Research
Reference Pricing and Consumption Inequality
Fall 2024. My second-year paper for the Economics PhD
Abstract: In the face of a flourishing digital economy, policymakers are increasingly interested in unifying digital markets across country borders. This paper examines the impact of unified digital markets on consumption inequality within and across countries. Using data from video game platform Steam, I first show that unified markets can lead to increased prices in smaller, riskier currency markets, resulting in higher within-country inequality. Conversely, prices tend to decrease in stable currency markets, exacerbating cross-country consumption inequality. By analyzing a policy reform by Steam and utilizing household consumption survey data from Argentina, the paper develops a model of equilibrium price setting that incorporates reference pricing restrictions. This model provides insights into the macroeconomic implications of digital market unification and its effects on consumption patterns, firm profits, and overall consumer welfare across different currency environments.