Alexander MacKay  

Working Papers

Competition in Pricing Algorithms
with Zach Y. Brown
We model firm behavior when firms compete by choosing algorithms. Compared to simultaneous price-setting behavior, even simple (linear) algorithms support higher prices in equilibrium. High-frequency online price data has patterns consistent with competition in algorithms.
Recovering Investor Expectations from Demand for Index Funds
with Mark Egan and Hanbin Yang
We propose a revealed-preference approach to estimate investor expectations of stock market returns. We construct a time-varying distribution of beliefs and analyze how the it varies with past returns. We find that expectations are heterogeneous, extrapolative, and persistent.
Contract Duration and the Costs of Market Transactions
I describe a fundamental tradeoff in buyer-seller transactions: shorter contracts select more efficient sellers, but longer contracts avoid additional transaction costs. I provide an empirical model to account for this tradeoff and to estimate transaction costs, which are often unobserved.
Estimating Models of Supply and Demand: Instruments and Covariance Restrictions
with Nathan H. Miller
We show how models of firm behavior can help identify demand systems when prices are endogenous. We provide an alternative identification approach to instrumental variables, where we restrict the correlation between unobserved shocks and use all of the information in the model.
Consumer Inertia and Market Power
with Marc Remer
  • Vega Economics Award for Best Paper in Industrial Economics at the 2018 North American Summer Meeting of the Econometric Society
We provide an empirical model to estimate consumer affiliation (habit formation, search, brand loyalty, and switching costs) using market-level data. We show that these consumer dynamics result in smaller price increases after a merger, compared to the predictions from a static model.
The Empirical Effects of Minimum Resale Price Maintenance
with David Aron Smith
We estimate the effect of resale price maintenance (RPM) on prices across a broad variety of consumer products. We use the 2007 Leegin Supreme Court decision as a natural experiment. In states where the decision made RPM contracts legally permissible, prices increased.

Work in Progress

Shades of Integration: The Restructuring of the U.S. Electricity Markets
with Ignacia Mercadal
We show that utilities used long-term contracts and shared ownership to delay the introduction of competitive markets for many years after restructuring was formally introduced. At the expiration of the long-term contracts, competition in generation and retail increased, and prices went up.

Published and Forthcoming Papers

The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation
with Tatyana Deryugina and Julian Reif
[NBER Working Paper 23483]
Forthcoming, American Economic Journal: Applied Economics
Using a natural experiment and a dynamic model, we estimate large differences between the short-run and the long-run demand elasticities for electricity. These dynamics have important market implications, as they affect investment in new generation and the response to a carbon tax.
Challenges for Empirical Research on RPM
with David Aron Smith
Review of Industrial Organization, Vol. 50, No. 2 (2017), 209–220. We show that the quantity test that was suggested by Posner (1977; 1981) does not identify the change to welfare when demand-enhancing effects are considered generally. We outline other challenges and potential solutions to evaluating the effects of resale price maintenance (RPM).
Bias in Reduced-Form Estimates of Pass-Through
with Nathan H. Miller, Marc Remer, and Gloria Sheu
Economics Letters, Vol. 123, No. 2 (2014), 200-202. We show that a reduced-form regression of price on costs - the usual approach to estimating pass-through - may not provide a consistent estimate even when cost is a valid instrument. We provide a formal approximation to the bias and the additional conditions needed for consistency.