Research

If I have seen further, it is by standing on the shoulders of Giants.- Isaac Newton

Working Papers

1. Consumer Search, Collusion, and Artificial Intelligence (Sole Author) [Job Market Paper] [Manuscript]

Abstract: This article uses both economic theory and experiments with Artificial Intelligence (AI) based pricing algorithms to study the roles of consumer search friction on collusion and implications on market prices and consumer welfare. By developing an oligopoly model in which consumers sequentially search for the best product with advertised prices, this article shows that collusion is easier to sustain with lower search costs. On the other hand, increasing search costs can reduce the collusive price. However, the price reduction is insufficient to increase the consumer surplus if the collusion sustains. The experiments show that simple reinforcement learning algorithms (Q-learning) manage to adopt a trigger-price strategy to keep prices above the competitive level in a frictional market.

2. Product Return Policies, Pricing, and Consumer Welfare (Sole Author) [Revise and resubmit at the International Journal of Industrial Organization] [Manuscript]

Abstract: This article presents a monopoly model in continuous time in which consumers constantly learn about the quality of their purchased products and can return the item for a refund within a certain period. By deriving a solution that comprehensively summarizes the shopping and returning outcomes, this article finds that consumer surplus is lower with an easy return policy which allows consumers to return any product (e.g., no-questions-asked return policy) compared to a stricter return policy where conditions apply to receive refunds, provided the consumers have low price sensitivity. This study explores the relationship between product quality and the contract terms and finds that lower product quality generally results in a more extended return period. Moreover, this article shows that lower product quality can even lead to a higher market price, provided the salvage value of the defective item is high enough.

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Figure 1. Simulations of market prices with different product quality (α and λ).

Figure 2. Simulations of return periods with different product quality (α and λ).

3. Product Return Policies under Duopoly: Online and Local Stores (Sole Author)

Abstract: Retailers often accept returns within a limited time and give refunds. This article develops a duopoly model of online and local stores selling homogeneous products. Consumers receive signals about product quality during the trial period. This article provides the closed-form solution for the return periods provided by the two sellers. The model suggests that both sellers can gain market power by accepting returns after sales. This study shows that higher information cost increases the market price dispersion and gives online stores more market share.

Work in Progress

1. Antitrust and Algorithmic Pricing