Job Market Paper
Value of Availability during Demand Shocks: Evidence from U.S. Retailers during the Early Covid Pandemic
Abstract: This paper studies the welfare cost and distributional impact of product stockouts during the early Covid pandemic. Since stockouts are not directly observed from data, I design an algorithm to quantify the extent of stockouts across stores using weekly sales data. Demand analysis shows that product differentiation is large enough such that the stockouts of popular products led to significant welfare loss for consumers. Two patterns of product availability emerged among retail chains: high-availability retailers (HARs) such as discount stores and warehouse clubs have more varieties, greater inventories, and lower stockout rates than low-availability retailers (LARs). The unbalanced distribution of HAR stores across markets drives the inequality in product access during times of scarcity, and shoppers in "availability deserts" (areas with few to no HAR stores) suffer from poorer product access and lower welfare. This project has strong policy implications on preventing retail store exits from low-income neighborhoods with poor product access.
Keywords: cost of stockouts; product availability, retail chains; availability deserts
Link to the Latest Draft
Working Papers
“Product Shortage, Consumer Hoarding, and Optimal Shopping Quota during Covid-19”, with Rene Diaz De Leon
Abstract: This paper explores the anatomy of market runs at retail stores during the Covid demand shock. Rise in demand for cleaning supplies and sticky prices at retail stores led to widespread stockouts in spring 2020, but how much of the demand increase is caused by consumers’ panic buying? Our paper investigates the extent to which product shortage at retail stores during Covid is a self-fulfilling crisis and explores policy options to mitigate consumer hoarding. We observe that the dynamics of stockouts were similar across locations, suggesting that buyers in different markets were hit by stockouts simultaneously. Analyzing the time series of sales growth, we found that immediately after the Covid shock hit, households increased their store visits each week, and the quantity bought per trip is low (fewer than 2 units) for most trips. This implies that the surge in sales is driven by the extensive margin (i.e., consumers making more shopping trips), and store quotas on quantity bought per trip are ineffective in limiting panic buying. We are currently developing a structural model to distinguish between two drivers of product shortages: genuine demand increases, or market runs due to consumers’ fear of stockouts.
Paper available upon request.
Who Wins and Who Loses from Price Gouging Laws? Evidence from the PPE Market during Covid-19
Abstract: This paper is an empirical exercise that examines the welfare impact of price controls on consumers in the PPE (Personal Protective Equipment) market during the Covid-19 demand shock. I find that compared with a market without price controls, a 25% cap on price increase would reduce the average welfare of both rich and poor consumers, and the loss is greater for richer buyers. However, the distributional effect within each income group varies extensively: for the lowest income group (annual income below $10K), 20% of the consumers benefit from the price cap, while less than 2% of consumers from the highest income group (annual income above $100K) gain from the cap. This suggests a uniform level of price cap is relatively more effective in protecting the less-affluent consumers during the demand shock driven by the Covid-19 crisis.
Paper available upon request.
(Masters' Thesis) Does Collusion among Full-service Airlines Affect the Entry Decision of Low-cost Carriers?
Abstract: This paper studies whether the anti-competitive behavior of incumbent full-service airlines (code-sharing, joining alliance, and merging) affects the entry decision of low-cost carriers. I apply the idea of entry threshold ratio in Bresnahan and Reiss (1991) to analyze the competitiveness of U.S. aviation market, as well as whether new entrants face high entry barriers. I tailor the model in Mazzeo (2002) to examine the effects of product differentiation and incumbent collusion on heterogeneous airlines’ profitability and market structure. The results indicate that incumbent collusion reduces the odds of airline entry. US air market is not perfectly competitive and newcomers face high entry barriers. Baseline preference for full-service airlines is high in all markets, and outweighs the effect of demand conditions.
Link to the paper here