Michael Mazzeo

Mazzeo, Michael. 2002. Product Choice and Oligopoly Market Structure. RAND Journal of Economics. 33(2): 221-242.

I propose an empirical model to analyze product differentiation and oligopoly market structure. The model endogenizes firms' product-type decisions, measures how effects of competitors differ depending on their product types, and can incorporate alternative specifications for the product choice. I estimate using data from oligopoly motel markets along U.S. interstate highways; motel establishments are characterized by their quality choice. The results demonstrate a strong incentive for firms to differentiate. The effects of demand characteristics on product choice are also significant. Game specification is of minor importance, although differences in the games analyzed do affect equilibrium market structure predictions in some cases.

Hubbard, Thomas N. and Michael Mazzeo. 2017. When Demand Increases Cause Shakeouts.

Most canonical models of competition conclude that increases in demand should (weakly) lead to more firms. However, in models where competition is in quality, and quality is produced with fixed costs, increases in demand can lead to a competitive response that brings about shakeouts – higher demand can lead to fewer firms. This paper provides empirical evidence of this effect in the context of hotels and motels in the mid-to-late 20th century, where an important element of quality competition took the form of whether firms supplied recreational amenities such as swimming pools. We first provide evidence that the completion of Interstate highways is associated greater demand for lodging, showing that it is associated with increases in employment in the sector. We then investigate how industry structure adjusts to these shocks; we show that highway completion leads to fewer (but larger) firms. On average in our sample, the completion of highways leads to shakeouts. We then examine whether this effect is greater in warmer areas where the returns to investment in outdoor recreational amenities (i.e., swimming pools) are greater. We show that while the increase in employment in this industry is the same in warmer and cooler regions, highway completion only led to shakeouts in warmer regions. Finally, we investigate whether these effects appear when looking at restaurants, an industry where quality is supplied primarily through variable costs rather than fixed costs (Berry/Waldfogel,2010). Unlike for hotels and motels, we find no evidence that highway completion is associated with shakeouts in this industry. Our evidence connects to an important, but sometimes overlooked, finding of Sutton (1992): shakeouts – which in some cases could take the form or merger or merger waves – can be catalyzed by increases in market size. The competitive responses that lead to shake-outs need not only be initiated by changes in the “technology” that produces quality, but sometimes can be initiated simply by positive demand shocks. Firms’ incentives to grow – and in some cases to merge with other firms -- in response to demand increases need not be motivated by anticompetitive incentives, but rather may be motivated by increased incentives to compete more effectively on nonprice dimensions.

Cullen, JulieBerry and Michael Mazzeo. 2016. Implicit Performance Awards: An Empirical Analysis of the Labor Market for Public School Administrators.

We explore the microeconomic foundations of public school accountability programs, focusing on the incentives of school administrators to engage in effort to improve the performance of the campuses they are managing. In particular, we investigate the impact of administrators on school performance and the potential effects of a schools performance on the mobility and career advancement opportunities of its administrators. We exploit a unique dataset, consisting of the principals and performance (test scores) of all Texas public schools from 1989-2006 and the employment and wage histories during that same period for all administrators. These data enable us to determine what contributes to the decisions regarding hiring of administrators and how past experience affects their future labor market experience. Our preliminary analysis of the data indicates considerable turnover among school administrators less than three percent of schools have the same principal over the entire 17-year period. Individual administrators also change jobs frequently; the combination will enhance our ability (relative to the literature) to tease out the effects of individual administrators on school performance. In many cases, there are substantial changes in salary associated with job mobility and transitions. Therefore, individuals incentives to improve their schools performance may depend on factors such as the stage of their career (older principals closer to retirement having less time to benefit from higher wages) or the characteristics of their current position (and its corresponding opportunities for career advancement). Understanding the role played by individual incentives can help to sharpen policy interventions aimed at improving school performance. At the same time, the information we have collected on schools and administrators allow us to engage in a detailed study of this particular labor market. The empirical personnel economics literature has recently begun to exploit this sort of matched employer-employee dataset to test various theories about how labor markets operate. Our data are ideal for such an application for several reasons: (1) we have a complete panel with a large number of hiring organizations; (2) turnover and promotion happen almost exclusively within the schools and districts in our sample; (3) there is considerable (exogenous) variation in the size of schools and the organizational structure of school districts; (4) wage data are included and represent the bulk (e.g., no stock options to consider) of employee compensation; and (5) school test scores provide a universal metric on which the performance of employees in the dataset can be evaluated. These attractive features present the opportunity for drawing, from this particular analysis, more general conclusions about the interaction between organizational structure and both internal and external labor markets.

Mazzeo, Michael and Greg Merkley. 2012. LEGO® Friends: Leveraging Competitive Advantage. Case 5-312-500 (KEL736).

In December 2011 the Lego Group (TLG) announced the launch of Lego Friends, the company’s sixth attempt to market a product to girls. Lego Friends, which was supported by a $40 million global marketing campaign, was designed to introduce the fun of building with Lego bricks to girls, who represented less than 10 percent of Lego’s audience.

The company’s poorly executed brand extensions and move from free-form building sets to story-driven kits had nearly cost it its independence in 2004, so the launch of Lego Friends was strategically important. However, within hours of the product’s appearance it was heavily criticized for reinforcing gender stereotypes and damaging the valuable Lego brand.

Jørgen Vig Knudstorp, CEO since 2004, had saved TLG and ushered in an era of sales growth with a series of successful strategic initiatives. Would Lego Friends be another addition to TLG’s graveyard of failed products for girls, or would it prove popular and finally enable the company to double its sales and profits by reaching this segment?

Mazzeo, Michael, Ariel Shwayder and Sachin Waikar. 2009. Steve & Barry's: To Save or Not To Save?. Case 5-309-501 (KEL446).

Steve & Barry’s grew rapidly in the mid-2000s, transitioning from a chain of small stores selling inexpensive collegiate-branded merchandise near university campuses into a $1 billion mall-based giant selling a wide variety of low-priced, celebrity-endorsed apparel. While the company had a wide following, elements of its growth strategy—potentially exacerbated by economic conditions—contributed to its quick downfall. By 2008 Steve & Barry’s had declared bankruptcy, and various private equity firms were investigating whether some or all of the company should be saved. This requires analyzing the underlying business strategy pursued by Steve & Barry’s before and after its growth phase and specifically diagnosing the explanations for its failure.

Mazzeo, Michael. 2002. Product Choice and Oligopoly Market Structure. RAND Journal of Economics. 33(2): 221-242.

I propose an empirical model to analyze product differentiation and oligopoly market structure. The model endogenizes firms' product-type decisions, measures how effects of competitors differ depending on their product types, and can incorporate alternative specifications for the product choice. I estimate using data from oligopoly motel markets along U.S. interstate highways; motel establishments are characterized by their quality choice. The results demonstrate a strong incentive for firms to differentiate. The effects of demand characteristics on product choice are also significant. Game specification is of minor importance, although differences in the games analyzed do affect equilibrium market structure predictions in some cases.

Hubbard, Thomas N. and Michael Mazzeo. 2017. When Demand Increases Cause Shakeouts.

Most canonical models of competition conclude that increases in demand should (weakly) lead to more firms. However, in models where competition is in quality, and quality is produced with fixed costs, increases in demand can lead to a competitive response that brings about shakeouts – higher demand can lead to fewer firms. This paper provides empirical evidence of this effect in the context of hotels and motels in the mid-to-late 20th century, where an important element of quality competition took the form of whether firms supplied recreational amenities such as swimming pools. We first provide evidence that the completion of Interstate highways is associated greater demand for lodging, showing that it is associated with increases in employment in the sector. We then investigate how industry structure adjusts to these shocks; we show that highway completion leads to fewer (but larger) firms. On average in our sample, the completion of highways leads to shakeouts. We then examine whether this effect is greater in warmer areas where the returns to investment in outdoor recreational amenities (i.e., swimming pools) are greater. We show that while the increase in employment in this industry is the same in warmer and cooler regions, highway completion only led to shakeouts in warmer regions. Finally, we investigate whether these effects appear when looking at restaurants, an industry where quality is supplied primarily through variable costs rather than fixed costs (Berry/Waldfogel,2010). Unlike for hotels and motels, we find no evidence that highway completion is associated with shakeouts in this industry. Our evidence connects to an important, but sometimes overlooked, finding of Sutton (1992): shakeouts – which in some cases could take the form or merger or merger waves – can be catalyzed by increases in market size. The competitive responses that lead to shake-outs need not only be initiated by changes in the “technology” that produces quality, but sometimes can be initiated simply by positive demand shocks. Firms’ incentives to grow – and in some cases to merge with other firms -- in response to demand increases need not be motivated by anticompetitive incentives, but rather may be motivated by increased incentives to compete more effectively on nonprice dimensions.

Cullen, JulieBerry and Michael Mazzeo. 2016. Implicit Performance Awards: An Empirical Analysis of the Labor Market for Public School Administrators.

We explore the microeconomic foundations of public school accountability programs, focusing on the incentives of school administrators to engage in effort to improve the performance of the campuses they are managing. In particular, we investigate the impact of administrators on school performance and the potential effects of a schools performance on the mobility and career advancement opportunities of its administrators. We exploit a unique dataset, consisting of the principals and performance (test scores) of all Texas public schools from 1989-2006 and the employment and wage histories during that same period for all administrators. These data enable us to determine what contributes to the decisions regarding hiring of administrators and how past experience affects their future labor market experience. Our preliminary analysis of the data indicates considerable turnover among school administrators less than three percent of schools have the same principal over the entire 17-year period. Individual administrators also change jobs frequently; the combination will enhance our ability (relative to the literature) to tease out the effects of individual administrators on school performance. In many cases, there are substantial changes in salary associated with job mobility and transitions. Therefore, individuals incentives to improve their schools performance may depend on factors such as the stage of their career (older principals closer to retirement having less time to benefit from higher wages) or the characteristics of their current position (and its corresponding opportunities for career advancement). Understanding the role played by individual incentives can help to sharpen policy interventions aimed at improving school performance. At the same time, the information we have collected on schools and administrators allow us to engage in a detailed study of this particular labor market. The empirical personnel economics literature has recently begun to exploit this sort of matched employer-employee dataset to test various theories about how labor markets operate. Our data are ideal for such an application for several reasons: (1) we have a complete panel with a large number of hiring organizations; (2) turnover and promotion happen almost exclusively within the schools and districts in our sample; (3) there is considerable (exogenous) variation in the size of schools and the organizational structure of school districts; (4) wage data are included and represent the bulk (e.g., no stock options to consider) of employee compensation; and (5) school test scores provide a universal metric on which the performance of employees in the dataset can be evaluated. These attractive features present the opportunity for drawing, from this particular analysis, more general conclusions about the interaction between organizational structure and both internal and external labor markets.

Mazzeo, Michael and Greg Merkley. 2012. LEGO® Friends: Leveraging Competitive Advantage. Case 5-312-500 (KEL736).

In December 2011 the Lego Group (TLG) announced the launch of Lego Friends, the company’s sixth attempt to market a product to girls. Lego Friends, which was supported by a $40 million global marketing campaign, was designed to introduce the fun of building with Lego bricks to girls, who represented less than 10 percent of Lego’s audience.

The company’s poorly executed brand extensions and move from free-form building sets to story-driven kits had nearly cost it its independence in 2004, so the launch of Lego Friends was strategically important. However, within hours of the product’s appearance it was heavily criticized for reinforcing gender stereotypes and damaging the valuable Lego brand.

Jørgen Vig Knudstorp, CEO since 2004, had saved TLG and ushered in an era of sales growth with a series of successful strategic initiatives. Would Lego Friends be another addition to TLG’s graveyard of failed products for girls, or would it prove popular and finally enable the company to double its sales and profits by reaching this segment?

Mazzeo, Michael, Ariel Shwayder and Sachin Waikar. 2009. Steve & Barry's: To Save or Not To Save?. Case 5-309-501 (KEL446).

Steve & Barry’s grew rapidly in the mid-2000s, transitioning from a chain of small stores selling inexpensive collegiate-branded merchandise near university campuses into a $1 billion mall-based giant selling a wide variety of low-priced, celebrity-endorsed apparel. While the company had a wide following, elements of its growth strategy—potentially exacerbated by economic conditions—contributed to its quick downfall. By 2008 Steve & Barry’s had declared bankruptcy, and various private equity firms were investigating whether some or all of the company should be saved. This requires analyzing the underlying business strategy pursued by Steve & Barry’s before and after its growth phase and specifically diagnosing the explanations for its failure.