nep-mkt New Economics Papers
on Marketing
Issue of 2008‒04‒29
eleven papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Net Neutrality on the Internet: A Two-sided Market Analysis By Economides , Nicholas; Tåg, Joacim
  2. Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services By Marion PODESTA; Jean-Christophe POUDOU
  3. Choice of a Retail Store and Retail Store Format: A Hierarchical Logit Model By Tripathi Sanjeev; Sinha P.K.
  4. Payment Card Rewards Programs and Consumer Payment Choice By Ching, Andrew; Hayashi, Fumiko
  5. Advertising, Entry Deterrence, and Industry Innovation By Shi Qi
  6. Pass-Through in Retail and Wholesale By Emi Nakamura
  7. Strategic aspects of bundling By Marion PODESTA
  8. "How to Measure the Outcome of Innovations: Application to Product Innovations" By Hiroshi Ohashi
  9. Advertising, Entry Deterrence, and Industry Innovation By Shi Qi
  10. Paintings and Numbers: An Econometric Investigation of Sales Rates, Prices and Returns in Latin American Art Auctions By Barbosa, Renata Leite; Campos, Nauro F
  11. Gasoline prices jump up on Mondays: An outcome of aggressive competition? By Foros, Øystein; Steen, Frode

  1. By: Economides , Nicholas (Stern School of Business); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: We discuss the benefits of net neutrality regulation in the context of a two-sided market model in which platforms sell Internet access services to consumers and may set fees to content and applications providers "on the other side" of the Internet. When access is monopolized, we find that generally net neutrality regulation (that imposes zero fees "on the other side" of the market) increases total industry surplus compared to the fully private optimum at which the monopoly platform imposes positive fees on content and applications providers. Similarly, we find that imposing net neutrality in duopoly increases total surplus compared to duopoly competition between platforms that charge positive fees on content providers. We also discuss the incentives of duopolists to collude in setting the fees "on the other side" of the Internet while competing for Internet access customers. Additionally, we discuss how price and non-price discrimination strategies may be used once net neutrality is abolished. Finally, we discuss how the results generalize to other two-sided markets.
    Keywords: Net Neutrality; Two-sided Markets; Internet; Monopoly; Duopoly; Regulation; Discrimination
    JEL: C63 D40 D42 D43 L10 L12 L13
    Date: 2008–01–15
  2. By: Marion PODESTA; Jean-Christophe POUDOU
    Abstract: In this paper, we propose to analyze optimal nonlinear pricing when a firm offers in a bundle a commodity and a contingent service. The paper studies a mechanism design where all private information can be captured in a single scalar variable in a monopoly context. We show that to propose the package for commodity and service is less costly for the consumer, the firm has lower consumers rent than the situation where it sells their good and contingent service under an independent pricing strategy. In fact, the possibility to use price discrimination via the supply of package is dominated by the fact that it is costly for the consumer to sign two contracts. Bundling energy and a contingent service is a profitable strategy for a energetician monopoly practising optimal nonlinear tariff. We show that the rates of the energy and the contingent service depend to the optional character of the contingent service and depend to the degree of complementarity between commodities and services.
    Keywords: Bundling, Nonlinear pricing, Energy market
    JEL: D42 L12 Q4
    Date: 2008
  3. By: Tripathi Sanjeev; Sinha P.K.
    Abstract: The literature on store choice has mainly studied the store attributes, and ignored the consumer attributes in store choice. Even when, the consumer attributes have been incorporated the strength of relationship has been weak. Also, the literature on store choice has completely ignored format choice, when studying store choice. The paper argues for incorporating both the shopper attributes in store choice, and the store formats. Shopper attributes can be captured through the demographic variables, as they can be objectively measured, and these also capture a considerable amount of attitudinal and behavioural variables. The paper proposes to link store choice, format choice and consumer demographic variables, through a hierarchical logistic choice model in which the consumers first choose a store format and then a particular store within that format. A nested logit model is developed, and the variables predicting the choice probabilities are identified. The requirement of data for the empirical analysis is specified, the model has not been verified in the absence of empirical data but the operationalization of variables is done.
    Date: 2008–04–17
  4. By: Ching, Andrew; Hayashi, Fumiko
    Abstract: We estimate the direct effects of rewards card programs on consumer payment choice for in-store transactions. By using a data set that contains information on consumer perceived attributes of payment methods and consumer perceived acceptance of payment methods by merchants, we control for consumer heterogeneity in preferences and choice sets. We conduct policy experiments to examine the effects of removing rewards from credit and/or debit cards. The results suggest that: (i) only a small percentage of consumers would switch from electronic to paper-based payment methods, (ii) the effect of removing credit card rewards is greater than that of removing debit card rewards, and consequently, (iii) removing rewards on both credit and debit cards would reduce credit card transactions, but increase debit card transactions.
    Keywords: Consumer Choice; Payment Methods; Rewards Programs; Interchange fees
    JEL: M31 D12 C35
    Date: 2008–04–23
  5. By: Shi Qi (Department of Economics, University of Minnesota)
    Abstract: This paper studies how advertising influences firms’ incentives to invest in R&D. The link between advertising and industry innovation is important, not only because advertising can spur R&D by spreading product knowledge, but also because advertising can discourage new innovative firms from entering the industry. This paper finds that a worse advertising technology can result in local improvements in industry innovation rates. Globally, however, a complete ban on advertising always reduce industry growth. This result is significant because industry advertising spending is quantitatively significant and there are potential connections between public policy towards advertising and R&D. This paper presents a variant of the Grossman and Helpman (1991) quality ladder model. The key difference is that the model in this paper allows advertising to gradually spread product awareness among consumers. This model differs from the entry deterrence literature by assuming perfect price discrimination. Technically, this assumption allows a fully tractable model and analytical characterization of a stationary equilibrium in a dynamic setting, which is not previously available. In terms of economic analysis, this assumption eliminates the extra profit incentives for new firms to enter early, and makes incumbent firms more inclined to use advertising as a deterrent.
    Keywords: Advertising, Entry Deterrence, Innovation
    JEL: L15 L25 M37
    Date: 2008–03–24
  6. By: Emi Nakamura
    Abstract: This paper studies how prices comove across products, firms and locations to gauge the relative importance of retailer versus manufacturer-level shocks in determining prices. I make use of a large panel data set on prices for a cross-section of retailers in the U.S. I analyze prices at the barcode or "Universal Product Code'' (UPC) level for individual stores. I find that only 16% of the variation in prices is common across stores selling an identical product. 65% of the price variation is common to stores within a particular retail chain (but not across retail chains), while 17% is completely idiosyncratic to the store and product. Product categories with frequent temporary "sales'' exhibit a disproportionate amount of completely idiosyncratic price variation. My results suggest that most of the observed price variation arises from retail-level rather than manufacturer-level demand and supply shocks. However, the behavior of prices is difficult to relate to observed variation in costs and demand at the retail level. This suggests that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers, rather than static demand and supply shocks.
    JEL: E30 F40 L16 L81
    Date: 2008–04
  7. By: Marion PODESTA
    Abstract: The increase of bundle supply has become widespread in several sectors (for instance in telecommunications and energy fields). This paper review relates strategic aspects of bundling. The main purpose of this paper is to analyze profitability of bundling strategies according to the degree of competition and the characteristics of goods. Moreover, bundling can be used as price discrimination tool, screening device or entry barriers. In monopoly case bundling strategy is efficient to sort consumers in different categories in order to capture a maximum of surplus. However, when competition increases, the profitability on bundling strategies depends on correlation of consumers reservations values.
    Keywords: Product bundling, foreclosure, price discrimination
    JEL: D21 D43 L13
    Date: 2008
  8. By: Hiroshi Ohashi (Faculty of Economics, University of Tokyo)
    Abstract: This paper provided a conceptual framework to quantify consumer gains from product innovations. Using an example of VCRs, we illustrate a model that is useful to measure consumer welfare, and describe what data are to be used for the analysis. We also make a selective survey of papers that measure the consumer welfare of product innovations and discuss advantages and limitations of the analytical framework.
    Date: 2008–04
  9. By: Shi Qi
    Date: 2008–04–18
  10. By: Barbosa, Renata Leite; Campos, Nauro F
    Abstract: This paper uses a unique data set of Latin American paintings auctioned by Sotheby's between 1995 and 2002 to investigate several puzzles from the recent auctions literature. Our results suggest that: (1) the reputation of an artist and the provenance of the artwork, omitted variables in most previous studies, seem to be more important determinants of the sale price of a painting than standard factors, such as medium and size, (2) the opinion of art experts seems to be of limited use in predicting whether or not an artwork sells at auction, (3) there is little supporting evidence for the widespread notion that the best or more expensive artworks tend to generate above average returns (the "masterpiece effect"), although (4) there is strong evidence in our data for the declining price anomaly, or "afternoon effect."
    Keywords: art auctions; declining price anomaly; Latin American art; masterpiece effect
    JEL: D44 G11 L12 Z10
    Date: 2008–04
  11. By: Foros, Øystein; Steen, Frode
    Abstract: This paper examines Norwegian gasoline pump prices using daily station-specific observations from March 2003 to March 2006. Whereas studies that have analyzed similar price cycles in other countries find support for the Edgeworth cycle theory (Maskin and Tirole, 1988), we demonstrate that Norwegian gasoline price cycles involve a form of coordinated behavior. We also show that gasoline prices follow a fixed weekly pattern, with prices increasing significantly every Monday at noon, and that gasoline companies appear to use the recommended price as a coordination device with a fixed link between the retail and recommended prices. Moreover, the weekly pattern changed in April 2004; whereas Thursday had been the high-price day, Monday now became the high-price day. The price–cost margin also increased significantly after the weekly pattern changed in April 2004.
    Keywords: gasoline; intertemporal price discrimination; price coordination
    JEL: D40 L11 L42
    Date: 2008–04

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