Date of Award

Spring 2021

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Haile, Philip

Abstract

This dissertation studies a few topics in industrial organization. In the first two chapters, I study the education market from the perspective of industrial organization. Chapter 3 studies second-price auctions with participation costs. Chapters 1 and 2 study the high school market of a large city in China that introduced a policy allowing public schools to offer both free and priced admission options within a centralized admission mechanism. Chapter 1 introduces the institutional background, such as details of the admission mechanism, the schools and their price levels, and the new policy. I then present descriptive analysis. I also estimate a high school value-added regression, where I regress exit exam scores on entrance exam scores and other variables. I interpret the value-added as the high school quality. Results show that quality increases after the implementation of the policy. A difference-in-differences regression further shows that top-tier schools are able to increase their value-added more. I use these results as both inputs and motivating facts for my study in Chapter 2. Chapter 2 formally develops a demand and supply model. On the demand side, students consider both their preferences for a school and their probabilities of being admitted to that school to file a report of preferences. I develop an algorithm to quickly find students' optimal reports, and this algorithm helps to reduce the computational burden in demand estimation. On the supply side, I model schools as maximizing a weighted average of profit and quality, so as to allow for the existence of excess demand for good schools. Demand estimation using students' strategic reports quantifies the extent to which students with higher entrance exam scores care more about quality relative to price. Supply side estimation shows that top-tier schools have lower marginal costs of quality and thus choose higher quality. Counterfactual analysis shows that introducing subsidies to low income students while keeping the current priced admission options would give students more equal access to good schools, while keeping the quality gain brought by market incentives. Another counterfactual analysis shows that the quality gain brought by market incentives is driven by an increase in funds to improve quality and schools' preference for quality. Chapter 3 studies equilibria and efficiency in second-price auctions with public participation costs. This is joint work with Jos\'{e}-Antonio Esp\'{i}n-S\'{a}nchez and \'{A}lvaro Parra. We generalize previous results by allowing arbitrary heterogeneity in bidders' distributions of valuations and in their participation costs. We develop a notion of bidder strength, based on the best response of a bidder when all of her opponents play the same strategy she does. We then show that a \emph{herculean equilibrium}, in which stronger bidders have a lower participation threshold than weaker bidders, exists in general environments. In other words, the order of bidders given by their strength, which is a non-equilibrium concept and can be easily calculated for each bidder using only one equation, predicts the order of the participation thresholds in a certain equilibrium which exists in general. Combined with a sufficient condition for equilibrium uniqueness that we further provide, bidders' strength points out the direction for finding and simplifies the formulation of the equilibrium. Furthermore, even though all equilibria are \emph{ex-post} inefficient, an \emph{ex-ante} efficient equilibrium always exists. Therefore, under the uniqueness condition, the \emph{herculean equilibrium} is the unique equilibrium of the game and is \emph{ex-ante} efficient.

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