilizing intertemporal price discrimi...more
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The canonical model of a firm selling to heterogeneous, but indistinguishable, consumers implies that the firm should offer multiple products and distort its product quality relative to the efficient level, yet in practice many firms... more
The canonical model of a firm selling to heterogeneous, but indistinguishable, consumers implies that the firm should offer multiple products and distort its product quality relative to the efficient level, yet in practice many firms adopt a single product strategy. This tension can be resolved by recognizing that in many instances the firm’s choice of product quality is constrained. We analyze a model of a quality-constrained monopolist’s product line decision that encompasses a variety of important examples of second-degree price discrimination, including intertemporal price discrimination, coupons, advance purchase discounts, versioning of information goods, and damaged goods. We derive necessary and sufficient conditions for price discrimination to be profitable that generalize existing results in the literature. Specifically, we show that when a continuum of product qualities are feasible, price discrimination is profitable if and only if the ratio of the marginal social value ...
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Can an imperfectly competitive industry prevent entry by controlling access to distribution? To answer this question, this paper considers a capacity competition model with two incumbents and one potential entrant. When the potential... more
Can an imperfectly competitive industry prevent entry by controlling access to distribution? To answer this question, this paper considers a capacity competition model with two incumbents and one potential entrant. When the potential entrant can commit to capacity and then auction it to the incumbents, entry is not deterred by control of distribution alone. The incumbents are willing to pay more for the entrant’s capacity than they would for new capacity because they realize that if they don’t buy it their rival will. If the cost of capacity is sufficiently small, entry deterrence can still be achieved non-cooperatively by committing to more capacity then is optimal absent the threat of entry, though the equilibrium may be asymmetric. If the cost of capacity is large, entry is accommodated.
Buyer cooperatives, buyer alliances, and horizontal mergers are often perceived as attempts to increase buyer power. While prior theoretical and empirical work has emphasized that buyer size can increase buyer surplus, I show that even a... more
Buyer cooperatives, buyer alliances, and horizontal mergers are often perceived as attempts to increase buyer power. While prior theoretical and empirical work has emphasized that buyer size can increase buyer surplus, I show that even a small group of buyers with heterogeneous preferences can increase price competition among rival sellers by forming a buyer group and committing to buy exclusively from a single seller. The benefit to consumers from this commitment is the same as the benefit from committing to buy from the lowest price firm when they in fact prefer one firm’s product. Finally, I suggest that buyer groups may be effective strategic commitments even when the agreement is potentially reversible.
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By bundling experience goods, a manufacturer can more easily maintain a reputation for high quality over time. Formally, we extend Klein and Leffler’s (1981) repeated moral hazard model of product quality to consider multi-product firms... more
By bundling experience goods, a manufacturer can more easily maintain a reputation for high quality over time. Formally, we extend Klein and Leffler’s (1981) repeated moral hazard model of product quality to consider multi-product firms and imperfect private learning by consumers. When consumers are small, receive imperfect private signals of product quality, and have heterogeneous preferences over available products, then purchasing multiple products from the same firm makes consumers more effective monitors of the firm’s behavior. These consumers observe more signals of firm behavior and detect shirking with a higher probability, which creates stronger incentives for the firm to produce high quality products. By constraining all of the firm’s consumers to use more effective monitoring and punishment strategies, bundling creates an even stronger incentive for a multi-product firm to produce high quality products. The impact of bundling on incentives is even greater when consumers c...
Retailers vary considerably in many dimensions, including the variety and selection of the products that they offer. In this paper we argue that the availability of energy-efficient products in retailers is shaped by market forces that... more
Retailers vary considerably in many dimensions, including the variety and selection of the products that they offer. In this paper we argue that the availability of energy-efficient products in retailers is shaped by market forces that often favor horizontal characteristics like convenience or geographic variety over vertical characteristics like product variety and energy efficiency. Specifically, we find evidence that stores carrying more energy-efficient products are located in neighborhoods in which consumers have low travel costs and care relatively more about product selection than convenience. The paper is one of the first to describe this equilibrium trade off between vertical and horizontal product differentiation and to find empirical evidence that supports it.
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Bundling experience goods can signal high quality, even in simple static models. When consumers have heterogeneous preferences, bundling two goods can restrict sales to consumers who have high valuations for both goods. Because sales are... more
Bundling experience goods can signal high quality, even in simple static models. When consumers have heterogeneous preferences, bundling two goods can restrict sales to consumers who have high valuations for both goods. Because sales are reduced, bundling is less costly for a firm that produces two high-quality products (and has higher production costs) than for a firm that produces two low-quality products (and has lower production costs). Similarly, when some consumers are informed about product quality, bundling can signal high quality because it restricts sales for any low-quality firm that imitates a high-quality firm. In a simple model in which the high-quality firm’s price is constrained by the ability of lowquality firm to imitate it, bundling increases the price and profit of firms with high-quality products (and makes pooling equilibrium relative less attractive). ∗I would like to thank Kathryn Spier and especially Frances Lee for helpful comments. †Department of Economics...
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... 1988) have more recently reported the results of such tests for a variety of NFL seasons ... On the other hand, if the point differential and the line are defined as the score of the favorite less the score of the underdog, then the... more
... 1988) have more recently reported the results of such tests for a variety of NFL seasons ... On the other hand, if the point differential and the line are defined as the score of the favorite less the score of the underdog, then the alternative hypothesis is that bettors over-or under-value ...
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... 1988) have more recently reported the results of such tests for a variety of NFL seasons ... On the other hand, if the point differential and the line are defined as the score of the favorite less the score of the underdog, then the... more
... 1988) have more recently reported the results of such tests for a variety of NFL seasons ... On the other hand, if the point differential and the line are defined as the score of the favorite less the score of the underdog, then the alternative hypothesis is that bettors over-or under-value ...
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... costs through demand shifting. The model also suggests how yield management (now more commonly called revenue management) might actually benefit business travellers, contrary to the popular prejudice. 1. Introduction ...
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... II. The Model Consumers vary in the probability with which they will want to pur-chase the good and by the amount they are willing to pay for the good if they actually want it. For simplicity, I suppose that there are just two types ...
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This paper explores the role of learning in an equilibrium search model with asymmetric information. Firms with identical but privately observed marginal cost sell a homogeneous good to heterogeneously informed consumers. A... more
This paper explores the role of learning in an equilibrium search model with asymmetric information. Firms with identical but privately observed marginal cost sell a homogeneous good to heterogeneously informed consumers. A reservation-price equilibrium exists if the uninformed consumers' search cost is sufficiently large. In this equilibrium, the amount of price dispersion is inversely related to the realization of marginal
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Airline capacity utilization, or load factors, increased dramatically between 1993 and 2007, after staying fairly level for the first 15 years following deregulation. We argue that consumers' adoption of the Internet, and their use... more
Airline capacity utilization, or load factors, increased dramatically between 1993 and 2007, after staying fairly level for the first 15 years following deregulation. We argue that consumers' adoption of the Internet, and their use of the Internet to investigate and purchase airline tickets, ...
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... James D. Dana, Jr. Dartmouth College Kathryn E. Spier Harvard University 1. Introduction Contingent fees for the plaintiff's attorney are the most pervasive form of payment in personalinjury and medical malpractice... more
... James D. Dana, Jr. Dartmouth College Kathryn E. Spier Harvard University 1. Introduction Contingent fees for the plaintiff's attorney are the most pervasive form of payment in personalinjury and medical malpractice litigation in the United States. ...
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This paper considers government mechanisms for auctioning production rights in which both the winners and the market structure, doupoly (dual-sourcing), monopoly (sole-sourcing), or government-owned production, are a function of the bids.... more
This paper considers government mechanisms for auctioning production rights in which both the winners and the market structure, doupoly (dual-sourcing), monopoly (sole-sourcing), or government-owned production, are a function of the bids. In designing the optimal mechanism, the government considers the tradeoffs among consumer surplus, producer surplus, and revenue. Under incomplete information, doupoly is implemented less frequently, and government production more frequently, than under complete information. When bidders are symmetric, the optimal mechanism can be implemented as a modified second-price auction. Applications to privatization, deregulation, and defense procurement are discussed.