Pricing in imperfectly competitive markets

Economists have formally studied pricing in imperfectly competitive markets since the mid nineteenth century. By analyzing the potential inefficiencies of such markets this research has guided regulatory and competition policy. With more and more transactions being shifted to online markets, research in this area remains highly relevant. The behavior of firms in imperfectly competitive markets is also studied in the management literature, with a stronger focus on strategies available to firms to become more profitable. Applications include bookings for hotel rooms, pricing of online airline tickets, as well as pricing in vertical contracts between firms. This project brings together the economics and management literatures and studies pricing in imperfectly competitive markets both from an empirical and a theoretical perspective. Our analytical framework uses game-theoretic models to capture strategic behavior in imperfectly competitive markets. To carry out the empirical analysis, we resort to econometric methods. In doing so, we bring new tools to the study of classical questions. We also aim to tackle new issues related to online markets and algorithmic pricing. By interacting with competition authorities, the project also aims to deliver insights that are relevant for competition policy. The project covers five themes: dynamic pricing, pricing under information asymmetries, consumer search, collusion, and retail pricing. Dynamic pricing is particularly important in online markets (e.g., related to hospitality management, but also in electricity), where firms can easily and frequently change their prices. The project on information asymmetries is motivated by the fact that especially in global markets firms often lack relevant business information about their competitors or their suppliers. Search frictions constitute the predominant framework to reconcile persistent price dispersion in many markets in the presence of continuous advances in ICT, that have made information about prices widely available and easily accessible for market participants. The focus on collusive pricing is motivated the difficulty competition authorities face in detecting this illegal practice from competitive behavior, especially when firms costs are unknown. The project on retail pricing develops and estimates empirical models for gasoline and telecommunication markets that allow to quantify the effects of different policies, like taxation or regulation. There is substantial overlap among the five themes and we strive to exploit these synergies.