Lia Petrose
Research Fields
Industrial Organization, Urban EconomicsContact Information
Job Market Paper
Containerized shipping is crucial for global trade: it is responsible for two-thirds of it by volume and four-fifths by value. Shipping carriers use large vessels that stop at a sequence of ports, aggregating demand across markets in order to take advantage of potential scale economies. Over the last two decades, ship size and market concentration has increased, driven both by mergers of top carriers and by alliances that offer services jointly. For example, the share of the world fleet operated by the top 10 carriers went from roughly 45% in 2000 to over 80% in 2020. While this could allow carriers to reduce costs by exploiting economies of scale, it can also increase their ability to exercise pricing power. The effect of consolidation on consumers—and thus the merits of regulatory scrutiny—depends on the balance between these two forces. This paper studies the effect of consolidation on consumer welfare by estimating existing economies of scale and by testing alternative models of pricing behavior, adapting the conduct testing approach in Backus, Conlon and Sinkinson (2021). The method relies on estimates of demand for shipping services at the port-pair level based on comprehensive data on shipping prices, quantities, and costs. I find that there are considerable reductions in capital costs associated with vessel capacity. I also reject models of joint pricing at the service or alliance level in favor of individual carrier pricing. The results point to alliances being an efficient method for realizing cost savings, with the associated increase in market power causing limited harm to consumers.
Research in Progress
We study the problem of a budget-constrained transit provider setting both prices and quality. The provider cares about its own surplus and a weighted sum of rider surplus by income type. It thus faces a tradeoff between lower fares and higher service quality—measured as transit speed. Its choice of quality depends on the difference in valuation of speed between the marginal and the average rider. Thus well estimated rider elasticities to changes in price and quality are important inputs to the agency’s problem. This paper estimates such elasticities by using quasi-experimental variation—a subway fare increase and speed restrictions along certain routes—implemented by the Massachusetts Bay Transit Authority (MBTA) in 2019 and 2022. We then embed these moments in a discrete-choice model with rich substitution across routes and heterogeneity by neighborhood income. We find that riders are price-sensitive and moderately responsive to slower service. Higher-income areas place greater weight on quality, while lower-income riders are more price elastic. Finally, we find that infra-marginal quality insensitive riders should incentivize the agency to over-invest in quality; the solution to the budget-constrained welfare maximization problem cannot explain underinvestment in quality.
In many markets, data providers allow exchange of confidential commercial information between firms, with ambiguous effects on competition. Most of the conduct testing literature restricts the information sets of firms to be complete, or at least known. We consider a case where membership in a data aggregator’s subscription service is unobserved to the analyst, but the distribution of outcomes and components of costs are. We develop a sequential method to identify firms' latent information structures and test between alternative conduct models. First, the information structure is identified using a firm’s response to rivals’ private cost shocks. Then, firm conduct is identified using standard exclusion restrictions conditional on the information structure. We discuss an application of this method to the poultry processing industry, where an aggregator (AgriStats) shares members’ private cost information for a subscription fee.