nep-mkt New Economics Papers
on Marketing
Issue of 2013‒12‒29
six papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior and Universidade de Lisboa

  1. Optimal Sales Schemes for Network Goods By Alexei Parakhonyak; Nick Vikander
  2. Consumer Referrals By Maria Arbatskaya; Hideo Konishi
  3. A Model of Recommended Retail Prices By Dmitry Lubensky
  4. A Theory of Consumer Referral: Revisited By Maria Arbatskaya; Hideo Konishi
  5. Entry and Welfare in Search Markets By Chen, Yongmin; Zhang, Tianle
  6. Consumer myopia, competition and the incentives to unshroud add-on information By Wenzel, Tobias

  1. By: Alexei Parakhonyak (National Research University Higher School of Economics); Nick Vikander (Department of Economics, Copenhagen University)
    Abstract: This paper examines the optimal sequencing of sales in the presence of network externalities. A firm sells a good to a group of consumers whose payoff from buying is increasing in total quantity sold. The firm selects the order to serve consumers so as to maximize expected sales. It can serve all consumers simultaneously, serve them all sequentially, or employ any intermediate scheme. We show that the optimal sales scheme is purely sequential, where each consumer observes all previous sales before choosing whether to buy himself. A sequential scheme maximizes the amount of information available to consumers, allowing success to breed success. Failure can also breed failure, but this is made less likely by consumers’ desire to influence one another’s behavior. We show that when consumers differ in the weight they place on the network externality, the firm would like to serve consumers with lower weights first. Our results suggests that a firm launching a new product should first target independent-minded consumers who can serve as opinion leaders for those who follow.
    Keywords: Product launch, Network externality, Sequencing of sales
    JEL: M31 D42 D82 L12
    Date: 2013–11–01
  2. By: Maria Arbatskaya; Hideo Konishi
    Abstract: In many industries, firms reward their customers for making referrals. We analyze the optimal policy mix of price, advertising intensity, and a referral fee for monopoly when buyers choose to what extent to refer other consumers to the firm. We find that the firm advertises less under referrals, but does not change its price from the monopoly level in an attempt to manage consumer referrals. We show that referral programs are Pareto-improving and that the firm underprovides referrals while supporting the socially optimum level of advertising. We extend the analysis to the case where consumer referrals can be targeted.
    Date: 2013–10
  3. By: Dmitry Lubensky (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Consumers rely on a manufacturer's recommended price to help determine whether to accept a retailer's price or continue to search. This paper demonstrates that doing so can be rational even if the manufacturer's price recommendation is cheap talk. By incentivizing search, a manufacturer trades off reducing double marginalization and losing consumers to competitors. When the manufacturer's cost is low he induces low retail prices and benefits when consumers search more. When the manufacturer's cost is high he induces high retail prices and benefits when consumers search less. Since consumers prefer to search more when lower prices are available, their incentives are aligned with the manufacturer's and this allows informative cheap talk communication. Aside from costs, the manufacturer can inform consumers of other market parameters such as product quality.
    Keywords: consumer search, sequential search, search with uncertainty, manufacturer suggested retail prices, vertical markets, signaling, cheap talk
    JEL: L11 D82
    Date: 2013–12
  4. By: Maria Arbatskaya; Hideo Konishi
    Abstract: Jun and Kim (2008) consider the optimal pricing and referral strategy of a monopoly that uses a consumer communication network to spread product information. They show that for any finite referral chain, the optimal policy involves a referral fee that provides strictly positive referral incentives and effective price discrimination among consumers based on their positions in the chain. We revisit this problem to strengthen Jun and Kim's results by weakening their referral condition. Moreover, we characterize the first-best policy when individual-specific referral fees are available and show that it is qualitatively similar to the second-best solution of Jun and Kim (2008).
    Date: 2013–10
  5. By: Chen, Yongmin; Zhang, Tianle
    Abstract: The effects of entry on consumer and total welfare are studied in a model of consumer search. Potential entrants differ in quality, with high-quality sellers being more likely to meet consumer needs. Contrary to the standard view in economics that more entry benefits consumers, we find that consumer welfare has an inverted-U relationship with entry cost, and free entry is excessive for both consumer and total welfare when entry cost is relatively low. We explain why these results may arise naturally in search markets due to the variety and quality effects of entry, and discuss their business and policy implications.
    Keywords: entry cost, search, product variety, product quality
    JEL: D8 L1
    Date: 2013–12–14
  6. By: Wenzel, Tobias
    Abstract: This paper studies unshrouding decisions in a framework similar to Gabaix and Laibson (2006), but considers an alternative unshrouding mechanism where the impact of advertising add-on information depends on the number of unshrouding firms. We show that shrouding becomes less prevalent as the number of competing firms increases. With unshrouding costs a non-monotonic relationship between the number of firms and unshrouding may arise. --
    Keywords: Bounded rationality,Add-on pricing,Shrouding
    JEL: D40 D80 L10
    Date: 2013

This nep-mkt issue is ©2013 by Joao Carlos Correia Leitao. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.