Essays on Empirical Industrial Organization and Real Estate Finance

In the first chapter, I estimate a dynamic discrete choice model with partial observability for household mortgage default and prepayment behaviors. When households decide whether to default or refinance, their beliefs about future house prices and interest rates matter. This motivates estimating a dynamic discrete choice model. There are two types of default: illiquidity-triggered default and strategic default. However, researchers can only observe default, but cannot identify whether it is illiquidity-triggered or strategic. Moreover, usually researchers can only observe prepayment, but cannot identify whether it is due to refinancing or moving. In this paper, I extend the conditional choice probability (CCP) method to estimate a dynamic discrete choice model with partially observable outcomes. Exclusion restrictions provide identifying conditions: some variables are only related to the incentive to pay but not the ability to pay; and some variables are only related to the incentive to refinance but not the decision to move. The model yields separate predictions of the probabilities of illiquidity-triggered default, strategic default, refinancing, and moving. Counterfactual analyses for foreclosure-mitigating loan modification policies are conducted.;In the second chapter, I study how incumbent airline carriers' capital structure affects their responses to Southwest Airlines' entry threat and actual entry. The interaction between firms' capital structure and their behavior in product markets has been studied in both the industrial organization and corporate finance literature. Some theories predict that firms with higher financial leverage tend to compete more aggressively in product markets, whereas other theories predict that lower leveraged firms tend to compete more aggressively. I find that when responding to the threat of entry by Southwest, low leveraged incumbents tend to cut prices more aggressively. This finding supports the theory of Bolton and Scharfstein (1990) (low leveraged incumbents have a "long purse" and thus are more capable of cutting prices to deter potential entry). I also find that when responding to Southwest's actual entry, highly leveraged incumbents tend to cut prices more aggressively. This supports the theory of Maksimovic (1998) (highly leveraged firms are more likely to deviate from tacit) and also the theory of Brander and Lewis (1986) (with limited liabilities, a highly leveraged firm will choose higher output levels which will raise profits in good states even though it lowers profits in bad states).;In the second chapter, I study how incumbent airline carriers' capital structure affects their responses to Southwest Airlines' entry threat and actual entry. The interaction between firms' capital structure and their behavior in product markets has been studied in both the industrial organization and corporate finance literature. Some theories predict that firms with higher financial leverage tend to compete more aggressively in product markets, whereas other theories predict that lower leveraged firms tend to compete more aggressively. I find that when responding to the threat of entry by Southwest, low leveraged incumbents tend to cut prices more aggressively. This finding supports the theory of Bolton and Scharfstein (1990) (low leveraged incumbents have a "long purse" and thus are more capable of cutting prices to deter potential entry). I also find that when responding to Southwest's actual entry, highly leveraged incumbents tend to cut prices more aggressively. This supports the theory of Maksimovic (1998) (highly leveraged firms are more likely to deviate from tacit) and also the theory of Brander and Lewis (1986) (with limited liabilities, a highly leveraged firm will choose higher output levels which will raise profits in good states even though it lowers profits in bad states).