nep-mkt New Economics Papers
on Marketing
Issue of 2014‒11‒07
six papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Optimal Goodwill Model with Consumer Recommendations and Market Segmentation By Dominika Bogusz; Mariusz Gorajski
  2. Optimal Cartel Prices in Two-Sided Markets Access By Federico Boffa; Lapo Filistrucchi
  3. Price reactions when consumers are concerned about pro-social reputation By Goytom Abraha Kahsay; Laura Mørch Andersen; Lars Gårn Hansen
  4. Choosing whether to compete: Price and format competition with consumer confusion By Crosetto, P.; Gaudeul, A.
  5. Globalization of Brewing and Economies of Scale By Erik Strøjer Madsen; Yanqing Wu
  6. Quality Choices and Reputation Systems in Online Markets - An Experimental Study By Sonja Brangewitz; Behnud Djawadi; Rene Fahr; Claus-Jochen Haake

  1. By: Dominika Bogusz (University of Lodz, Faculty of Economics and Sociology); Mariusz Gorajski (University of Lodz, Faculty of Economics and Sociology)
    Abstract: We propose a new dynamic model of product goodwill where a product is sold in many market segments, and where the segments are indicated by the usage experience of consumers. The dynamics of product goodwill is described by a partial differential equation of the Lotka–Sharpe– McKendrick type. The main novelty of this model is that the product goodwill in a segment of new consumers depends not only on advertising effort, but also on consumer recommendations, for which we introduce a mathematical representation. We consider an optimal goodwill model where in each market segment the control variable is the company’s advertising efforts in order to maximize its profits. Using the maximum principle, we numerically find the optimal advertising strategies and corresponding optimal goodwill paths. The sensitivity of these solutions is analysed. We identify two types of optimal advertising campaign: ‘strengthening’ and ‘supportive’. They may assume different shapes and levels depending on the market segment. These experiments highlight the need for both researchers and managers to consider a segmented advertising policy
    Keywords: Optimal Control, applications, deterministic, advertising and media, product policy, segmentation
    Date: 2014–09
  2. By: Federico Boffa (Free University of Bolzano, Faculty of Economics and Management, Piazzetta dell’Università 1, I-39031 Brunico, Italy); Lapo Filistrucchi (University of Florence, Department of Economics and Management, Via delle Pandette 9, I - 50127 Firenze, Italy)
    Abstract: We study optimal cartel prices in a two-sided market. We present a simple model showing that prices above the two-sided monopoly price may prevail on one side of a two-sided market as a means to enhance the sustainability of the cartel. We prove that in such a case a higher benefit from the network effect may compensate customers on that side of the market for the higher prices they are charged. We then provide both sufficient and necessary conditions for these results to hold in more complex models of two-sided markets. Our analysis extends to cartels in two-sided markets a result previously known for cartels selling complementary products, despite the fact that products in a two-sided market are not complements for customers, since customers typically buy only one of the two products (e.g. in the case of newspapers, advertisers buy advertising slots while readers buy content) and products on each side are substitutes (e.g. newspapers publishers compete for readers and for advertisers).
    Keywords: two-sided markets, indirect network effects, collusion, cartel, platform, TV, newspapers, media
    JEL: L12 L41 L81 L82 L86
    Date: 2014–10
  3. By: Goytom Abraha Kahsay (Department of Food and Resource Economics, University of Copenhagen); Laura Mørch Andersen (Department of Food and Resource Economics, University of Copenhagen); Lars Gårn Hansen (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: In this paper, we propose a reputation-signalling model of demand for consumer goods containing pro-social characteristics such as a ‘fair trade’ or ‘organic’ certification. We show that reputation signalling can reverse price reactions resembling the crowding-out of pre-existing motives for pro-social behavior seen in situations of volunteering and charitable giving. Finally, using a unique combination of questionnaire and purchase panel data, we present evidence of such reputation-driven reversal of price reactions in the Danish market for organic milk.
    Keywords: net-crowding out; reversed price reactions; pro-social reputation; reputation signalling; consumer goods
    JEL: D03 D11 D12 D64 D82 D51
    Date: 2014–10
  4. By: Crosetto, P.; Gaudeul, A.
    Abstract: We run a market experiment where subjects take the role of firms and can choose not only their price but also whether to present comparable offers. Firms are faced with artificial demand whereby consumers make mistakes in assessing the net value of products on the market. Some of those consumers are however able to identify the best of the comparable offers if some offers are comparable, and favor that offer vs. non-comparable offers. We vary the portion of such consumers and the strength of their preferences for the best of the comparable offers. In treatments where firms observe the past decisions of their competitors, firms learn to collude in not presenting comparable offers. This occurs after initial periods with strong competition. Collusion lowers welfare for all consumers and is most frequent when many consumers prefer comparable offers. In treatments where firms cannot monitor competitors however, firms respond to the preference of a portion of consumers for comparable offers. This leads to an improvement in welfare for all consumers.
    JEL: C92 D18 D43 L13 L15
    Date: 2014
  5. By: Erik Strøjer Madsen (Department of Economics and Business, Aarhus University, Denmark); Yanqing Wu (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: The globalization of the brewing industry after the turn of the century through a large wave of mergers and acquisitions has changed the structure of the world beer markets. The paper tracks the development in industry concentrations from 2002 to 2012 and points to high transportation costs for beers and economies of scale in advertising and sales efforts as the main factors behind the wave of cross-country mergers and acquisitions. Using firm-level data from the largest breweries, the estimations verify significant economies of scale in marketing and distribution costs. Based on information from the Annual Reports of the eight largest breweries in the world, the estimation proved a reduction in these costs of more than ten percent when doubling the size of the brewing group. This finding verifies that the restructuring of the brewing industry creates significant scale benefits to be shared between the merging partners as marketing and distribution costs are very high in this industry.
    Keywords: Marketing, mergers and acquisitions, brewing industry
    JEL: L11 L66 M37
    Date: 2014–10–14
  6. By: Sonja Brangewitz (University of Paderborn); Behnud Djawadi (University of Paderborn); Rene Fahr (University of Paderborn); Claus-Jochen Haake (University of Paderborn)
    Abstract: In internet transactions where customers and service providers often interact once and anonymously, a reputation system is particularly important to reduce information asymmetries about product quality. In this study we experimentally examine the impact of the customers' evaluation abilities on strategic quality choices of a service provider. Our study is motivated by a simple theoretical model where short-lived customers are asked to evaluate the observed quality of the service provider's product by providing ratings to a reputation system. A reputation profile informs about the ratings of the last three sales. This profile gives new customers an indicator for the quality they have to expect and determines the sales price of the product. From the theoretical model we derive that the service provider's dichotomous quality decisions are independent of the reputation profile and depend only on the probabilities of receiving positive and negative ratings when providing low or high quality. However, when mapping our theoretical model to an experimental design we find that subjects in the role of the service provider deviate from optimal behavior and choose actions which are conditional on the current reputation profile. In addition, increasing the probability of a negative rating and decreasing the probability of a positive rating both do not affect strategic quality choices.
    Keywords: Product Quality, Reputation Systems, Online Markets, Experimental Economics, Markovian Decision Process
    JEL: C73 C91 L12 L15 L86
    Date: 2014–10

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