Essays in industrial organization

Chapter 1 investigates a dynamic procurement situation where two sellers compete for a buyer who is planning an irreversible investment. The quality of each seller's good is initially unknown but new information about the quality comes out as time goes on. There is a welfare tradeoff between delayed benefits and learning about the quality. When the buyer makes purchase through a one-time procurement auction, the buyer immediately adopts one of the goods and hence no learning occurs in equilibrium. If the buyer and the sellers negotiate over the prices, many qualitatively different equilibria arise. In the most collusive equilibrium of the game, the sellers extract full surplus from the buyer and the socially optimal level of learning is achieved.; Chapter 2 examines a “war of attrition” model where two firms compete to become a monopoly. At each point in time, the firms choose whether or not to exit the market. Firms learn about their relative cost efficiency as time goes on. Under the assumption that the more efficient firm can profitably stay in forever, Markov Perfect Equilibrium of the game is uniquely determined. Compared to a hypothetical case where exit decisions are coordinated to maximize join profits of the firms, too much learning arises in equilibrium because each firm undervalues the true costs of delaying exit relative to its benefits.; Chapter 3 proposes two new models of predation where an incumbent firm uses a predatory strategy in one market to protect its monopoly in another market. The first model examines a case where an entrant wants to “test market” its new product before entry. By engaging in predatory pricing, the incumbent can successfully deter entry and sometimes force the entrant to bypass the predation by entering without test marketing. The second model examines a case where an entry into a market increases the probability of entry into another market when there is learning-by-doing by an entrant. In equilibrium, the incumbent may block an entry into the first market and hence delay the entry into both markets.