Two essays on industrial organization

Abstract

This thesis consists of two papers investigating different markets with asymmetric information and discussed how firms' behavior would be affected. The first paper considers a market of healthcare services. Independent laboratories are prevalent, and they are an integral part of many medical services. The paper studies the patient-doctor-laboratory relationship in a setting where competitive laboratories can pay the doctor kickbacks to encourage him for inappropriate or unnecessary laboratory tests. Some patients are unaware that laboratories may pay doctors kickbacks and that lab tests' over-provision can hurt them. The aware patients use the rejection of doctor's recommendations to protect themselves against overcharging. In response to the higher rejection rate, the doctor charges smaller kickbacks when more patients become aware and induces a higher acceptance rate of lab tests. The paper finds that banning kickbacks can hurt social welfare when under-provision of the services is severe. A moderate level of patient awareness can be optimal for social welfare.

The second paper studies a competitive labor market with asymmetric learning between the incumbent firm and outside firms. When workers determine and pay for the human capital investment, promotion serves as a signaling device, creating an incentive complementarity between general and specific human capital investment. A job ladder endogenously emerges within the higher position due to the workers' incapability of signaling their abilities perfectly. Females, who have higher costs in acquiring firm-specific human capital than males, are more likely to be under-evaluated by the labor market and present less in high-skilled jobs than males. Properly setting a minimum promotion requirement for the specific human capital may improve female's welfare and reduce the gender wage gap by helping them better signal their abilities to the market without affecting the promotion efficiency. In contrast, setting a minimum requirement for the general human capital to raise investment would always result in higher promotion inefficiency.