nep-mkt New Economics Papers
on Marketing
Issue of 2013‒01‒26
four papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets By Schmidt, Klaus M.; Spann, Martin; Zeithammer, Robert
  2. Does Organic Crowding Out Influence Organic Food Demand? – evidence from a Danish micro panel By Lars Gårn Hansen; Laura Mørch Andersen
  3. Market Structure and Cost Pass-Through in Retail By Nicholas Li; Gee Hee Hong
  4. Estimating the Final Size of an Online User Base By Steven Lim

  1. By: Schmidt, Klaus M.; Spann, Martin; Zeithammer, Robert
    Abstract: Pay What You Want (PWYW) can be an attractive marketing strategy to price discriminate between fair-minded and selfish customers, to fully penetrate a market without giving away the product for free, and to undercut competitors that use posted prices. We report on laboratory experiments that identify causal factors determining the willingness of buyers to pay voluntarily under PWYW. Furthermore, to see how competition affects the viability of PWYW, we implement markets in which a PWYW seller competes with a traditional seller. Finally, we endogenize the market structure and let sellers choose their pricing strategy. The experimental results show that outcome-based social preferences and strategic considerations to keep the seller in the market can explain why and how much buyers pay voluntarily to a PWYW seller. We find that PWYW can be viable in isolation, but it is less successful as a competitive strategy because it does not drive traditional posted-price sellers out of the market. Instead, the existence of a posted-price competitor reduces buyers’ payments and prevents the PWYW seller from fully penetrating the market. If given the choice, the majority of sellers opt for setting a posted price rather than a PWYW pricing. We discuss the implications of these results for the use of PWYW as a marketing strategy.
    Keywords: customer-driven pricing mechanisms; pay what you want; revenue management; price discrimination; social preferences
    Date: 2012–12
  2. By: Lars Gårn Hansen (Department of Food and Resource Economics, University of Copenhagen); Laura Mørch Andersen (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: All previous studies of organic food demand that investigating substitution focus on specific food submarkets and have to assume separability from other food consumption. However, consumers typically associate attributes such as e.g. healthiness and environment friendliness with organic variants of most types of food. If such general organic attributes are important for consumer behaviour then separability may not hold because the general attribute obtained from one type of organic food may be a close or even perfect substitute for the same attribute obtained from other types of organic food. In this paper we utilize a unique Danish micro panel where all food demand is registered on a disaggregated level with an organic/non-organic indicator to estimate a general food demand system with organic variants. We clearly reject the usual separability assumption and find that the behaviour of Danish consumers is consistent with them perceiving such general organic attributes. In addition estimation of a general demand system makes calculation of economy wide organic price elasticities and other insights into the structure of organic food demand possible.
    Keywords: Organic consumption, crowding out, separability, AIDS model, home scan data
    JEL: D12
    Date: 2013–01
  3. By: Nicholas Li; Gee Hee Hong
    Abstract: We examine the extent to which vertical and horizontal market structure can together explain incomplete pass-through. We develop a model that highlights the interactions between horizontal and vertical structure and their effects on pass-through from commodity to wholesale prices and wholesale to retail prices. Using scanner data from a large U.S. retailer, we estimate product level pass-through rates for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. We find that greater control of the value chain by the retailer results in higher commodity price pass-through into retail prices compared to national brands – 40% higher for private label manufactured goods and 10% higher for private label non-manufactured goods. We also find substantial effects of horizontal structure on pass-through – products and brands with higher market shares have higher retail markups and lower cost pass-through. Our results emphasize that accounting for both vertical and horizontal structure is important for understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.
    Keywords: pass-through; market structure; market power; pricing; retail; vertical integration; intra-firm; private labels;
    JEL: D4 E3 E31
    Date: 2013–01–14
  4. By: Steven Lim (University of Waikato)
    Abstract: The theoretical insights from the increasing returns literature, plus the interaction between consumers facilitated by networked technologies, have led to a synthesis in which virtual communities become uniquely valuable to an online firm. Strategy in social media markets, in particular, becomes one of promoting information sharing and connectivity within networks of user communities, deepening the relationship between the user base and sellers, and paving the way for a revenue payoff. When network externalities also suggest the possibility of barriers to entry and lock-in operating on the demand side, the importance of a large user base correspondingly increases. From a finance perspective the relevant question then is: how large will a firm’s user base eventually become? Cauwels and Sornette (2011) answer this question by positing an S-shaped model of user growth. We extend their model by introducing competition from another online firm. With this extension, S-shaped growth is altered, potentially invalidating Cauwels and Sornette’s (2011) results.
    Keywords: user base growth; Facebook valuation; S-curves
    JEL: C15 D85 G17
    Date: 2012–12–11

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