nep-mkt New Economics Papers
on Marketing
Issue of 2009‒02‒28
eleven papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Buying Online: Sequential Decision Making by Shopbot Visitors By Dulleck, Uwe; Hackl, Franz; Weiss, Bernhard; Winter-Ebmer, Rudolf
  2. Consumer Search on the Internet By Babur de los Santos
  3. Seasonality and the Effect of Advertising on Price By Genesove, David; Simhon, Avi
  4. Non-comparative versus Comparative Advertising as a Quality Signal By Emons, Winand; Fluet, Claude
  5. Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Non Linear Pricing and Resale Price Maintenance By Bonnet, Céline; Dubois, Pierre
  6. The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry By Courty, Pascal; Pagliero, Mario
  7. Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya By Ashraf, Nava; Giné, Xavier; Karlan, Dean S.
  8. Intra- and Inter-Format Competition Among Discounters and Supermarkets By Cleeren, Kathleen; Dekimpe, Marnik G.; Gielens, Katrijn; Verboven, Frank
  9. Price Discrimination in the Concert Industry By Courty, Pascal; Pagliero, Mario
  10. Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing By Iwan Bos; Maarten Pieter Schinkel
  11. Apples and oranges: relative growth rate of consumer price indices By Kitov, Ivan

  1. By: Dulleck, Uwe; Hackl, Franz; Weiss, Bernhard; Winter-Ebmer, Rudolf
    Abstract: In this article we propose a two stage procedure to model demand decisions by customers who are balancing several dimensions of a product. We then test our procedure by analyzing the behavior of buyers from an Austrian price comparison site. Although in such a market a consumer will typically search for the cheapest price for a given product, reliability and service of the supplier are other important characteristics of a retailer. In our data, consumers follow such a two stage procedure: they select a shortlist of suppliers by using the price variable only; finally, they trade off reliability and price among these shortlisted suppliers.
    Keywords: decision theory; e-commerce; heuristics; price comparison; seller reputation
    JEL: D83 L81
    Date: 2008–08
  2. By: Babur de los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: This paper uses consumer search data to explain search frictions in online markets, within the context of an equilibrium search model. I use a novel dataset of consumer online browsing and purchasing behavior, which tracks all consumer search prior to each transaction. Using observed search intensities from the online book industry, I estimate search cost distributions that allow for asymmetric consumer sampling. Research on consumer search often assumes a symmetric sampling rule for analytical convenience despite its lack of realism. Search behavior in the online book industry is quite limited: in only 25 percen of the transactions did consumers visit more than one bookstore's website. The industry is characterized by a strong consumer preference for certain retailers. Accounting for unequal consumer sampling halves the search cost estimates from 1.8 to 0.9 dollars per search in the online book industry. Analysis of time spent online suggests substitution between the time consumers spend searching and the relative opportunity cost of their time. Retired people, those with lower education levels, and minorities (with the exception of Hispanics) spent significantly more time searching for a book online. There is a negative relationship between income levels and time spent searching.
    Keywords: consumer search, internet, search costs
    JEL: C14 D43 D83 L13
    Date: 2008–09
  3. By: Genesove, David; Simhon, Avi
    Abstract: This paper lays out an econometric strategy for estimating the effect of advertising on prices, by exploiting seasonal demand and imperfect targeting. We present two simple models of duopoly where firms choose prices and advertising. In times of high demand for the product, a larger fraction of consumers who obtain an advertisements are interested in the product, and so the effectiveness of advertising is greater, and firms advertise more. We use this to justify IV estimation of price on log advertising (and trend), in which monthly dummies are used as instruments. Using Israeli data we find a sufficiently large degree of advertising seasonality to justify estimation by the LIML or Fuller-k method. Among those industries, only a few exhibit a significant response of price to advertising. The interpretation of these results depends on the nature of the marginal cost curve: under constant returns to scale a negative response is consistent with informative advertising, and a positive with brand enhancing advertising. Under sufficiently increasing returns to scale, informative advertising will lead to a price increase, yet for some of the products we are able choose among these two types of advertising based on knowledge of the likely cost structure of the industry. Nevertheless, in almost all cases, significant and insignificant, the magnitude of the measured response is very small.
    Keywords: advertising; prices; seasonality
    JEL: L10 M37
    Date: 2008–10
  4. By: Emons, Winand; Fluet, Claude
    Abstract: Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristic quality. The difference in the quality levels determines how the firms share the market. Firms know the quality levels, consumers do not. Under non-comparative advertising a firm may signal its own quality. Under comparative advertising firms may signal the quality differential. In both scenarios the firms may attempt to mislead at a cost. If firms advertise, in both scenarios equilibria are revealing. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.
    Keywords: advertising; costly state falsification; signalling
    JEL: D82 K41 K42
    Date: 2009–01
  5. By: Bonnet, Céline; Dubois, Pierre
    Abstract: A methodology is presented allowing manufacturers and retailers vertical contracting in their pricing strategies on a differentiated product market to be introduced. This contribution allows price-cost margins to be recovered from estimates of demand parameters both under linear pricing models and two part tariffs. Two types of nonlinear pricing relationships, one where resale price maintenance is used with two part tariffs contracts and one where no resale price maintenance is allowed in two part tariff contracts in particular are considered. The methodology then allows different hypotheses on contracting and pricing relationships between manufacturers and retailers in the supermarket industry to be tested using exogenous variables supposed to shift the marginal costs of production and distribution. This method is applied empirically to study the retail market bottled water in France. Our empirical evidence shows that manufacturers and retailers use nonlinear pricing contracts and in particular two part tariff contracts with resale price maintenance. Finally, using the estimation of our structural model, some simulations of counterfactual policy experiments are introduced.
    Keywords: collusion; competition; differentiated products; double marginalization; manufacturers; non nested tests; retailers; two part tariffs; vertical contracts; water
    JEL: C12 C33 L13 L81
    Date: 2008–07
  6. By: Courty, Pascal; Pagliero, Mario
    Abstract: Concert tickets can either be sold at a single price or at multiple prices corresponding to different seating categories. We study the relationship between price discrimination and revenue by examining variations in the number of seating categories across concert, tour, artist, location, and time. Offering multiple seating categories leads to revenues that are approximately 5 percent higher than with single price ticketing. The return to price discrimination is higher in markets with more heterogeneous demand, in smaller venues and in more competitive markets. The return of increasing from three to four categories of seating is about half that of increasing from one to two.
    Keywords: Price discrimination; return to price discrimination; second degree price discrimination
    JEL: D42 L82 Z11
    Date: 2009–01
  7. By: Ashraf, Nava; Giné, Xavier; Karlan, Dean S.
    Abstract: In much of the developing world, many farmers grow crops for local or personal consumption despite export options which appear to be more profitable. Thus many conjecture that one or several markets are missing. We report here on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.
    Keywords: Export Crop; Field Experiment; Food safety standards
    JEL: F13 O12 Q17
    Date: 2009–01
  8. By: Cleeren, Kathleen; Dekimpe, Marnik G.; Gielens, Katrijn; Verboven, Frank
    Abstract: The price-aggressive discount format, popularized by chains such as Aldi and Lidl, is very successful in most Western economies. Its success is a major source of concern for traditional supermarkets. Discounters not only have a direct effect on supermarkets’ market shares, they also exert considerable pressure to improve operational efficiency and/or to decrease prices. We use an empirical entry model to study the degree of intra- and inter-format competition between discounters and supermarkets. Information on the competitive impact of new entrants is derived from the observed entry decisions of supermarkets and discounters in a large cross-section of local markets, after controlling for a number of local market characteristics. In our modeling framework, we endogenize the retailers’ entry decisions, and allow for asymmetric intra- and inter-format competitive effects in a flexible way. We apply our modeling approach to the German grocery industry, where the discount format has stabilized after two decades of continued growth. We find evidence of intense competition within both the supermarket and discounter format, although competition between supermarkets is found to be more severe. Most importantly, discounters only start to affect the profitability of conventional supermarkets from the third entrant onwards. This may explain why many retailers rush to add a discount chain to their portfolio: early entrants may benefit from the growth of the discount-prone segment without cannibalizing the profits of their more conventional supermarket stores.
    Keywords: empirical entry models; hard discounters; supermarket competition
    JEL: L10 M30
    Date: 2008–09
  9. By: Courty, Pascal; Pagliero, Mario
    Abstract: Concert tickets can either be sold at a single price or at different prices to reflect the various levels of seating categories available. Here we consider how two product characteristics (the artist’s age and venue capacity) influence the likelihood that pop music concert tickets will be sold at different prices. We argue that valuation heterogeneity, and thus the returns to using price discrimination, are higher for older artists and in larger venues. We test this hypothesis in a large dataset of concerts. By singling out variations in the two characteristics that are exogenous to the decision to price discriminate, we show that these characteristics have a large and significant impact on the use of price discrimination.
    Keywords: Price discrimination; profit maximization; second degree price discrimination
    JEL: D42 L82 Z11
    Date: 2009–01
  10. By: Iwan Bos (University of Amsterdam); Maarten Pieter Schinkel (University of Amsterdam)
    Abstract: Basing-point pricing is known to have been abused by geographically dispersed firms in order to eliminate competition on transportation costs. This paper develops a topographic test for collusive basing-point pricing. The method uses transaction data (prices, quantities) and customer project site locations to recover the basing-point(s) from which delivered prices were calculated. These bases are compared to the locations of the production mills in a test that discriminates between competitive and collusive basing-point pricing. We define a measure for the likelihood of collusion that can be used to screen industries that traditionally apply delivered pricing for the presence of cartels. We operationalize this screen with a software. The test is hard to beat for cartels using this otherwise elusive form of price-fixing. When a cartel was found to have abused the basing-point system, our method can be used to estimate antitrust damages.
    Keywords: basing-point pricing; cartels; detection; antitrust; damages
    JEL: L41 K42 C12
    Date: 2009–01–20
  11. By: Kitov, Ivan
    Abstract: Headline CPI, core CPI, and indices for various small expenditure categories were analyzed. Sustainable long-term linear trends have been found in the difference between the headline CPI and these indices. Overall, the results completely support our previous findings for such principal categories as energy, food, housing, etc. One should return to relative price of apples and oranges in order to explain these linear trends in terms of the mainstream economics.
    Keywords: CPI; core CPI; expenditure categories; price index
    JEL: G12 E31 D40 E37
    Date: 2009–02–22

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