Research Interests: applied microeconomics, industrial organization, entry, information goods, nonlinear pricing
Katja Seim is an Associate Professor of Business Economics and Public Policy at the Wharton School, specializing in applied microeconomics and industrial organization. Her research focuses on two areas. First, she studies how firms make product introduction and entry decisions, how they assess the competitive implications of different market entry strategies, and how public policies and regulatory interventions shape their choices. A second focus of her research is price discrimination and nonlinear pricing, primarily in the context of communications and information industries. Her research has been published in leading journals such as American Economic Review, American Economic Journal: Microeconomics, Marketing Science, Quantitative Marketing and Economics, and the RAND Journal of Economics.
Katja received her PhD in Economics from Yale University and her undergraduate degree in Economics and Mathematics from Franklin & Marshall College. At Wharton, Katja teaches courses in the MBA and undergraduate programs on Managerial Economics, Public Policy design, Regulation and Antitrust. Before joining Wharton, she was on the faculty at the Stanford Graduate School of Business. She spent the 2016-17 academic year as the Chief Economist at the Federal Communications Commission.
Katja Seim, Eugenio Miravete, Jeff Thurk (2018), One Markup to Rule Them All: Taxation by Liquor Pricing Regulation, American Economic Journal: Microeconomics.
Abstract: Government often chooses simple rules to regulate industry even when firms and consumers are heterogeneous. We evaluate the implications of this practice in the context of alcohol pricing where the regulator uses a single markup rule that does not vary across products. We estimate an equilibrium model of wholesale pricing and retail demand for horizontally differentiated spirits that allows for heterogeneity in consumer preferences based on observable demographics. We show that the single markup increases market power among upstream firms, particularly small firms whose portfolios are better positioned to take advantage of the policy. For consumers, the single markup acts as a progressive tax by overpricing products favored by the rich. It also decreases aggregate consumer welfare though 16.7% of consumers are better off under the policy. These consumers tend to be older, less wealthy or educated, and minorities. Simple policies therefore generate significant cross-subsidies and may be an effective tool for government to garner favor of key constituencies.
Katja Seim, Eugenio Miravete, Jeff Thurk Wholesale Market Power and the Limited Profitability of Retail Zone Pricing.
Abstract: We study commodity taxation and characterize the Laffer curve, a trade-off between tax rates and revenue, in noncompetitive markets. Pricing in these markets leads to incomplete tax pass-through and agents re-optimize their purchase and pricing decisions in response to any tax change. We use detailed data from Pennsylvania, a state that monopolizes retail sales of alcoholic beverages, to estimate a model of demand for horizontally differentiated products that ties consumers' demographic characteristics to heterogeneous preferences for spirits. We find that under the state's current tax policy, spirits are overpriced. Distillers respond to decreases in the tax rate by increasing wholesale prices, which limits the state's revenue gain to only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. The strategic response of noncompetitive firms to changes in taxation therefore flattens the Laffer curve significantly.
Katja Seim, Michael Mazzeo, Mauricio Varela (2018), The Welfare Consequences of Mergers with Endogenous Product Choice, Journal of Industrial Economics.
Abstract: Merger simulations focus on the price changes that may occur once previously independent competitors set prices jointly and other market participants respond. This paper considers an additional effect - the possibility that market participants change the products they choose to offer after a merger. Using a model that endogenizes both product choice and pricing, we conduct equilibrium market simulations for mergers including the potential for product offering changes in a variety of scenarios. We find that allowing for changes in product offering can have effects on profitability and consumer welfare above and beyond those generated by traditional price responses alone, particularly in cases where the merging parties offered relatively similar products prior to the merger. Cost synergies may also affect product offering decisions, potentially leading to increases in consumer welfare if more products are introduced. The results suggest that analysts carefully consider the impacts of product choice, along with prices, when simulating potential welfare changes associated with mergers.
Teresa Harrison and Katja Seim (2018), Nonprofit tax exemptions and market structure: The case of fitness centers, Economic Journal.
Abstract: We investigate the role of nonprofit tax exemptions in affecting the structure of local fitness markets and in driving the nonprofit's decision to complement fitness offerings with youth programming. Nonprofits compete against a large number of for-profit fitness centers, calling into question the necessity of tax exemptions to encourage the provision of such services. We estimate an equilibrium model of market structure for fitness centers to assess the degree of competition between nonprofit and for-profit firms. Our results suggest that the two ownership types serve different customer bases, with nonprofit entry being prevalent in markets with large single populations and populations without college education. Relying on local property tax data as a proxy for the firm's tax burden, we find that while nonprofit entry would fall by 26% when facing the typical for-profit tax liability, for-profit entry would not respond to replace this loss in providers. In an extension of our entry model, we consider the potential spillovers to youth services provided by the nonprofit. We estimate that in the absence of a property tax exemption, the entry of nonprofit fitness facilities that jointly operate a youth program would decline by approximately 20%, a significant share of the overall impact on nonprofit entry. Tax exemptions thus aid in both the provision of the primary and auxiliary services.
Abstract: We examine the economies of density associated with the expansion of Amazon's distribution network from 2006 to 2018. We demonstrate that, in placing a fulfillment center in a new state, Amazon faces a trade-off between the revenue implications of exposing local customers to sales tax on their purchases and the cost savings from reducing the shipping distance to those customers. Using detailed data on online transactions, we estimate a model of demand for retail goods and show that consumers' online shopping is sensitive to sales taxes. We then use the demand estimates and the spatial distribution of consumers relative to Amazon's fulfillment centers to predict revenues and shipping distances under the observed fulfillment center roll-out and under counterfactual roll-outs over this time period. Using a moment inequalities approach, we infer the cost savings from being closer to customers that render the observed network roll-out optimal. We find that Amazon saves between $0.17 and $0.47 for every 100 mile reduction in the distance of shipping goods worth $30. In the context of its distribution network expansion, this estimate implies that Amazon has reduced its total shipping cost by over 50% and increased its profit margin by between 5 and 14% since 2006.
Abstract: We examine the role of price transparency in consumer preferences and demand. We assemble a detailed dataset on the driving school industry in Portugal to quantify how firms present the price of the course of instruction, and its individual components, to potential students. Our unique data allows us to estimate a structural model of school choice and measure the impact of varying levels of price information on demand. The results show that consumers are willing to pay a significant amount for price transparency, on average 11% of the service price, and that consumer demographics drive heterogeneous preferences for transparency.
Evan Kwerel, Paroma Sanyal, Katja Seim, Martha Stancill, Patrick Sun (2017), Economics at the FCC, 2016–2017: Auction Designs for Spectrum Repurposing and Universal Service Subsidies, Review of Industrial Organization, 51 (4), pp. 451-486.
Abstract: The Federal Communications Commission is responsible for federal regulation in the telecommunications and electronic media sectors, and for management of the nation’s non-federal radio frequency spectrum. During the past year, Commission economists contributed to the agency’s ongoing efforts to use market-based mechanisms—such as auctions—to allocate spectrum and distribute universal service subsidies efficiently. This includes repurposing broadcast television spectrum for more efficient use by wireless service providers through the recently concluded Broadcast Incentive Auction and structuring auction mechanisms to promote efficient allocation of universal service subsidies for the increased build-out of mobile wireless and fixed broadband service in unserved and underserved areas.
David M. Muir, Katja Seim, Maria Ana Vitorino (Under Revision), Drip Pricing When Consumers Have Limited Foresight: Evidence from Driving School Fees.
Abstract: This paper empirically investigates the add-on or "drip" pricing behavior of firms. We present a model in which consumers purchase a base product and, with some probability, an add-on product from the same firm, but are not always attentive to their possible need for the add-on product. We show that a loss leader pricing strategy emerges whereby firms price the base product below, and the add-on above, standalone pricing levels. We test the implications of the model in the Portuguese market for driving instruction where students frequently pay for repeat driving exams and additional lessons upon failing their initial exam. Relying on a detailed, nationwide data set on student characteristics and preferences, school attributes including fees and costs, and market demographics for a cross-section of local markets with differing numbers of school competitors, we find evidence in support of the model predictions. Most notably, prices for the base course of instruction, but not the add-on repeat courses, decline in the number of competitors a firm faces. We complement these results with survey evidence on possible sources of consumer inattention that the observational data does not speak to. The consumer survey suggests that approximately one quarter of students are inattentive to repeat fees when making their school choice driven both by an underestimation of fail propensities and an unawareness of the actual cost of a repeat exam. This result has important policy implications regarding the cross-subsidization of students who are aware of the add-on by those who are not.
Abstract: We explore the sensitivity of the U.S. government's ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior to the auction and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. A proposed remedy reduces the distortion in payouts to license holders by up to 80%, but lower participation could greatly increase payouts and exacerbate strategic effects.
This course explores the economics and politics of public policy to provide an analytic framework for considering why, how, and with what success/failure government intervenes in a variety of policy areas. Particular attention will be paid to important policy issues relating to taxation, social security, low-income assistance, health insurance, education (both K-12 and higher ed), the environment, and government deficits. The costs and benefits of alternative policies will be explored along with the distribution of responsibilities between the federal, state and local governments. While the course will focus primarily on U.S. policies, the topics covered (e.g. tax reform, deficits versus austerity, etc.) are currently at the center of the policy debate in many other industrialized countries as well.
Many dimensions of firms' strategies, including agreements with suppliers and competitors, mergers and acquisitions, pricing, and technology standards development, among others, are subject to the oversight of regulatory bodies and governmental agencies. This course studies how public policy impacts firms' strategic choices in a host of economic environments. We will analyze pricing strategies including versioning and bundling; product standardization decisions; the management of complementarities between products; the role of network effects and platform competition; and how firms can take advantage of the regulatory environment they operate in when making such decisions. We will study, for example, why Sony won the Blu-Ray format war against the widely supported HD-DVD format; how the FCC plans to incentivize television broadcasters to return spectrum holdings for auction to wireless broadband providers; and how contracts with content providers affect firms' strategic interactions in the e-reader market. To understand how firm strategy and public policy interact, the course will rely on a mix of simple but rigorous analytical models and case studies.
This course will introduce you to "managerial economics" which is the application of microeconomic theory to managerial decision-making. Microeconomic theory is a remarkably useful body of ideas for understanding and analyzing the behavior of individuals and firms in a variety of economic settings. The goal of the course is for you to understand this body of theory well enough so that you can effectively analyze managerial (and other) problems in an economic framework. While this is a "tools" course, we will cover many real-world applications, particularly business applications, so that you can witness the usefulness of these tools and acquire the skills to use them yourself. We will depart from the usual microeconomic theory course by giving more emphasis to prescription: What should a manager do in order to achieve some objective? That course deliverable is to compare with description: Why do firms and consumers act the way they do? The latter will still be quite prominent in this course because only by understanding how other firms and customers behave can a manager determine what is beswt for him or her to do. Strategic interaction is explored both in product markets and auctions. Finally, the challenges created by asymmetric information - both in the market and within the firm - are investigated.
Many dimensions of firms' strategies including agreements with suppliers and competitors, mergers and acquisitions, pricing and technology standards development, among others, are subject to the oversignt of regulatory bodies and governmental agencies. This course studies how public policy impacts firms' strategic choices in a host of economic environments. We will analyze pricing strategies includng versioning and budling; product standardization decisions; the management of complementarities between products; the role of network effects and platform competition; and how firms can take advantage of the regulatory environment they operate in when making such decisions. We will study, for example, why Sony won the Blu-Ray format war against the widely supported HD-DVD format; how the FCC plans to incentivize television broadcasters to return spectrum holdings for auction to wireless broadband providers; and how contracts with content providers affect firms' strategic interactions in the e-reader market. To understand how firm strategy and public policy interact, the course will rely on a mix of simple but rigorous analytical models and case studies.
This course explores the economics and politics of public policy to provide an analytic framework for considering why, how, and with what success/failure government intervenes in a variety of policy areas. Particular attention will be paid to important policy issues relating to taxation, social security, low-income assistance, health insurance, education (both K-12 and higher ed), the environment, and government deficits. The costs and benefits of alternative policies will be explored along with the distribution of responsibilities between the federal, state, and local governments. While the course will focus primarily on U.S. policies, the topics covered (e.g. tax reform, deficits versus austerity, etc.) are currently at the center of the policy debate in many other industrialized countries as well.
Of the many ways that doctoral students typically learn how to do research, two that are important are watching others give seminar presentations (as in Applied Economics Seminars) and presenting one's own research. The BEPP 900 course provides a venue for the latter. Wharton doctoral students enrolled in this course present applied economics research. Presentations both of papers assigned for other classes and of research leading toward a dissertation are appropriate in BEPP 900. This course aims to help students further develop a hands-on understanding of the research process. All doctoral students with applied microeconomic interests are encouraged to attend and present. Second and third year Applied Economic Ph.D. students are required to enroll in BEPP 900 and receive one-semester credit per year of participation.
This course focuses on empirical methods and applications of research topics in Industrial Organization. Although not exclusively, the course will focus mostly on the application of econometric techniques used to study specific markets and antitrust policies. The topics that will be covered include the evaluationof market power and mergers, product differentiation, investment and innovation, collusion, price discrimination, vertical relations, entry and product positioning, and the dynamics of industries. The course will also discuss research methodologies related to microeconomic theory, computational methods, and econometric analysis. The applicability of the techniques goes beyond the field of Industrial Organization, and include the Labor, Health, Trade and Public economics.
This course establishes the micro-economic foundations for understanding business decision-making. The course will cover consumer theory and market demand under full information, market equilibrium and government intervention, production theory and cost optimization, producing in perfectly competitive and monopoly markets, vertical relations, and game theory, including simultaneous, sequential, and infinitely repeated games. Finally, we will wrap up game theory with an application to auctions. Students are expected to have mastered these materials before enrolling in the second quarter course: Microeconomics for Managers: Advanced Applications.
This course will cover the economic foundations of business strategy and decision-making in market environments with other strategic actors and less than full information, as well as advanced pricing strategies. Topics include oligopoly models of market competition, creation, and protection, sophisticated pricing strategies for consumers with different valuations or consumers who buy multiple units (e.g. price discrimination, bundling, two-part tariffs), strategies for managing risk and making decisions under uncertainty, asymmetric information and its consequences for markets, and finally moral hazard and principle-agent theory with application to incentive contacts.
Today’s consumers care most about convenience; paying a few dollars more in sales tax won’t stop them from shopping online, experts say.Knowledge @ Wharton - 2018/06/26