Chenyang Li
My papers
I work in applied microeconomics theory, mechanism design, and industrial organization.
Non-cooperative Bargaining and Collusion Formation Through Communication Networks （Draft under revision）
Previously named: How to make people work without external supervision.
Many real-world organizations face the threat of internal collusion, where a fraction of members conspire to exploit regulatory loopholes or abuse their power for personal gain. In contrast to existing literature, this paper considers the case that colluding members may provide cover for each other, evading punishment even if non-colluding members report their activities.
The collusion formation process is modeled as a bargaining process through a personal connection or friendship network, as corruption attempts are not made public. The analysis reveals that collusion is less likely to occur in networks with sparser connections. In particular, star and ring networks present the greatest challenges for collusion. For arbitrary communication networks, an algorithm is developed to identify the potential for collusion among individual players, enabling policymakers to enhance detection and control of corruption.
This research contributes valuable insights into the fields of anti-corruption, anti-trust, firm management, political bargaining, social movements, and revolutions. It is particularly relevant in cases where principals struggle to impose punishment following successful collusion.
With Yangguang Huang (HKUST) and Si Zuo (Cornell)
Earning a good reputation is crucial for the survival of new firms on online retailing and service platforms. With a dynamic price signaling model, we show that a high-quality firm can signal its unobserved quality by setting a lower introductory price than its low-quality counterpart. After accumulating sufficient favorable reviews, the high-quality firm will raise its price and enjoy a quality premium. Using data from Zaihang, a consulting service platform, we find empirical evidence that experts with high unobserved ability indeed adopt low introductory prices and exhibit a rising price dynamic over time. We use the performance of the expert on another platform as an instrument for the expert's ability on Zaihang to provide evidence that the relationship is causal. Our empirical findings reject alternative models in which firms do not know their own types, or consumers can observe firm types.
With Michael Waldman (Cornell) and Haimeng Hester Zhang (IESE)
Observation of real-world markets suggests that many products are produced at below efficient built-in durability levels, and/or new products are introduced quickly which inefficiently reduces the useful life of durable products. Most of the prior literature on this subject explains these observations employing monopoly/market power models, but a number of the markets that exhibit these behaviors are competitive. We consider models in which consumers have time-inconsistent/present-biased preferences, as first put forth in the seminal analysis of Strotz (1955), and show that present-biased consumer preferences can lead to equilibrium durability below efficient levels and inefficiently quick new-product introductions, even in competitive markets. We also investigate circumstances in which market power aggravates these distortions. In addition to deriving these theoretical results, we relate our theory to recent regulatory changes in the light bulb industry, as well as to the behavior of the well-known Phoebus light bulb cartel of the 1920s and 1930s.
Stores Going Online: Market Expansion or Cannibalization? (Draft under revision)
With Yangguang Huang (HKUST) and Si Zuo (Cornell)
With the continual growth of e-commerce, many brands have opened up online sales channels alongside their traditional brick-and-mortar (B&M) stores. Consumers usually incur lower shopping costs from purchasing online, so the presence of an online store tends to cannibalize sales of the corresponding B&M store. However, online sales may expand the market for the B&M store by increasing consumer awareness of the brand and transmitting product information. We use a unique dataset of 308 B\&M stores matched with their online stores on Taobao to investigate the two countervailing effects. We utilize bad weather days offline-exclusive demand shocks to identify the (negative) cannibalization effect of online sales on B\&M stores. We use online shopping festivals as online-exclusive demand shocks to identify the (positive) informative effect. Our findings reveal that categories of shoes, clothing, cosmetics, and toys suffer the most from the opening of online stores, while jewelry and personal care stores are benefiting from online opening. Based on survey data, we find the discounted price difference and inspection cost are the main mechanisms behind these heterogeneous results. Our study unveils the complex relationship between online and offline sales and offers insights into the strategies and operations of store managers and shopping malls in the digital age.
In many game-theoretic models, it is common to see multiple equilibria. There are extensive literature on identifying which equilibrium is more likely to occur, arguments like the focal points, evolutionary convergence, learning and Et cetera. But all of them have certain limitations. In this paper, I propose a new setup that enables us to model the equilibrium selection process. Instead of players best responding to each other's actual strategies, I assume that players best respond to their beliefs about the opponents' strategy. On the other hand, the belief is generated from a belief formation function that may take any observables and map that into a specific belief about the opponent's strategy. This way, we may construct models describing how payoff irrelevant signals and off equilibrium play may shape future outcomes and choosing equilibrium. Then I introduce the outer games to model how exogenous shocks to an inner game are generated. I allow players in the outer game to affect the game structure and belief formation signals of the inner game and thus control equilibrium outcome exogenously. I use several examples to illustrate this new setup and how it is different from more conventional sequential games. I finish this paper by discussing further regulatory assumptions on the belief formation functions.