nep-mkt New Economics Papers
on Marketing
Issue of 2013‒10‒18
thirteen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior and Universidade de Lisboa

  1. Search Diversion and Platform Competition By Hagiu, Andrei; Jullien, Bruno
  2. Platform or Wholesale? Different Implications for Retailers of Online Product By Young Kwark; Jianqing Chen; Srinivasan Raghunathan
  3. Platform Pricing under Dispersed Information By Jullien, Bruno; Pavan, Alessandro
  4. Searching for Physical and Digital Media: The Evolution of Platforms for Finding Books By Michael R. Baye; Babur De los Santos; Matthijs R. Wildenbeest
  5. How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange By Keith M Marzilli Ericson; Amanda Starc
  6. Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play By Joao Macieira; Pedro Pereira; Joao Vareda
  7. Price competition and reputation in markets for experience goods: An experimental study By Huck, Steffen; Lünser, Gabriele K.; Tyran, Jean-Robert
  8. Measuring the Effects of Advertising: The Digital Frontier By Randall Lewis; Justin M. Rao; David H. Reiley
  9. Advertising Competition in Presidential Elections By Gordon, Brett R.; Hartmann, Wesley R.
  10. Pharmaceutical Followers By Peter Arcidiacono; Paul B. Ellickson; Peter Landry; David B. Ridley
  11. Adoption of an online sales channel and “appification” in the enterprise application software market: a qualitative study By Novelli, Francesco; Wenzel, Stefan
  12. Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market By Jin-Hyuk Kim; Tin Cheuk Leung
  13. Optimal Design of Two-Sided Market Platforms: An Empirical Case Study of eBay By Aaron Bodoh-Creed; Jörn Boehnke; Brent R. Hickman

  1. By: Hagiu, Andrei (Harvard University); Jullien, Bruno (Toulouse School of Economics (IDEI & GREMAQ))
    Abstract: Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that the entry of a platform competitor leads to higher (lower) equilibrium levels of search diversion relative to a monopoly platform when the degree of horizontal differentiation between platforms is intermediate (low). On the other hand, more intense competition between active platforms (i.e. less differentiation) leads to less search diversion. When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search relative to platforms that cannot charge such fees. Finally, endogenous affiliation on both sides (consumers and advertising) leads to stronger incentives to divert search relative to the one-sided exogenous affiliation (vertical integration) benchmark, whenever the marginal advertiser derives higher profits per consumer exposure relative to the average advertiser.
    Date: 2013–09
  2. By: Young Kwark (Warrington College of Business Administration, University of Florida); Jianqing Chen (Jindal School of Management, The University of Texas at Dallas); Srinivasan Raghunathan (Jindal School of Management, The University of Texas at Dallas)
    Abstract: Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme), and is characterized by easy access to product reviews to facilitate consumers' purchase decisions. We study how different types of information revealed by reviews affect the retailer under the wholesale scheme and platform scheme. We find that information provided by reviews on quality dimension homogenizes consumers' perceived utility differences between products and increases upstream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information provided by reviews on fit dimension heterogenizes consumers' estimated fits to products and softens upstream competition, which hurts the retailer under the wholesale scheme and benefits the retailer under the platform scheme. Together, we demonstrate that the quality information and fit information play very different roles in changing upstream competition, and whether the retailer benefits from reviews critically depends on its pricing scheme choice.
    Keywords: Online Product Reviews, Pricing Scheme, Competition
    JEL: L11 L15 D83
    Date: 2013–09
  3. By: Jullien, Bruno (Toulouse School of Economics (CNRS-GREMAQ and IDEI)); Pavan, Alessandro (Northwestern University)
    Abstract: We study monopoly and duopoly pricing in a two-sided market with dispersed information about users' preferences. We first show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns and product design affecting the agents' ability to estimate their own valuations and/or the distribution of valuations on the other side of the market.
    Keywords: two-sided markets, dispersed information, platform competition, global-games, informative advertising
    JEL: D82
    Date: 2013–08
  4. By: Michael R. Baye; Babur De los Santos; Matthijs R. Wildenbeest
    Abstract: This paper provides a data-driven overview of the different online platforms that consumers use to search for books and booksellers, and documents how the use of these platforms is shifting over time. Our data suggest that, as a result of digitization, consumers are increasingly conducting searches for books at retailer sites and closed systems (e.g., the Kindle and Nook) rather than at general search engines (e.g., Google or Bing). We also highlight a number of challenges that will make it difficult for researchers to accurately measure internet-based search behavior in the years to come. Finally, we highlight a number of open agenda items related to the pricing of books and other digital media, as well as consumer search behavior.
    JEL: D83 L86
    Date: 2013–10
  5. By: Keith M Marzilli Ericson; Amanda Starc
    Abstract: Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange. Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands' market shares. We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals.
    JEL: D14 D80 H31 I11 L15
    Date: 2013–10
  6. By: Joao Macieira (Department of Economics, Virginia Tech); Pedro Pereira (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora); Joao Vareda (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora)
    Abstract: We analyze firms' incentives to bundle and tie in the telecommunications industry. As a first step, we develop a discrete-choice demand model where firms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a firm may sell. We exploit these properties to examine bundling behavior when firms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify firm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles, Discrete-Choice Model, Equilibrium Simulation, Differentiated Product, Consumer Level Data.
    JEL: D43 K21 L44 L96
    Date: 2013–09
  7. By: Huck, Steffen; Lünser, Gabriele K.; Tyran, Jean-Robert
    Abstract: We experimentally examine the effects of price competition in markets for experience goods where sellers can build up reputations for quality. We compare price competition to monopolistic markets and markets where prices are exogenously fixed (somewhere between the endogenous oligopoly and monopoly prices). While oligopolies benefit consumers regardless of whether prices are fixed or endogenously chosen, we find that price competition lowers efficiency as consumers pay too little attention to reputation for quality. This provides empirical support to recent models in behavioral IO that assume that consumers may with increasing complexity of the market place focus on selected dimensions of products (see, for example, Spiegler 2006). -- Wir untersuchen auf experimentellem Wege die Auswirkungen des Preiswettbewerbs auf Märkten, auf denen Verkäufer sich eine Reputation für die Qualität ihrer Produkte erwerben können ('experience goods'). Dabei vergleichen wir den Preiswettbewerb mit monopolistischen Märkten und Märkten, auf denen Preise exogen festgelegt werden (in einer Range zwischen endogenen Oligopol- und Monopolpreisen). Während Oligopole den Konsumenten zugutekommen, egal ob Preise festgesetzt werden oder sich endogen ergeben, mindert Preiswettbewerb die Effizienz, da die Konsumenten der Reputation der Verkäufer hinsichtlich der Qualität ihrer Produkte zu wenig Aufmerksamkeit widmen. Dieser Befund belegt auf empirischem Wege neuere Modelle der Behavioral Industrial Organization, die davon ausgehen, dass bei zunehmender Komplexität der Märkte die Konsumenten ihren Blick selektiv auf bestimmte Produkteigenschaften einengen (siehe beispielsweise Spiegler 2006).
    Keywords: Markets,Price competition,Behavioral IO,Price regulation,Reputation,Trust,Moral hazard,Experience goods
    JEL: C72 C90 D40 D80 L10
    Date: 2013
  8. By: Randall Lewis; Justin M. Rao; David H. Reiley
    Abstract: Online advertising offers unprecedented opportunities for measurement. A host of new metrics, clicks being the leading example, have become widespread in advertising science. New data and experimentation platforms open the door for firms and researchers to measure true causal effects of advertising on a variety of consumer behaviors, such as purchases. We dissect the new metrics and methods currently used by industry researchers, attacking the question, "How hard is it to reliably measure advertising effectiveness?" We outline the questions that we think can be answered by current data and methods, those that we believe will be in play within five years, and those that we believe could not be answered with arbitrarily large and detailed data. We pay close attention to the advances in computational advertising that are not only increasing the impact of advertising, but also usefully shifting the focus from "who to hit" to "what do I get."
    JEL: L22 M37
    Date: 2013–10
  9. By: Gordon, Brett R. (Columbia University); Hartmann, Wesley R. (Stanford University)
    Abstract: Presidential candidates choose advertising strategically across markets based on each state's potential to tip the election. The winner-take-all rules in the Electoral College concentrate advertising in battleground states, ignoring most voters. We estimate an equilibrium model of competition between candidates to evaluate advertising and voting outcomes. In a direct vote counterfactual, all states receive positive advertising and both expenditures and turnout increase. Although states' political preferences drive competition in the Electoral College, candidates focus on cheap advertising targets in a direct vote. Simulations removing advertising price variation suggest a direct vote. Simulations removing advertising price variation suggest a direct vote spreads political attention uniformly across markets with diverse preferences.
    JEL: D72 L10 M37
    Date: 2013–08
  10. By: Peter Arcidiacono; Paul B. Ellickson; Peter Landry; David B. Ridley
    Abstract: We estimate a model of drug demand and supply that incorporates insurance, advertising, and competition between branded and generic drugs within and across therapeutic classes. We use data on antiulcer drugs from 1991 to 2010. Our simulations show generics and ``me-too'' drugs each increased consumer welfare more than $100 million in 2010, holding insurance premiums constant. However, insurance payments in 2010 fell by nearly $1 billion due to generics and rose by over $7 billion due to me-too antiulcer drugs.
    JEL: I11 L13 L65
    Date: 2013–10
  11. By: Novelli, Francesco; Wenzel, Stefan
    Abstract: Pioneered by Apple’s App Store, online sales channels for software applications have acquired a prominent role in the consumer software market. This success has been a catalyst for several vendors of enterprise application software, who opened their own online sales channel alongside traditional ones based on the deployment of intermediaries and sales teams. However, it is disputable whether the online purchase of a software application is as compelling for an organization as it is for an individual consumer, and whether drivers and barriers of channel adoption are the same in these different contexts. Therefore, relying on a qualitative research strategy, we explored the channel adoption decision made by organizational software buyers to uncover and categorize relevant influencing factors. In particular, solution attributes such as specificity, price, implementation/integration effort, scope, and evaluability appear to play a key role alongside contractual aspects and the existence of an established relationship with the vendor. We also investigated factors’ interdependences to sketch an online channel adoption model which, on the one hand, may allow practitioners in the enterprise software market to diagnose channel adoption issues and, on the other, may serve as foundation for further multidisciplinary research in this topical area of study.
    Date: 2013–06–06
  12. By: Jin-Hyuk Kim (Department of Economics, University of Colorado at Boulder); Tin Cheuk Leung (Department of Economics, Chinese University of Hong Kong)
    Abstract: The demand for electronic books (e-books) and the e-book readers are complementary. On the one hand, the emergence of e-book readers such as Amazon's Kindle has triggered the recent growth of the e-book market. On the other hand, several issues in the e-book market can affect the future of the e-book reader market. Considering this complementarity, this paper quantifies the impact of digital rights management (DRM) and discounted e-book pricing on the demand for e-book readers. We collect conjoint survey data to estimate a random coefficient demand model using a hierarchical Bayesian method. Our counterfactual experiments suggest two things. First, Kindle's and Nook's market shares would increase by dropping DRM. Consumer welfare would increase seven percent if all e-book readers dropped DRM. Second, an increase in e-book prices would increase iPad's market share at the expense of that of Kindle and Nook. Consumer welfare would decrease 6 to 10 percent if Kindle's and Nook's e-book prices went up by 50 percent.
    Keywords: electronic book, demand estimation, DRM, agency model
    JEL: L15 L63 O30
    Date: 2013–09
  13. By: Aaron Bodoh-Creed (University of California at Berkeley); Jörn Boehnke (University of Chicago); Brent R. Hickman (University of Chicago)
    Abstract: While much is known about optimal design of auctions within the context of a single item for sale, little is known about optimal design of large platform markets like eBay and auto auction houses that house large numbers of concurrent auctions. We attempt a macro-level empirical market design exercise by combining a unique dataset on tablet sales collected from eBay over the course of a year with methodologies developed by Bodoh-Creed (2011) and Backus and Lewis (2013). The former proposes a tractable approach to studying dynamic auction markets when the number of participants on both sides is sufficiently large. The model also delivers predictions on optimal fee schedule design -- specifically, in terms of listing fees and percentage charges for a sale -- for an auction house wishing to maximize profits by attracting the appropriate mix of buyers and sellers into the market. We begin by empirically investigating the key assumptions of the model which deliver (computational and empirical) tractability, and find that they are reasonable. We then estimate consumer demand, market supply, and the distributions of market entrants (this part still in progress). These figures are plugged into the Bodoh-Creed (2011) framework in order to compute optimal fee schedules and draw comparisons to actual fee schedules, as well as to make policy prescriptions.
    Keywords: Online Auctions, eBay, Market Design, Large Markets
    JEL: C92 L33 L51 L92
    Date: 2013–09

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