Francisco Pareschi

Abstract: We study the equilibrium effects of tobacco control policies. To accurately assess the impact of tobacco regulation on consumption, it is essential to understand how firms respond. We highlight that consumers' dependence on cigarettes, which we refer to as consumer inertia, introduces dynamic incentives for firms. Thus, we develop a dynamic oligopoly model and estimate it using product-level data and a panel of smokers. Leveraging large tax fluctuations and a policy that forced approximately 40% of products out of the market, we show that consumers have significant addiction and brand loyalty. We then propose a tractable equilibrium notion to compute market outcomes and show that dynamic competition models under inertia capture firm behavior well. We use this framework to examine the counterfactual effect of uniform packaging restrictions and caps on nicotine concentration. We highlight that firms' price and portfolio responses account for a substantial part of the overall policy effect. Moreover, we stress that more simplistic models of static competition would have led to significantly different conclusions about expected companies' responses.

Abstract: State-owned enterprises (SOEs) have the potential to correct market failures, but they are also subject to the influence of politics and interest groups. We examine this trade-off in the context of the nationalization of the leading gasoline company in Argentina. Descriptive analysis suggests that pricing patterns changed after the nationalization. First, the government exerted less market power, charging lower prices on average and benefiting consumers. Second, it engaged in less economic price discrimination, reducing the correlation between prices and consumers' willingness to pay. Third, it engaged in political price discrimination, charging lower prices in provinces with political connections with the state-owned firm. Motivated by these findings, we develop and estimate a model of gasoline supply and demand under market power and recover the government's objective function. We find that public provision lead to welfare gains but is also associated with redistributive motives. Compared to a benevolent planner that internalizes the welfare of all consumers and firms equally, the government set prices as if it only cares about favoring middle-income consumers and consumers in provinces that have political ties with the firm. Lastly, we use the model to assess the company's response to policy alternatives, including pricing rules that align government actions with the public interest and are in place in government agencies worldwide. Our findings show that rules effectively reduce the influence of politics in pricing but are associated with higher costs: they mitigate half of the welfare gains generated by the nationalization and increase the taxpayers' burden by 10%. These findings emphasize the importance of politics and interest groups in shaping governments' decision-making process and the role of SOEs as instruments for redistribution.

Abstract: In many economic settings, counterfactual analysis can be difficult for two reasons: (i) we do not know how to compute the equilibrium of the game, or (ii) even if we know how to compute one equilibrium, the game might feature multiple equilibria, which are challenging to characterize exhaustively. We propose a bounding framework to allow for counterfactual analysis even when these problems might arise. The method relies on determining valid (conservative) bounds to counterfactual outcomes that contain any outcome that could be sustained in equilibrium, i.e., any outcome that can be supported by a set of equilibrium constraints. To ensure that all potential solutions are considered, We propose to reframe equilibrium constraints as a relaxed mixed-integer linear program. We show that the framework can also be used to narrow down equilibria by imposing additional equilibrium constraints. We provide examples of static price competition with differentiated products, dynamic games, and multi-unit auctions, three areas where counterfactual analysis faces these challenges.