Browsing by Subject "government regulation"

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    Essays In Industrial Organization
    (2020-05) Golovin, Sergiy
    This dissertation is comprised of three essays. The first one studies the valuation of novel safety technologies such as airbags and anti-lock brake systems by consumers using real-world data on car purchases. The second essay looks at the interaction between government regulation and adoption of airbags by car manufacturers, as well as the welfare implications for the market. Finally, the third chapter utilizes the data on car sales to study the evolution of markups and concentration in the US automobile industry throughout the last 24 years. In the first chapter I study the economic value of the new safety technologies that were introduced in automobiles in the 1990's. While these features reduce the risk of death and injury in traffic accidents they are often expensive and not all consumers are willing to pay for them. I find that an average consumer values driver airbags at the level of $861, anti-lock brake system - at $1,043, and side airbags - at $1,633. Overall, the introduction of frontal airbags improved consumer welfare by an equivalent of about $1,345, however it affected the consumers differently based on their characteristics. Understanding the value that consumers place on these technologies is helpful in guiding the policy related to regulation of car safety standards. The second chapter studies the effects of technology-forcing regulation that was announced in 1991 and required all new cars to be equipped with airbags starting in 1998. This government intervention forced firms to adopt new technology earlier that they found optimal, creating a market distortion. I develop and estimate a structural model of consumer vehicle choice and dynamic airbag adoption decision of the firms in the presence of a deadline. I construct a detailed data set of car sales for more than 2,600 car models and 16 distinct car features over 13 years. The results show that government regulation was a major driver of airbag adoption. The mandate forced 100% of cars to have dual airbags by 1998; however, in the counterfactual, without the airbag mandate, only 60% of new cars would have dual airbags in 2002. I also find that the regulation had heterogeneous effect on consumers. When comparing the world without the airbag mandate to the world with the airbag mandate, consumers experienced an average welfare gain of 1.7% because airbags were available earlier and cheaper. However, the airbag mandate reduced welfare for consumers with high price-sensitivity and low valuation of airbags by 5.2%. Firms that adopted airbags before the regulation requirement experience 1.3% lower profits compared to the world without the mandate because the mandate limited their ability to differentiate themselves from the competition. In the third and final chapter I investigate the development of markups and firm concentration in the automobile market from 1990 to 2014. I estimate markups for all the firms active in the market in these years using a structural model of consumer car choice. The findings show that the markups have slightly decreased by during the period covered in my dataset. This confirms the findings in the literature for the markups in the automobile industry.