nep-mkt New Economics Papers
on Marketing
Issue of 2006‒08‒26
seventeen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Effects of Farmers' Risk Attitudes and Personality Types on Production and Marketing Decisions By Pei Xu; Corinne Alexander; George Patrick; Wesley Musser
  2. Adware, Shareware, and Consumer Privacy By Nataly Gantman; Yossi Spiegel
  4. E-commerce and the Market Structure of Retail Industries By Onsel Emre; Ali Hortacsu; Chad Syverson
  5. New Technologies, Marketing Strategies and Public Policy for Traditional Food Crops: Millet in Niger By Tahirou Abdoulaye; John Sanders
  6. The Effect of P2P File Sharing on Music Markets: A Survival Analysis of Albums on Ranking Charts By Sudip Bhattacharjee; Ram D. Gopal; Kaveepan Lertwachara; James R. Marsden; Rahul Telang
  7. The Economics of Open-Access Journals By Mark McCabe; Christopher Snyder
  8. Cell Phone Demand and Consumer Learning – An Empirical Analysis By Martin Gaynor; Yunfeng Shi; Rahul Telang; William Vogt
  9. Strategic Positioning in Agribusiness: Analysis and Options By Allan Gray; Michael Boehlje; Jay Akridge
  10. Price Peer-to-Peer Networks: A Mechanism Design Approach By Oksana Loginova; X. Henry Wang; Haibin Lu
  11. Versioning and Quality Distortion in Software? Evidence from E-Commerce Panel Data By Anindya Ghose; Arun Sundararajan
  12. Evaluating Wireless Carrier Consolidation Using Semiparametric Demand Estimation By Patrick Bajari; Jeremy T. Fox; Stephen Ryan
  13. The Doubtful Profitability of Foggy Pricing By Eugenio J. Miravete
  14. Incentives and Protocols for Self-Organizing Interest-Based Peer-to-Peer Networks By Michael D. Smith; Rahul Telang
  15. Pricing of Complementary Goods and Network Effects* By Nicholas Economides; V. Brian Viard
  17. Risk Attitudes and Internet Search Engines: Theory and Experimental Evidence By Aurora García-Gallego; Nikolaos Georgantzís; Pedro Pereira; José C. Pernías-Cerrillo

  1. By: Pei Xu; Corinne Alexander; George Patrick (Department of Agricultural Economics, College of Agriculture, Purdue University); Wesley Musser (Agricultural and Resource Economics Department, University of Maryland)
    Abstract: Producers’ risk perceptions, as well as their empirical measurement, have been an ongoing concern for agricultural economists. Identification and categorization of producers’ risk attitudes is important in both research and extension contexts. This study explores some alternative measures of farmers’ attitudes and their relationships with observed producer behavior. The effect of farmers’ personality types, as derived from the Myers-Briggs personality type indicator test, on marketing behavior is also explored. There were positive and statistically significant correlations of producers’ risk attitudes in various areas of the farm business. However, there are also some differences in producers’ willingness to risk, especially in the finance area. Although a number of variables were statistically significant, farm operator characteristics, characteristics of the farm operation and risk attitudes of the farm operator had little effect on measures of behavior thought to involve risk/return trade-offs. The Myers-Briggs personality types were used in an analysis of marketing behavior that focused on marketing tools other than the spot (cash) market. Although some of the personality types had significant effects, there were often differences between the marketing behavior associated with corn and soybeans.
    Keywords: Risk attitudes, risk perceptions, economic behavior, production, marketing, and Myers-Briggs type indicator
    Date: 2005–08
  2. By: Nataly Gantman (Tel Aviv University); Yossi Spiegel (Tel Aviv University)
    Abstract: Programmers can distribute new software to online users either for a fee as shareware or bundle it with advertising banners and distribute it for free as adware. In this paper we study the programmers’ choice between these two modes of distribution in the context of a model that take explicit account of the strategic interaction between programmers who develop software, …rms that advertise their products through ad banners, and consumers who buy software and consumer products. Adware allows advertisers to send targeted information to speci…c consumers and may therefore improve their purchasing decisions. At the same time, adware also raises privacy concerns. We study the e¤ect of programmers’ choice between shareware and adware on consumers’ welfare through its e¤ect on the bene… cial information that consumers receive about consumers products on the one hand and their loss of privacy on the other hand. We also examine the implications of improvements in the technology of ad banners and the desirability of bans on the use of adware.
    Keywords: adware, shareware, advertising, privacy, ad banners
    JEL: L12 L13 M37
    Date: 2004–10
  3. By: Animesh Animesh (Robert H Smith School of Business University of Maryland); Vandana Ramachandran (Robert H Smith School of Business University of Maryland); Siva Viswanathan (Robert H Smith School of Business University of Maryland)
    Abstract: Sponsored search mechanisms, where advertisers bid for placement to be as close to the top in the listing of search results, are the fastest growing among online search models. Sponsored search in popular search services such as Google and Yahoo! employ an auction mechanism wherein firms can bid, for a better placement in the (sponsored) search results, on relevant keywords used by consumers in their search process. This provides an unprecedented opportunity to test some of the predictions of earlier research relating quality and advertising, in the online setting. While sponsored search mechanisms have been gaining popularity, they can potentially introduce a bias in the listing of search results. In particular, sponsored search mechanisms that enable low quality bidders to be placed at the top of the search listings can adversely affect consumer welfare. Our study uses data from online sponsored search auctions to examine the relationship between advertisers’ quality and their bidding strategies. Specifically we seek to understand if advertisers’ bidding strategies differ across products characterized by different degrees of quality-uncertainty. Our results indicate that there are significant differences in the bidding strategies of sellers of search goods as compared to sellers of experience and credence goods, and that there is significant adverse selection in product categories characterized by greater uncertainty. We discuss the implications of our findings for consumers, advertisers, and intermediaries and provide directions for future research in this emerging context.
    Keywords: sponsored search, keyword advertising, pay-for-performance, search, credence, experience
    Date: 2004–10
  4. By: Onsel Emre (University of Chicago); Ali Hortacsu (University of Chicago and NBER); Chad Syverson (University of Chicago and NBER)
    Abstract: While a fast-growing body of research has looked at how the advent and di®usion of e- commerce has a®ected prices, much less work has investigated e-commerce's impact on the number and type of ¯rms operating in an industry. This paper theoretically and empirically takes up the question of which producers most bene¯t and most su®er as consumers switch to purchasing products online. We specify a general industry model involving consumers with di®ering search costs buying products from heterogeneous-type producers. We inter- pret e-commerce as having created reductions in consumers' search costs. We show how such shifts in the search cost distribution reallocate market shares from an industry's low- type producers to its high-type businesses. We test the model using data for two industries in which e-commerce has arguably decreased consumers' search costs considerably: travel agencies and bookstores. We ¯nd evidence in both industries of the market share shifts predicted by the model. Interestingly, while both industries experienced similar changes, the speci¯c mechanisms through which e-commerce induced them were di®erent. For travel agencies, the shifts re°ected aggregate changes driven by airlines' reductions in agent com- missions as consumers started buying tickets online. For bookstores, on the other hand, industry-wide declines in small book stores re°ected aggregated market-speci¯c impacts, evidenced by the fact that more small-store exit occurred in those local markets where consumers' use of e-commerce channels grew fastest.
    Date: 2005–10
  5. By: Tahirou Abdoulaye (INRAN/DECOR); John Sanders (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: New technology introduction in this semiarid region of the Sahel is hypothesized to be made more difficult by three price problems in the region. First, staple prices collapse annually at harvest. Secondly, there is a between year price collapse in good and very good years due to the inelastic demand for the principal staple, millet, and the large changes in supply from weather and other stochastic factors. Thirdly, government and NGOs intervene in adverse rainfall years to drive down the price increases. Marketing strategies were proposed for the first two price problems and a public policy change for the third. To analyze this question at the firm level a farm programming model was constructed. Based upon surveying in four countries, including Niger, farmers state that they have two primary objectives in agricultural production, first achieving a harvest income target and secondly achieving their family subsistence objective with production and purchases later in the year. Farmers are observed selling their millet at harvest and rebuying millet later in the year. So the first objective takes precedence over the second. A lexicographic utility function was used in which these primary objectives of the farmer are first satisfied and then profits are maximized. According to the model new technology would be introduced even without the marketing strategies. However, the marketing strategies accelerated the technology introduction process and further increased farmers’ incomes. Of the three marketing-policy changes only a change in public policy with a reduction of the cereal imports substantially increases farmers’ incomes in the adverse years. In developed countries crop insurance and disaster assistance is used to protect farmers in semiarid regions during bad and very bad (disaster) rainfall years. In developing countries finding alternatives to the povertynutritional problems of urban residents and poor farmers to substitute for driving down food prices in adverse years could perform the same function as crop insurance in developed countries of facilitating technological introduction by increasing incomes in adverse rainfall years.
    Keywords: inventory credit, marketing strategy, inorganic fertilizers, fertility depletion, farm level programming, micro-fertilization, sidedressing
    Date: 2005–08
  6. By: Sudip Bhattacharjee (School of Business, University of Connecticut); Ram D. Gopal (School of Business, University of Connecticut); Kaveepan Lertwachara (School of Business, University of Connecticut); James R. Marsden (School of Business, University of Connecticut); Rahul Telang (H John Heinz III School of Public Policy and Management, Carnegie Mellon University)
    Abstract: Recent technological and market forces have profoundly impacted the music industry. Emphasizing threats from peer-to-peer (P2P) technologies, the industry continues to seek sanctions against individuals who offer significant number of songs for others to copy. Yet there is little rigorous empirical analysis of the impacts of online sharing on the success of music products. Combining data on the performance of music albums on the Billboard charts with file sharing data from a popular network, we: 1) assess the impact of recent developments related to the music industry on survival of music albums on the charts, and 2) evaluate the specific impact of P2P sharing on an album’s survival on the charts. In the post P2P era, we find significantly reduced chart survival. The second phase of our study isolates the impact of file sharing on album survival. We find that sharing does not seem to hurt the survival of albums.
    Keywords: peer-to-peer, digitized music, online file sharing, survival.
    Date: 2005–10
  7. By: Mark McCabe (Georgia Institute of Technology); Christopher Snyder (Dartmouth College)
    Abstract: Previous research modeled academic journals as platforms connecting authors with readers in a two-sided market. This research used the same basic framework also used to study telephony, credit cards, video game consoles, etc. In this paper, we focus on a key difference between the market for academic journals and these other markets: journals vary in terms of quality, where a journal's quality determined by the quality of the papers it publishes. We provide a simple model of journal quality. As an illustration of the value of the model, we use it to address issues that have arisen in the recent debate concerning whether, in the Internet age, journals should become \open access" (freely available to readers, financed by author rather than subscriber fees). Among other issues, we examine (a) whether open-access journals would tend to publish more articles than traditional journals, moving further down the quality spectrum in order to boost revenue; (b) whether journal quality affects the profitability of adopting open access; and (c) whether submission fees or acceptance fees are better instruments to extract surplus from authors.
    Keywords: Open access, academic journal, two-sided market, quality
    JEL: L14 L82 D40 L31
    Date: 2004–11
  8. By: Martin Gaynor (H. John Heinz III School of Public Policy and Management Carnegie Mellon University); Yunfeng Shi (H. John Heinz III School of Public Policy and Management Carnegie Mellon University); Rahul Telang (H. John Heinz III School of Public Policy and Management Carnegie Mellon University); William Vogt (H. John Heinz III School of Public Policy and Management Carnegie Mellon University Author-Workplace-Homepage)
    Abstract: A structural model is used in this paper to analyze the demand and learning behavior in cell phone market. We assume that the cell phone consumption can be divided into a high-value part and a low-value part. The consumers are assumed to be uncertain about the exogenous shock of the need for high-value usage and also their preferences over the low-value usage. Meanwhile, we assume that the consumers’ knowledge improves over time. As a result, the match between their plan choice and consumption pattern becomes better. Such a learning behavior is supported by the data set. Bayesian updating is used to represent the learning. The estimates of the parameters are obtained and compared to the benchmarks from previous research.
    Date: 2005–10
  9. By: Allan Gray; Michael Boehlje; Jay Akridge (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: The planning process presented in the paper outlines several methods of analysis that farm business managers can use to choose among three business position options. The five forces model is an effective tool for scanning the external business environment and assessing a business’s internal resources and capabilities. The value plate will assist managers in identifying the activities upon which a business may build a competitive advantage. Once these are assesses, managers must select a strategic position from three options: operational excellence/cost leadership, product or service innovation, and customer intimacy.
    Keywords: strategic planning, five forces model, value plate model, strategic options
    JEL: L11 L12 L13 L14 L15 L21 L22 L23 L24
    Date: 2004–09
  10. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia); X. Henry Wang (Department of Economics, University of Missouri-Columbia); Haibin Lu
    Abstract: AIn this paper we use mechanism design approach to find the optimal file-sharing mechanism in a peer-to-peer network. This mechanism improves upon existing incentive schemes. In particular, we show that peer-approved scheme is never optimal and service-quality scheme is optimal only under certain circumstances. Moreover, we find that the optimal mechanism can be implemented by a mixture of peer-approved and service-quality schemes.
    Keywords: peer-to-peer networks, mechanism design.
    JEL: D82 C7
    Date: 2006–07–19
  11. By: Anindya Ghose (NYU, Stern School of Business); Arun Sundararajan (NYU, Stern School of Business)
    Abstract: We present a framework for measuring software quality using pricing and demand data, and empirical estimates that quantify the extent of quality degradation associated with software ver- sioning. Using a 7-month, 108-product panel of software sales from, we document the extent to which quality varies across di¤erent software versions, estimating quality degradation that ranges from as little as 8% to as much as 56% below that of the corresponding ?agship ver- sion. Consistent with prescriptions from the theory of vertical di¤erentiation, we also ?nd that an increase in the total number of versions is associated with an increase in the di¤erence in quality between the highest and lowest quality versions, and a decrease in the quality di¤erence between "neighboring" versions. We compare our estimates with those derived from two sets of subjective measures of quality, based on CNET editorial ratings and user reviews, and discuss competing interpretations of the signi?cant di¤erences that emerge from this comparison. As the ?rst empirical study of software versioning that is based on both subjective and econometrically estimated measures of quality, this paper provides a framework for testing a wide variety of results in IS that are based on related models of vertical di¤erentiation, and its ?ndings have important implications for studies that treat web-based user ratings as cardinal data.
    Date: 2005–10
  12. By: Patrick Bajari; Jeremy T. Fox; Stephen Ryan
    Abstract: The US mobile phone service industry has dramatically consolidated over the last two decades. One justification for consolidation is that merged firms can provide consumers with larger coverage areas at lower costs. We estimate the willingness to pay for national coverage to evaluate this motivation for past consolidation. As market level quantity data is not publicly available, we devise an econometric procedure that allows us to estimate the willingness to pay using market share ranks collected from a popular online retailer, Amazon. Our semiparametric maximum score estimator controls for consumers’ heterogeneous preferences for carriers, handsets and minutes of calling time. We find that national coverage is strongly valued by consumers, providing an efficiency justification for across-market mergers. The methods we propose can estimate demand for other products using data from Amazon or other online retailers where quantities are not observed, but product ranks are observed. Since Amazon data can easily be gathered by researchers, these methods may be useful for the analysis of other product markets where high quality data are not publicly available.
    JEL: L1 C1
    Date: 2006–08
  13. By: Eugenio J. Miravete (University of Pennsylvania)
    Abstract: This paper studies whether competition may induce firms abandoning deceptive pricing strategies aimed to profit from mistaken choices of consumers. The empirical analysis focuses on the pricing practices of early U.S. cellular firms, both under monopoly and duopoly. Foggy tariff options are those that are dominated by another option or a combination of other tariff options offered by the firm. I also define a measure of fogginess of non-dominated tariffs based on the range of airtime usage for which they are the least expensive option among those available. Results indicate that firms offer more dominated tariff options in a competitive market than under monopoly. While markets are profitable, perhaps because they grow or because firms collude, the use of foggy tactics is not frequent. However, if the market is more mature, or if firms do not cooperate, thus reducing the return to their investment, then they commonly turn to foggy pricing.
    Keywords: Nonlinear Pricing; Foggy Strategies; Co-opetition
    JEL: D43 L96 M21
    Date: 2004–10
  14. By: Michael D. Smith (Carnegie Mellon University); Rahul Telang (Carnegie Mellon University)
    Abstract: Improving the information retrieval (IR) performance of peer-to-peer networks is an important and challenging problem. Recently, the computer science literature has attempted to address this problem by improving IR search algorithms. However, in peer-to-peer networks, IR performance is determined by both technology and user behavior, and very little attention has been paid in the literature to improving IR performance through incentives to change user behavior. We address this gap by combining the club goods economics literature and the IR literature to propose a next generation file sharing architecture. Using the popular Gnutella 0.6 architecture as context, we conceptualize a Gnutella ultrapeer and its local network of leaf nodes as a “club” (in economic terms). We specify an information retrieval-based utility model for a peer to determine which clubs to join, for a club to manage its membership, and for a club to determine to which other clubs they should connect. We simulate the performance of our model using a unique real-world dataset collected from the Gnutella 0.6 network. These simulations show that our club model accomplishes both performance goals. First, peers are self-organized into communities of interest — in our club model peers are 85% more likely to be able to obtain content from their local club than they are in the current Gnutella 0.6 architecture. Second, peers have increased incentives to share content — our model shows that peers who share can increase their recall performance by nearly five times over the performance offered to free-riders. We also show that the benefits provided by our club model outweigh the added protocol overhead imposed on the network for the most valuable peers.
    Date: 2004–10
  15. By: Nicholas Economides (Stern School of Business, NYU); V. Brian Viard (Graduate School of Business, Stanford University)
    Abstract: We discuss the case of a monopolist of a base good in the presence of a complementary good provided either by it or by another firm. We assess and calibrate the extent of the influence on the profits from the base good that is created by the existence of the complementary good, i.e., the extent of the network effect. We establish an equivalence between a model of a base and a complementary good and a reduced-form model of the base good in which network effects are assumed in the consumers’ utility functions as a surrogate for the presence of direct or indirect network effects, such as complementary goods produced by other firms. We also assess and calibrate the influence on profits of the intensity of network effects and quality improvements in both goods. We evaluate the incentive that a monopolist of the base good has to improve its quality rather than that of the complementary good under different market structures. Finally, based on our results, we discuss a possible explanation of the fact that Microsoft Office has a significantly higher price than Microsoft Windows although both products have comparable market shares.
    JEL: L12 L13 C63 D42 D43
    Date: 2005–11
  16. By: Katja Seim (Graduate School of Business, Stanford University); V. Brian Viard (Graduate School of Business, Stanford University)
    Abstract: We test the effect of entry on the tariff choices of incumbent cellular firms. We relate the change in the breadth of calling plans between 1996, when incumbents enjoyed a duopoly market, and 1998, when incumbents faced increased competition from personal communications services (PCS) firms. Entry by PCS competitors differed across geographic markets due to the number of licenses left undeveloped as a result of the bankruptcy of some of the auctions’ winning bidders and due to variation across markets in the time required to build a sufficiently large network of wireless infrastructure. We find that incumbents increase tariff variety in markets with more entrants and that this effect is not explained by demographic heterogeneity or cost differences in maintaining calling plans across markets. We also find that incumbents are more likely to upgrade their technology from the old analog technology to the new digital technology in markets with more entry, suggesting that entry also has indirect effects on tariff choice via firms’ technology adoption decisions.
    Keywords: entry, market structure, cellular, price discrimination, nonlinear pricing, telecommunications
    JEL: L11 L13 L25 L96
    Date: 2004–11
  17. By: Aurora García-Gallego (Universitat Jaume I (Castellón, Spain)); Nikolaos Georgantzís (Universitat Jaume I (Castellón, Spain)); Pedro Pereira (Autoridade da Concorrência (Portugal)); José C. Pernías-Cerrillo (Universitat Jaume I (Castellón, Spain))
    Abstract: This paper analyzes the impact on consumer prices of the size and biases of price comparison search engines. We develop several theoretical predictions, in the context of a model related to Burdett and Judd (1983) and Varian (1980), and test them experimentally. The data supports the model’s predictions regarding the impact of the number of firms, and the type of bias of the search engine. The data does not support the model’s predictions regarding the impact of the size of the search engine. We identified several data patterns, and developed an econometric model for the price distributions. Variables accounting for risk attitudes improved significantly the explanatory power of the econometric model.
    Keywords: Search engines, incomplete information, biased information, price levels, experiments
    JEL: D43 D83 L13
    Date: 2004–10

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