nep-mkt New Economics Papers
on Marketing
Issue of 2014‒04‒29
eight papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior and Universidade de Lisboa

  1. The Limits of Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. The Effects of Banning Advertising on Demand, Supply and Welfare: Structural Estimation on a Junk Food Market By Dubois, Pierre; Griffith, Rachel; O'Connell, Martin
  3. Informative Advertisement of Partial Compatible Products By Roig, Guillem
  4. Media Bias and Advertising: Evidence from a German Car Magazine By Dewenter, Ralf; Heimeshoff, Ulrich
  5. Dominance of Affective over Cognitive Customer Satisfaction in Satisfaction-Loyalty Relationship in Service Encounters By Sinha, Piyush Kumar; Mishra, Hari Govind; Kaul, Surabhi
  6. Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals By Dubois, Pierre; Lasio, Laura
  7. Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions By Wang, Zhu; Wolman, Alexander L.
  8. Dynamic Oligopoly Pricing: Evidence from the Airline Industry By Siegert, Caspar; Ulbricht, Robert

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the surplus generated by efficient trade.
    Keywords: First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium, Concavification
    JEL: C72 D82 D83
    Date: 2013–05
  2. By: Dubois, Pierre; Griffith, Rachel; O'Connell, Martin
    Abstract: Restricting advertising is one way governments seek to reduce consumption of potentially harmful goods. There have been increasing calls to apply a similar policy to the junk food market. The effect will depend on how brand advertising influences consumer demand, and on the strategic pricing response of oligopolistic firms. We develop a model of consumer demand and dynamic oligopoly supply in which multi-product firms compete in prices and advertising budgets. We model the impact of advertising on demand in a exible way, that allows for the possibility that advertising is predatory or cooperative, and we consider how market equilibria would be impacted by an advertising ban. In our application we apply the model to the potato chip market using transaction level data. The implications of an advertising ban for consumer welfare depend on the view one takes about advertising. In the potato chip market advertising has little informational content. The advertising may be a characteristic valued by consumers, or it may act to distort decision-making. We quantify the welfare impacts of an advertising ban under alternative views of advertising, and show that welfare conclusions depend on which view of advertising the policymaker adopts.
    Keywords: advertising, demand estimation, welfare, dynamic oligopoly
    JEL: L13 M37
    Date: 2014–04
  3. By: Roig, Guillem
    Abstract: Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms' advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy.
    Keywords: Informative advertisement; product design; partial compatibility; welfare.
    JEL: D21 D43 L13 L15
    Date: 2014–03–26
  4. By: Dewenter, Ralf (Helmut Schmidt University, Hamburg); Heimeshoff, Ulrich (DICE / Heinrich-Heine-Universität Düsseldorf)
    Abstract: This paper investigates the existence of a possible media bias by analyzing the impact of auto- mobile manufacturer’s advertisements on automobile reviews in a leading German car maga- zine. By accounting for both endogeneity and sample selection using a two-step procedure, we find a positive impact of advertising volumes on test scores. The main advantage of our study is the measurement of technical characteristics of cars to explain test scores. Due to this kind of measurement, we avoid serious biases in estimating media bias caused by omitted variables.
    Keywords: Car magazines; Media bias; Selection model; Instrumental variable estimation
    JEL: L15 L82
    Date: 2014–04–17
  5. By: Sinha, Piyush Kumar; Mishra, Hari Govind; Kaul, Surabhi
    Abstract: The paper reports on a study which aims to understand the role of cognitive and affective components of customer satisfaction in service encounters. The paper is structured to explore a brief synthesis of the extant literature on key conceptual issues concerning the role of emotion in service encounters. Subsequently, the paper explores the satisfaction–loyalty relationship when both cognitive and affective component are included. The focus of this study is to investigate the relationship between emotional satisfaction, service quality, customer loyalty, and relationship quality within a retail setting. A total of eight retail stores of Jalandhar city participated in the study. During a two-month data collection period, 200 customers were surveyed. Convenience sampling was employed and self-administered surveys were used to collect data. The Findings emphasize the dominant role of affective component in satisfaction loyalty relationship.
  6. By: Dubois, Pierre; Lasio, Laura
    Abstract: We provide a method allowing identification of margins in an oligopoly price competition game when prices may not be freely chosen in some markets, for example due to regulation. We use our identification strategy to study the effects of regulatory constraints in the pharmaceutical industry. We provide the first structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, Germany and France) with varying regulatory constraints. We use the market for anti-ulcer drugs to identify whether regulation in France truly affects margins and prices and relate regulatory reforms to industry pricing equilibrium. Empirical results show that firms were especially constrained in price setting after the different reforms in 2004. Counterfactual simulations show that total spending significantly increased because of the new price regulation by displacing part of the demand from generics to branded drugs.
    Keywords: empirical IO, price constraints, Bertrand competition, regulation, pharmaceuticals, antiulcer drugs.
    JEL: I18 L10
    Date: 2014–02
  7. By: Wang, Zhu (Federal Reserve Bank of Richmond); Wolman, Alexander L. (Federal Reserve Bank of Richmond)
    Abstract: This paper uses transaction-level data from a large discount chain together with zip-code-level explanatory variables to learn about consumer payment choices across size of transaction, location, and time. With three years of data from thousands of stores across the country, we identify important economic and demographic effects; weekly, monthly, and seasonal cycles in payments, as well as time trends and significant state-level variation that is not accounted for by the explanatory variables. We use the estimated model to forecast how the mix of consumer payments will evolve and to forecast future demand for currency. Our estimates based on this large retailer, together with forecasts for the explanatory variables, lead to a benchmark prediction that the cash share of retail sales will decline by 2.54 percentage points per year over the next several years.
    Keywords: Payment choice; Money demand; Consumer behavior
    JEL: D12 E41 G2
    Date: 2014–04–14
  8. By: Siegert, Caspar; Ulbricht, Robert
    Abstract: We explore how pricing dynamics in the European airline industry vary with the competitive environment. Our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination. First, the rate at which prices increase towards the scheduled travel date is decreasing in competition, supporting the idea that competition restrains the ability of airlines to price-discriminate. Second, the sensitivity to competition is substantially increasing in the heterogeneity of the customer base, reecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination. These patterns are quantitatively important, explaining about 83 percent of the total within flight price dispersion, and explaining 17 percent of the observed cross-market variation of pricing dynamics.
    Keywords: Airline industry, capacity constraints, dynamic oligopoly pricing, intertemporal price dispersion, price discrimination.
    JEL: D43 D92 L11 L93
    Date: 2014–03–23

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