Alexander MacKay  

Publications

Competition in Pricing Algorithms
with Zach Y. Brown
Accepted, American Economic Journal: Microeconomics
Using high-frequency data, we document new facts about pricing behavior by online retailers. Based on these facts, we model firm behavior when firms compete by choosing algorithms. Compared to simultaneous price-setting behavior, even simple (linear) algorithms support higher prices in competitive equilibrium.
Recovering Investor Expectations from Demand for Index Funds
with Mark Egan and Hanbin Yang
[NBER Working Paper 26608]
Accepted, Review of Economic Studies
We propose a revealed-preference approach to estimate investor expectations of stock market returns. We construct a time-varying distribution of beliefs that allows for heterogeneity among investors. Investors have persistent beliefs that reflect past returns, and a large fraction are contrarians.
Contract Duration and the Costs of Market Transactions
Forthcoming, American Economic Journal: Microeconomics
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.
The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation
with Tatyana Deryugina and Julian Reif
American Economic Journal: Applied Economics, Vol. 12, No. 1 (2020), 86–114.
[Working paper version: pdf | SSRN | NBER Working Paper 23483] 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.
[Working paper version: pdf] 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.

Working Papers

Rising Markups and the Role of Consumer Preferences
with Hendrik Döpper, Nathan H. Miller, and Joel Stiebale
We measure the evolution of markups in consumer products across hundreds of product categories from 2006 to 2019. Using detailed data on prices and quantities, we estimate flexible consumer preferences that vary over time, allowing us to evaluate mechanisms that might explain changes in market power.
Consumer Inertia and Market Power
with Marc Remer
We provide an empirical model to estimate the dynamic pricing incentives generated by consumer inertia (habit formation, search, brand loyalty, and switching costs). We show that these dynamic incentives can limit price increases after a merger, compared to the predictions from a static model.

  • Vega Economics Award for Best Paper in Industrial Economics at the 2018 North American Summer Meeting of the Econometric Society

Deregulation, Market Power, and Prices: Evidence from the Electricity Sector
with Ignacia Mercadal
The introduction of competitive markets and market-based prices in the electricity sector were followed by higher prices and lower costs for consumers. Markups increased substantially, highlighting the tradeoff between market power and allocative efficiencies when determining whether to regulate prices.
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.

Older Working Papers

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.