nep-mkt New Economics Papers
on Marketing
Issue of 2012‒10‒13
eight papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Design of Consumer Review Systems and Product Pricing By Yabing Jiang; Hong Guo
  2. Net Neutrality, Foreclosure and the Fast Lane: An empirical study of the UK By Laura Nurski
  3. Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands By Fabrice Etilé; Sabrina Teyssier
  4. The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV By Helmut M. Dietl; Markus Lang; Pannlang Lin
  5. Mandatory labels, taxes and market forces: An empirical evaluation of fat policies By Olivier Allais; Fabrice Etilé; Sébastien Lecocq
  6. Advertising versus Brokerage Model for Online Trading Platforms By Jianqing Chen; Ming Fan; Mingzhi Li
  7. A More General Theory of Commodity Bundling By Mark Armstrong
  8. Two-Sided Platform Competition in the Online Daily Deals Promotion Market By Byung-Cheol Kim; Jeongsik "Jay" Lee; Hyunwoo Park

  1. By: Yabing Jiang (Lutgert College of Business, Florida Gulf Coast University); Hong Guo (Mendoza College of Business, University of Notre Dame)
    Abstract: Consumer review systems have become an important marketing communication tool through which consumers share and learn product information. Although there is abundant evidence that consumer reviews have significant impact on consumer purchasing decisions, the design of consumer review systems and its impact on review outcomes and product sales have not yet been well examined. This paper analyzes firms’ review system design and product pricing strategies. We formally model two design features of consumer review systems – rating scale and disclosure of specific product attribute information. We show that firms’ optimal strategies critically depend on contextual characteristics such as product quality, product popularity, and consumer misfit cost. Our results suggest that firms should choose a low rating scale for niche products and a high rating scale for popular products. Firms should disclose specific product attribute information to attract the desired consumer segment when product quality is low relative to misfit cost, and the resulting optimal size of the targeted consumer market increases in product popularity and product quality. Different pricing strategies should be deployed during the initial sale period for different product types. For niche products, firms are advised to adopt lower-bound pricing for high-quality products to take advantage of the positive word of mouth. For popular products, firms are advised to adopt upper-bound pricing for high-quality products to enjoy the direct profit from the initial sale period, even after taking into account the negative impact of high price on consumer reviews.
    Keywords: economic modeling, e-commerce, consumer reviews, online word of mouth, product uncertainty
    JEL: D42 L86 M15
    Date: 2012–09
  2. By: Laura Nurski (Center for Economic Studies, Faculty of Business and Economics, KU Leuven)
    Abstract: Consumers buy internet access from Internet Service Providers (ISPs) to reach online content providers. Under net neutrality, an ISP is not allowed to discriminate between content providers, even though it might have an incentive to do so. An ISP might want to sell a “fast lane” to content providers or use quality degradation to foreclose content providers that compete with the ISP's own content. Discarding net neutrality will have two effects on consumers: (i) consumers will reoptimize their choice of online content, at constant ISP choices; and (ii) consumers will reoptimize their choice of ISP. I empirically investigate whether an ISP has an incentive to break net neutrality, taking into account both channels of consumer response. I combine a novel data set on UK household content and ISP choices with data on ISP presence in local markets, as well as speeds and prices. Preliminary results indicate that a fast lane increases consumers' surplus, industry revenues and advertising revenues. In contrast, foreclosure seems an unlikely scenario since it reduces the foreclosing ISP's revenues from selling broadband by more than it can recuperate through advertising on online content.
    Keywords: Net neutrality, Foreclosure, Telecommunications
    JEL: L42 L86 L82
    Date: 2012–09
  3. By: Fabrice Etilé (ALISS - Alimentation et sciences sociales - INRA : UR1303, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Sabrina Teyssier (ALISS - Alimentation et sciences sociales - INRA : UR1303)
    Abstract: For most consumers, Corporate Social Responsibility is a credence attribute of products, which can be signaled either through a label certified by a third party, or via unsubstantiated claims used as part of a brand-building strategy. These claims may, in theory, be regulated by reputation mechanisms and the awareness of NGOs and activists. We use an experimental posted-offer market with sellers and buyers to compare the impact of these signalling strategies on market efficiency. Both third-party certification and the possibility of CSRrelated brand building give rise to a separating equilibrium. However, only third-party certification clearly produces efficiency gains, by increasing CSR investments. In markets where reputation matters little, unsubstantiated claims can generate a 'halo' effect on consumers, whereby the latter are nudged into paying more for the same level of CSR investments by firms.
    Keywords: Corporate social responsibility ; Third-party certification ; Brand building ; Market experiment ; Halo effect
    Date: 2012–09
  4. By: Helmut M. Dietl (Department of Business Administration (IBW), University of Zurich); Markus Lang (Department of Business Administration (IBW), University of Zurich); Pannlang Lin (Department of Business Administration (IBW), University of Zurich)
    Abstract: This paper develops a theoretical model of asymmetric competition between a pay TV and a free TV broadcaster. Our model shows that the pay TV broadcaster has incentives to place advertising on its channel if the marginal return on advertising exceeds the viewers' disutility from advertising. In this case, however, the pay TV advertising level is always below the corresponding level on free TV. The pay TV advertising level can increase with a higher viewer disutility from advertising but the pay TV channel will never attract a larger viewership than the free TV channel. Furthermore, we show that introducing advertising on pay TV induces a decrease of the subscription fees on this channel and a decrease in the advertising level of the free TV channel. Moreover, pay TV viewer demand can increase if the pay TV broadcaster places advertising on its channel. If the viewer disutility of advertising is suffciently large, aggregate broadcaster profits increase through the introduction of advertising in pay TV, while aggregate consumer surplus always increases.
    Keywords: Manufacturing network, Manufacturing plant, Global operations management, Lead factory, Knowledge transfer
    Date: 2012–01
  5. By: Olivier Allais (ALISS - Alimentation et sciences sociales - INRA : UR1303); Fabrice Etilé (ALISS - Alimentation et sciences sociales - INRA : UR1303, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Sébastien Lecocq (ALISS - Alimentation et sciences sociales - INRA : UR1303)
    Abstract: The public-health community views the mandatory labelling and taxation of fat as promising tools to control the growth of food-related chronic disease. This paper is the first to propose an ex ante evaluation of these two policy options in an oligopolistic setting with differentiated products and heterogeneous demand. Using household scanner data on fromages blancs and dessert yogurts, we separately identify consumer preferences for fat and front-of-pack fat labels by exploiting an exogenous difference in legal labelling requirements between these two product categories. Demand estimates are then combined with a supply model to evaluate both policies. In the absence of any producer price response, making fat labels mandatory reduces the fat supplied to regular consumers in this market by 38%; an ad-valorem tax of 10% (5%) on the producer price of full-fat (half-skimmed) products has a similar impact. Allowing producer price reactions, however, yields much smaller effects: a 9% drop for the fat tax, and a fall of only 1:5% for mandatory labels. Producers thus neutralise up to 96% of the impact of mandatory labelling on demand, via large price cuts on products with large ex ante margins. This illustrates how market forces are largely able to defeat the intended effect of market-based public-health interventions.
    Keywords: Nutrition ; Labelling ; Price fat ; Informatic
    Date: 2012–09
  6. By: Jianqing Chen (Naveen Jindal School of Management, The University of Texas at Dallas); Ming Fan (Foster School of Business, University of Washington); Mingzhi Li (School of Economics and Management, Tsinghua University)
    Abstract: The two leading online consumer-to-consumer platforms use very different revenue models: in the United States uses a brokerage model in which sellers pay eBay on a transaction basis, whereas in China uses an advertising model in which sellers can use basic platform service for free and pay Taobao for advertising service to increase their exposure. This paper studies how the revenue model affects a platform's revenue, buyers' payoffs, sellers' payoffs, and social welfare. We find that matching probability on a platform plays a critical role in determining which revenue model can generate more revenue for the platform, provided a significant proportion of space being dedicated to advertising under the advertising model: If the matching probability is high, the brokerage model generates more revenue for the platform than the advertising model; otherwise, the advertising model generates more revenue. Buyers are always better off under the advertising model because of larger participation by the sellers for the platform's free service. Sellers are better off under the advertising model in most scenarios. The only exception is that when the matching probability is low and platform dedicates a large space to advertising. Under these conditions, those sellers having the payoffs similar to the marginal advertiser (who is indifferent in advertising or not) can be worse off under the advertising model. Lastly, the advertising model generates more social welfare than the brokerage model.
    Keywords: Revenue Model, Business Model, Two-Sided Market
    JEL: M2
    Date: 2012–09
  7. By: Mark Armstrong
    Abstract: This paper discusses the incentive to bundle when consumer valuations are non-additive and/or when products are supplied by separate sellers. Whether integrated or separate, a firm has an incentive to introduce a bundle discount when demand for the bundle is more elastic than the overall demand for products. When separate sellers coordinate on a bundle discount, they can use the discount to relax competition, which can harm welfare.
    Keywords: Price discrimination, Bundling, Discrete choice, Oligopoly, Common agency
    JEL: D11 D43 D82 D86 L13 L41
    Date: 2012
  8. By: Byung-Cheol Kim (School of Economics, Georgia Institute of Technology); Jeongsik "Jay" Lee (Scheller College of Business, Georgia Institute of Business); Hyunwoo Park (School of Industrial and System Engineering)
    Abstract: We empirically investigate the platform competition in the online daily deals promotion market that is characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between merchants and consumers. We find that deals offered through Groupon, the incumbent, sell more and generate higher revenues than those offered by LivingSocial, the entrant. We show that the greater network size in the consumer side entirely explains the incumbent's lead in the merchant side performance, indicating the existence of cross-side network effects at the aggregated market level. However, this performance advantage is dampened by the entrant's competitive chasing at local markets through offers of greater discounts and lower prices. Moreover, the incumbent advantage quickly attenuates as the merchants repeat promotions over time. These countering forces appear to prevent this market from achieving a tipping equilibrium. Our findings thus help explain why different market structures arise in two-sided markets with network externalities.
    Keywords: two-sided market, platform competition, cross-side network effects, online daily deals, reputation effect
    JEL: D40 L10 M20
    Date: 2012–09

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