nep-mkt New Economics Papers
on Marketing
Issue of 2015‒01‒09
thirteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Effect of price display on brand luxury perceptions By Parguel, Béatrice; Delécolle, Thierry; Valette-Florence, Pierre
  2. The impact of the variance of online consumer ratings on pricing and demand – An analytical model By Philipp Herrmann
  3. Consumer Search Costs and Preferences on the Internet By Gregory Jolivet; Helene Turon
  4. Quality competition and entry deterrence: When to launch an extra brand By Müller, Stephan; Götz, Georg
  5. Quality differentiation and entry choice between online and offline markets By Yijuan Chen; Xiangting Hu; Sanxi Li
  6. Advertising, Consumer Awareness and Choice: Evidence from the U.S. Banking Industry By Maria Ana Vitorino; Ali Hortacsu; Elisabeth Honka
  7. Price Dynamics with Customer Markets By Paciello, Luigi; Pozzi, Andrea; Trachter, Nicholas
  8. Product Customization in the Spokes Model By Aoki, Reiko; Hillas, John; Kao, Tina
  9. Unveiling the relationship between the transaction timing, spending and dropout behavior of customers By Glady, N.; Lemmens, A.; Croux, C.
  10. PОLITICAL МАRKETING – NЕGATIV CAMPAING By Ljubisa Stojmirović , Aleksandra Stojković , Tomislav Nikolić
  11. Competing with Complementors: An Empirical Look at By Feng Zhu; Qihong Liu
  12. Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare By Hinnerk Gnutzmann
  13. The Evolution of Payment Costs in Australia By Chris Stewart; Iris Chan; Crystal Ossolinski; David Halperin; Paul Ryan

  1. By: Parguel, Béatrice; Delécolle, Thierry; Valette-Florence, Pierre
    Abstract: Based on two experimental studies, this paper investigates the impact of price display in the luxury sector on perceived brand luxury and brand attitude. Using a sample of students, Study1 shows that price display is associated with higher perceived quality, uniqueness, and conspicuousness for a fictitious luxury brand presented in a store window. Using two real luxury brands and a larger sample of consumers, Study 2 confirms the positive effect of price display on the brand’s perceived conspicuousness, and shows that this transfers to brand attitude. This paper adds value to the existing literature in luxury marketing and provides insights for managers of luxury brands on the effects of price display.
    Keywords: Price display; Luxury goods; Luxury perceptions; Brand attitude; Affichage du prix; Produits de luxe; Perceptions du luxe; Attitude envers la marque;
    JEL: D11 D12 L81 M31
    Date: 2014–10
  2. By: Philipp Herrmann (University of Paderborn)
    Abstract: It is well known that consumer ratings play a major role in the purchase decisions of online shoppers. To examine the effect of the variance of these ratings on future product pricing and sales we propose an analytical model which considers products where the variance of consumer ratings results from two types of product attributes: observational search attributes and experience attributes. We find that if a higher variance is caused by an observational search attribute it results in a higher equilibrium price and lower equilibrium demand, whereas if it is caused by an experience attribute the result is a lower equilibrium price and demand. Interestingly, when the average rating as well as the total variance of ratings are held constant and the relative share of variance caused by the observational search attribute is increased, we observe a rise in both the equilibrium price and the demand for products with low total variance. Via this mechanism, and depending on the composition of the variance of consumer ratings, it is possible for the equilibrium price and demand to increase with increasing total variance of product ratings. In other words we are able to demonstrate that, when faced with a choice between two similar products with the same average rating, risk-averse consumers may prefer a more expensive product with a higher variance of ratings. Moreover, our analytical model provides a theoretical foundation for the empirically observed j-shaped distribution of consumer ratings in electronic commerce.
    Keywords: Product Rating Distribution, User Generated Content, Electronic Word-of-Mouth, Analytical Model
    Date: 2014–05
  3. By: Gregory Jolivet; Helene Turon
    Abstract: We analyse consumers’ search and purchase decisions on an Internet platform. Using a rich dataset on all adverts posted and transactions made on a major French Internet platform (PriceMinister), we show evidence of substantial price dispersion among adverts for the same product. We also show that consumers do not necessarily choose the cheapest advert available and sometimes even choose an advert that is dominated in price and non-price characteristics (such as seller’s reputation) by another available advert. To explain the transactions observed on the platform, we derive and estimate a structural model of sequential directed search where consumers observe all advert prices but have to pay a search cost to see the other advert characteristics. We allow for flexible heterogeneity in consumers’ preferences and search costs. After deriving tractable identification conditions for our model, we estimate sets of parameters that can rationalize each transaction. Our model can predict a wide range of consumer search strategies and fits almost all transactions observed in our sample. We find empirical evidence of heterogenous, sometimes positive and substantially large search costs and marginal willingness to pay for advert hedonic characteristics.
    Keywords: Consumer Search, Revealed Preferences, Individual Heterogeneity, Price Dispersion, Internet.
    JEL: C13 D12 D81 D83 L13
    Date: 2014–11
  4. By: Müller, Stephan; Götz, Georg
    Abstract: In this paper, we study the rational for an incumbent to launch a second brand when facing potential entry in a market with quality differentiated products and a fringe producer. Depending on market size, costs for a second brand and a potential entrant's setup cost the incumbent might use a second brand both when deterring and when accommodating entry. The analysis generates predictions about the equilibrium degree of product differentiation, the presence of a multiproduct incumbent, and the determinants of successful entry.
    Keywords: multiproduct firms,quality competition,vertical product differentiation,entry accommodation,entry deterrence
    JEL: L13 D43 M31
    Date: 2014
  5. By: Yijuan Chen; Xiangting Hu; Sanxi Li
    Abstract: We study a model where an entrant chooses between online and offline markets to compete with an offline-market incumbent. When consumers buy a product from the online market, they cannot inspect the product's quality prior to purchase. Conventional wisdom and some literature suggest that this feature drives low-quality products to hide themselves in the online market. However, the literature on vertical product differentiation indicates that a firm may prefer to reveal its product quality in the offline market, because quality differentiation helps alleviate price competition. We show that under fairly general conditions the entrant will choose the offline market for not only the highest qualities but also the lowest ones, and choose the online market for intermediate qualities. While the average quality of the online good is lower than the incumbent's quality, the actual quality of the online good may be higher than that.
    JEL: L13
    Date: 2014–11
  6. By: Maria Ana Vitorino (University of Minnesota); Ali Hortacsu (University of Chicago); Elisabeth Honka (The University of Texas at Dallas)
    Abstract: Does advertising serve to (i) increase awareness of a product, (ii) increase the likelihood that the product is considered carefully, or (iii) does it shift consumer utility conditional on having considered it? We utilize a detailed data set on consumers' shopping behavior and choices over retail bank accounts to investigate advertising's eect on product awareness, consideration, and choice. Our data set has information regarding the entire purchase funnel, i.e. we observe the set of retail banks that the consumers are aware of, which banks they considered, and which banks they chose to open accounts with. We formulate a structural model that accounts for each of the three stages of the shopping process: awareness, consideration, and choice. Advertising is allowed to aect each of these separate stages of decision-making. Our model also endogenizes the choice of consideration set by positing that consumers undertake costly search. Our results indicate that advertising in this market is primarily a shifter of awareness, as opposed to consideration or choice. Along with advertising, branch density, marital status, race and income are very signicant drivers of awareness. We also find that consumers face non-trivial search/consideration costs that lead the average consumer to consider only 2.2 banks out of the 6.7 they are aware of. Conditional on consideration, branch density, the consumer's current primary bank (i.e. inertia), interest rates and education are the primary drivers of the final choice.
    Date: 2014
  7. By: Paciello, Luigi; Pozzi, Andrea; Trachter, Nicholas
    Abstract: We study a model of firm price setting with customer markets and empirically evaluate its predictions. Our framework captures the dynamics of customers in response to a change in the price set by firms, describes the behavior of optimal prices in the presence of customer retention concerns, and delivers a general equilibrium model of price and customer dynamics. We exploit micro data on purchases from a large U.S. retailer by a panel of households to quantify the model and compare it to the counterfactual benchmark of the monopolistic competition setting. We show that our model with customer markets has markedly dierent implications in terms of the equilibrium price distribution, and better fits the available empirical evidence on retail prices. Moreover, the dynamic of the response of demand to policy relevant shocks is also distinctive. Our results suggest that inertia in customer reallocation across firms increases the persistence in the response of firms' demand to these shocks.
    Keywords: customer markets; price setting; product market frictions
    JEL: E12 E30 L16
    Date: 2014–10
  8. By: Aoki, Reiko; Hillas, John; Kao, Tina
    Abstract: We use a spokes model to analyze ?ms?customization incentives when facing the choices of standard and niche products. Products at or near the end of the spokes are customized products, while products near the origin are more standardized products that cater to the taste of many consumers. Our results indicate that although monopolist always offers the standard product, if a ?m anticipates entry, it may choose to stake claim to a customized product. For low transportation costs, the early entrant chooses the standard product. But this equilibrium is characterized by aggressive pricing behavior.
    Keywords: product differentiation, product customization, entry, spatial oligopoly
    JEL: L11 L13
    Date: 2014–11
  9. By: Glady, N.; Lemmens, A. (Tilburg University, School of Economics and Management); Croux, C. (Tilburg University, School of Economics and Management)
    Abstract: The customer lifetime value combines into one construct the transaction timing, spending and dropout processes that characterize the purchase behavior of customers. Recently, the potential relationship between these processes, either at the individual customer level (i.e. intra-customer correlation) or between customers (i.e. inter-customer correlation), has received more attention. In this paper, we propose to jointly unveil the direction and intensity of these correlations using copulas. We investigate the presence of these correlations in four distinct product categories, namely online music albums sales, securities transactions, and utilitarian and hedonic fast-moving consumer good retail sales. For all product categories, we find a substantial amount of inter- and intra-customer correlation. At the inter-customer level, on average frequent buyers tend to spend more per transaction than the other customers. In addition, on average, large buyers have a longer lifetime. At the intra-customer level, we find that the existence and intensity of compensating purchase behaviors vary across product categories and across customers. From a managerial viewpoint, our approach improves the forecasts of the firm’s future cash flows, especially for the product categories and customers where the correlations are the strongest. Moreover, the correlation parameters also provide additional insights to traditional customer valuation analysis on the magnitude, durability and volatility of the cash flows that each customer generates. We conclude by discussing how these insights can be used to improve customer portfolio decisions.
    Date: 2014
  10. By: Ljubisa Stojmirović , Aleksandra Stojković , Tomislav Nikolić (Belgrade Business School)
    Abstract: It is common for political parties and certain individuals that during the election campaign they try to use a negative campaign in order to achieve a certain advantage over their rivals. What are the effects of such campaigns, whether they are successful or even counter-productive. The authors of these paper present specified case in order to show the result of such a campaign.
    Keywords: campaigns, political marketing, parties, the media, voters...
    JEL: D72 L82 M31
    Date: 2014–04
  11. By: Feng Zhu (Harvard Business School, Technology and Operations Management Unit); Qihong Liu (University of Oklahoma)
    Abstract: Platform owners sometimes enter complementors' product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: Platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms' overall quality. Using data from, we analyze the patterns of Amazon's entries into its third-party sellers' product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon's entry is positively correlated with the popularity and customer ratings of third-party sellers' products. Amazon's entry reduces the shipping costs of affected products and hence increases their demand. Results also show that third-party sellers affected by Amazon's entry appear to be discouraged from growing their businesses on the platform subsequently.
    Date: 2014–12
  12. By: Hinnerk Gnutzmann (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: Price discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare eects { even though prices and industry prots fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric rms yielded sharply dierent results, the pro{competitive eect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare.
    Keywords: History{based price discrimination, asymmetric price discrimination, switching cost
    JEL: L13 L41
    Date: 2014–11
  13. By: Chris Stewart (Reserve Bank of Australia); Iris Chan (Reserve Bank of Australia); Crystal Ossolinski (Reserve Bank of Australia); David Halperin (Reserve Bank of Australia); Paul Ryan (Reserve Bank of Australia)
    Abstract: This paper examines the costs borne by financial institutions, merchants, and consumers in making, facilitating and accepting consumer-to-business payments. It examines the resource costs incurred by these sectors, how these have changed since 2006, and how fees and other transfers determine which sectors ultimately bear these costs. It also examines how resource costs vary at different transaction sizes and, for merchants, how costs differ between small and large entities. The results suggest that the resource costs of the payments system have fallen as a per cent of GDP since 2006. On a per transaction basis, direct debit remains the lowest-cost payment instrument while cheques remain the most expensive. At the point of sale, payments using cash, eftpos and contactless MasterCard & Visa debit cards have broadly similar costs for transactions under about $20; above $20, eftpos is the lowest-cost payment method. The results indicate that the relationship between resource and private costs varies significantly across instruments. The greater share of the overall cost is borne by merchants. The consumer undertaking a transaction typically pays a small proportion of its cost; consumers face a similar cost for credit card payments as for debit card payments despite the higher cost of credit cards to the economy. Finally, the results suggest that small businesses incur higher costs than large merchants.
    Keywords: banks; consumers; financial institutions; merchants; retail payments; surcharging
    JEL: E4 G2 L2
    Date: 2014–12

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