nep-mkt New Economics Papers
on Marketing
Issue of 2005‒12‒09
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Advertising and Conspicuous Consumption By Daniel Krähmer
  2. Advertising, Competition and Entry in Media Industries By Claude Crampes; Carole Haritchabalet; Bruno Jullien
  3. Business Organization and Coordination in Marketing Specialty Hogs: A Comparative Analysis of Two Firms from Iowa By Hueth, Brent; Ibarburu, Maro; Kliebenstein, James
  4. A Dynamic Pricing Model for Coordinated Sales and Operations By Fleischmann, M.; Hall, J.M.; Pyke, D.F.
  5. Are loyalty-rewarding pricing schemes anti-competitive? By Caminal, Ramón; Claici, Adina
  6. Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart By Jerry Hausman; Ephraim Leibtag
  7. Satisfaction in Choice as a Function of the Number of Alternatives: When "Goods Satiate" but "Bads Escalate" By Elena Reutskaja; Robin Hogarth
  8. Credit Merchandising in the Postbellum American South: Information and Barriers to Entry By M. Cristina Molinari
  9. Mixing Private and Public Service Providers and Specialization By Hans Gersbach; Maija Halonen-Akatwijuka
  10. The pricing behaviour of firms in the euro area : new survey evidence By S. Fabiani; M. Druant; I. Hernando; C. Kwapil; B. Landau; C. Loupias; F. Martins; T. Mathä; R. Sabbatini; H. Stahl; A. Stokman

  1. By: Daniel Krähmer (Freie Universität Berlin, Institut für Wirtschaftstheorie, Boltzmannstr. 20, 14195 Berlin, Germany, +49-(0)30-83855223,
    Abstract: The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brand’s image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumers’ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable.
    Keywords: Advertising, Entry Deterrence, Brands, Conspicuous Consumption, Bertrand Competition, All-Pay Auction
    JEL: L12 L15 M37
    Date: 2005–08
  2. By: Claude Crampes; Carole Haritchabalet; Bruno Jullien
    Abstract: This paper presents a model of media competition with free entry when media operators are financed both from advertisers and customers. The relation between advertising receipts and sales receipts, which are both complementary and antagonist, is different if media operators impose a price or a quantity to advertisers. When consumers dislike advertising, media operators are better off setting an advertising price than an advertising quantity. We establish a relationship between the equilibrium levels (advertising and entry) and the advertising technology. In particular, media operators’ profit is not affected by the introduction of advertising when they impose advertising quantities and when advertising exhibits constant returns to scale in the audience size. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising.
    Keywords: media, advertising, free entry, two-sided markets
    JEL: L13 L82
    Date: 2005
  3. By: Hueth, Brent; Ibarburu, Maro; Kliebenstein, James
    Abstract: We study business organization and coordination of specialty-market hog production using a comparative analysis of two Iowa pork niche-marketing firms. We describe and analyze each firm's management of five key organizational challenges: planning and logistics, quality assurance, process verification and management of “credence attributes,” business structure, and profit sharing. Although each firm is engaged in essentially the same activity, there are substantial differences across the two firms in the way production and marketing are coordinated. These differences are partly explained by the relative size and age of each firm, thus highlighting the importance of organizational evolution in agricultural markets, but are also partly the result of a formal organizational separation between marketing and production activities in one of the firms.
    Keywords: Specialty hogs; coordination; contracting; organizational design; niche markets
    Date: 2005–11–28
  4. By: Fleischmann, M.; Hall, J.M.; Pyke, D.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Recent years have seen advances in research and management practice in the area of pricing, and particularly in dynamic pricing and revenue management. At the same time, researchers and managers have made dramatic improvements in operations and supply chain management. The interactions between pricing and operations/supply chain performance, however, are not as well understood. In this paper, we examine this linkage by developing a deterministic, finite-horizon dynamic programming model that captures a price/demand effect as well as a stockpiling/consumption effect ? price and market stockpile influence demand, demand influences consumption, and consumption influences the market stockpile. The decision variable is the unit sales price in each period. Through the market stockpile, pricing decisions in a given period explicitly depend on decisions in prior periods. Traditional operations models typically assume exogenous demand, thereby ignoring some of the market dynamics. Herein, we model endogenous demand, and we develop analytical insights into the nature of optimal prices and promotions. We develop conditions under which the optimal prices converge to a constant. In other words, price promotion is suboptimal. We also analytically and numerically illustrate cases where the optimal prices vary over time. In particular, we show that price dynamics may be driven by both (a) revenue effects, due to nonlinear market responses to prices and/or inventory, and (b) cost effects, due to economies of scale in operations. The paper concludes with a discussion of directions for future research.
    Keywords: Dynamic pricing;Revenue management;Marketing-operations interface;
    Date: 2005–11–29
  5. By: Caminal, Ramón; Claici, Adina
    Abstract: Many economists and policy analysts seem to believe that loyalty-rewarding pricing schemes, like frequent flyer programs, tend to reinforce firms' market power and hence are detrimental to consumer welfare. The existing academic literature has supported this view to some extent. In contrast, we argue that these programs are business stealing devices that enhance competition, in the sense of generating lower average transaction prices and higher consumer surplus. This result is robust to alternative specifications of the firms' commitment power and demand structures, and is derived in a theoretical model whose main predictions are compatible with the sparse empirical evidence.
    Keywords: coupons; price commitment; repeat purchases; switching costs
    JEL: D43 L13
    Date: 2005–11
  6. By: Jerry Hausman; Ephraim Leibtag
    Abstract: Consumers often benefit from increased competition in differentiated product settings. In this paper we consider consumer benefits from increased competition in a differentiated product setting: the spread of non-traditional retail outlets. In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. We find the benefits to be substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low income households benefit the most.
    JEL: D1 D3 D4 D6
    Date: 2005–12
  7. By: Elena Reutskaja; Robin Hogarth
    Abstract: People often prefer to choose from small as opposed to large sets of alternatives. We propose that satisfaction from choice is an inverted U-shaped function of the number of alternatives. This proposition is derived theoretically by considering the benefits and costs of different numbers of alternatives and is supported by three experimental studies. Because, in large sets, the perceptual costs of processing alternatives varying in shape are greater than for alternatives varying in color, we also predict and demonstrate greater satisfaction from choosing from the latter. We further show that the "satisfaction function" is affected by gender and cultural background.
    Keywords: Consumer choice, perception of variety, tyranny of choice, visual perception, cultural differences
    JEL: D12 M10 M31
    Date: 2005–11
  8. By: M. Cristina Molinari (Dipartimento di Scienze Economiche Universita' Ca' Foscari Venezia Italy)
    Abstract: Roger Ransom and Richard Sutch's research on the social and institutional changes in the postbellum American South, summarized in their One Kind of Freedom, raised many controversies. One of them concerns the degree of competition among the advancing merchants of the rural South. Ransom and Sutch's assertion that such merchants held a 'territorial monopoly'' is usually criticized as being at odds with the high level of postbellum entry in the rural merchandising sector and the absence of significant costs to entry. The question is still open, as shown by a recent special issue of Explorations in Economic History. This paper offers a contribution to this controversy by showing that high level of entry in the market and excessively high prices need not to be in conflict. In particular, using the theory of incomplete information games to study the competition between an advancing merchant and a potential entrant, the practice of over-pricing is shown to be an equilibrium behavior if interpreted as a way of signaling information about the market riskiness.
    Keywords: credit merchandising, asymmetric information
    JEL: D43 D82
    Date: 2005–11–28
  9. By: Hans Gersbach; Maija Halonen-Akatwijuka
    Abstract: We analyze the reform of public sector welfare services such as education. In this paper we compare a mix of private and a public service provider with full privatization. In both cases the suppliers specialize in serving particular customer types. In the mixed institution the government sets the public fee such that service quality does not deteriorate and the price of the private supplier is anchored at comparatively low level. Under full privatization, however, prices escalate to the highest possible level. As a consequence, consumer welfare is higher with a mixed institution – unless the proportion of low-cost customers is high. The mixed institution can also accommodate wealth constraints of customers to some extent.
    Keywords: private and public suppliers, specialization, welfare services, mixed institutions
    JEL: D23 H11 I21 L33
    Date: 2005–09
  10. By: S. Fabiani (Banca d’Italia); M. Druant (Banque Nationale de Belgique); I. Hernando (Banco de España); C. Kwapil (Oesterreichische Nationalbank); B. Landau (European Central Bank); C. Loupias (Banque de France); F. Martins (Banco de Portugal); T. Mathä (Banque centrale du Luxembourg); R. Sabbatini (Banca d’Italia); H. Stahl (Deutsche Bundesbank); A. Stokman (De Nederlandsche Bank)
    Abstract: This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks. Overall, more than 11,000 firms participated in the survey. The results are very robust across countries. Firms operate in monopolistically competitive markets, where prices are mostly set following mark-up rules and where price discrimination is a common practice. Our evidence suggests that both time- and state-dependent pricing strategies are applied by firms in the euro area: around one-third of the companies follow mainly time-dependent pricing rules while two-thirds use pricing rules with some element of state-dependence. Although the majority of firms take into account a wide range of information, including past and expected economic developments, about one-third adopts a purely backward-looking behaviour. The pattern of results lends support to the recent wave of estimations of hybrid versions of the New Keynesian Phillips Curve. Price stickiness arises both at the stage when firms review their prices and again when they actually change prices. The most relevant factors underlying price rigidity are customer relationships - as expressed in the theories about explicit and implicit contracts - and thus, are mainly found at the price changing (second) stage of the price adjustment process. Finally, we provide evidence that firms adjust prices asymmetrically in response to shocks, depending on the direction of the adjustment and the source of the shock: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.
    Keywords: price setting, nominal rigidity, real rigidity, inflation persistence, survey data.
    JEL: E30 D40
    Date: 2005–11

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.