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Abstract: While mergers are highly visible and changes in market structure can have large effects on social welfare, very little empirical work has studied the determinants of merger activity. My dissertation analyzes merger decisions made by firms so as to understand incentives to merge. Chapter 1 uses patent citation data to determine whether firms are more or less actively engaged in sequential innovation after they merge. The ability to capture information spillovers may enhance merged firms' incentives to build upon one another's innovations; yet merging may reduce the firms' incentives to leap-frog one another. Looking at mergers between public companies from 1980 to 2003, I find that in nearly all industries, cross-citations between two firms increase before they merge and then fall after they merge. This suggests that the firms were engaged in an innovation race that was slowed by the merger. Firms may seek out these mergers partly to reduce innovation competition. Chapter 2 exploits an exogenous change in regulation that led to significant consolidation in the broadcast television industry. The vast majority of consolidation was across local markets, so it is not clear what drove consolidation. This chapter uses a panel dataset on ownership and revenue of broadcast stations in order to estimate the revenue advantages of consolidation. I find that revenue advantages come through access to a wider audience, most likely because a firm can offer advertisers more viewers per contract. Chapter 3 uses results from the second chapter, and estimates a dynamic oligopoly model in order to identify the cost advantages of consolidation in the television industry. I infer costs from patterns in ownership changes that are unexplained by revenue estimation. I model firms' decisions as a dynamic game, and estimate the game using a two-step method recently developed by Bajari, Benkard and Levin (2007). This is the first paper to estimate a model of merger activity in a dynamic, strategic framework. I find that owning more stations enables firms to reduce per-station operating costs. A firm's ability to do this is affected by its stations' network affiliations, the location of its stations and the demographic heterogeneity of its viewers.
In my dissertation, I study the impact of interventions on the market structure dynamics and users' behavior with two essays. In the first essay, I investigate how import policy relaxation on foreign products will affect the dynamics of the market structure or the competitive relationships between domestic and foreign products with a natural experiment. In 2012, the Chinese government suddenly relaxed the import quota on foreign movies, increasing the number of foreign movies to be imported by an extra 70%. I find foreign movies of different quality tiers have differentiated effects on the sales of domestic movies. Moreover, the policy relaxation helps expands the market of domestic movies. Overall, this study sheds light on the impact of an influential policy relaxation on the market dynamics of a large emerging market. In the second essay, I further explore the impact of intervention on individual users' choice. Mobile app firms of non-advertising-based services face significant challenges when monetizing their free services. In practice there are two commonly adopted monetization strategies: (1) a soft-landing strategy, with limited free service provided to current users when it starts to charge, or (2) a hard-landing strategy, where all free services are terminated and only paid users retain access to the service. I implement large-scale randomized field experiments to test the effects of providing limited free services to existing users on their subscription willingness. Results suggest that users are more willing to subscribe in the hard landing condition. It also suggests that providing extra exclusive secondary offerings to subscribers hurts their subscription willingness because of the high evaluability of its low value. Further, a positive interaction effect exists between providing limited free services and exclusive secondary offerings due to the exclusivity value to paid users in the soft landing condition.
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