Abstract: This paper investigates how firms invest under demand uncertainty focusing on the role of information in container shipping. I develop and estimate a dynamic oligopoly model that allows uncertainty about the demand process in addition to uncertainty about demand realizations: agents do not know the true parameters in the demand process, but form and revise their expectations based on information available at each decision-making moment. I find that the uncertainty about the demand process amplifies investment cycles through (i) leading firms to update beliefs more often and drastically as they experience demand volatility, and (ii) intensifying strategic incentives among firms.
The Competitive Effects of Information Sharing (with John Asker, Chaim Fershtman, and Ariel Pakes)
NBER Working Paper No. 22836.
Abstract: We investigate the impact of information sharing between rivals in a dynamic auction with asymmetric information. Firms bid in sequential auctions to obtain inputs. Their inventory of inputs, determined by the results of past auctions, are privately known state variables that determine bidding incentives. The model is analyzed numerically under different information sharing rules. The analysis uses the restricted experience based equilibrium concept of Fershtman and Pakes (2012) which we refine to mitigate multiplicity issues. We find that increased information about competitors' states increases participation and inventories, as the firms are more able to avoid the intense competition in low inventory states. While average bids are lower, social welfare is unchanged and output is increased. Implications for the posture of antitrust regulation toward information sharing agreements are discussed.
Work in Progress
Firms' Beliefs and Learning in Oligopoly Markets: Models, Identification, and Empirical Evidence (with Victor Aguirregabiria)
The Reallocation of Capital through the Leasing Market in Container Shipping