This dissertation consists of three theoretical and empirical essays. In all essays strategic behavior is a key factor. The first essay tries to explain certain pricing behaviors in cellular communication markets using social interactions as a basis for modeling. The second essay estimates the demand in the Turkish dishwasher market. It utilizes the complaint call rate for a firm as a new explanatory variable in the estimation process. The last essay examines the effects of market share restrictions on the cost reduction efforts of firms in a market.
The first essay develops a model of competition in cellular network markets. People's choices are investigated in their social environments with differing utilities for different calls, which creates the distinctive part of this article. People get higher utilities from talking to people who are closer to them in the social environment.
In the constructed market, different tariff types, per unit pricing and two part tariffs are examined for the existence of non-monopoly equilibria. In the well-known papers of the literature, different prices for in-line and between-line calls are justified with different cost structures for in-line and between-line calls. This essay is different from the literature because it is able to explain price discrimination with customer necessities and without cost differences.
For per unit charging, assuming each firm has different costs which are larger than zero, the smaller cost firm gets a higher share with lower prices in the equilibrium. For two part tariffs with costs higher than zero and different from each other, a two firm equilibrium is reached in which the higher cost firm charges higher prices and a lower fixed fee, whereas the lower cost firm charges lower prices and a higher fixed fee.
The second chapter is the empirical essay of this dissertation. In demand estimations, unobserved characteristics like perceived quality or after-sale service quality of products have created omitted variable bias. In the essay, the complaint call rate for a product is offered as a proxy to solve the endogeneity problem that arises from unobserved heterogeneity. Using demand and supply estimations of the Turkish dishwasher market, the complaint call rate is shown to be a valid proxy to solve the problem.
Use of this proxy is possible under less restrictive assumptions than the popular instrumental variable method, which is also offered for the solution of the same problem. In addition, the model constructed in the essay has strong testable implications and is demonstrated to be consistent with a stable market of a leader firm and followers. Demand and supply elasticities of dishwashers are estimated for Turkey, which can help durable goods firms to use their investment and marketing resources more efficiently in emerging countries.
The third essay studies the effects of market share restrictions on research and development effects of firms in a market. Market share of firms are closely followed by regulatory authorities and restrictions are applied in many cases around the world.
This essay investigates if these restrictions affect the cost reduction efforts of the firms in a market. The theoretical model constructed shows that under the no exit assumption, market share restrictions lower the level of competition and possible rewards from R&D efforts, therefore causing smaller levels of R&D efforts both for big and small firms in the market.