nep-mkt New Economics Papers
on Marketing
Issue of 2012‒03‒14
five papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Multiproduct search By Zhou, Jidong
  2. "To Sponsor or not to Sponsor: Sponsored Search Auctions with Organic Links" By Michael Arnold; Eric Darmon; Thierry Penard
  3. The strategic interplay between bundling and merging in complementary markets By A. Mantovani; J. Vandekerckhove
  4. Incentives for Quality over Time - The Case of Facebook Applications By Jörg Claussen; Tobias Kretschmer; Philip Mayrhofer
  5. Demand Externalities from Co-Location By Boudhayan Sen; Jiwoong Shin; K. Sudhir

  1. By: Zhou, Jidong
    Abstract: This paper presents a sequential search model where consumers look for several products among competitive multiproduct …rms. In a multiproduct search mar- ket, both consumer behavior and …rm behavior exhibit di¤erent features from the single-product case: a consumer often returns to previously visited …rms before running out of options; and prices can decrease with search costs and increase with the number of …rms. The framework is then extended in two directions. First, by introducing both single-product and multiproduct searchers, the model can explain the phenomenon of countercyclical pricing, i.e., prices of many retail products decline during peak-demand periods. Second, by allowing …rms to use bundling strategies, the model sheds new light on how bundling a¤ects market performance. In a search environment, bundling tends to reduce consumer search intensity, which can soften competition and reverse the usual welfare assessment of competitive bundling in a perfect information setting.
    Keywords: consumer search; oligopoly; multiproduct pricing; countercyclical pricing; bundling
    JEL: D11 L13 D83 D43
    Date: 2011–12–01
  2. By: Michael Arnold (Department of Economics, University of Delaware); Eric Darmon (CREM, University of Rennes 1, France); Thierry Penard (CREM, University of Rennes 1, France)
    Abstract: In 2010 sponsored search advertisements generated over $12 billion in revenue for search engines in the US market and accounted for 46% of online advertising revenue. A substantial portion of this revenue was generated by the sale of search keywords using auction mechanism. We analyze a game-theoretic model to understand the interplay between organic and sponsored links in keyword auctions. Our model allows both the relevance of the advertising firm as well as the position of its sponsored link to impact click-through-rates. Our results demonstrate how the presence of organic links (links generated by the search engine algorithm) may lead to either more or less aggressive bidding for sponsored link positions depending on consumers attitudes toward sponsored links and the extent to which sponsored and organic links are complements or substitutes. In contrast to equilibrium results in existing literature, the firm with the highest value per click does not necessarily win the first spot in the sponsored search listing. It also may be optimal for a firm to bid an amount greater than the expected value (or sale) from a click.
    Keywords: sponsored search, organic search, online advertising, keyword auction
    JEL: D4 D44 D83 L1 L86
    Date: 2012
  3. By: A. Mantovani; J. Vandekerckhove
    Abstract: In this paper, two pairs of complementors have to decide whether to merge and eventually bundle their products. Depending on the degree of competitive pressure in the market, either both pairs decide to merge (with or without bundling), or only one pair merges and bundles, while rivals remain independent. The latter case can very harmful for consumers as it brings surge in prices. We also consider the case in which one pair moves first. Interestingly, we find a parametric region where first movers merge but refrain from bundling, to not induce rivals to merge as well.
    JEL: D43 L13 L41
    Date: 2012–03
  4. By: Jörg Claussen; Tobias Kretschmer; Philip Mayrhofer
    Abstract: We study the market for applications on Facebook, the dominant platform for social networking and make use of a rule change by Facebook by which high-quality applications were rewarded with further opportunities to engage users. We find that the change led to quality being a more important driver of usage while sheer network size became less important. Further, we find that update frequency helps applications maintain higher usage, while generally usage of Facebook applications declines less rapidly with age.
    Keywords: usage intensity, social media, platform management, two-sided markets
    JEL: L1 L50 O33
    Date: 2012–03
  5. By: Boudhayan Sen (Yale School of Management); Jiwoong Shin (Yale School of Management); K. Sudhir (Cowles Foundation and Yale School of Management)
    Abstract: We illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competition with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories).
    Keywords: Revenue economies of scope, Demand externalities, One stop shopping, Co-location, Selection, Retail industry
    Date: 2012–02

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