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on Marketing |
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Issue of 2014‒02‒08
three papers chosen by Joao Carlos Correia Leitao Universidade da Beira Interior and Universidade de Lisboa |
| By: | Maria Arbatskaya (Emory University); Hideo Konishi (Boston College) |
| Abstract: | We consider the optimal pricing and referral strategy of a monopoly that uses a simple consumer communication network (a chain) to spread product information. The first-best policy with fully discriminatory position-based referral fees involves standard monopoly pricing and referral fees that provide consumers with strictly positive referral incentives. Effective price discrimination among consumers based on their positions in the chain occurs in both the first-best solution and the second-best solution (with a common referral fee). |
| Keywords: | communication network, consumer referral policy, referral fee, price discrimination |
| JEL: | D4 D8 L1 |
| Date: | 2014–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:850&r=mkt |
| By: | Egbert, Henrik; Greiff, Matthias; Xhangolli, Kreshnik |
| Abstract: | Pay What You Want (PWYW) pricing has received considerable attention recently. Empirical studies show that a PWYW pricing mechanism is able to increase a seller’s turnover and profit. This paper addresses PWYW pricing for bundles of experience goods. The paper shows that a PWYW pricing mechanism, if applied ex post consumption, separates the decision to buy from the decision how much to pay. Information asymmetries about the quality of the good are reduced during the act of consumption so that buyers are informed about the product’s quality when they decide how much to pay. As a consequence, risk-averse buyers who would otherwise refrain from purchasing under a fixed price mechanism, can be attracted to purchase under a PWYW pricing ex post consumption (PWYW-EPC) mechanism. In this case, the pricing mechanism itself constitutes a signal. The paper concludes that a PWYW pricing mechanism, applied ex post consumption, can be a profitable strategy for a seller if she sells bundles of experience goods and if she wants to attract risk-averse buyers for realizing economies of scale in production. |
| Keywords: | PWYW pricing, PWYW-EPC, asymmetric information, economies of scale, experience good, bundling, ex post consumption |
| JEL: | D4 D49 D8 M31 |
| Date: | 2014–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53376&r=mkt |
| By: | Léautier, Thomas-Olivier |
| Abstract: | Price caps are often used by policy makers to "regulate markets". Previous analyses have focussed on the "supply side" impact of these caps, and derived the optimal price cap, which maximizes investment and welfare. This article expands the analysis to include the "demand side" impact of price caps: when prices can no longer rise, customers must be rationed to adjust demand to available supply. This yields two new findings, that contradict previous analyses. First, the welfare-maximizing cap is higher than the capacity-maximizing cap, since increasing the cap increases gross surplus when customers are rationed. Second, in somes cases, the capacity-maximizing cap leads to lower capacity and welfare than no cap. These findings underscores the importance for policy makers to examine the impact on customers when they impose price caps. |
| Keywords: | price caps, imperfect competition, rationing, investment incentives |
| JEL: | L13 L94 |
| Date: | 2014–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27858&r=mkt |