Working Papers:
Splitting Award or Winner Takes All?: Evidence from China's National Drug Procurement Auction
Job Market Paper
Abstract:
A significant number of procurements in both public and private sectors have adopted the practice of splitting the award among multiple bidders in an auction, as an alternative to the traditional one-winner-take-all auction. This aims to encourage participation from small firms and reduce dependency on a single supplier. One prominent example is China's national drug procurement split-award auction, where the societal importance of drug prices underscores the need for a thorough examination of the rationale for using this auction format. However, there is limited theoretical and empirical guidance available in the literature. This paper investigates the competitive impact of split-award auctions on key outcomes, such as participation and procurement costs. Theoretically, I demonstrate that split-award auctions consistently boost participation but only decrease the expected procurement cost if no participation would have occurred in an otherwise winner-take-all auction. Empirically, I estimate the direction and magnitude of the effects using drug procurement data. The findings reveal that split-award auctions moderately increase average participation by 0.85 bidders (17\%) but significantly raise the unit expected procurement cost by 4 CNY (38\%). The reallocation of production to more expensive bidders and an increase in bidders' markups contribute equally to the rise of the expected procurement cost.
(presented at EWMES 2023 (scheduled), EARIE 2023, AMES China 2023.)
Job Market Paper
Abstract:
A significant number of procurements in both public and private sectors have adopted the practice of splitting the award among multiple bidders in an auction, as an alternative to the traditional one-winner-take-all auction. This aims to encourage participation from small firms and reduce dependency on a single supplier. One prominent example is China's national drug procurement split-award auction, where the societal importance of drug prices underscores the need for a thorough examination of the rationale for using this auction format. However, there is limited theoretical and empirical guidance available in the literature. This paper investigates the competitive impact of split-award auctions on key outcomes, such as participation and procurement costs. Theoretically, I demonstrate that split-award auctions consistently boost participation but only decrease the expected procurement cost if no participation would have occurred in an otherwise winner-take-all auction. Empirically, I estimate the direction and magnitude of the effects using drug procurement data. The findings reveal that split-award auctions moderately increase average participation by 0.85 bidders (17\%) but significantly raise the unit expected procurement cost by 4 CNY (38\%). The reallocation of production to more expensive bidders and an increase in bidders' markups contribute equally to the rise of the expected procurement cost.
(presented at EWMES 2023 (scheduled), EARIE 2023, AMES China 2023.)
Competitive Effects of Resale Price Maintenance Through Inventory: Evidence from Publishing Industry
(with Kohei Kawaguchi (Sunada), and Jeff Qiu)
Revise & Resubmit at The RAND Journal of Economics
Last update: Nov 30, 2022
Abstract:
This paper examines the competitive effects of resale price maintenance (RPM) through inventory decisions under demand uncertainty. We focus on the Japanese publishing industry where RPM is allowed. We develop and estimate a model of RPM in which price and inventory are determined before demand is realized. Counterfactual simulations show that the RPM model would yield a higher consumer surplus than a wholesale model due to a sufficient inventory and a lower price of new titles. Moreover, we show that the price ceiling due to RPM plays a welfare-enhancing role, whereas the price floor is irrelevant in the industry.
(presented at AMES China 2022, EARIE 2022, SUFE-Jinan Empirical IO conference 2023, AMES Singapore 2023, Japanese Economic Association Autumn Meeting 2023.)
(with Kohei Kawaguchi (Sunada), and Jeff Qiu)
Revise & Resubmit at The RAND Journal of Economics
Last update: Nov 30, 2022
Abstract:
This paper examines the competitive effects of resale price maintenance (RPM) through inventory decisions under demand uncertainty. We focus on the Japanese publishing industry where RPM is allowed. We develop and estimate a model of RPM in which price and inventory are determined before demand is realized. Counterfactual simulations show that the RPM model would yield a higher consumer surplus than a wholesale model due to a sufficient inventory and a lower price of new titles. Moreover, we show that the price ceiling due to RPM plays a welfare-enhancing role, whereas the price floor is irrelevant in the industry.
(presented at AMES China 2022, EARIE 2022, SUFE-Jinan Empirical IO conference 2023, AMES Singapore 2023, Japanese Economic Association Autumn Meeting 2023.)
Consumer Responses to Favorite Product Removal: Evidence from Beverage Vending Machines
(with Andrew T. Ching, Kohei Kawaguchi (Sunada), and Jia Liu)
Last update: Aug 1, 2023
Abstract:
How do consumers react when their favorite product is removed? This paper sheds light on this question by using a novel dataset of vending machine purchases in Japanese train stations and a synthetic difference-in-differences approach. We find that for regular consumers, the removal of their favorite product would lead them to reduce their purchases in their favorite vending machine; however, we also find that it has no impact on their overall purchases at their favorite station. Our micro-level data show that some consumers stay with their favorite machine and buy something else; among those who leave their favorite machine, a large proportion of them are willing to visit other machines. We hypothesize that variety-seeking tendency may explain such heterogeneous consumer responses. Using four different measures of variety-seeking, we show that high variety-seeking consumers tend to stay with their favorite machine, and low variety-seeking consumers are more likely to visit other machines to try to find their favorite product.
(presented at ISMS marketing science conference.)
(with Andrew T. Ching, Kohei Kawaguchi (Sunada), and Jia Liu)
Last update: Aug 1, 2023
Abstract:
How do consumers react when their favorite product is removed? This paper sheds light on this question by using a novel dataset of vending machine purchases in Japanese train stations and a synthetic difference-in-differences approach. We find that for regular consumers, the removal of their favorite product would lead them to reduce their purchases in their favorite vending machine; however, we also find that it has no impact on their overall purchases at their favorite station. Our micro-level data show that some consumers stay with their favorite machine and buy something else; among those who leave their favorite machine, a large proportion of them are willing to visit other machines. We hypothesize that variety-seeking tendency may explain such heterogeneous consumer responses. Using four different measures of variety-seeking, we show that high variety-seeking consumers tend to stay with their favorite machine, and low variety-seeking consumers are more likely to visit other machines to try to find their favorite product.
(presented at ISMS marketing science conference.)