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Item ESSAYS IN EMPIRICAL INDUSTRIAL ORGANIZATION(2009) Chesnes, Matthew William; Rust, John; Jin, Ginger; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Chapter 1: Capacity and Utilization Choice in the US Oil Refining Industry This paper presents a new dynamic model of the operating and investment decisions of US oil refiners. The model enables me to predict how shocks to crude oil prices and refinery shutdowns (e.g., in response to hurricanes) affect the price of gasoline, refinery profits, and overall welfare. There have been no new refineries built in the last 32 years, and although existing refineries have expanded their capacity by almost 13% since 1995, the demand for refinery products has grown even faster. As a result, capacity utilization rates are now near their maximum sustainable levels, and when combined with record high crude oil prices, this creates a volatile environment for energy markets. Shocks to the price of crude oil and even minor disruptions to refining capacity can have a large effect on the downstream prices of refined products. Due to the extraordinary dependence by other industries on petroleum products, this can have a large effect on the US economy as a whole. I use the generalized method of moments to estimate a dynamic model of capacity and utilization choice by oil refiners. Plants make short-run utilization rate choices to maximize their expected discounted profits and may make costly long-term investments in capacity to meet the growing demand and reduce the potential for breaking down. I show that the model fits the data well, in both in-sample and out-of-sample predictive tests, and I use the model to conduct a number of counterfactual experiments. My model predicts that a 20% increase in the price of crude oil is only partially passed on to consumers, resulting in higher gasoline prices, lower profits for the refinery, and a 45% decrease in total welfare. A disruption to refining capacity, such as the one caused by Hurricane Katrina in 2005, raises gasoline prices by almost 16% and has a small negative effect on overall welfare: the higher profits of refineries partially offsets the large reduction in consumer surplus. As the theory predicts, these shocks have a smaller effect on downstream prices when consumer demand is more elastic, resulting in a larger share of total welfare going to the consumer. Chapter 2: Consumer Search for Online Drug Information Consumers are increasingly turning to the internet and using search engines to find information on medicinal drugs. Between 2001 and 2007, the number of adults using the internet as an alternative source of health information doubled. At the same time, online and offline advertising spending by drug companies is growing rapidly. I seek to understand how consumers use search engines to find drug information and how this activity is influenced by direct to consumer advertising. I utilize a database of user click-through data from America Online to analyze the search behavior of consumers seeking drug information online. Compared with other searches, users submitting drug-related queries are more likely to click on more than one result in a search session, and when they do, they click more rapidly through the results and tend to migrate away from dot-com sites and toward those ending in dot-org and dot-net. Offline advertising on a drug serves to increase the frequency and intensity of these searches. Chapter 3: Drug Information via Online Search Engines This paper utilizes a database of organic and sponsored search results from four large search engines to analyze the supply of drug-related information available on the internet. I show that the information varies significantly across search engines, domain extensions, and between organic and sponsored results. Regression results reveal that websites with relatively more promotional content are pushed down in the search results while informational sites (including those ending in dot-gov and dot-org) are more likely to appear on page one of the results.Item ESSAYS ON PHARMACEUTICAL ADVERTISING(2015) DAI, WEJIA (DAISY); JIN, GINGER Z; SWEETING, ANDREW; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The dissertation focuses on two distinctive issues in pharmaceutical advertising. One on the matching choices between advertisers and advertising agencies, and the other on the effect of paid-link advertising on consumer search for online pharmacies. The goal of this dissertation is to empirically uncover the underlying economic mechanisms. Moreover, the analysis of matching problem provides new insights on the formation of vertical relationships between clients and professional service agencies and has implications for professional service market consolidations. And the examination of consumer searches for pharmaceuticals online sheds lights on consumers' concerns over quality and affordability of prescription drugs and draws attention on advertising regulation. In the first two chapters, I focus on two essential features of the market for professional services. One is the necessary mutual agreement in forming relationships, and the other is that a client perceives conflict when hiring the same service agency as his product market competitor. To incorporate these two features, I construct and estimate a two-sided matching model and allow agents' choices to depend on conflict. The results show that conflict does indeed reduce match surplus, and the reduction is greater for a pair of agents who have matched with each other in the previous period. Also, preserving previously formed matches yields much higher surplus than forming new matches. Based on these estimates, I conduct a counterfactual exercise to illustrate the effect of conflict on allocation of matches and another counterfactual exercise to illustrate the effect of a merger between advertising agencies on market equilibrium. In the third chapter, coauthored with Matthew Chesnes and Ginger Jin, we examine how government's sudden ban of foreign online pharmacies from paid search on Google and other search engines changes consumer searches for the banned websites. Using click-through data from comScore, we find that non-NABP-certified pharmacies receive fewer clicks after the ban, and this effect is heterogenous. In particular, pharmacies not certified by the NABP but certified by other sources, referred to as tier-B sites, experience a reduction in total clicks, and some of their lost paid clicks are replaced by organic clicks. These results have implications for the change in consumer search cost and health concern.Item Three Essays on Vertical Product Differentiation: Exclusivity, Non-exclusivity and Advertising(2004-11-12) Costantino, Cesar; Betancourt, Roger R; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Since Hotelling's (1929) seminal work, economists have tried to understand how product differentiation affects price competition. I study the product location decisions, on a vertical characteristic space, of two sets of horizontal competitors when the inputs supplied by the "upstream" set (the manufacturers) and the input supplied by the "downstream" set (the retailers) are combined one-to-one to form a final good under the assumption that each manufacturer sells through one retailer exclusively. I find that the final product provided by each manufacturer-retailer pair shows maximum differentiation along one dimension and minimum differentiation along the other (MaxMin equilibrium). I conduct the same analysis under the assumption that each manufacturer sells to any retailer and each retailer buys from any manufacturer. I find a Nash Equilibrium in which each firm differentiates its product completely from its horizontal competitor. Finally, I estimate the effect of advertising on consumer brand choice and search behavior. Under imperfect information, advertising can affect consumer behavior by providing economically relevant information in a convenient way. I find that advertising has an increasing effect on consumers' search effort and on the probability of purchase associated with the featured brand.