nep-mkt New Economics Papers
on Marketing
Issue of 2011‒08‒29
four papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Endogenous Product Differentiation, Market Size and Prices By Ferguson, Shon
  2. Learning from Seller Experiements in Online Markets By Liran Einav; Theresa Kuchler; Jonathan Levin; Neel Sundaresan
  3. Supplier Responses to Wal-Mart's Invasion in Mexico By Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
  4. Misleading Advertising and Minimum Quality Standards By Keisuke Hattori; Keisaku Higashida

  1. By: Ferguson, Shon (Research Institute of Industrial Economics (IFN))
    Abstract: Recent empirical evidence suggests that prices for some goods and services are higher in larger markets. This paper provides a demand-side explanation for this phenomenon when firms can choose how much to differentiate their products in a model of monopolistic competition with horizontal product differentiation. The model proposes that consumers’ love of variety makes them more sensitive to product differentiation efforts by firms, which leads to higher prices in larger markets. At the same time, endogenous product differentiation modeled in this way can lead to a positive and concave relationship between market size and entry.
    Keywords: Endogenous Technology; Entry; Market Size Effect; International Trade; Monopolistic Competition
    JEL: D43 F12 L13
    Date: 2011–08–12
  2. By: Liran Einav (Economics Department, Stanford University); Theresa Kuchler (Economics Department, Stanford University); Jonathan Levin (Economics Department, Stanford University); Neel Sundaresan (eBay Research Labs)
    Abstract: The internet has dramatically reduced the cost of varying prices, dis- plays and information provided to consumers, facilitating both active and passive experimentation. We document the prevalence of targeted pricing and auction design variation on eBay, and identify hundreds of thousands of experiments con- ducted by sellers across a wide array of retail products. We show how this type of data can be used to address questions about consumer behavior and market outcomes, and provide illustrative results on price dispersion, the frequency of over-bidding, the choice of reserve prices, ?buy now?options and other auction design parameters, and on consumer sensitivity to shipping fees. We argue that leveraging the experiments of market participants takes advantage of the scale and heterogeneity of online markets and can be a powerful approach for testing and measurement. Creation Date: 2011-08 Revision Date:
  3. By: Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
    Abstract: This paper examines the effect of Wal-Mart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Wal-Mart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Wal-Mart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in regions with di¤ering levels of Walmex presence during the years 1994 to 2002.
    Keywords: distribution systems; firm heterogeneity; foreign direct investment; innovation; logistics; NAFTA; retailing
    JEL: F23
    Date: 2011–08
  4. By: Keisuke Hattori (Faculty of Economics, Osaka University of Economics); Keisaku Higashida (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards and certication criteria, when products are vertically dierentiated in their health/safety aspects. We investigate the welfare eect of regulating misinformation and strengthening MQSs. We nd that when the amount of misinformation on both low- and high-quality products is small, regulating misinformation on low-quality products reduces welfare, although the strictness of an MQS influences its eect. On the other hand, regulating misinformation on high-quality products always improves welfare. We also nd that a stricter MQS can harm welfare. This, in particular, is likely to occur when the dierence between the perceived quality of the two types of products is large and when rms generate high degrees of misperceptions. Moreover, we extend the analysis by endogenizing quality investments and demonstrate that regulating misinformation on high-quality products may deteriorate their true quality and, thus, reduce welfare.
    Keywords: Advertising, Minimum quality standards, Misinformation, Vertical differentiation
    JEL: L13 L15 M37 Q58
    Date: 2011–08

This nep-mkt issue is ©2011 by Joao Carlos Correia Leitao. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.