PUBLICATIONS
1. “When Does Aftermarket Monopolization Soften Foremarket Competition” (with Yuk-fai Fong & Jin Li)
Journal of Economics and Management Strategy, 2016, 25(4), 852-879.
This paper investigates firms’ abilities to tacitly collude when they each monopolize a proprietary aftermarket. When firms’ aftermarkets are completely isolated from foremarket competition, they cannot tacitly collude more easily than single-product firms. However, when their aftermarket power is contested by foremarket competition as equipment owners view new equipment as a substitute for their incumbent firm’s aftermarket product, profitable tacit collusion is sustainable among a larger number of firms. Conditions under which introduction of aftermarket competition hinders firms’ ability to tacitly collude are characterized.
2. “Exclusive Dealing when Upstream Displacement is Possible” (with Xiaoxuan Meng)
Accepted at Journal of Economics and Management Strategy.
We study exclusive dealing when the incumbent may be displaced by a more efficient entrant due to the need of paying a fixed cost to stay active. We show that the incumbent can deter socially efficient entry through exclusive contracts under the one-buyer-one-supplier framework. This result continues to hold in the presence of product differentiation, where exclusion may be more likely to occur when the efficiency gap between the entrant and the incumbent falls into an intermediate range.
WORKING PAPERS
1. “Dynamic Diminishing Marginal Utility and Tacit Collusion” (with Yuk-fai Fong)
Diminishing marginal utility is usually treated as a static property in economics, while in many situations it is more appropriately modeled as a dynamic issue. This paper investigates how dynamic diminishing marginal utility influences firms' ability to tacitly collude, and shows that it crucially depends on whether diminishing marginal utility is product-specific or market-wide. When diminishing marginal utility is product-specific, i.e., when a consumer's consumption of one product this period only lowers her marginal utilities of a subset of products next period, collusion is easier to sustain since consumers can switch among firms to avoid utility loss on the equilibrium path, while at least some consumers cannot switch when a firm deviates to capture all consumers. When diminishing marginal utility is market-wide, i.e., when a consumer's consumption of one product this period lowers her marginal utilities of all products next period, collusion is harder to sustain due to endogenous demand fluctuations.
2. “Collusion among Experts” (with Yuk-fai Fong, Ting Liu & Xiaoxuan Meng)
This paper studies tacit collusion among experts with private information about customers' problems. On the equilibrium path, through search for second opinions, a customer's problem is fixed with probability one, and the total surplus from repairs is split evenly among experts. Even though a deviating expert can attract the customer with probability one by undercutting the equilibrium prices as in collusion among search-good sellers, the attracted customer will search for second opinions with positive probability and have her problem fixed by non-deviating experts. The deviating firms' inability to capture the entire industry profit before triggering a price war renders collusion among experts easier to sustain than collusion among search-good sellers.
3. “FinTech Lending and Financial Inclusion” (with Yuk-fai Fong, Xiaoxuan Meng and Kar Yan Tam)
We study a setting in which banks originally compete with shadow banks and later FinTech lenders also enter the market. Competition from shadow banks give rise to a separating equilibrium which does not exist when borrowers only have access to banks. Whether FinTech lenders may improve or harm financial inclusion crucially depends on the FinTech lenders' relative intensity in cream skimming and blacklisting. Cream skimming harms financial inclusion by increasing
the breakeven interest rate by traditional lenders, while it improves financial inclusion by making shadow banks more likely to serve borrowers due to a lower deviation profit by banks. Blacklisting gives FinTech lenders the comparative advantage to target the pool of non-blacklisted consumers. Financial inclusion can be further improved if there is a market for FinTech lenders to sell their blacklist to traditional lenders.
1. “When Does Aftermarket Monopolization Soften Foremarket Competition” (with Yuk-fai Fong & Jin Li)
Journal of Economics and Management Strategy, 2016, 25(4), 852-879.
This paper investigates firms’ abilities to tacitly collude when they each monopolize a proprietary aftermarket. When firms’ aftermarkets are completely isolated from foremarket competition, they cannot tacitly collude more easily than single-product firms. However, when their aftermarket power is contested by foremarket competition as equipment owners view new equipment as a substitute for their incumbent firm’s aftermarket product, profitable tacit collusion is sustainable among a larger number of firms. Conditions under which introduction of aftermarket competition hinders firms’ ability to tacitly collude are characterized.
2. “Exclusive Dealing when Upstream Displacement is Possible” (with Xiaoxuan Meng)
Accepted at Journal of Economics and Management Strategy.
We study exclusive dealing when the incumbent may be displaced by a more efficient entrant due to the need of paying a fixed cost to stay active. We show that the incumbent can deter socially efficient entry through exclusive contracts under the one-buyer-one-supplier framework. This result continues to hold in the presence of product differentiation, where exclusion may be more likely to occur when the efficiency gap between the entrant and the incumbent falls into an intermediate range.
WORKING PAPERS
1. “Dynamic Diminishing Marginal Utility and Tacit Collusion” (with Yuk-fai Fong)
Diminishing marginal utility is usually treated as a static property in economics, while in many situations it is more appropriately modeled as a dynamic issue. This paper investigates how dynamic diminishing marginal utility influences firms' ability to tacitly collude, and shows that it crucially depends on whether diminishing marginal utility is product-specific or market-wide. When diminishing marginal utility is product-specific, i.e., when a consumer's consumption of one product this period only lowers her marginal utilities of a subset of products next period, collusion is easier to sustain since consumers can switch among firms to avoid utility loss on the equilibrium path, while at least some consumers cannot switch when a firm deviates to capture all consumers. When diminishing marginal utility is market-wide, i.e., when a consumer's consumption of one product this period lowers her marginal utilities of all products next period, collusion is harder to sustain due to endogenous demand fluctuations.
2. “Collusion among Experts” (with Yuk-fai Fong, Ting Liu & Xiaoxuan Meng)
This paper studies tacit collusion among experts with private information about customers' problems. On the equilibrium path, through search for second opinions, a customer's problem is fixed with probability one, and the total surplus from repairs is split evenly among experts. Even though a deviating expert can attract the customer with probability one by undercutting the equilibrium prices as in collusion among search-good sellers, the attracted customer will search for second opinions with positive probability and have her problem fixed by non-deviating experts. The deviating firms' inability to capture the entire industry profit before triggering a price war renders collusion among experts easier to sustain than collusion among search-good sellers.
3. “FinTech Lending and Financial Inclusion” (with Yuk-fai Fong, Xiaoxuan Meng and Kar Yan Tam)
We study a setting in which banks originally compete with shadow banks and later FinTech lenders also enter the market. Competition from shadow banks give rise to a separating equilibrium which does not exist when borrowers only have access to banks. Whether FinTech lenders may improve or harm financial inclusion crucially depends on the FinTech lenders' relative intensity in cream skimming and blacklisting. Cream skimming harms financial inclusion by increasing
the breakeven interest rate by traditional lenders, while it improves financial inclusion by making shadow banks more likely to serve borrowers due to a lower deviation profit by banks. Blacklisting gives FinTech lenders the comparative advantage to target the pool of non-blacklisted consumers. Financial inclusion can be further improved if there is a market for FinTech lenders to sell their blacklist to traditional lenders.