Essays in Applied Microeconomics

This is a cumulative dissertation consisting of three single-author papers that can be treated as independent. Each of the three papers forms a separate chapter of this dissertation. In Chapter 1, The Influence of Physician Rating Websites on the Quality of Primary Care, I analyze the benefits of public rating platforms in a health care market characterized by asymmetric information regarding the competency of physicians and their treatment quality. Within a dynamic framework, I show how an interesting interaction emerges between a physician’s reputation and the probability with which he provides costly high quality care. This probability depends on how optimistic patients are that the doctor is competent: the less optimistic they are, the higher the probability that the doctor provides high quality. This dynamic represents how the doctor tries to preserve a good reputation and has a higher incentive to do so when there is a greater risk that patients no longer believe in the doctor’s competence. In Chapter 2, Voluntary Certification: A Multi-Stage Game Analysis, I analyze if and when a firm purchases quality certification from a profit maximizing certifier in a market with asymmetric information on product quality. I extend existing frameworks by introducing a temporal dimension, allowing heterogeneous firm types to not only use the certificate itself but also the timing of their certification as an additional device to distinguish themselves from lower quality types. Of particular interest is under which conditions the certifier chooses a certification fee for which different firm types adopt distinct certification strategies across periods: the high quality type certifies in the first period, the medium quality type certifies in the second period, and the low quality type never certifies the product. This dynamic explains real-world reluctance of firms to obtain costly certificates, for example regarding operation procedures, sustainability or the adoption of (new) industry standards. The first two chapters are related in that they both study mechanisms to reduce information asymmetry. Chapter 1 examines reputation-building via rating platforms, while Chapter 2 analyzes voluntary certification as a signaling device. I am interested in the effects of uncertainty created through information that is not publicly available to all participants in a market on the strategic decisions of suppliers of goods or services. In many markets, the quality of a product or service is not immediately observable, creating asymmetric information between suppliers and consumers. This can create inefficiencies, especially if consumers heavily rely on the advice of experts. In the first two chapters, I analyze two different approaches of how information can be credibly revealed to consumers. One is the rating platform that collects feedback based on previous interactions, and the other is the presence of a profit-maximizing certifier that a firm can commission to credibly reveal its true quality. My third project departs from increasing transparency in markets with asymmetric information and instead examines asymmetric outcomes that emerge from competition between firms. In Chapter 3, Competition over Coverage, I analyze a market in which two symmetric firms compete in opening hours and prices over heterogeneous consumers who arrive randomly over time. The firms only compete over the same consumers if they choose overlapping opening hours. I develop and analyze a new modeling approach that enables a systematic characterization of equilibrium existence and structure across classes of consumer arrival time distributions. The firms first choose their opening hours and then their prices. Endogenous asymmetries arise in the firms’ behavior: If their opening hours overlap, the two firms choose different prices. Both firms set the same price only if they do not choose overlapping opening hour intervals. My model thereby provides a theoretical explanation and characterizations for patterns observable in markets where opening hours influence the intensity of competition, such as retail and service industries.