nep-mkt New Economics Papers
on Marketing
Issue of 2008‒08‒14
seven papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Consumer protection and the incentive to become informed By Armstrong, Mark; Vickers, John; Zhou, Jidong
  2. Dynamic Price Discrimination and Quality Provision Based on Purchase History By Sun, Ching-jen
  3. Moderating Factors of Immediate, Dynamic, and Long-run Cross-Price Effects By Horváth, C.; Fok, D.
  4. Why, How and When Do Prices Land? Evidence from the Videogame Industry By Hernández-Mireles, C.; Fok, D.; Franses, Ph.H.B.F.
  5. Value Chain Dynamics and Growth of Local Firms:The Case of Motorcycle Industry in Vietnam By Fujita, Mai
  6. An agent-based retail location model on a supply chain network By Arthur Huang; David Levinson
  7. Matching Own Prices, Rivals' Prices, or Both By Morten Hviid; Greg Shaffer

  1. By: Armstrong, Mark; Vickers, John; Zhou, Jidong
    Abstract: We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.
    Keywords: Consumer protection; search; price caps; advertising
    JEL: D18 L51 D83
    Date: 2008–08
  2. By: Sun, Ching-jen
    Abstract: This paper develops a general two-period model of product line pricing with customer recognition. Specifically, we consider a monopolist who can sell vertically differentiated products over two periods to heterogeneous consumers. Each consumer demands one unit of the product in each period. In the second period, the monopolist can condition the price-quality offers on the observed purchasing behavior in the first period. In this setup, the monopolist can price discriminate consumers not only by quality, but also by purchase history. Several interesting results are derived. First, we fully characterize the monopolist's optimal pricing strategy when there are two types of consumers, and a simple condition is given to determine whether the monopolist will price discriminate by quality in the first period. We compare it to the case when there is no customer recognition or the firm is able to commit to its future actions. When the type space is a continuum, we show that there is no fully separating equilibrium, and some properties of the optimal contracts (price-quality pairs) are characterized within the class of partitional PBE.
    Keywords: Price discrimination; Supermodularity; Submodularity; Behavior-Based Pricing; Ratchet Effect; Bunching
    JEL: L11 D42
    Date: 2007–10
  3. By: Horváth, C.; Fok, D. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In this article the authors describe their comprehensive analysis of moderating factors of cross-brand effects of price changes and contribute to the literature in five major ways. (1) They consider an extensive set of potential variables influencing cross-brand effects of price changes. (2) They examine moderators for the immediate as well as the dynamic cross-price effect. (3) They decompose price into regular and promotional price and study both cross-price effects separately. (4) They compare their findings with previous literature on the moderating factors of own-price effects to understand which factors influence own-price elasticity through affecting brand switching. (5) The authors use an advanced Bayesian estimation technique. The results show evidence of the neighborhood price effect and suggest that it is conditional on whether the promoted brand is priced above or below its competitor. The promoted brand's activities turn out to play a much more important role in determining the cross-price promotional effects than its competitor's similar activities. The authors outline conditions when cross-brand post-promotion dips tend to occur. Finally, they argue that the brand choice portion of the overall own-brand effect of a promotion depends on the brand's marketing strategy and on category-specific characteristics.
    Keywords: cross-price elasticity;asymmetry;dynamic effects;hierarchical Bayes
    Date: 2008–07–23
  4. By: Hernández-Mireles, C.; Fok, D.; Franses, Ph.H.B.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We examine how new products are priced over time, where we particularly look at sharp decreases in prices. New durable products like fashion, apparel, and videogames often show a significant price cut some time after the product’s introduction. We call this a price landing and we examine its drivers. Theory predicts that competitive effects or underperforming sales are drivers for such price landings. To our knowledge, however, a systematic empirical study of price landing is unavailable. To examine the drivers of significant price cuts of a new product, we consider a rich dataset concerning sales and prices of 1195 newly released videogames. Prior literature suggests that own sales, competitive sales, competitive prices or simply time could be such drivers. In this paper we put these suggestions to an empirical test. We put forward a mixture model that covers a set of pricing equations with the price landing moment and its speed as key parameters. Second, in a hierarchical model we explain the apparent heterogeneity across the products. Our main finding is that it is not sales thresholds but competition and time itself that makes managers decide to seriously cut prices.
    Keywords: pricing;pricing models;new products
    Date: 2008–07–22
  5. By: Fujita, Mai
    Abstract: Vietnam’s burgeoning market for motorcycles has attracted global industry eaders,players from developing countries, and local firms. This has led to a dynamic evolution of value chains. This paper presents an explanation of the varieties of the growth patterns xperienced by the local suppliers, focusing on the roles of customer and local supplier strategies. Case studies showed that while the role of customers may be important, strategies of suppliers to improve the ompetitive edge in the production of otorcycle components and to diversify into other products account for important ariations of growth trajectories among local suppliers. Findings presented in this paper suggest the need to direct more attention to strategy that local firms use to boost their competitive edge in business.
    Keywords: Local suppliers, Value chains, Vietnam, Motorcycle industry, Southeast Asia
    JEL: L22 L62 O33
    Date: 2008–07
  6. By: Arthur Huang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: Clusters of business locations, which considerably impact daily activities, have been promi- nent phenomena. Yet the question of how and why Þrms cluster in certain areas has not been sufÞciently studied. This paper investigates the emergence of clusters of business locations on a supply chain network comprised of suppliers, retailers, and, consumers. Krugman (1996) argued that urban concentration involved a tension between the ÒcentripetalÓ and the Òcen- trifugalÓ forces. Based on that notion, this research proposes an agent-based model of retail- ersÕ location choice in a market of homogeneous products. In this game, retailers endeavor to maximize their proÞts by changing locations. RetailersÕ distribution patterns are measured by entropy and cluster density. Simulation results reveal that as more retailers engage in the game, clusters autonomously emerge and the entropy of clusters increases. Once retailers exceed a certain number, average density of clusters begins to decline; all discrete clusters gradually merge to a large cluster, spreading out uniformly. This research thus Þnds that the centripetal force attracts retailers to supplier locations; with even more retailers entering the market, the centrifugal force disperses them. The sensitivity results on model parameters and consumersÕ demand elasticity are also discussed.
    Keywords: clustering, supply chain network, location choice, distribution pattern
    JEL: R41 R48 D63
    Date: 2008
  7. By: Morten Hviid (ESRC Centre for Competition Policy and Norwich Law School, University of East Anglia); Greg Shaffer (ESRC Centre for Competition Policy, University of East Anglia, and Simon School of Business, University of Rochester)
    Abstract: Many retailers promise that they will not be undersold by rivals (price-matching guarantees) and extend their promise to include their own future prices (most-favored-customer clauses). This is puzzling because the extant literature has shown that each promise independently has the potential to facilitate supracompetitive prices, and so one might think that the two promises are substitutes. In this paper, we consider why a firm might make both promises in the same guarantee, and show that price-matching guarantees and most-favored-customer clauses complement each other and can lead to higher prices than either one could have facilitated by itself.
    Keywords: facilitating practices, low-price guarantees, antitrust policy
    JEL: L11 L13 L41
    Date: 2008–07

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