Abstract
While consumer purchasing decisions routinely span multiple product categories, the industrial organization literature has largely analyzed competition in isolation. This dissertation examines how cross-sector demand externalities propagate through firms’ strategic behavior, thereby shaping competition across interconnected markets from both theoretical and empirical perspectives.
In the first chapter, I develop an aggregative game framework in which asymmetric oligopolists from two sectors compete. The equilibrium is characterized by sector-level reaction functions, which describe how each sector’s action aggregate responds strategically to the other sector and, in turn, determine each firm’s equilibrium action. Focusing on pricing competition, I analyze how market equilibrium shifts after a within-sector shock or a cross-sector merger, depending on the strategic and demand relationships between the sectors. I also characterize the long-run equilibrium where oligopolistic and monopolistically competitive firms coexist, in which case strategic relationships depend solely on cross-sector demand externalities. To substantiate the results, I examine canonical demand models, including nested CES, and logit with joint consumption.
In the second chapter, I provide empirical evidence of the cross-sector spillovers. I develop a theoretical model with two categories where consumers can purchase products individually or in bundles. On the supply side, symmetric single-product firms in each category set prices and make entry decisions. The model demonstrates that complementarity between categories leads to strategic substitutability in prices but strategic complementarity in variety. Moreover, the entry of a new product type with stronger complementarity reduces variety in its own category while expanding variety in the complementary category. I link these cross-category effects to the U.S. yogurt and granola markets, exploiting the 2007 entry of Greek yogurt by Chobani as a quasi-natural experiment. Using store-level panel data and an instrumental variable approach, I find that Chobani's entry decreased traditional yogurt variety by 7.3% and increased granola variety by 33%
