|
on Marketing |
|
Issue of 2013‒10‒05
eight papers chosen by Joao Carlos Correia Leitao University of Beira Interior and Technical University of Lisbon |
| By: | Zsolt Katona (Haas School of Business, UC Berkeley) |
| Abstract: | This paper studies the competition between firms for influencers in a network. Firms spend effort to convince influencers to recommend their products. The analysis identifies the offensive and defensive roles of spending on influencers. The value of an influencer only depends on the in-degree distribution of the influence network. Influencers who exclusively cover a high number of consumers are more valuable to firms than those who mostly cover consumers also covered by other influencers. Firm profits are highest when there are many consumers with a very low or with very high in-degree. Consumers with an intermediate level of in-degree contribute negatively to profits and high in-degree consumers increase profits when market competition is not intense. Prices are generally lower when consumers are covered by many influencers, however, firms are not always worse off with lower prices. The nature of consumer response to recommendations makes an important difference. When first impressions dominate, firm profits for dense networks are higher, but when recommendations have a cumulative influence profits are reduced as the network becomes dense. |
| Keywords: | Social Networks, Influencers, Competition |
| JEL: | M31 C72 D44 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1306&r=mkt |
| By: | Francesco Decarolis (Department of Economics and Hariri Institute, Boston University); Maris Goldmanis (Department of Economics, Royal Holloway, University of London); Antonio Penta (Department of Economics, University of Wisconsin at Madison) |
| Abstract: | As auctions are becoming the main mechanism for selling advertisement space on the web, marketing agencies specialized in bidding in online auctions are proliferating. We analyze theoretically how bidding delegation to a common marketing agency can undermine both revenues and efficiency of the generalized second price auction, the format used by Google and Microsoft-Yahoo!. Our characterization allows us to quantify the revenue losses relative to both the case of full competition and the case of agency bidding under an alternative auction format (specifically, the VCG mechanism). We propose a simple algorithm that a search engine can use to reduce efficiency and revenue losses. |
| Keywords: | Online Advertising, Internet Auctions, Common Agency |
| JEL: | C71 D44 L41 L81 M37 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1319&r=mkt |
| By: | Sagit Bar-Gill (Tel Aviv University) |
| Abstract: | Online platforms, such as Google, Facebook, or Amazon, are constantly expanding their activities, while increasing the overlap in their service offering. In this paper, we study the scope and overlap of online platforms' activities, when they are endogenously determined. We model an expansion game between two online platforms offering two different services to users for free, while selling user clicks to advertisers. At the outset, each platform offers one service, and users may subscribe to one platform or both (multihoming). In the second stage, each platform decides whether to expand by adding the service already offered by its rival. Platforms' expansion decisions affect users' mobility, and thus the partition of users in the market, which, in turn, affects platform prices and profits. We analyze the equilibrium of the expansion game, demonstrating that, in equilibrium, platforms may decide not to expand, even though expansion is costless. Such strategic "no expansion" decisions are due to quantity and price effects of changes in user mobility, brought on by expansion. Both symmetric expansion and symmetric no-expansion equilibria may arise, as well as asymmetric expansion equilibria, even for initially symmetric platforms. |
| Keywords: | Two-sided markets, Platforms, Entry, Online advertising |
| JEL: | L11 L13 L14 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1312&r=mkt |
| By: | Jorge Ale (Department of Economics, The Hebrew University of Jerusalem) |
| Abstract: | In this article I analyze the effects of a recent reform intended to decrease switching costs in the cellular industry. The reform, implemented in Chile in 2012, allowed cell phone users to switch operators without any contract restriction while keeping their wireless number. Its aim was the belief that lower switching costs would force incumbent companies to charge lower prices by introducing more competition among them. I test the empirical implications of models of switching costs using individual data on customers' bills and plans. I find that average price decreased by 7.2 percent. Moreover, my results provide evidence that the operators reacted primarily by decreasing the price of on-net plans and by offering handsets with data connectivity at a discounted rate. I also find a decrease in the introductory price discounts that operators offer to new customers. I interpret this result as due to the lower ability of the firms to lock-in customers. |
| Keywords: | Switching Costs, Price Discounts, Number Portability, Wireless Industry, Telecommunications. |
| JEL: | D22 L13 L14 L50 L96 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1317&r=mkt |
| By: | Catherine Gendron-Saulnier; Marc Santugini |
| Abstract: | A monopoly decides whether to segment two separate markets. Demand depends on stochastic shocks and some buyers are uninformed about the quality of the good. Contrary to the case of complete information, we show that it is not always more profitable for the firm to segment the markets in an environment in which some buyers have incomplete information. The reason is that the presence of uninformed buyers provides the firm with the incentive to engage in noisy price-signaling. Indeed, if the benefit from price flexibility (through market segmentation) is offset by the cost of signaling quality through two distinct prices, then it is optimal not to segment the markets and to use uniform pricing. |
| Keywords: | Market integration, market segmentation, learning, monopoly, profits, noisy signaling, third-degree price discrimination |
| JEL: | D82 D83 L12 L15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1335&r=mkt |
| By: | Lapo Filistrucchi (CentER, TILEC, Tilburg University and Department of Economics, University of Florence); Tobias J. Klein (CentER, TILEC, Tilburg University) |
| Abstract: | We model a two-sided market with heterogeneous customers and two heterogeneous network effects. In our model, customers on each market side care differently about both the number and the type of customers on the other side. Examples of two-sided markets are online platforms or daily newspapers. In the latter case, for instance, readership demand depends on the amount and the type of advertisements. Also, advertising demand depends on the number of readers and the distribution of readers across demographic groups. There are feedback loops because advertising demand depends on the numbers of readers, which again depends on the amount of advertising, and so on. Due to the difficulty in dealing with such feedback loops when publishers set prices on both sides of the market, most of the literature has avoided models with Bertrand competition on both sides or has resorted to simplifying assumptions such as linear demands or the presence of only one network effect. We address this issue by first presenting intuitive sufficient conditions for demand on each side to be unique given prices on both sides. We then derive sufficient conditions for the existence and uniqueness of an equilibrium in prices. For merger analysis, or any other policy simulation in the context of competition policy, it is important that equilibria exist and are unique. Otherwise, one cannot predict prices or welfare effects after a merger or a policy change. The conditions are related to the own- and cross-price effects, as well as the strength of the own and cross network effects. We show that most functional forms used in empirical work, such as logit type demand functions, tend to satisfy these conditions for realistic values of the respective parameters. Finally, using data on the Dutch daily newspaper industry, we estimate a flexible model of demand which satisfies the above conditions and evaluate the effects of a hypothetical merger and study the effects of a shrinking market for offline newspapers. |
| Keywords: | two-sided markets, indirect network effects, merger simulation, equilibrium, competition policy, newspapers |
| JEL: | L13 L40 L82 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1320&r=mkt |
| By: | Lucie Bottega (Toulouse School of Economics); Jenny De Freitas (Universitat de les Illes Balears) |
| Abstract: | In a Bertrand duopoly model, we study firms’ eco-labeling behavior when certification process imperfectly signals environmental product quality to consumers. The test is noisy in the sense that brown products may be labeled while green products may not. We study how strategic interaction shapes firms’ incentives to get certified, equilibrium demand, prices and social welfare. We find that the eco-labeling policy is welfare enhancing for all parameter values. Nevertheless, the separating testing equilibrium may be too costly to sustain when the green firm probability to pass the test is small. Moreover, if the certification technology is soft, meaning that both brown and green units are awarded the label with high probability, it would be easier to sustain a separating equilibrium. This is a consequence of price strategic interaction between firms that gives firms incentives to coordinate on a separating equilibrium. |
| Keywords: | Imperfect Certification, Eco-label, Duopoly, Welfare Analysis, Environmental Quality, Credence Attribute |
| JEL: | C72 D21 D60 D82 L15 Q50 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ubi:deawps:62&r=mkt |
| By: | Charles Angelucci (Harvard University); Julia Cage (Harvard University); Romain de Nijs (Paris School of Economics) |
| Abstract: | We investigate theoretically and empirically the determinants of second-degree price discrimination in two-sided markets. We build a model in which a newspaper must attract both readers and advertisers. Readers are uncertain as to their future benefit from reading, and heterogeneous in their taste for reading. Advertisers are heterogeneous in their outside option, taste for subscribers, and taste for occasional buyers. To estimate empirically the effect of the advertisers' side of the industry on price discrimination on the readers' side, we use a "quasi-natural experiment". We exploit the introduction of advertisement on French Television in 1968, which we treat as a negative shock on advertisement revenues of daily national newspapers (treated group), but not on daily local newspapers (control group). We build a new dataset on French local newspapers between 1960 and 1974 and perform a Differences-in-Differences analysis. We find robust evidence of increased price discrimination as a result of a drop in advertisement revenues. |
| Keywords: | Newspaper Industry, Second-Degree Price Discrimination, Two-Sided Markets |
| JEL: | L11 M13 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1313&r=mkt |