​Selected Working Papers: 

Collusive Price Floor and Bounded Rationality: Evidence from the Chinese Movie Industry 

(With Hanlin Zhao) (JMP)

This paper investigates the impact of explicit collusive price floor on the market structure and profitability in the Chinese movie industry, a market characterized by product differentiation and highly elastic demand. Using a structural model, we estimate demand and extend the Nash-Bertrand supply model to achieve a better fit by setting the minimum bound out of price floor and two boundedly rational behaviors: overconfident cinema-specific add-ons, and performance-based weights. Our findings highlight that collusive price floors should be regulated, as substantial profit gains often come at the expense of a significant reduction in consumer surplus. However, such regulation may be challenging, considering the regulator’s role in this game. We identify a second-best alternative to enhance social welfare under a price floor: by eliminating cinema specific add-on pricing and focusing solely on performance weighting on day and movie characteristics, a Pareto improvement can be achieved, resulting in increased profits and consumer surplus compared to relying on the price floor alone. Yet, this requires a higher degree of collusion, with inter-cinema transactions, as cinemas with lower performance may have a strong incentive to deviate from this equilibrium.

 Multiproduct Firms’ Product Exit Strategy under the Impact of Air Pollution: Evidence from the Movie Industry (Yilan Luo)

While extensive research has investigated individual aversion behaviors in response to air pollution, there has been a notable gap in understanding firms’ reactive strategies to these behaviors. Our study addresses this gap by examining how multiproduct firms within the movie industry respond to the impact of air pollution. Analyzing a comprehensive, high-frequency dataset from Beijing covering 2013 to 2014, our survival analysis indicates that a 100-point increase in the Air Quality Index (AQI) corresponds to a 19.5% higher risk of a movie being terminated on a given day. Additionally, we delve into the underlying mechanisms linking air pollution to product exit strategy, revealing that air pollution significantly increases the hazard ratio of termination for movies already in a “low occupancy” state while accelerating their transition towards this state. The adverse effects are notably stronger for low-quality and imported movies, with larger cinemas demonstrating heightened responsiveness to air pollution. By quantifying the unrecovered average variable cost incurred by prematurely terminated movies, we shed light on a significant yet overlooked loss attributed to air pollution. Our findings underscore the necessity of effective policies to assist firms in managing and adapting to environmental risks in the movie industry.

Measuring the Market Expansion, Business Stealing, and Cannibalisation Effects of New Product Entries

I empirically measure the impact of new movie releases using detailed entry data across cinemas from a typically large urban market in China. I identify and measure three primary effects following the release of new movies: market expansion of the entire industry, business stealing across different cinemas, and cannibalisation of movies within a cinema. I find that differentiated product entry in the movie exhibition industry has a strong market expansion effect, weak cannibalisation, and modest business stealing effects, implying that the extensive release of new movies increases industry profits and expands consumer choice.

Entry, Exit, Expectations, and Performance over the Product Life Cycle

I study the optimal timing of product switching for a multiproduct firm using extensive and detailed entry and exit data from the Chinese movie market. I depict a movie’s life cycle as exhibiting a descending-step shape. A survival analysis reveals that the length of a movie's life correlate with both firm- and firm-product attributes, and cinemas dynamically adjust their expectations of a movie to match its performance. The termination of an old movie is signaled by the entry of new movies and low occupancy of 10%. The results provide empirical insights on s strategic decisions of product reselection and resource reallocation.

Selected Working in Progress

Assessing the Efficiency of Female Cancer Screening: Diagnostic Performance, Overshadowing or Implicit Bias (with Lin He)

Production Networks, Expectation and Performance