Working papers

Job Market Paper

In many markets with switching costs firms charge a lower price to new customers than to existing customers, a practice called history-based price discrimination. By exploiting a ban on history-based price discrimination in the Dutch mortgage market, this paper estimates the effects of history-based price discrimination on consumer surplus, profits and welfare. These effects are theoretically ambiguous because history-based price discrimination can make markets more or less competitive. I estimate a structural model, of which the supply side consists of a dynamic game. To deal with the curse of dimensionality, I employ techniques from machine learning to reduce the dimension of this game's state space. I implement these techniques in a new estimation method for dynamic games, which I justify with a new solution concept: Sparse Markov Perfect Equilibrium (SMPE). In an SMPE, firms optimally pay attention to a subset of state variables instead of the full state. Therefore, the state space is considerably smaller than under the standard assumption of Markov Perfect Equilibrium. I show that the Lasso identifies which variables firms pay attention to. For an average mortgage, banning history-based price discrimination increases welfare by €125 per year and consumer surplus by €415 per year, while bank profits drop by €290 per year.

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Some regulators have banned commission payments to financial advisers, because they might lead to biased advice. When commissions are banned, advisers charge consumers a fixed fee. To investigate when fee-based advice is preferable to commission-based advice, this paper builds a theoretical model of advice that takes into account the entry and exit of advisers. For a fixed number of advisers, a ban on commissions increases consumer surplus because advisers are no longer biased. The ban however hurts the profitability of advisers, so that in the long run, they exit the market, advice becomes inaccessible and the ban no longer benefits consumers. These results can explain why commission bans might cause an "advice gap" and imply that accounting for the endogenous structure of the market is important when regulating advice.

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Work In Progress

Entry in Markets with Switching Costs

Switching costs are a significant source of market power in many markets. This paper studies whether entry into market with switching costs makes them more competitive. On the one hand, it is possible that incumbent firms lower their prices to compete with the entrant for unaffiliated consumers (Klemperer, 1988). On the other hand, it is also possible that incumbent firms increase their post-entry prices because they no longer find it profitable to compete for unaffiliated consumers and instead want to extract maximum surplus from their locked-in customers (Farell & Shapiro, 1988). To shed light on this question, I study entry in the Dutch mortgage market. I exploit the fact that entrants sell a subset of the mortgage types offered by incumbents, leading to a difference-in-difference framework. I also estimate the effect of entry on welfare.