nep-mkt New Economics Papers
on Marketing
Issue of 2008‒07‒30
ten papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Optimal Bundle Pricing with Monotonicity Constraint By Grigoriev Alexander; Loon Joyce van; Sviridenko Maxim; Uetz Marc; Vredeveld Tjark
  2. Resource and Revenue Management in Nonprofit Operations By Francis de Véricourt; Miguel Sousa Lobo
  3. Revealed Conflicting Preferences By Attila Ambrus; Kareen Rozen
  4. Loss leader or low margin leader? Advertising and the degree of product differentiation By Simbanegavi, Witness
  5. The Relationship between Ethical Culture and Unethical Behavior in Work Groups: Testing the Corporate Ethical Virtues Model By Kaptein, M.
  6. Household Willingness to Pay for Organic Products By Griffith, Rachel; Nesheim, Lars
  7. Airport Choice in a Constraint World: Discrete Choice Models and Capacity Constraints By Gelhausen, Marc Christopher
  8. On bidding markets: the role of competition By Gino Loyola
  9. Assessing the Anticompetitive Effects of Multiproduct Pricing By Dennis W. Carlton; Patrick Greenlee; Michael Waldman
  10. Necessities and Luxuries in Early-Modern Textile Consumption: Real Values of Worsted Says and Fine Woollens in the Sixteenth-Century Low Countries By John H. Munro

  1. By: Grigoriev Alexander; Loon Joyce van; Sviridenko Maxim; Uetz Marc; Vredeveld Tjark (METEOR)
    Abstract: We consider the problem to price (digital) items in order to maximize the revenue obtainable from a set of bidders. We suggest a natural monotonicity constraint on bundle prices, show that the problem remains NP-hard, and we derive a PTAS. We also discuss a special case, the highway pricing problem.
    Keywords: operations research and management science;
    Date: 2008
  2. By: Francis de Véricourt (ESMT European School of Management and Technology); Miguel Sousa Lobo (Duke University)
    Abstract: Nonprofit firms sometimes engage in for-profit activities for the purpose of generating revenue to subsidize their mission activities. The organization is then confronted with a consumption vs. investment tradeoff, where investment corresponds to providing capacity for revenue customers, and consumption corresponds to serving mission customers. Exemplary of this approach are the Aravind Eye Hospitals in India, where profitable paying hospitals are used to subsidize care at free hospitals. We model this problem as a multi-period stochastic dynamic program. In each period, the organization must decide how much of the current assets should be invested in revenue-customer service capacity, and at what price the service should be sold. We provide sufficient conditions under which the optimal capacity and pricing decisions are of threshold type. Similar results are derived when the selling price is fixed but the banking of assets from one period to the next is allowed. We compare the performance of the optimal threshold policy with heuristics that may be more appealing to managers of nonprofit organizations, and assess the value of banking and of dynamic pricing through numerical experiments.
    Keywords: capacity allocation, revenue management, dynamic pricing, nonprofit
    Date: 2008–07–03
  3. By: Attila Ambrus (Harvard University); Kareen Rozen (Cowles Foundation, Yale University)
    Abstract: We model a DM as a collection of utility functions (selves, rationales) and an aggregation rule (a theory of how selves are activated by choice sets). The DM’s choice function is rationalized by a collection of selves and an aggregator if it selects the unique maximizer of aggregate utility. For a general class of aggregators, we show that the number of selves required to rationalize a choice function is at most a linear function of the number of IIA violations exhibited. We provide simple conditions for checking when an aggregator can rationalize all choice functions with enough selves; and provide a minimal set of behaviors that an aggregator can rationalize with a fixed number of selves. We apply the framework to choice over menus and examine the revealed preference implications of IIA violations for the subjec­tive state-space. While consistent with evidence in psychology on multiple selves, our framework also has implications for models of collective house-hold behavior and marketing models of multiattribute goods.
    Keywords: Multiple selves, IIA violations, Context-dependent choice, Rationalizability, Complexity
    JEL: D11 D13 D71
    Date: 2008–07
  4. By: Simbanegavi, Witness
    Abstract: This paper attempts to isolate the conditions that give rise to loss leader pricing. I show that for sufficiently low distance between firms, the advertised good is priced below cost irrespective of whether firms advertise the same or different products. Instead, if products are sufficiently differentiated, loss leader pricing may result only if firms advertise the low reservation value product, otherwise the advertised good is a low margin leader. Thus, whether the advertised good is a loss leader or a low margin leader is primarily a function of the extent of differentiation between competing firms.
    Keywords: Informative advertising; loss leader; low margin leader; product differentiation
    JEL: M3 L1
    Date: 2008
  5. By: Kaptein, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The Corporate Ethical Virtues Model, which is a model for measuring the ethical culture of organizations, has not been tested on its predictive validity. This study tests the relationship between this model and observed unethical behavior in work groups. The sample consists of 301 triads comprising a manager and two direct reports. The results show that six of the eight virtues are negatively related to observed unethical behavior. An important implication of this finding is that multiple corporate virtues are required to reduce unethical behavior in work groups.
    Keywords: ethical culture;unethical behavior;virtue theory;ethical climate;ethics program;work groups
    Date: 2008–07–11
  6. By: Griffith, Rachel; Nesheim, Lars
    Abstract: We use hedonic prices and purchase quantities to consider what can be learned about household willingness to pay for baskets of organic products and how this varies across households. We use rich scanner data on food purchases by a large number of households to compute household specific lower and upper bounds on willingness to pay for various baskets of organic products. These bounds provide information about willingness to pay for organic without imposing restrictive assumptions on preferences. We show that the reasons households are willing to pay vary, with quality being the most important, health concerns coming second, and environmental concerns lagging far behind. We also show how these methods can be used for example by stores to provide robust upper bounds on the revenue implication of introducing a new line of organic products.
    Keywords: hedonic prices; organic; willingness to pay
    JEL: D12 L81 Q51
    Date: 2008–07
  7. By: Gelhausen, Marc Christopher
    Abstract: The purpose of this paper is to present a new approach to model capacity constraints in discrete choice with at least some capacity-related variables missing, like e.g. the price of a commodity. Airport choice models often do not contain air fares because of measurement difficulties as air fares are often not included in passenger surveys and thus essential information regarding ticket price is lost to the researcher. Since air fares vary more across ticket categories at an airport than a ticket category varies across different airports, air fare related information cannot be reconstructed in many cases by the researcher. However, capacity constraints are becoming increasingly more important and thus including capacity constraints in airport choice models is reasonable. The model approach is based on individual utility maximisation and thus fits into the discrete choice framework. Furthermore, nonlinear programming is employed to find a feasible solution regarding capacity constraints. Thereby, detailed statements on how limited airport capacity changes traveller behaviour with regard to airport choice on the level of individual air travellers and airports are possible. The paper concludes with an empirical example to demonstrate the methodology and show the impact of limited airport capacity on airport choice of air travellers.
    Keywords: Airport and Access Mode Choice; Capacity Constraints; Choice Behaviour; Discrete Choice; Nonlinear Programming
    JEL: C53 C61 C25
    Date: 2008–07
  8. By: Gino Loyola
    Abstract: This paper analyzes the effects of industrial concentration on bidding behaviour and hence, on the seller´s expected proceeds. These effects are studied under the CIPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into four types: a competition effect, an inference effect, a winner´s curse effect and a sampling effect. The properties of these effects are discussed and conditions for (non) monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures.
    Keywords: Auctions, Competition, Affiliation, Inference
    JEL: C62 D44 D82 L41
    Date: 2008–01
  9. By: Dennis W. Carlton; Patrick Greenlee; Michael Waldman
    Abstract: In response to the "standardless" approach used in LePage's v. 3M, the Antitrust Modernization Commission (AMC) and others advocate using a discount allocation approach to assess whether bundled loyalty discounts violate Section 2 of the Sherman Act. This approach treats loyalty discounts like predatory pricing. The analogy to predatory pricing is flawed. We propose an alternative approach that focuses on the presence of significant scale economies. We use our approach to analyze LePage's, as well as the recent PeaceHealth decision.
    JEL: L4
    Date: 2008–07
  10. By: John H. Munro
    Abstract: If mankind’s three basic necessities have always been food, clothing, and shelter, whose production, trade, and consumption have rightly been a primary focus of economists and economic historians for many generations, we may ask this vital question: how do they distinguish between necessities and luxury products? Indeed, any examination of later-medieval, early-modern commodity prices soon reveals that for all three of these basic categories there was a seamless continuum from the very cheapest to the most expensive goods sold on the market, so that making clear cut divisions becomes virtually impossible. How, when, where, and why did the consumption of food and drink, for example, shift from being a basic necessity to ensure survival to become a luxury that enhances and enriches the quality of life? Obviously the very same considerations apply also to clothing. For many people, if only for a much smaller segment of the population, chiefly to be found in the aristocracy, the higher clergy, and wealthy bourgeoisie, clothing has also served and still serves other wants, in terms of luxury consumption: for decoration and for the assertion of personal values, and especially of one’s social status. Indeed, for such people, luxury textiles may have been deemed as personal ‘necessities’. This study is based upon two statistical tables, for the southern Low Countries, in the early to mid-sixteenth century, which, together permit us to make such a valid contrast between the nature, forms, and relative values of two major types of textiles. Representing ‘necessities’ in clothing are light-weight, coarse, relatively cheap worsted-type says (from the leading producer, Hondschoote, in Flanders); and representing ‘luxuries’ are the heavy-weight, very fine, and very costly woollen broadcloths from Ghent (dickedinnen) in the county of Flanders and Mechelen (Rooslaken) in the neighbouring duchy of Brabant. Table 1 provides the technical features of the composition of the cloths, the type of wools used, warp-counts, the dimensions, and weights, and finally the weight per square metre in grams. The luxury woollen broadcloths in Table 2 were all made uniquely from the finest English wools, then the world’s best; but Table 1 also provides, for comparison, a fine but cheaper woollen (from Armentières) made from a mixture of Spanish merino and English wools. The other textiles in Tables 1 are worsteds and semi-worsted says from several towns in sixteenth-century Flanders (including Hondschoote) and England. Table 2 presents the prices, in pounds groot Flemish for two types of Hondschoote says, and for the luxury woollens of Ghent and Mechelen for the decade 1535 - 1544. Two measures have been adopted in order to calculate the ‘real values’ of these textiles: (1) a comparison of the prices (nominal money-of-account values) of these textiles with the value of a ‘basket of consumables’, the one used to compute the Van der Wee Consumer Price Index for Brabant (Antwerp region); and (2) the purchasing power of wages: i.e., the number of days’ wages that a master mason in Antwerp would have had to spend to acquire each one of these textiles; and more particularly to buy 12 square metres of cloth, for a man’s annual clothing requirement. In terms of the latter measure, the average number of days’ wages required to purchase that same quantity of cloth would have been: 13.725 days for a Hondschoote single say; 16.958 days for a Hondschoote double say; and 5.4 times as many days, 91.413 for a Ghent dickedinnen, and 74.144 days for a Mechelen Rooslaken. That is certainly a much greater gulf in values that would be found today between every-day clothing and luxury apparel, for men at least. Consider that in Toronto, in July 2008, a journeymen carpenter earns a minimum of $33.07 per hour. In 91.413 days (i.e., the number of days’ wages to purchase that Ghent dickedinnen), at 8 hrs a day, that carpenter would earn $24,184 CAD (about € 15,115) and would never spend even 10 percent of that on clothing.
    Keywords: luxuries, necessities, clothing, wools, woollen broadcloths, worsteds, says, serges, Flanders, Brabant, Antwerp, Hondschoote, masons, wages.
    JEL: F10 L11 L15 L67 M30 N63 N93 O52
    Date: 2008–07–21

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