Essays of Industrial Organization

Author:

Ma, Guoxuan

Graduate Program:

Economics (PHD)

Degree:

Doctor of Philosophy

Document Type:

Dissertation

Date of Defense:

May 24, 2022

Committee Members:

Karl Schurter, Major Field Member
Mark Roberts, Chair & Dissertation Advisor
Peter Iliev, Outside Unit & Field Member
Marc Albert Henry, Professor in Charge/Director of Graduate Studies
David Argente, Major Field Member

Keywords:

English auction
information asymmetry
multiple equilibria
moment inequalities
Young Firm
Heterogeneity
Financing choices
Kauffman Firm Survey data
Firm dynamics

Abstract:

This dissertation consists of two chapters on industrial organization. Decisions made by heterogeneous agents suffer from information friction. My research utilizes the estimation and identification methods from the auction theory to address the information asymmetry problem with different applications. In the first chapter, I propose a parametric estimation method to address the multi-equilibria problem in the open ascending auction environment and study the information premium across heterogeneous agents. The empirical application is based on a canonical English auction from the Chinese Online Judicial auction market. In the second chapter, I study how young firms’ long-term growth potential is affected by their financing choices and constraints caused by information asymmetry. To address the information friction in the firms’ financing constraints, I adopt the auction theory to simplify the interactions between banks and firms which helps me to focus on young firms’ behavior. Chaper 1: Information Asymmetry and Bidding Behavior in Common Value English Auction In a common value English auction, bidders may have different levels of private information about the selling item. Due to the learning effect of the common value auction, bidders with more precise information may be able to manipulate the auction outcome through strategic bidding behavior. However, English auctions are usually challenged by model incompleteness problems (Bikhchandani et al., 2002). To overcomes the identification challenge, I utilize moment inequalities implied by the bidder’s bidding history to estimate the value distribution and develop a structural econometric model to study the effect of information asymmetry on the agent’s bidding behavior. The paper finds that the information premium mainly comes from the informed bidder’s screening effect and is independent of the number of participants. Applying the data from Chinese Judicial Auction, the estimation result shows that the noisy part in signal is very large. Chaper 2: Young Firms’ Financing Choices, Investment, and Growth This paper investigates the impact of choices to different financing sources on young firms’ future growth trajectories. Studying this causal effect involves selection issues and the reduced form analysis is hard to deal with the firm’s dynamics behavior problem. To address these issues, I use the Kauffman Firm Survey data to construct a firm life-cycle model with financing constraints. In this model, different types of firms can simultaneously choose up to three debt financing sources: business bank loans, personal bank loans, and credit card borrowing. By altering the accessibility of different funding sources through the structural model, I find credit card borrowing is essential for young firms’ early period financing support. Without credit card borrowing, most firms get out of debt within 4 years and average assets accumulation can drop by 15%. I also investigate how firms react to a general increase in the financing cost caused by the consolidation trend of the local bank industry. Higher concentration increases costs on all funding sources, but by different levels. Besides the reduction of firm borrowing, higher concentration has a negative impact on firms’ long-run growth potential. But the impact is not monotone.