nep-mkt New Economics Papers
on Marketing
Issue of 2005‒08‒13
six papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Direct to Consumer Advertising in Pharmaceutical Markets By Kurt R. Brekke; Michael Kuhn
  2. Coordination in Markets with Consumption Externalities: The Role of Advertising and Product Quality By Pastine, Tuvana; Pastine, Ivan
  3. Demand Estimation for Italian Newspapers: The Impact of Weekly Supplements By Elena Argentesi
  4. Estimating market power in a two-sided market: the case of newspapers By Elena Argentesi; Lapo Filistrucchi
  5. Farm Productivity and Market Structure. Evidence From Cotton Reforms in Zambia By Irene Brambilla; Guido G. Porto
  6. What's Psychology Worth? A Field Experiment in the Consumer Credit Market By Marianne Bertrand; Dean S. Karlan; Sendhil Mullainathan; Eldar Shafir; Jonathan Zinman

  1. By: Kurt R. Brekke; Michael Kuhn
    Abstract: We study effects of direct-to-consumer advertising (DTCA) in the prescription drug market. There are two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients differ in their susceptibility to the drugs. If DTCA is allowed, this can be employed to induce (additional) patient visits. Physicians perfectly observe the patients' type (of illness), but rely on information to prescribe the correct drug. Drug information is conveyed by marketing (detailing), creating a captive and a selective segment of physicians. First, we show that detailing, DTCA and price (if not regulated) are complementary strategies for the firms. Thus, allowing DTCA induces more detailing and higher prices. Second, firms benefit from DTCA if detailing competition is not too fierce, which is true if investing in detailing is sufficiently costly. Otherwise, firms are better off with a ban on DTCA. Finally, DTCA tends to lower welfare if insurance is generous (low copayments) and/or price regulation is lenient. The desirability of DTCA also depends on whether or not the regulator is concerned with firms' profit.
    Keywords: marketing, pharmaceuticals, oligopoly
    JEL: I11 L13 L65 M37
    Date: 2005
  2. By: Pastine, Tuvana; Pastine, Ivan
    Abstract: This paper studies advertising in vertically differentiated product markets with positive consumption externalities. In markets with consumption externalities, the value of the product to the consumer depends on the purchasing decisions of other consumers. In such markets, we show that firms will engage in advertising competition in order to convince consumers of their popularity only as long as they produce goods of similar quality. The firm with the lower quality product will have a greater incentive to advertise. If it is not the brand to provide the greater consumption externality it will have very low market share due to its low intrinsic quality. Hence, in equilibrium, the lower quality product will often be more popular. This provides an additional explanation for the empirical observation that in some markets high quality is associated with lower levels of advertising.
    Keywords: advertising; consumption externalities; coordination; product quality
    JEL: L13 L15 M37
    Date: 2005–07
  3. By: Elena Argentesi
    Abstract: This paper looks at a form of non-price competition that has taken place in the Italian newspaper market, whereby weekly supplements are sold with the newspaper at a higher price. I estimate the impact of this selling strategy using a logit and a nested logit model of demand on a panel of Italian newspapers. I show that supplements increase the readership both in the weekday of issue and in the average weekday. This suggests that supplements are a way to attract new readers for the newspaper. This promotional effect is due both to business stealing and to market expansion.
    JEL: L11 L82 C33
    Date: 2004
  4. By: Elena Argentesi; Lapo Filistrucchi
    Abstract: The newspaper industry is a two-sided market: the readers market and the advertising market are closely linked by inter-market network externalities. We estimate market power in the Italian newspaper industry by building a structural model which encompasses a demand estimation for differentiated products on both sides of the market and where profit maximization by the publishing firms takes into account the interactions between them. The question that we address is whether the observed price pattern is consistent with profit-maximizing behavior by competing firms or is instead driven by some form of (tacit or explicit) coordinated practice.
    Keywords: demand estimation, market power, two-sided markets, newspapers, differentiated products.
    JEL: L11 L40 L82 C33
    Date: 2005
  5. By: Irene Brambilla (Economic Growth Center, Yale University); Guido G. Porto (The World Bank)
    Abstract: This paper investigates the impacts of cotton marketing reforms on farm productivity, a key element for poverty alleviation, in rural Zambia. The reforms comprised the elimination of the Zambian cotton marketing board that was in place since 1977. Following liberalization, the sector adopted an outgrower scheme, whereby firms provided extension services to farmers and sold inputs on loans that were repaid at the time of harvest. There are two distinctive phases of the reforms: a failure of the outgrower scheme, and a subsequent period of success of the scheme. Our findings indicate that the reforms led to interesting dynamics in cotton farming. During the phase of failure, farmers were pushed back into subsistence and productivity in cotton declined. With the improvement of the outgrower scheme of later years, farmers devoted larger shares of land to cash crops, and farm productivity significantly increased.
    Keywords: cotton marketing reforms, farm productivity
    JEL: O12 O13 Q12 Q18
  6. By: Marianne Bertrand (University of Chicago, NBER & CEPR); Dean S. Karlan (Yale University, Economic Growth Center); Sendhil Mullainathan (Harvard University & NBER); Eldar Shafir (Princeton University); Jonathan Zinman (Dartmouth College)
    Abstract: Numerous laboratory studies report on behaviors inconsistent with rational economic models. How much do these inconsistencies matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experiences? We report on a field experiment designed to address this question. Incumbent clients of a lender in South Africa were sent letters offering them large, short-term loans at randomly chosen interest rates. Psychological “features” on the letter, which did not affect offer terms or economic content, were also independently randomized. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, the psychological features also significantly affected take-up. The independent randomizations allow us to quantify the relative importance of psychological features and prices. Our core finding is the sheer magnitude of the psychological effects. On average, any one psychological manipulation has the same effect as a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers. Moreover, the psychological features do not appear to draw in marginally worse clients, nor does the magnitude of the psychological effects vary systematically with income or education. In short, even in a market setting with large stakes and experienced customers, subtle psychological features that normatively ought to have no impact appear to be extremely powerful drivers of behavior.
    Keywords: Behavioral economics, psychology, microfinance, marketing, field experiment, credit markets
    JEL: C93 D12 D21 D81 D91 M37 O12

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