nep-mkt New Economics Papers
on Marketing
Issue of 2008‒05‒10
three papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Costly Buyer Search in Laboratory Markets with Seller Advertising By Timothy N. Cason; Shakun Datta
  2. The Changing Impact of Product Design for a Company By Tuomo Kässi
  3. Collection sales: good or bad for journals? By Armstrong, Mark

  1. By: Timothy N. Cason; Shakun Datta
    Abstract: In this laboratory experiment sellers simultaneously post prices and choose whether to advertise. Buyers then decide whether to buy from a seller whose advertisement they have received, or engage in costly sequential search to obtain price quotes from other sellers. In the unique symmetric equilibrium, sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices. Increases in either search or advertising costs raise equilibrium prices, and equilibrium advertising intensity decreases with lower search costs and higher advertising costs. Our results are consistent with most of these comparative static predictions, and sellers also post lower advertised than unadvertised prices as predicted. In all treatments, however, sellers price much lower than the equilibrium interval and earn very low profits. Although buyers’ search decisions are approximately optimal, sellers advertise more intensely than predicted. Consequently, market outcomes more closely resemble a perfect information, Bertrand-like equilibrium than the imperfect information, mixed strategy equilibrium that features significant seller market power.
    Keywords: Experiment, Posted offer, Market power, Mixed strategy, Uncertainty, Shopping
    JEL: D43 D83 L13
    Date: 2008–04
  2. By: Tuomo Kässi (Department of Industrial Engineering and Management, Lappeenranta University of Technology)
    Abstract: The paper presents the strategic importance of the manufacturing function for a company with a particular focus on the evolving product design and its importance. The production paradigm has changed from the start of industrial evolution to the mass production era, further to lean manufacturing, and finally to a focus of customization. In the course of changing manufacturing, the product design has also changed. The old pattern of designing products according to customer needs is still valid. In the early days of industrial production customer needs could be fulfilled by product design feasible for mass production. This is no more possible as the requirements of customers have become wider and more specific. Customization in product design includes the idea of serving all the varying customer needs, while carrying out production as effectively as possible. This aim can be reached if modern methods of product design are applied. The paper shows how advanced product and product family design can influence the competitive advantage of the company. This aspect includes ideas of standardization, modularization, and product platform design. This way many strategic benefits can be achieved. The need for advanced product and product family design is caused by such factors as increasing customer requirements, evolving production paradigm, and opening worldwide market. On the other hand, utilization of modern information systems makes it possible to handle the large amount of information caused by the increased product variation. The various aspects of evolving product design are discussed, including standardization, modularization, product platform design, and mass customization of products. They all aim to offer the customers exactly the products they need. At the same time, the advanced product and production design makes it possible to serve the customers in a cost effective way. These qualifications have a great impact on corporate strategy and the competitive advantage of the company. In the opening market the cost advantage in production is seldom a sustaining competitive advantage. The competition from low cost countries cannot be avoided in an open market. It is claimed that the factors of production which have qualitative features being valuable, rare, inimitable and non-substitutable could give competitive qualities for products of a company. With these features the products can avoid direct price competition. If the product and production design can combine customization and cost effectiveness with the features of being valuable, rare, inimitable and non-substitutable, sustaining competitive advantage can be achieved for a while.
    Keywords: paradigms of production, production modes, product design, customer requirements
    JEL: L23 M11 M31
    Date: 2008
  3. By: Armstrong, Mark
    Abstract: This note discusses the impact of collection sales (i.e., the bundling of several journals for sale by publishers to libraries) on journals. The advent of electronic journal distribution implies that bundling is an efficient sales strategy, and can act to extend the reach of a journal. Current arrangements are discussed and shown to lead to tensions between commercial publishers and non-profit journals. The note argues that non-profit journals should not abandon their participation in collection sales programmes. Rather, non-profit journals may benefit from withdrawing from commercial publishers which distribute their own for-profit journals, and from joining together to be distributed by less commercial publishers who set relatively low prices for their collections.
    Keywords: Journal pricing; bundling; price discrimination
    JEL: L0 L82 L42
    Date: 2008–05–06

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