nep-mkt New Economics Papers
on Marketing
Issue of 2005‒11‒12
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Media Concentration and Consumer Product Prices By Anthony J. Dukes
  2. Assessing and exploiting the profit function by modeling the net impact of targeted marketing By W. BUCKINX; D. VAN DEN POEL
  3. Discrimination as a Competitive Device: The Case of Local Television News By Caitlin Knowles Myers
  5. Health Advertising to promote Fruit and Vegetable Intake: Application of need-related Health Audience Segmentation. By N. GEEROMS; P. VAN KENHOVE; W. VERBEKE
  6. Cash and the Counter: Capabilities and Preferences in the Demand for Banking Technologies By Davide Consoli
  7. Price regulation of plastic money: A critical assessment of Spanish rules By Benito Arruñada
  8. Local Competition and Impact of Entry by a Dominant Retailer By Ting Zhu; Vishal Singh; Anthony J. Dukes
  9. Price Responses to Market Entry With and Without Endogenous Product Choice By Helge Sanner
  10. Elasticities of Demand for Consumer Credit By Dean Karlan; Jonathan Zinman

  1. By: Anthony J. Dukes (School of Economics and Management, University of Aarhus)
    Abstract: We examine the interaction of commercial media and retail producers of well-known consumer products when advertising is used to differentiate brands. In particular, we address how competition in the media market affects choices of advertising and program quality. The results suggest counter-intuitively that advertisers may actually prefer media markets with less competition for audiences. Product differentiation through advertising is more effective when media markets are less competitive, leading to higher prices for advertised products. As a result, media concentration may lead to higher profits for advertising firms if the additional revenue exceeds the higher advertising costs associated with media concentration.
    JEL: L13 L82 M37
    Date: 2005–05
    Abstract: The success of a direct marketing campaign is driven by the ability of companies to estimate customers’ future contribution to their profitability. Especially when considering that in retailing companies are wasting resources when targeting customers who will make purchases even in case they would not receive a mailing. We present an advanced profit evaluation, which rates customers for the net impact of a campaign on their buying behavior. Moreover, in contrast to current practices and theory, we model each part of the profit function to improve the accuracy of expected customer value. We employ logistic regression and multiple linear regression to estimate future purchase probabilities and customer expenditures. Variables of different types are considered and a variable selection technique is used to avoid overfitting. To validate our findings, we implemented the method into the mailing system of a European retailer. Our results are of major importance for direct marketing managers, since they make the company’s total profit increase by 5 per cent. This result can be attributed to both a reduction of the optimal mailing depth by 65 per cent, which shows that current procedures lead to systematic ‘overmailing’, and a modified ranking of the customers in the segmentation list.
    Date: 2005–09
  3. By: Caitlin Knowles Myers
    Abstract: Local news offers a unique look not only at customer preferences but also at the strategic response of firms to these preferences. This paper uses a combination of ratings data and newly gathered information on television stations in 25 U.S. markets to examine the decisions of competing firms and how customers respond to the journalists who appear onair at the different stations in a market. The results indicate that there is a negative correlation between the racial, gender, and age composition of competing firms. Moreover, the ratings data suggest that the stations with relatively few blacks on-air are catering to the more discriminatory customers. While a similar result is found for age and gender, the reverse holds for other groups, suggesting possible tastes for diversity for Hispanics and Asians. Taken as a whole, the evidence supports a theoretical model in which firms differentiate via the characteristics of their employees in response to customer prejudice.
    Keywords: economics of gender and minorities, customer discrimination, product differentiation, Nielsen ratings
    JEL: J71
    Date: 2005
  4. By: Hrabrin Bachev (Institute of Agricultural Economics, Sofia, Bulgaria)
    Abstract: In this paper an attempt has been made to identify dominant forms and factors for land supply in Bulgarian farms. The New Institutional and Transaction Costs Economics framework is adapted to transitional agrarian economy. Institutional, behavioral, and transaction costs factors for evolution and sustainability of different forms of subsistent, cooperative, and commercial land supply in Bulgaria have been analyzed. Comparative efficiency of various forms for land supply in market-oriented farms of different type (unregistered, cooperatives, agro-firms) and sizes (small, middle, large) has been estimated. The study is based on original microeconomics data collected through interviews with managers of 0.5% of commercial farms in the country. First of all, a general characteristics and development of different kind of farms in Bulgaria has been presented. That analysis comprises: the kind of new commercial farms; the type of transactions under their management; the pace of evolution of market oriented farms; and factors for emergence of large-scale subsistent farming. Institutional and transaction costs origin of existing forms of farming has been underlined. Secondly, an analysis is made on major modes for land supply in commercial farms. It includes: the type of land supply (e.g. own land, leased land, cultivation in groups); modes of acquisition of land ownership (restitution, privatization, purchase); extend of lease-in contracts; forms for reduction of land “supply” (sell off and lease-out land). Dominating modes of land supply are found to relate to critical dimensions and costs of transacting. Thirdly, an analysis of the transaction costs in land supply has been made. In encompasses: the specific features of land supply contracts; the type of rent; extend of a third-party involvement in land transactions; and problems in land supply deals. Preferred contract forms depend on attributes of transactions and aim at protecting and minimizing costs of land deals. Finally, factors for enlargement of Bulgarian farms have been specified. It is proved that the reduction of land supply and the expansion of size of commercial farms, both have been determined by the transaction costs reasons. Presently, the high marketing, credit supply, and contract enforcement costs are the major factors restricting farms enlargement. A good part of cooperatives and middle-size farms also spend significant “time and efforts for finding partners selling or leasing-out land” On the other hand, the most important factors for farm development in the future relates to improvement of the institutional environment, and managerial experience of farm entrepreneurs. According to the farm managers there are no specific factors related to land supply which could impede farm development in the country.
    Keywords: governing of land supply, New Institutional and Transaction Costs Economics, transitional farm organization
    JEL: O P
    Date: 2005–11–06
    Abstract: Given the importance of meaningful audience segmentation in creating effective health advertisements, this study proposes a new segmentation approach based on a theoretical structure of eight fundamental consumer needs. The authors demonstrate the usefulness of this new method in the process of developing appropriate health advertisements in the context of fruit and vegetable consumption. Results of a two-step cluster analysis reveal five different health segments to exist with different health-realted need patterns. Significant differences exist between these segments both with regard to (category-specific) fruit and vegetable consumption and reactions toward fruit and vegetable health advertisements. In general, a segment’s reactions toward appropriate need-related health advertising were significantly more positive than its reactions toward health advertising that has a general character (i.e. not responsive to a segment’s underlying needs). Based on these results some practical suggestions and recommendations are offered for health communicators to use when developing need-related health advertisements to audiences with specific health-related need patterns.
    Date: 2005–10
  6. By: Davide Consoli (CRIC - Institute of Innovation Research, University of Manchester UK)
    Abstract: The main argument of this paper is that consumption and demand, like production, are discovery processes guided by trial-and-error and learning by consuming. The key question that is addressed is: how do consumers deal with innovation? By bringing together a number of threads within the innovation literature my claim is that consumers, akin to firms, follow routines that shape their consumption bundle, conceived here as an ensemble of activities rather than a bunch of goods. The analysis developed in the paper takes a very specific angle by elaborating on empirical evidence on the patterns of use of retail payment services in the United Kingdom to appreciate how consumption and demand can be shaped by the intertwined evolution of capabilities and preferences.
    Keywords: Retail Banking; Innovation; Demand; Consumer Capabilities
    JEL: L10 L23
    Date: 2005–11–08
  7. By: Benito Arruñada
    Abstract: Recent decisions by the Spanish national competition authority (TDC) mandate payment systems to include only two costs when setting their domestic multilateral interchange fees (MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificial lowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but it will however lead to higher cardholders’ fees and, likely, new prices for point of sale terminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders’ fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.
    Keywords: Credit cards, payment systems, regulation, interchange fees
    JEL: K21 K23 L14 L41
    Date: 2005–10
  8. By: Ting Zhu (Carnegie Mellon University); Vishal Singh (Carnegie Mellon University); Anthony J. Dukes (School of Economics and Management, University of Aarhus)
    Abstract: This paper analyzes the competition between two spatially differentiated multi-product retailers who encounter entry from a dominant discount retailer. Our primary objective is to determine how entry affects the pricing and relative profits of the incumbent stores and the role played by the location of the entrant. The new entrant has partial overlap in product assortment with the incumbents and is assumed to have lower procurement costs for the common goods. Consumers are heterogeneous in their location, economic status (shopping costs and valuations), as well as purchase basket or the types of products demanded. Results show that in the post entry equilibrium, the prices for the products not offered by the discounter are higher than the pre entry prices. More interestingly, contrary to the conventional wisdom we find that the store that is closer to the new entrant is better off compared to the incumbent located further away. The intuition for these results is that the discounter with its low price draws away the poor consumers – the price sensitive segment – out of the market for the items it carries. This in turn softens price competition between the incumbents for these items. Furthermore, the new entrant’s unique product offering attracts more consumers to visit the location it occupies, which introduces positive demand externalities to the neighboring retailer, leading to an increase in sales for the non-competing products. We provide empirical evidence for our results and discuss implications for retailers facing competition from large discount stores.
    Keywords: entry; retail competition; agglomeration
    JEL: L13 L81 M31
    Date: 2005–05
  9. By: Helge Sanner
    Abstract: Textbook wisdom says that competition yields lower prices and higher consumer surplus than monopoly. We show in two versions of a simple location-product differentiation model with and without endogenous choice of products that these two results have to be qualified. In both models, more than half of the reasonable parameter values lead to higher prices with duopoly than with monopoly. If the product characteristics are exogenous to the firms, consumers may even be be better off with monopoly in average.
    Keywords: Product differentiation; Hotelling; Price and Welfare Effects of Market Entry
    JEL: L12 L13 L41 D43
    Date: 2005–11
  10. By: Dean Karlan (Economic Growth Center, Yale University); Jonathan Zinman (Dartmouth College)
    Abstract: The price elasticity of demand for credit has major implications for macroeconomics, finance, and development. We present estimates of this parameter derived from a randomized trial. The experiment was implemented by a consumer microfinance lender in South Africa and identifies demand curves that, while downward-sloping with respect to price, are flatter than recent estimates in both developing and developed countries throughout most of a wide price range. However, demand becomes highly price sensitive at higher-than-normal rates. We discuss several interpretations of this kink and present some related evidence. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rate. This pattern is more pronounced among lower income individuals, a comparative static that has been observed in the United States as well and is consistent with liquidity constraints that decrease with income.
    Keywords: Credit Markets, Microfinance, Demand Elasticity, Development Finance, Maturity Elasticity, Consumer Credit
    JEL: D1 D9 E2 G2 O1
    Date: 2005–10

This nep-mkt issue is ©2005 by Joao Carlos Correia Leitao. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.