Industrial Organization
Applied Microeconomics
Applied Microeconometrics

Industrial Organization
Microeconometrics
Microeconomics

Industrial Organization and Microeconomic Theory (oral), May 2001.
Macroeconomic Theory and Microeconomic Theory (written), May 2000.

Empirical analysis of quality evolution in durable goods markets

Professor Steve Berry,
Professor Christopher Timmins

May 2004

Ph.D. (Economics), Yale University, expected May 2004
M.Phil. (Economics), Yale University, May 2002
M.A. (Economics), Yale University, May 2001
Master in Economics, Universidad de los Andes (Bogotá, Colombia), September 1997
Economista (B.A.), Universidad de los Andes (Bogotá, Colombia), September 1996

Yale University Fellowship, September 1999-present
John Perry Miller Award, Summer 2002.
Dissertation Fellowship, Fall Semester 2003
Banco de la Republica Fellowship, August 1999-July 2003

Teaching Assistant, Introductory and Intermediate Microeconomics, Introductory Macroeconomics, Yale University, September 2001-May 2003

Introductory Microeconomics and Introductory Macroeconomics Instructor at the Universidad de los Andes and the Pontificia Universidad Javeriana (Bogotá, Colombia), January 1997-June 1999

Specialized Economist, Banco de la República (Central Bank, Bogotá, Colombia) March 1997-July 1999.
Intern, Banco de la República (Central Bank, Bogotá, Colombia) August-December 1995.
UNDP National Consultant at the National Department of Planning (Bogotá, Colombia) 1995.

"Product innovation decisions in durable goods’ markets" (Job Market Paper), 2003, Yale University

"An empirical model of endogenous quality formation for durable goods markets", 2003, Yale University (presented at the Villa Mondragone Workshop in Econometrics and Economic Theory, Rome, July 2003)

"Durable goods demand with exogenous innovation: an empirical study of the digital photocameras market", 2002, Yale University

"Evaluation of alternative closures in a CGE model with financial sector for Colombia (1990-1995)", 1997, Universidad de los Andes-Banco de la República (Master’s thesis).

The dissertation is a detailed empirical study of the behavior of consumers and producers in the U.S. market of digital cameras. It has three parts: the first part studies the behavior of consumers taking the evolution of quality and prices in the market as given. The second part develops an empirical methodology to study the firms’ endogenous choice of quality. Finally, the third part uses the proposed methodologies to study the relationship between the endogenous evolution of quality and the structure of the market. The methodology and the conclusions of the work, though specific to the case under study, should be applicable to the broader case of the markets of consumer technological goods with rapidly changing quality and prices.

The study of demand, which constitutes the first part of the dissertation, is based on a methodology developed by Melnikov (2000). It is a structural estimation of a dynamic model of consumer demand, in which consumers optimally time the purchase of the good, depending on the expected evolution of quality and prices. The technique combines features of traditional discrete choice models of durable goods’ demand (Berry, 1994, Goldberg, 1995) with features of empirical optimal stopping problems (Rust, 1987).

The second part, which is the core of the dissertation, proposes an original empirical methodology to study the endogenous choice of quality by firms in the market. It is based on a model in which firms choose whether to introduce new products into the market, depending on its expected profitability and the introduction costs, which vary over the time and quality dimensions. The expected profitability is computed consistently with the behavior of other firms and the consumer’s forward looking behavior, as described in the demand model. A simulation estimation technique is proposed to obtain the parametric structure of firms that best matches observed behavior. The methodology extends the empirical literature on durable goods markets (Berry, Levinsohn and Pakes (1995)) by endogenizing the firms’ choice of goods’ characteristics, which is a crucial problem for firms in markets of technological consumer goods, such as digital cameras.

The final part of the dissertation addresses the relationship between the number of firms in the market and the evolution of quality and variety of available products. This is a long standing issue in industrial economics (e.g. Schumpeter, 1950, Sutton, 1990) that has not been addressed for specific cases, due to the lack of adequate empirical methodologies. The estimation techniques proposed in previous parts of the dissertation allow the simulation of industry behavior for counterfactual scenarios. An answer to the stated question is approximated by simulating the equilibrium evolution of quality and variety of introduced camera models under different assumptions about the total number of participating firms.