nep-mkt New Economics Papers
on Marketing
Issue of 2011‒02‒26
seven papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Targeted Advertising and Social Status By Nick Vikander
  2. Capacity Constraints and Beliefs about Demand By Nick Vikander
  3. Pricing, Advertising, and Market Structure with Frictions By Pedro Gomis-Porqueras; Benoit Julien; Chengsi Wang
  4. Media Firm Strategy and Advertising Taxes By Kind, Hans Jarle; Koethenbuerger, Marko; Schjelderup, Guttorm
  5. Finding similar price preferences on tourism activities By Lorenzo Masiero; Juan L. Nicolau
  6. Two-Sided Competition and Differentiation (with an Application to Media) By Guillaume Roger
  7. Price sensitivity to tourism activities: looking for determinant factors By Lorenzo Masiero; Juan L. Nicolau

  1. By: Nick Vikander (Erasmus University Rotterdam, and University of Edinburgh)
    Abstract: This paper shows how a firm can use non-targeted advertising to exploit consumers' desire for social status. A monopolist sells multiple varieties of a good to consumers who each care about what others believe about his wealth. Advertising allows consumers both to buy different varieties and to recognize them when others buy. In equilibrium, the firm advertises each variety to those who will buy but also to all poorer consumers who will not, so that they understand what having the goods signals. If concern for status is sufficiently high, then the firm will only place a single variety on the market.
    Keywords: advertising; targeting; social status
    JEL: M37 L12 L15
    Date: 2011–01–24
  2. By: Nick Vikander (Erasmus University Rotterdam, and University of Edinburgh)
    Abstract: This paper examines how a firm can strategically choose its capacity to manipulate consumer beliefs about aggregate demand. It looks at a market with social effects where consumers want to do what is popular, to buy what they believe others want to buy. By imposing a capacity constraint and setting a price just low enough for it to bind, the firm can fool certain naive consumers into believing that demand is greater than it actually is. This will in turn increase the willingness to pay of all consumers through social effects. In equilibrium, the firm will impose a capacity constraint whenever demand is lower than expected, even when the number of naive consumers is arbitrarily small.
    Keywords: capacity constraints; bandwagon effects; naive consumers; bounded rationality
    JEL: D80 L00
    Date: 2011–01–24
  3. By: Pedro Gomis-Porqueras (School of Economics, Australian National University); Benoit Julien (School of Economics, University of New South Wales); Chengsi Wang (School of Economics, University of New South Wales)
    Abstract: This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers and uncoordinated buyers. Sellers’ search intensity attracts buyers only probabilistically through costly informative advertisement. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed. The model generates an inverted U-shape relationship between individual advertisement and market tightness which is robust to alternative advertising technologies. The well known empirical fact in the IO literature reflects the trade-off between price and market tightness matching effects. Finally, in this environment we can alleviate the discontinuity problem, allowing for unique symmetric equilibrium price to be derived.
    Keywords: Directed searching; Advertising; Pricing; Market structure
    JEL: E52 E63
    Date: 2010–11
  4. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Koethenbuerger, Marko (Dept. of Economics, University of Copenhagen); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: Empirical evidence suggests that people dislike ads in TV programs and other media products. In such situations standard economic theory prescribes that the advertising volume can be optimally reduced by levying a tax on ads. However, making use of recent advances in the theory of firm behavior in two-sided markets, we show that taxation of ads may be counterproductive. In particular, we identify a number of situations in which ad-adverse consumers are negatively affected by the tax, and we even show that the tax may lead to higher ad volumes. This unorthodox reaction to a tax may arise when consumers significantly dislike ads, i.e. in situations where traditional arguments for corrective taxes are strongest.
    Keywords: Two-sided markets; media market; pricing strategy; taxation
    JEL: H20
    Date: 2011–02–21
  5. By: Lorenzo Masiero (Institute for Economic Research (IRE), Faculty of Economics, University of Lugano, Switzerland); Juan L. Nicolau (Dpt. of Financial Economics, Accounting and Marketing, Faculty of Economics, University of Alicante, Spain)
    Abstract: This article builds on the double role of the effect of prices on the choice of tourism activities: not only is it the only component of a destination marketing strategy that represents income but also a determinant factor in tourist choice. On this account, identifying patterns of tourists with different degrees of sensitivities to prices would help them design an appropriate bundle of activities and have a clear definition of the segment the destination should try to attract. Accordingly, the objective of this paper is to find tourist segments from individual price sensitivities to activities. The results show that, although price has a dissuasive influence on the choice of activities it shows a differentiated effect; this heterogeneous responsiveness to price supports the use of this variable as a segmentation criterion. In the empirical application four segments are found with significantly different price sensitivities.
    Keywords: individual price sensitivity, tourism activities, tourist choice, segmentation strategy
    JEL: C25 L83
    Date: 2011–01
  6. By: Guillaume Roger (School of Economics, The University of New South Wales)
    Abstract: We model a duopoly in which two-sided platforms compete on both sides of a two-sided market. Platforms (or intermediaries) select the quality they offer consumers, and the prices they charge to consumers and firms. In this model, non-trivial competition on both sides induces non-quasiconcave payoffs in one subgame. All equilibria are characterized. Under well-defined conditions, the unique equilibrium in pure strategies can be computed. Prices entail a discount on one side, a premium on the other one and the quality offered to consumers is distorted downward. When the pure-strategy equilibrium fails to exist, a mixed-strategy equilibrium is shown to always exist and the distributions are characterized. In this case, the market may be preempted ex post. The model may find applications in the media, internet trading platforms, the software industry or even the health care industry (HMO/PPO).
    Keywords: Two-Sided Market; Vertical Differentiation; Industrial Organization; Platform Competition
    JEL: C72 D43 D62 L13 L15
    Date: 2010–11
  7. By: Lorenzo Masiero (Institute for Economic Research (IRE), Faculty of Economics, University of Lugano, Switzerland); Juan L. Nicolau (Dpt. of Financial Economics, Accounting and Marketing, Faculty of Economics, University of Alicante, Spain)
    Abstract: Literature shows evidence that there is a marked heterogeneity in price responses to tourism products, leading to a great variety of tourist sensitivities to price. It means that the role price plays is complex and, particularly challenging is that its effect is not unambiguous, thereby dismissing the idea that demand for tourism products and tourist activities is always that of ordinary goods. The objective of this article is to identify and explain, as a novelty for the tourism industry, price sensitivities to tourism activities -individual by individual-. The operative formalization follows a Mixed Logit Model to estimate the individual sensitivities to price and then, a regression analysis to detect their determinants. The empirical application finds that motivations -influenced by age- and length of stay -with a non-linear effect- are explanatory factors of the tourists' price sensitivity to activities.
    Keywords: tourism activities, response to prices, market heterogeneity, tourist choice
    JEL: C25 L83
    Date: 2011–01

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