nep-mkt New Economics Papers
on Marketing
Issue of 2005‒11‒19
sixteen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  2. Advertising, Pricing & Market Structure in Competitive Matching Markets By Edner Bataille; Benoit Julien
  3. Advertising and Price Signaling of Quality in a Duopoly with Endogenous Locations By Philippe Bontems; Valérie Meunier
  4. Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets By Xavier Gabaix; David Laibson
  5. Financing of Media Firms: Does Competition Matter? By Hans Jarle Kind; Tore Nilssen; Lars Sørgard
  6. Mitigating the Tragedy of the Digital Commons: the Case of Unsolicited Commercial Email By Oleg V. Pavlov; Nigel Melville
  7. Recent Developments in the Economics of Price Discrimination By Mark Armstrong
  8. Assessing the Value of On-line Information Using a Two-sided Equilibrium Search Model in the Real Estate Market By Paul E. Carrillo
  9. Customers'usage of self service technology in retail setting By Weijters, B.; Schillewaert, N.; Rangarajan,D.; Falk, T.
  10. Drug Advertising and Health Habits By Toshiaki Iizuka; Ginger Zhe Jin
  11. Two at the Top: Quality Differentiation in Markets with Switching Costs By Thomas Gehrig; Rune Stenbacka
  13. Dynamic analysis of an institutional conflict within the music industry By Oleg V. Pavlov
  14. Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords By Benjamin Edelman; Michael Ostrovsky; Michael Schwarz
  15. Management characteristics, collaboration and innovative efficiency: evidence from UK survey data By Andy Cosh; Xiaolan Fu; Alan Hughes
  16. Measuring the performance of international logistics outsourcing partnerships: A dyadic perspective analysis By Jane, Joan; Lago, Alejandro; Ariño, Africa

  1. By: Mario Raposo (Universidade da Beira Interior); Helena Alves (Universidade da Beira Interior)
    Abstract: Facing a growing competitive environment, higher education institutions have increased dramatically the competition for recruiting and retaining students providing a high quality service as a solution to compete. Frequently, researchers who have studied the service quality and client satisfaction have measured it by comparing consumers’ expectations with their perception of the provided service. This study was undertaken to provide data for analysing students’ expectations when they enter University, as well as to know which influences origin those expectations at the beginning of undergraduate studies. Then these expectations were compared with student’s service perceptions after one year of study. An analysis between expected service and service received is maid and the results shown that the gap between those, is great in aspects mainly directly related to educational service. A factorial analysis shows that service expectations are mainly formed around the dimensions related to aspects of learning and career, reputation of the University and how the support services are delivered by staff.
    Keywords: Service expectations, service quality, higher education, marketing
    JEL: A20 A23 M31
    Date: 2005–11–15
  2. By: Edner Bataille (California State University-Bakersfield); Benoit Julien (Australian Graduate School of Management, University of New South Wales)
    Abstract: This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers. Sellers' expenditure on directly informative advertising attracts consumers only probabilistically. Consumers who happen to observe advertisements randomize over the advertised sellers using symmetric mixed strategies. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed, including the interplay of prices and advertising with the market structure. The model generates a unimodal (inverted U-shape) relationship between both, individual and industry advertising level, and market structure. The relationship results from a trade off between a price effect and a market structure-matching effect. We find that the decentralized market has underprovision of advertising, both for individual sellers and industry wide, and that entry is excessive relative to the efficient level. We present a quantitative analysis to highlight properties of the models and to demonstrate the extent of inefficiency.
    Keywords: Advertising, pricing, market structure, endogenous matching, asymmetric information, efficiency.
    JEL: B21 C72 C78 D40 D43 D61 D83 J41 L11 M37
    Date: 2005–11–15
  3. By: Philippe Bontems (Université des Sciences Sociales de Toulouse); Valérie Meunier (University of Aarhus)
    Abstract: We analyze a two-sender quality-signaling game in a duopoly model where goods are horizontally and vertically dierentiated. While locations are chosen under quality uncertainty, firms choose prices and advertising expenditures being privately informed about their types. We show that pure price separation is impossible, and that dissipative advertising is necessary to ensure existence of separating equilibria. Equilibrium refinements discard all pooling equilibria and select a unique separating equilibrium. When vertical differentiation is not too high, horizontal differentiation is maximum, the high-quality firm advertises, and both firms adopt prices that are distorted upwards (compared to the symmetric-information benchmark). When vertical differentiation is high, firms choose identical locations and ex post, only the high-quality firm obtains positive profits. Incomplete information and the subsequent signaling activity are shown to increase the set of parameters values for which maximum horizontal differentiation occurs.
    Keywords: advertising; location choice; quality; incomplete information; multi-sender signaling game
    JEL: D43 L15
    Date: 2005–11
  4. By: Xavier Gabaix; David Laibson
    Abstract: Bayesian consumers infer that hidden add-on prices (e.g. the cost of ink for a printer) are likely to be high prices. If consumers are Bayesian, firms will not shroud information in equilibrium. However, shrouding may occur in an economy with some myopic (or unaware) consumers. Such shrouding creates an inefficiency, which firms may have an incentive to eliminate by educating their competitors' customers. However, if add-ons have close substitutes, a "curse of debiasing" arises, and firms will not be able to profitably debias consumers by unshrouding add-ons. In equilibrium, two kinds of exploitation coexist. Optimizing firms exploit myopic consumers through marketing schemes that shroud high-priced add-ons. In turn, sophisticated consumers exploit these marketing schemes. It is not possible to profitably drive away the business of sophisticates. It is also not possible to profitably lure either myopes or sophisticates to non-exploitative firms. We show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies.
    JEL: D00 D60 D80 L00
    Date: 2005–11
  5. By: Hans Jarle Kind (Norwegian School of Economics and Business Administration); Tore Nilssen (University of Oslo); Lars Sørgard (Norwegian Competition Authority)
    Abstract: This paper analyses how competition between media firms influences the way they are financed. In a setting where monopoly media firms choose to be completely financed by consumer payments, competition may lead the media firms to be financed by advertising as well. The closer substitutes the media firms’ products are, the less they rely on consumer payment and the more they rely on advertising revenues. If media firms can invest in programming, they invest more the less differentiated the media products are perceived to be.
    Keywords: media; advertising; two-sided markets
    JEL: L22 L82 L86 M37
    Date: 2005–06
  6. By: Oleg V. Pavlov (Social Science and Policy Studies WPI); Nigel Melville
    Abstract: The growth of unsolicited commercial email imposes increasing costs on organizations and causes considerable aggravation on the part of email recipients. A thriving anti-spam industry addresses some of the frustration. Regulation and various economic and technical means are in the works – all aimed at bringing down the flood of unwanted commercial email. This paper contributes to our understanding of the UCE phenomenon by drawing on scholarly work in areas of marketing and resource ownership and use. Adapting the tragedy of the commons to the email context, we identify a causal structure that drives the direct e-marketing industry. Computer simulations indicate that although filtering may be an effective method to curb UCE arriving at individual inboxes, it is likely to increase the aggregate volume, thereby boosting overall costs. We also examine other response mechanisms, including self-regulation, government regulation, and market mechanisms. The analysis advances understanding of the digital commons, the economics of UCE, and has practical implications for the direct e-marketing industry
    Keywords: SPAM; Unsolicited Commercial Email (UCE); Tragedy of the Digital Commons; Simulation
    JEL: H40 C60
    Date: 2005–11–11
  7. By: Mark Armstrong (University College London)
    Abstract: This paper selectively surveys the recent literature on price discrimination. The focus is on three aspects of pricing decisions: the information about customers available to firms; the instruments firms can use in the design of their tariffs; and the ability of firms to commit to their pricing plans. Developments in marketing technology mean that firms often have access to more information about individual customers than was previously the case. The use of this information might be restricted by public policy towards customer privacy. Where it is not restricted, firms may be unable to commit to the use they make of the information. With monopoly supply, an increased ability to engage in price discrimination will boost profit unless the firm cannot commit to its pricing policy. With competition, the effects of price discrimination on profit, consumer surplus and overall welfare depend on the kinds of information and/or instruments available to firms. The paper investigates the circumstances in which price discrimination causes all prices (and hence profit) to fall.
    Keywords: Price discrimination, oligopoly, dynamic pricing
    JEL: L
    Date: 2005–11–11
  8. By: Paul E. Carrillo (Economics University of Virginia)
    Abstract: The last decade has witnessed an explosive growth in the use of the internet. Not only the number of users has dramatically increased, but also the amount and quality of the information displayed online has improved. The information available to web users is limited mostly by technological constraints and will be significantly less restrictive in the next decade. These technological changes foreseen for the future should affect buyer's and seller's behavior in many electronic markets (e-markets). One can think of two elements that determine the importance of e-markets: a) the number of consumers who have internet access, and b) the amount and quality of the information that internet marketplaces provide to consumers. Clearly, changes in each of these elements should affect the e-markets differently, and we are not aware of any previous study that has attempted to separate these effects. In our research paper, we attempt to explain how improvements in the information technology affect buyer's and seller's behavior in online markets. We focus our attention on the Real Estate Market (REM) for several reasons. First, housing units, in the majority of cases, are advertised through the internet. Second, buyers incur remarkable high offline search costs in the REM. Third, online housing sites have notably improved the amount of information they display by incorporating pictures and virtual tours to the existing Multiple Listing Services, and important improvements are forecasted for the near future. Finally, the housing market is one of the largest and most important in the US economy. We specify and estimate an equilibrium two-sided search model that depicts many of the REM’s real-life features. The theoretical model modifies the framework of existing equilibrium search models in the labor literature to capture the unique nature of the REM. To our knowledge, it is the first attempt in the literature to model in an equilibrium context five very important characteristics of the REM: a) buyers' and sellers' search behavior, b) heterogeneity in agents' motivation to trade, c) transaction costs, d) a trading mechanism with posting prices and bargaining, and e) the availability of an online advertising technology. To estimate our theoretical model, we follow the growing literature on estimation of equilibrium search models and use maximum likelihood methods. The data used for estimation consists of Multiple Listing Services data for real estate transactions in Charlottesville City and Albemarle County (VA) during the years 2000 through 2002. Our estimates suggest that only 3% of the relevant information that home-buyers collect before making a purchase decision is obtained through on-line ads. Furthermore, we use the estimated model to conduct counterfactual experiments and find that, improvements in online information displayed by Real Estate ads decrease equilibrium prices but increase the time that a property stays on the market.
    JEL: C51 D58 D80 D83
    Date: 2005–11–11
  9. By: Weijters, B.; Schillewaert, N.; Rangarajan,D.; Falk, T.
    Abstract: The last decade has seen an increased focus by retailers on using new technologies to deliver their services. The introduction of self-service technologies (SSTs) opens up for retailers the potential of improving productivity and service quality while cutting costs. However previous forays by retailers to get their customers to try these self-service technologies have not been proven to be quite successful. Previous empirical research on the usage of technology based self-services has mainly focused on antecedents of attitude towards and corresponding behavioral intentions to use. However, little empirical research has linked these variables to actual behavior in a real life setting. To address these issues, we collected a combination of survey and observational data using self-scanning lanes as objects of investigation. We identify ease of use, usefulness, fun, and reliability as drivers of attitude towards the SST, which in turn significantly predict actual usage of the SST. We also extend previous research by focusing on the moderating effects of age, education and gender as key demographic variables. Finally, we contribute to the literature by studying the consequences of SST use from the customers’ point of view.
    Keywords: self-service technology, retailing, consumer attitudes and behavior
    Date: 2005–11–05
  10. By: Toshiaki Iizuka; Ginger Zhe Jin
    Abstract: We examine the effect of direct-to-consumer advertising (DTCA) of drug treatment on two important health habits, smoking and exercise, using the 1997-2001 Behavioral Risk Factor Surveillance System (BRFSS), the National Health Insurance Survey (NHIS), and MSA-level DTCA data. We find that the DTCA of tobacco cessation products increases the tendency to smoke for insured people with college education. Similarly, the DTCA related to four chronic conditions reduces the likelihood to engage in moderate exercise. These findings suggest that DTCA does not only affect pharmaceutical demand in the short-run, but also have long-run impacts on people's health by affecting their health habits.
    JEL: I12 I18 D83
    Date: 2005–11
  11. By: Thomas Gehrig (Universität Freiburg); Rune Stenbacka (Swedish School of Economics, Helsinki)
    Abstract: We explore the effects of switching costs on the subgame perfect quality decisions of oligopolists with repeated price competition. We establish a strong strategic quality premium. We show that competition for the establishment of customer relationships will eliminate low-quality firms in period 1 and that low-quality firms can survive only based on poaching profits. The equilibrium configuration is characterized by an agglomeration of two providers of top-quality as soon as switching cost heterogeneity is sufficiently significant. We demonstrate a finiteness property, according to which the two top-quality firms dominate the market with a joint market share exceeding 50 %.
    Keywords: quality choice; switching costs; poaching; natural oligopoly
    JEL: D43 L15
    Date: 2005–10
  12. By: Hrabrin Bachev (Institute of Agricultural Economics, Sofia, Bulgaria)
    Abstract: This is the second paper from a series of articles on governing of different types of transactions in Bulgarian farming applying the framework of New Institutional and Transaction Cost Economics. It is based on a large scale microeconomic data from 194 typical commercial farms of different sizes and types from all regions of the country. This study concentrates on factors and modes for organization of labor supply in Bulgarian farms. Structure of kind of labor (permanent, seasonal, irregular, others), and type of labor use (in production, in administration, in management, for protection, others), and labor source (own labor, family labor, hired labor, cooperative members, others) in farms of different types and sizes has been determined. Microeconomic factors responsible for various organizational and contract choices for labor supply (own cultivation, using of family labor, hiring of workers, cooperation etc.) have been specified. Dominant governing modes have been explained by comparative advantages for saving on transacting costs (for finding partners, contracting, monitoring of hired labor, conflict resolutions, renewal of contracts etc). Limits of farm extension (optimization) through effective alternative (to outside labor supply) modes for “internal” service, and inputs, and land supply have been determined. Transaction costs economizing framework has been used through analysis of: types of wage formation (time based, output based, mixed) for different categories of labor; reasons for hiring labor (extension of business, support of own labor, support of family labor, replace of family labor, others); ways of application of hired labor (in production, in administration, in management, in protection, others); personality of different types of hired labor (relatives; close friends; known before hiring; unknown before first hiring; same persons every time; from universities, agricultural schools etc; others); frequency of experiencing problems leading to suspension of labor contracts; main reasons for conflicts with hired labor (lack of qualification; lack of desire for hard work; lack of entrepreneurial spirit; cheating, stealing etc); kind of contracts with different types of labor (informal, written) and extend of specifications of contract obligations; ways of income formation (fixed monthly wages, daily based, output based, based on final year results, others) of different categories of labor in crop, livestock, services and management. Relative level of farms transaction costs associated with labor supply (for finding needed labor, negotiation and contracting, for directing and monitoring of hired labor, for contract enforcement and disputing etc.) has been determined. Besides high governing costs associated with labor contracts other factors restricting farm enlargement of Bulgarian farms as present stage are: high enforcement costs of contracts in general, and enormous credit supply and marketing costs. According to estimate of farm managers most important factors for future development of farms relate to improvement of institutional environment (guaranteed marketing, enforcement of Laws and private contracts, macro-economic stability, legislation framework, access to free markets) and own and family experience in farm management.
    Keywords: type of labor and service contract, organization of labor, governing of labor and service supply, farm organization, transaction costs, transitional farming structure
    JEL: D1 D2 D3 D4
    Date: 2005–11–12
  13. By: Oleg V. Pavlov (Social Science and Policy Studies WPI)
    Abstract: Peer-to-peer technology has made massive music piracy possible, which, in turn, has arguably had a significant economic impact on the recording industry. Record labels have responded to online piracy with litigation and are also considering self-help measures. It is currently not obvious whether or not these counter-piracy strategies will ultimately stifle online file sharing in the long term. With this paper we attempt to add to our understanding of the conflict within the institution that is the commercial music industry. We conduct an institutional analysis of the industry in transition and extend the traditional pattern modeling methodology with a formal resource-based model of a representative online music network. The model accounts for complex causal interactions between resources, private provision of common goods, free riding and membership dynamics. The numerical implementation of the model is the basis of a decision support system, which is used in a series of computer experiments that emulate anti-piracy scenarios. We show that a peer-to-peer system may be quite resilient to outside disturbances. The experiments also demonstrate that policies rank differently in their effectiveness based on a selected yardstick.
    Keywords: Peer-to-peer (P2P) networks; Online File Sharing; Copyright; Simulation
    JEL: K40 H40 C60
    Date: 2005–11–11
  14. By: Benjamin Edelman; Michael Ostrovsky; Michael Schwarz
    Abstract: We investigate the "generalized second price" auction (GSP), a new mechanism which is used by search engines to sell online advertising that most Internet users encounter daily. GSP is tailored to its unique environment, and neither the mechanism nor the environment have previously been studied in the mechanism design literature. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. In particular, unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. To analyze the properties of GSP in a dynamic environment, we describe the generalized English auction that corresponds to the GSP and show that it has a unique equilibrium. This is an ex post equilibrium that results in the same payoffs to all players as the dominant strategy equilibrium of VCG.
    JEL: L0
    Date: 2005–11
  15. By: Andy Cosh; Xiaolan Fu; Alan Hughes
    Abstract: This paper explores the impact of management characteristics and patterns of collaboration on a firmÕs innovation performance in transforming innovation resources into commercially successful outputs. These questions are investigated using a recent firm level survey database for 465 innovative British small and medium enterprises (SMEs) over the years 1998-2001. Both Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) are employed to benchmark a firmÕs innovative efficiency against best practice. Quality and the variety of innovations are taken into account by combining Principal Component Analysis (PCA) with DEA. We find evidence suggesting that the innovative efficiency of SMEs is significantly affected by their management characteristics and collaboration behaviour. Collaboration, organisational flexibility, formality in management systems and incentive schemes are found to contribute significantly to a firmÕs innovative efficiency. Managerial share-ownership also shows some positive effect. The importance of these effects, however, varies across different sectors. WE find that innovative efficiency in high-tech SMEs is significantly enhanced by collaboration, formal management structure and training; and that in medium- and low-tech SMEs is significantly associated with managerial ownership, incentive schemes and organisational flexibility.
    Keywords: management characteristics, collaboration, innovative efficiency
    JEL: D24 O30 O32 L20 M11
  16. By: Jane, Joan (Hewlett-Packard); Lago, Alejandro (IESE Business School); Ariño, Africa (IESE Business School)
    Abstract: We analyze the validity of five performance measures of international logistics outsourcing partnerships, using information from both partners. Each partner's assessment of performance is captured by a single construct, which underlies four of the measures. This construct, however, is different for each party. Consequently, we examine a focal partner's perceptions of the other partner's performance assessment, and show that these inter-party perceptions are a poor measure of the latter's actual performance assessment.
    Keywords: strategic alliances; logistics outsourcing partnerships; performance measurement; construct validity;
    Date: 2005–09–14

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