Publications

A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers

with Sergey Kokovin, Shamil Sharapudinov, Alexander Tarasov, and Philip Ushchev

Published in AEJ: Micro

Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation. Space can be interpreted either as a geographical space or as a space of characteristics of a differentiated good. In addition to price setting, each firm also chooses its optimal location in this space. We formulate conditions for positive sorting: more productive firms serve larger market segments and face tougher competition; and for the existence and uniqueness of the equilibrium. To quantify the role of the sorting mechanism, we calibrate the model using cross-sectional data on the haircut market in Bergen, Norway, and perform a counterfactual analysis. We find that inequality in the distribution of the gains among consumers caused by positive market shocks can be substantial: the gains of consumers from more populated locations are 3-4 times higher.

Quality Distortions in Monopolistic Competition

with Sergey Kichko and Alexander Tarasov

Published at Economic Modelling

In this paper, we explore how heterogeneous firms decide on the vertical and horizontal qualities of their products. We show that if the cost of quality is relatively high, more productive firms choose higher vertical quality but lower horizontal quality. We also document the distortions that arise in our framework. Specifically, we find that in the market equilibrium, firms tend to underinvest in horizontal quality but overinvest in vertical quality compared to the first-best allocation.

Working Papers

Assortment Choice and Market Power under Uniform Pricing

Best research paper award by the Centre for Competition Economics

This paper studies how retailers strategically use product assortment to respond to local market conditions when prices are set at the national level. When firms cannot increase the price of a product that is particularly popular in a local market, they can instead replace the product with a more expensive substitute. The profitability of these assortment substitutions depends on the degree of market competition. This study uses extensive receipt and store-level data and a structural equilibrium model to distinguish the impact of market power on assortment choice from other market forces, such as logistics costs. The findings confirm that firms make use of assortment choices, offering fewer and pricier products in markets with stronger local market power. I show that a uniform assortment would benefit consumers but would reduce firm profits. Counterfactual policy experiments reveal that government intervention can improve total market welfare through subsidies to consumers or retailers in remote areas.

Beyond the Notch: Revenue Manipulation and Business Splitting under Simplified Tax System

with Yulia Kuchumova and Kristina Zorina

Simplified tax regimes with explicit eligibility thresholds are a common tool which reduces tax burden but distorts firms’ behavior, creating local bunching just below the threshold. However, we show that when firms have access to business splitting their responses extend far beyond the local margin. Our model demonstrates that splitting reduces local bunching but amplifies distortions elsewhere in the distribution. Exploiting a reform in Russia’s Simplified Tax System that significantly raised the revenue threshold, allowing us to use the post-reform distribution as a counterfactual, we detect an excess mass far below the threshold, providing the evidence that extensive-margin responses matter.

Work in Progress

Health at a Discount? Nutritional Value and Pricing of Private Labels vs. National Brands

with Gokhan Yildirim and Xinrong Zhu

Preemption in Spatial Competition: Evidence from the Retail Pharmacy Market

with Anders Munk-Nielsen and Morten Sæthre

Entry deterrence through restrictive covenants

with Fedor Iskhakov

Left-Digit Pricing in Grocery Retail

with Sam Hirshman and Anna Ignatenko