nep-mkt New Economics Papers
on Marketing
Issue of 2011‒09‒16
eight papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Price setting in a leading Swiss online supermarket By Martin Berka; Michael B. Devereux; Thomas Rudolph
  2. Learning from Seller Experiments in Online Markets By Liran Einav; Theresa Kuchler; Jonathan D. Levin; Neel Sundaresan
  3. The Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments By Qiang Liu; Thomas J. Steenburgh; Sachin Gupta
  4. An economic analysis of online streaming: How the music industry can generate revenues from cloud computing By Thomes, Tim Paul
  5. The product life cycle of durable goods By Kaldasch, Joachim
  6. Product reliability, consumers’ complaints and market performance: the case of consumers’ associations By Joaquín Coleff
  7. Price Premium for High-Efficiency Refrigerators and Calculation of Price-Elasticities for Close-Substitutes: Combining Hedonic Pricing and Demand Systems By Ibon Galarraga; David Heres Del Valle; Mikel González-Eguino
  8. Consumer Preferences for Less Packaging: A Stated Preference Study By Keiko Yamaguchi; Kenji Takeuchi

  1. By: Martin Berka; Michael B. Devereux; Thomas Rudolph
    Abstract: We study a newly released data set of scanner prices for food products in a large Swiss online supermarket. We find that average prices change about every two months, but when we exclude temporary sales, prices are extremely sticky, changing on average once every three years. Non-sale price behavior is broadly consistent with menu cost models of sticky prices. When we focus specifically on the behavior of sale prices, however, we find that the characteristics of price adjustment seems to be substantially at odds with standard theory.
    Keywords: Pricing ; Profit
    Date: 2011
  2. By: Liran Einav; Theresa Kuchler; Jonathan D. Levin; Neel Sundaresan
    Abstract: The internet has dramatically reduced the cost of varying prices, displays 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 conducted 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.
    JEL: C93 D44 L13 L86
    Date: 2011–09
  3. By: Qiang Liu (The Krannert School of Management, Purdue University); Thomas J. Steenburgh (Harvard Business School, Marketing Unit); Sachin Gupta (The Johnson Graduate School of Management, Cornell University)
    Abstract: Different instruments are relevant for different marketing objectives (category demand expansion or market share stealing). To help brand managers make informed marketing mix decisions, it is essential that marketing mix models appropriately measure the different effects of marketing instruments. Discrete choice models that have been applied to this problem might not be adequate because they possess the Invariant Proportion of Substitution (IPS) property, which imposes counter-intuitive restrictions on individual choice behavior. Indeed our empirical application to prescription writing choices of physicians in the hyperlipidemia category shows this to be the case. We find that three commonly used models that all suffer from the IPS restriction - the homogeneous logit model, the nested logit model, and the random coefficient logit model - lead to counter-intuitive estimates of the sources of demand gains due to increased marketing investments in Direct-to-Consumer Advertising (DTCA), detailing, and Meetings and Events (M&E). We then propose an alternative choice model specification that relaxes the IPS property - the so-called "flexible substitution" logit (FSL) model. The (random coefficient) FSL model predicts that sales gains from DTCA and M&E come primarily from the non-drug treatment (87.4% and 70.2% respectively), whereas gains from detailing come at the expense of competing drugs (84%). By contrast, the random coefficient logit model predicts that gains from DTCA, M&E and detailing all would come largely from competing drugs.
    Date: 2011–08
  4. By: Thomes, Tim Paul
    Abstract: This paper investigates the upcoming business model of online streaming services allowing music consumers either to subscribe to a service which provides free-of-charge access to streaming music and which is funded by advertising, or to pay a monthly flat fee in order to get ad-free access to the content of the service accompanied with additional benefits. Both businesses will be launched by a single provider of streaming music. By imposing a two-sided market model on the one hand combined with a direct transaction between the streaming service and its flat-rate subscribers on the other hand, the investigation shows that it can be highly profitable to launch a business which is free-of-charge for subscribers if advertising imposes a weak nuisance to music consumers. If this is the case, and by imposing an endogenously determined level of advertising which will be provided by homogeneous advertisers, the analysis shows that the monopolistic streaming service increases the price for its flat-rate subscribers in order to stimulate free-of-charge demand and to capture higher revenues from advertisers. An extension of the model by illegal file-sharing reveals that an increase in copyright enforcement shifts rents from music consumers to the monopolistic provider, moreover a maximal punishment for piracy will be welfare-maximizing. --
    Keywords: Advertising media,Music industry,Online streaming,Piracy
    JEL: D42 L12 L82
    Date: 2011
  5. By: Kaldasch, Joachim
    Abstract: The model presented here derives the product life cycle of durable goods. It is based on the idea that the purchase process consists of first purchase and repurchase. First purchase is determined by the market penetration process (diffusion process), while repurchase is the sum of replacement and multiple purchase. The key property of durables goods is to have a mean lifetime in the order of several years. Therefore replacement purchase creates periodic variations of the unit sales (Juglar cycles) having its origin in the initial diffusion process. The theory suggests that there exists two diffusion processes. The first can be described by Bass diffusion and is related to the information spreading process within the social network of potential consumers. The other diffusion process comes into play, when the price of the durable is such, that only those consumers with a sufficient personal income can afford the good. We have to distinguish between a monopoly market and a polypoly/oligopoly market. In the first case periodic variations of the total sales occur caused by the initial Bass diffusion, even when the price is constant. In the latter case the mutual competition between the brands leads with time to a decrease of the mean price. This change is associated with an effective increase of the market volume, which can be interpreted as a diffusion process. Based on an evolutionary approach, it can be shown that the mean price decreases exponentially and the corresponding diffusion process is governed by Gompertz equation (Gompertz diffusion). Most remarkable is that Gibrat's rule of proportionate growth is a direct consequence of the competition between the brands. The model allows a derivation of the lognormal size distribution of product sales and the logistic replacement of durables in competition. A comparison with empirical data suggests that the theory describes the main trend of the product life cycle superimposed by short term events like the introduction of new models.
    Keywords: Product Life Cycle; Consumer Durables; Product Diffusion; Bass Diffusion; Competition; Gompertz Diffusion; Replicator Equation; Logistic Growth; Evolutionary Economics; Monopoly; Takeoff; Gibrat's Rule; Juglar Cycles;
    JEL: M0 M31 D11 E32 D12 C50 D41 D42
    Date: 2011–09
  6. By: Joaquín Coleff
    Abstract: In their dealings with retailers and suppliers, regulations and warranties ensure that consumers can seek a repair, a replacement or a refund if the good they have purchased is faulty. The evidence, however, indicates that few consumers pursue any form of compensation, suggesting that, for most consumers, transaction costs are high and providing a rationale for the role that consumers’ associations play. In this paper, we analyze the monopolist’s pricing and product reliability problem when consumers are entitled to product replacement and assess the implications of a decrease in consumers’ transaction costs. Our results suggest that the appearance of the consumers’ associations could, instead, lower product reliability. We draw empirical evidence from the pattern of recalls and complaints in the U.S. car market around 1995 (the year in which the National Highway Traffic Safety Administration (NHTSA) incorporated on-line filings) and find that it appears consistent with this prediction.
    Keywords: product reliability, consumers’ association, consumers’ claims, liability cost
    JEL: K42 D71 D42 D21 L12
    Date: 2011–08
  7. By: Ibon Galarraga; David Heres Del Valle; Mikel González-Eguino
    Abstract: This article uses the hedonic pricing method to estimate the price premium paid for the highest energy-efficiency label (A+) in the refrigerators market of the Basque Autonomous Community (Spain). The estimated figure is 8.9% of the final price or about 60 euro, which represents one third of the energy savings that a consumer gets during the lifetime of a refrigerator with the highest energy-efficiency label. This figure is then combined with the linear version of the Almost Ideal Demand System (LA/AIDS) to obtain own and cross-price elasticities of demand. The information presented here is useful for policy design and analysis. The results indicate that the demand for refrigerators with the highest energy-efficiency label is highly sensitive to price variations.
    Date: 2011–08
  8. By: Keiko Yamaguchi (Graduate School of Humanities and Social Sciences, Okayama University); Kenji Takeuchi (Graduate School of Economics, Kobe University)
    Abstract: This study estimates the willingness-to-pay (WTP) for packaging with less material by using contingent valuation. We found that people who care about the environmental friendliness of a product, who have a positive perception of less packaging, and who live in a municipality implementing unit-based pricing of waste have a higher WTP. Use of economic instruments potentially affects the purchase of products with reduced packaging. However, when unit-based pricing is combined with plastic separation for recycling, it reduces the WTP. This suggests the possibility that the effect of economic instruments on source reduction of waste is weakened by the recycling policy.
    Keywords: Less packaging, Contingent valuation, Unit-based pricing
    JEL: M31 Q51 Q53
    Date: 2011–09

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