nep-mkt New Economics Papers
on Marketing
Issue of 2012‒12‒15
three papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Consumer Absenteeism, Search, Advertising, and Sticky Prices By Arthur Fishman
  2. Consumer confusion over the profusion of eco-labels: lessons from a double differentiation model. By Dorothée Brécard
  3. Buy-it-now or Take-a-chance: Price Discrimination through Randomized Auctions By L. Elisa Celis; Gregory Lewis; Markus M. Mobius; Hamid Nazerzadeh

  1. By: Arthur Fishman (Bar-Ilan University)
    Abstract: This paper shows that prices may be sticky when buyers must search to determine the current market price and there is uncertainty about the expected duration of cost changes. Speci…cally, during periods when costs, and hence prices are high, low valuation consumers optimally stop searching and consequently are uninformed about price changes. Then, when costs go down, sellers must advertise to inform those consumers about price cuts. If advertising is costly, relative to single period profit, advertising is profitable only if the cost cut is likely to persist, but not if it is likely to be short lived. Thus, if sellers are initially uncertain about the expected longevity of a cost cut, they might adopt a ‘watch and wait’ strategy, delaying price reductions until better information becomes available. Importantly, it is shown that the same logic does not apply to cost increases. Thus the model is consistent with asymmetric price rigidity (e.g., Peltzman (2000) ).
    Keywords: search, advertising, asymmetric price adjustment, sticky prices, absentee consumers
    Date: 2012–01
  2. By: Dorothée Brécard (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: How are eco-label strategies affected by consumer confusion arising from the profusion of eco-labels? This article provides a theoretical insight into this issue using a double differentiation framework. We assume that consumers perceive a label as a sign of quality compared to an unlabeled product, but that they can't distinguish the environmental quality associated with each label. They only perceive each label as a particular variety of the product. We deduce preferences for two types of label: a health label and an eco-label. We analyze pricing strategies of three firms each providing one product: a health labeled, eco-labeled or an unlabeled product. We infer lessons for eco-labeling policies, through effects of ecolabeling on welfare components, according to the identity of the certifying organization: the regulator, who aims at enhancing welfare, an NGO, which attempts to enhance the quality of the environment, and the firms, which seek to maximize their profits. We show that the firm supplying the eco-labeled product is weakened by consumer confusion while the firms selling the unlabeled product suffers from strict labels, to the benefit of the firm supplying the health labeled product. All label policies imply, whatever the certifying organization, high identical environmental quality of the labeled products, which leads to a reduction in the market share of the unlabeled product or even to its extinction.
    Keywords: Eco-label; environmental quality; green consumer; product differentiation.
    Date: 2012–11–22
  3. By: L. Elisa Celis; Gregory Lewis; Markus M. Mobius; Hamid Nazerzadeh
    Abstract: Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.
    JEL: D4 D44 D82
    Date: 2012–12

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