"Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs" (submitted draft) with Morgan Hardy and Gisella Kagy, conditionally accepted at American Economic Review: Insights
Bargaining over real prices with microenterprise owners in Ghana, we show that sellers with less per capita household liquidity agree to lower sale prices. This relationship is robust across firms and within firms over time, even after controlling for a plethora of time-varying observables. A computerized bargaining experiment, with randomized initial payout sizes, corroborates the real-bargaining findings. This pattern can be explained by an application of classical bargaining theory that includes endowments and utility functions with decreasing absolute risk aversion. The potential poverty multiplying implications of pricing behavior is a key frontier in understanding barriers to the profitability of microenterprises.
"Knowledge is (Bargaining) Power – How Consumer Information Affects Pricing Mechanisms" (current draft)
Why do pricing mechanisms co-exist across different markets for the same good or shift over time? This paper explores a fundamental characteristic of the market – buyer composition and belief heterogeneity – to explain whether goods are sold via fixed price or bargaining. Using a bargaining game with second-order uncertainty (a seller does not know what a buyer knows) we show that when buyers have large gains from the transaction and are more heterogeneous in their knowledge of the seller, the seller receives a higher payoff from bargaining than from fixed price. The general solution for the payoff difference between pricing mechanisms depends on the potential gain from the transaction of the seller and the buyer, their patience parameters, and the probability distribution of types. These results explain why different pricing mechanisms co-exist for souvenir markets in developing countries and how the introduction of information technology, such as crowd-sourced review spaces, could affect market structures over time.
"Digital Addiction" with Hunt Allcott and Matthew Gentzkow
"Discrimination and Media Diversity: Historical Evidence from Radio Stations"
"Diversify Your Feed"