nep-mkt New Economics Papers
on Marketing
Issue of 2014‒06‒02
eight papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior and Universidade de Lisboa

  1. 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
  2. Pricing Internet Traffic: Exclusion, Signalling and Screening By Jullien, Bruno; Sand-Zantman, Wilfried
  3. Interpersonal Bundling By Chen, Yongmin; Zhang, Tianle
  4. Net Neutrality with Competing Internet Platforms By Bourreau, Marc; Kourandi, Frago; Valletti, Tommaso
  5. Product Recommendations Based on Latent Purchase Motivations By Jacobs, B.J.D.; Donkers, B.; Fok, D.
  6. X-Games By Eliaz, Kfir; Spiegler, Rani
  7. Heterogeneity in Consumer Responses to Front-of-Package Nutrition Labels: Evidence from a Natural Experiment? By Zhu, Chen; Huang, Rui
  8. Dynamic Oligopoly Pricing: Evidence from the Airline Industry By Siegert, Caspar; Ulbricht, Robert

  1. 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 flexible 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; dynamic oligopoly; welfare
    JEL: L13 M37
    Date: 2014–04
  2. By: Jullien, Bruno; Sand-Zantman, Wilfried
    Abstract: We consider a network that intermediates traffic between free content providers and consumers. While consumers do not know the traffic cost when deciding on consumption, a content provider knows his cost but may not control the consumption. We study how pricing consumers' and content providers' sides allows both profit extraction from the network and efficient information transmission. In the case of uniform tariff, we argue that a positive price-cap on the charge to content is optimal (with no constrain on the consumer side). Proposing menus helps signaling useful information to consumers and therefore adjusting consumption to traffic cost. In the case of menus, we show that optimal mechanisms consist in letting the content producers choose between different categories associated with different prices for content and consumers. Our results are robust to competition between ISPs and to competition between contents. We also show that when (competitive) content providers choose at small cost between a pay and a free business model, a price-cap at cost on the price for content improves efficiency.
    Keywords: information; intranet; net neutrality; traffic management
    JEL: D4 L1 L86 L96
    Date: 2014–03
  3. By: Chen, Yongmin; Zhang, Tianle
    Abstract: This paper studies a model of interpersonal bundling, in which a monopolist offers a good for sale under a regular price and a group purchase discount if the number of consumers in a group---the bundle size---belongs to some menu of intervals. We find that this is often a profitable selling strategy in response to demand uncertainty, and it can achieve the highest profit among all possible selling mechanisms. We explain how the profitability of interpersonal bundling with a minimum or maximum group size may depend on the nature of uncertainty and on parameters of the market environment, and discuss strategic issues related to the optimal design and implementation of these bundling schemes. Our analysis sheds light on popular marketing practices such as group purchase discounts, and offers insights on potential new marketing innovation.
    Keywords: Interpersonal bundling, bundling, group purchase, group discount, demand uncertainty
    JEL: D4 L1 M3
    Date: 2014–05–23
  4. By: Bourreau, Marc; Kourandi, Frago; Valletti, Tommaso
    Abstract: We propose a two-sided model with two competing Internet platforms, and a continuum of Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CPs which are willing to deliver their content on a fast lane. We find that under discrimination investments in broadband capacity and content innovation are both higher than under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner's dilemma can arise. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.
    Keywords: Innovation; Investment; Net neutrality; Platform competition; Two-sided markets
    JEL: L13 L51 L52 L96
    Date: 2014–02
  5. By: Jacobs, B.J.D.; Donkers, B.; Fok, D.
    Abstract: Good product recommendations are key to successful online retailing, they help customers find products and induce cross-selling. In practice, many recommendations are based on counting co-occurrences between (combinations of) products. In such an approach it is difficult to use the entire purchase history of a customer as a whole, due to the sparse nature of purchase data. In addition, it is hard to incorporate additional information at the customer level. Both problems may be solved with a formal model. However, many models cannot deal with the scale of a typical online retailer. Other models require a predetermined classification or coding of the assortment. Often this is suboptimal or simply not possible. We propose a model-based approach to generate recommendations that solves the aforementioned problems. Our latent motivation model (LMM) adapts the latent Dirichlet allocation (LDA) model for modeling purchase data and extends it to include customer-specific variables. The key idea behind our approach is that each purchase is driven by a latent purchase motivation, e.g. the preference for eco-friendly products. Applying our method to the data of an online retailer, we show that the identified motivations are intuitive and that our model consistently outperforms benchmark methods.
    Keywords: model-based recommendations, product recommendations, scalability, topic models, latent Dirichlet allocation
    Date: 2014–05–27
  6. By: Eliaz, Kfir; Spiegler, Rani
    Abstract: What is common to the following situations: incentivizing collective action in the presence of social preferences, monopoly pricing when consumers are loss averse, arms races when players are privately informed of their armament costs? We present a simple formalism, called X-games, which unifies these situations as well as others, and use it to unify and extend the separate analyses that they received in the literature.
    Keywords: Contagion; Coordination; Externalities; Strategic complementarities
    JEL: C72
    Date: 2014–02
  7. By: Zhu, Chen (University of Connecticut); Huang, Rui (University of Connecticut)
    Abstract: We use a market-level natural experiment to evaluate how the voluntary Facts Up Front style Front-of-Package (FOP) nutritional labeling system would affect consumer choices, and whether it can promote the consumption of healthier food products. The new FOP system provides a quick summary of the calories, sugar, saturated fat, and selected positive nutrients, and is listed on the front of food packages. Using data of household-level Ready-to-Eat cereal (RTEC) purchases and difference-in-differences (DD) approaches, we find that the new FOP labels induce consumers to buy less RTEC, consume fewer calories, and less sodium, but only in households purchasing two RTEC packages per month or fewer. For RTEC products containing new FOP labels, consumers are observed to substitute more vigorously from products with poor nutritional quality to healthier RTEC products. We also find that household heads with education levels of a high school degree or less show the greatest improvement in their food choices, suggesting that the FOP labels change consumer behavior primarily through reduced information costs.
    Keywords: Front-of -Package (FOP) Nutrition labels, label restriction, self-regulation, distributional effects
    Date: 2014–05
  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, reflecting 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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