nep-mkt New Economics Papers
on Marketing
Issue of 2010‒05‒15
nine papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Selling When Brand Image Matters By Stefan Bühler; Daniel Halbheer
  2. Marketing Social Responsibility By Sumitro Banerjee; Luc Wathieu
  3. Increasing Dominance - the Role of Advertising, Pricing and Product Design By Kretschmer, Tobias; Rösner, Mariana
  4. When Judgments and Preferences Fail to Conform: Research on Preference Reversals for Product Purchases By Holger Müller; Eike Benjamin Kroll; Bodo Vogt
  5. Implications of behavioral research for the use and regulation of consumer credit products By Gregory Elliehausen
  6. Minimum Price Guarantees In a Consumer Search Model By Maarten Janssen; Alexei Parakhonyak
  7. Social Preferences and Perceived Intentions. An experiment with Normally Developing and Autistic Spectrum Disorders Subjects By V.Pelligra; A.Isoni; R.Fadda; I.Doneddu
  8. Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers By Riemer P. Faber
  9. Exploding offers and buy-now discounts By Armstrong, Mark; Zhou, Jidong

  1. By: Stefan Bühler; Daniel Halbheer
    Abstract: This paper studies profit-maximizing seller behavior when brand image affects consumer demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze “active branding” by the seller through costly advertising. Our analysis shows that advertising, price and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of “passive branding” emanating from the population’s consumption of the product. We demonstrate that seller profits increase in the average degree of conformity in the opulation whereas the price remains unaffected.
    Keywords: Quality; brand image; advertising; conformity; exclusivity
    JEL: D42 L15 L21 M37
    Date: 2010–05
  2. By: Sumitro Banerjee (ESMT European School of Management and Technology); Luc Wathieu (ESMT European School of Management and Technology)
    Abstract: This paper analyzes the optimal strategy of a profit-maximizing firm in response to social responsibility concerns of consumers. We show that firms will address responsibility demands if consumers are sufficiently motivated and society provides minimal monitoring of false claims. We further show that there is an interaction between the firm’s basic positioning and the type of responsibility initiative it undertakes. A firm selling a low quality product commits to social responsibility in the form of good citizenship by investing in compliance with social norms valued by all consumers. In contrast, a firm selling a high quality product tends to contribute to social causes endorsed by its target customers. Under asymmetric information, when consumers cannot observe product quality, we find that a firm can signal its commitment to social responsibility by charging a higher price and by making exaggerated claims that would be too damaging if they were not largely true. Finally, in a vertically differentiated duopoly, we find that only one firm will take on social responsibility initiatives. Overall, these findings suggest that profit-driven competitive marketing strategies can fulfill social responsibility just as much as any other driver of consumer utility.
    Keywords: corporate social responsibility, cause marketing, signaling games
    JEL: D42 D21 M3 M14
    Date: 2010–03–22
  3. By: Kretschmer, Tobias; Rösner, Mariana
    Abstract: Despite the empirical relevance of advertising strategies in concentrated markets, the economics literature is largely silent on the effect of persuasive advertising strategies on pricing, market structure and increasing (or decreasing) dominance. In a simple model of persuasive advertising and pricing with differentiated goods, we analyze the interdependencies between ex-ante asymmetries in consumer appeal, advertising and prices. Products with larger initial appeal to consumers will be advertised more heavily but priced at a higher level - that is, advertising and price discounts are strategic substitutes for products with asymmetric initial appeal. We find that the escalating effect of advertising dominates the moderating effect of pricing so that post-competition market shares are more asymmetric than pre-competition differences in consumer appeal. We further find that collusive advertising (but competitive pricing) generates the same market outcomes, and that network effects lead to even more extreme market outcomes, both directly and via the effect on advertising.
    Keywords: Increasing dominance; persuasive advertising; duopoly; network effects
    JEL: D21 L11 L13
    Date: 2010–05–01
  4. By: Holger Müller (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Eike Benjamin Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In this paper, the preference reversal phenomenon known from risk research is investigated according to which subjects prefer gamble A over B in competitive decisions although they reveal higher valuations in terms of a cash equivalent (CE) or a willingness to pay (WTP) for the latter when gambles are assessed separately in monadic judgments. In contrast to the experimental settings of research on risky choices, our studies observed unforced and binding purchase decisions of experienced consumers between real products in natural shopping environments. Results confirm robustness of preference reversals in risk-free purchase decisions indicating that orderings of product preferences reverse significantly between evaluations in monadic and competitive designs. While recent pricing research has been largely focused on monadic designs and suggested BDM mechanisms or second-price auctions for elicitations of consumers’ true willingness to pay, results of our studies indicate a substantial discrepancy between preference orders based on monadic judgments and preferences that consumers reveal in competitive purchase decisions.
    Keywords: Preference Reversals, Willingness to Pay, Monadic Designs, Competitive Designs, Pricing Research, Procedure Invariance
    Date: 2010–01
  5. By: Gregory Elliehausen
    Abstract: This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals. While most economists and psychologists agree that cognitive errors and time inconsistent behavior occur, the extent to which these phenomena impair actual decisions in markets is not at all clear. At this time, neither existing behavioral evidence nor conventional economic evidence supports a general conclusion that consumers' credit decisions are not rational or that markets do not work reasonably well. Empirical evidence suggests that behavioral research can help improve required information disclosures and contribute to more effective regulation, which enhances the performance of markets and improves individual outcomes.
    Date: 2010
  6. By: Maarten Janssen (University of Vienna,and Erasmus University Rotterdam); Alexei Parakhonyak (Erasmus University Rotterdam)
    Abstract: This paper is the first to examine the effect of minimum price guarantees
    Keywords: Sequential Search; Minimum Price Guarantees,Welfare Analysis
    JEL: D40 D83 L13
    Date: 2009–10–13
  7. By: V.Pelligra; A.Isoni; R.Fadda; I.Doneddu
    Abstract: Models of social preferences explain departures from pure self-interest as a consequence of either outcome-based or intention-based other-regarding motives. Various experimental studies lend support to the conclusion that subjects behave as if they conditioned their behaviour on the perceived intentions of others. We present a new experiment that explores this as if clause by making the ability to detect intentions a treatment variable. We compare normally developing children with autistic children – typically unable to perceive intentions – and find differences consistent with the hypothesis that behaviour responds to intentions, especially if unkind.
    Keywords: Social Preferences; Theory of Mind; Intentionality; Autism
    JEL: C72 C91
    Date: 2010
  8. By: Riemer P. Faber (Erasmus University Rotterdam)
    Abstract: This paper studies asymmetric price responses of individual firms, via daily retail prices of almost all gasoline stations in the Netherlands and suggested prices of the five largest oil companies over more than two years. I find that 38% of the stations respond asymmetrically to changes in the spot market price. Hence, asymmetric pricing is not a feature of the market as a whole, but of individual firms. For asymmetrically pricing stations, the asymmetry is substantial directly after a change but disappears after one or two days. I study station-specific characteristics and conclude that asymmetric pricing seems to be a phenomenon that is randomly distributed across stations. I also find that none of the five largest oil companies adjust their suggested prices asymmetrically.
    Keywords: price setting; asymmetric price responses; gasoline markets
    JEL: D40 E31 L11 L81
    Date: 2009–11–19
  9. By: Armstrong, Mark; Zhou, Jidong
    Abstract: We consider a market with sequential consumer search in which firms can distinguish potential customers visiting for the first time from returning visitors. We show that firms often have an incentive to make it costly for its visitors to return after investigating rivals, either by making an "exploding offer" (which permits no return once the consumer leaves) or by offering a "buy-now discount" (which makes the price paid by first-time visitors lower than that for returning visitors). Prices often increase when return costs are artificially increased in this manner, and this harms consumers and market performance. If firms cannot commit to their buy-later price the outcome depends on whether there is an intrinsic cost of returning to a firm: if the intrinsic return cost is zero, it is often an equilibrium for firms not to offer any buy-now discount; if the return cost is positive, firms are forced to make exploding offers.
    Keywords: Consumer search; oligopoly; price discrimination; high-pressure selling; buy-now discounts; costly recall
    JEL: D18 D83 D43
    Date: 2010–05

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