nep-mkt New Economics Papers
on Marketing
Issue of 2015‒02‒22
fifteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Brand Loyalty, Volume of Trade and Leapfrogging: Consumer Behavior for Durable Experience Goods By Martin Paredes
  2. Search and ripoff externalities By Armstrong, Mark
  3. Markets with Technological Progress: Pricing, Quality and Novelty By von Auer, Ludwig; Trede, Mark
  4. Price disclosure rules and consumer price comparison By Stühmeier, Torben
  5. Consumer misperception of eco-labels, green market structure and welfare By Dorothée Brécard
  6. A Welfare Assessment of Revenue Management Systems By Dupuis, Nicolas; Ivaldi, Marc; Pouyet, Jérôme
  7. Platform Pricing under Dispersed Information By Bruno Jullien; Alessandro Pavan
  8. Quantity Competition in the Presence of Strategic Consumers By Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
  9. Empirical study on how social media promotes product innovation By Idota, Hiroki; Bunno, Teruyuki; Tsuji, Masatsugu
  10. Bundling incentives in markets with product complementarities: The case of triple-play By Macieira, João; Pereira, Pedro; Vareda, João
  11. Competition and consumer protection in the cyberspace marketplace By Klein, Joseph A.; Rao, P. M.
  12. Bundling information goods under 'breakeven' price By Kuroda, Toshifumi
  13. Analysis on switching cost versus bundling price under consumer adoption for choosing smart TV over pay TV By Hong, Ahreum; Yu, Eun; Hwang, Junseok
  14. Evaluating the product portfolio of Japanese public service broadcaster: Consumer vs. citizen's view By Tsuji, Masatsugu; Ichikawa, Yoshiharu
  15. Many-to-Many Matching and Price Discrimination By Renato Gomes; Alessandro Pavan

  1. By: Martin Paredes (Universidad de Piura)
    Abstract: We present a dynamic model that addresses how the interaction between durability and experience consumers’ replacement decisions. Despite obsolescence, consumers keep used goods because of quality uncertainty of new goods. Contrary to adverse selection articles, incomplete trade in secondary markets can be efficient provided experience involves idiosyncratic tastes. As some consumers decide which vintage to buy depending on past experiences, brand loyalty can be higher for new goods. When consumers’ expected experience differs across brands, the best brand exhibits higher loyalty, larger sales, longer ownership spells, and higher resale prices, results consistent with evidence from the U.S. automobile industry.
    Keywords: Durable goods, experience goods, consumer behavior
    JEL: D82 D83 L15
    Date: 2015–02
  2. By: Armstrong, Mark
    Abstract: This paper surveys models of markets in which only some consumers are "savvy". I discuss when the presence of savvy consumers improves the deals available to all consumers in the market (the case of search externalities), and when the non-savvy fund generous deals for all consumers (ripoff externalities). I also discuss when the two groups of consumers have aligned or divergent views about market interventions. The analysis focusses on two kinds of models: (i) an indivisible product in a market with price dispersion, and (ii) products which involve add-on pricing.
    Keywords: Add-on pricing, bounded rationality, consumer protection, consumer search, externalities, price dispersion
    JEL: D11 D18 D4 D83 D86 L1
    Date: 2015–02
  3. By: von Auer, Ludwig; Trede, Mark
    Abstract: New and old products differ in two respects: quality and newness. Whereas a higher quality of a new product always benefits consumers, the newness itself benefits some consumers, but not others, and for some, it is even a disadvantage. We capture these features in a Hotelling model of Over- Lapping Innovators (HOLI model), entailing a sequence of static Hotelling games of horizontal product differentiation (newness), that we extend by vertical product differentiation (quality). In this model the firms compete on quality and price. Using advanced dynamic hedonic regression methods, we empirically investigate the actual pricing of firms in the German laser printer market. We show that their pricing corresponds to our model with the entrant acting as the Stackelberg follower.
    JEL: L11 L63 C23
    Date: 2014
  4. By: Stühmeier, Torben
    Abstract: Search frictions are classified as a main impediment to active competition in many markets. In some markets, such as in financial and retail gasoline markets, governments and consumer protection agencies call for a compulsory price reporting. Consumers should then more easily compare the firms' offers. We show that for a given level of price comparison, a mandatory price reporting indeed widely benefits consumers. The regulation, however, feeds back into firms' strategies, resulting in lower equilibrium levels of price comparison. This effect may dominate and the regulation may lead to higher expected market prices.
    JEL: D83 L13 L51
    Date: 2014
  5. By: Dorothée Brécard (Université de Toulon, LÉAD)
    Abstract: How does consumer misperception of competing eco-labels affect environmental and economic efficiency of eco-labels? This article provides a theoretical insight into this issue by using a double-differentiation model, where three products are potentially in competition: an unlabeled product and two eco-labeled products of medium and high environmental qualities (with distinct labels). We compare the case of perfect information, where consumers can perfectly assess the environmental quality of the three products, and the case of imperfect information, where consumers cannot fully assess the environmental quality associated with each label while perceiving all eco-labels as a sign of high environmental quality and each label as a particular variety of a product. We show that consumer confusion can affect the market structure by weakening the firm that provides the greenest product. Paradoxically, consumer misperception is not always detrimental to social welfare because, when th e perceived quality of both eco-labeled products is relatively high, it can improve the quality of the environment and raise global profits and consumer surplus. Moreover, although firms would harmonize their demanding eco-labeling criteria if they face full-informed consumers, they turn to greenwashing when they know the way the consumers form their belief on environmental quality. Finally, we show that an NGO faced with consumer misperception will require less stringent standard than in the perfect information case, while conclusions on the regulator eco-labeling strategy are not clear-cut.
    Keywords: Eco-label, environmental quality, green consumer, product differentiation
    JEL: D11 D62 D83 L15 Q58
    Date: 2015–01
  6. By: Dupuis, Nicolas; Ivaldi, Marc; Pouyet, Jérôme
    Abstract: We study the welfare impact of revenue management, i.e. intertemporal price discrimination when the product availability is limited both in time and quantity, and consumers' arrival is random. This practice is particularly relevant, and widely spread, in the transport industry, but little is known about its implications on profits and consumer surplus. We develop a theoretical model of revenue management allowing for heterogeneity in product characteristics, capacity constraints, consumer preferences, and probabilities of arrival. We also introduce dynamic competition between revenue managers. We solve this model computationally and recover the optimal pricing strategies. We find that revenue management is welfare enhancing. Revenue managers face two types of constraints: a limited booking period and fixed capacities. Previous sales affect the relative slackness of these two constraints, explaining price variations. Profits increase as the practice offers more leeway to the seller compared to posting a fixed price throughout the booking period. Total consumer surplus also increases for a wide range of specifications, as revenue management raises the number of sales. In the presence of heterogeneous consumers, consumers with low price sensitivity subsidize ones with high price sensitivity when demand is low but both types benefit from the practice when demand is high. This sheds some light on the impact of revenue management on the surplus of business and leisure passengers.
    Keywords: revenue management, transport fares, intertemporal price discrimination, dynamic computational models.
    JEL: C63 R41
    Date: 2015–01–05
  7. By: Bruno Jullien; Alessandro Pavan
    Abstract: We study monopoly and duopoly pricing in a two-sided market with dispersed information about users’ preferences. First, we show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns affecting the agents’ ability to estimate their own as well as other agents’ valuations, and product design affecting the distribution of valuations on the two sides of the market.
    Keywords: two-sided markets, dispersed information, platform competition, global-games, informative advertising JEL Classification: D82
    Date: 2014–06–01
  8. By: Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
    Abstract: Oligopolistic retailers decide on the initial inventories of an undifferentiated limited-lifetime product offered to strategic consumers. A manufacturer sets the first-period (full) price, while the second-period (clearance) price is determined by a market clearing process. The resulting symmetric pure-strategy equilibria may lead to no sales in the first or second period (Cournot outcome versus collusion), and sales in both periods with the clearance price above or at the salvage value. The equilibria possess a comprehensive set of monotonic properties. In particular, increasing strategic behavior can benefit retailers and hurt consumers, increasing competition may harm the local economy, and high levels of strategic behavior may insure against oversupply that leads to clearance sales at the salvage value. The welfare-optimal number of retailers can lead to the above-cost clearance price.
    Keywords: quantity competition, two-period game, strategic consumers, symmetric equilibria
    JEL: C72 D91 L13
    Date: 2015–01–28
  9. By: Idota, Hiroki; Bunno, Teruyuki; Tsuji, Masatsugu
    Abstract: Social media such as SNS, Twitter, and the blogs has been spreading all over the world, and a large number of firms recognize social media as new communication tools for obtaining information on consumer needs and market for developing new goods and services and promoting marketing. In spite of increasing its use in the reality, academic research on whether or how social media contributes to promoting product innovation is not enough yet. This study thus attempts to analyze empirically how social media use enhances product innovation based on the survey data to Japanese firms using statistical method such as ordered probit analysis. This study finds that consumers' cooperation via social media is indispensable for effective social media use of firms. All of three managerial orientations such as prototyping, corporate initiatives, and cooperation with consumers are effective to using social media for innovation. Firms use social media effectively for communicating tools not only outside but also inside the firm. Social media is found to support firms to obtain the market trend, and consumer needs and reputation of existing products, and to promote product innovation.
    Keywords: social media,product Innovation,ordered probit analysis,factor analysis,R&D orientation
    Date: 2014
  10. By: Macieira, João; Pereira, Pedro; Vareda, João
    Abstract: We analyze …firms incentives to bundle and tie in the telecommunications industry. As a fi…rst step, we develop a discrete-choice demand model where fi…rms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a fi…rm may sell. We exploit these properties to examine bundling behavior when fi…rms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify fi…rm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles,Discrete-Choice Model,Equilibrium Simulation,Differentiated Product,Consumer Level Data
    JEL: D43 K21 L44 L96
    Date: 2014
  11. By: Klein, Joseph A.; Rao, P. M.
    Abstract: This paper will examine legal and marketing implications of certain Internet technological developments impacting competition and consumer protection in cyberspace. The paper will explore to what extent antitrust and consumer protection laws are adequate to deal with the challenges to a competitive marketplace and consumer privacy posed by the development of cyberspace technologies and markets, for example, Internet search engines, social networks and wearable devices. The paper concludes that legal tools for protecting a competitive cyberspace marketplace are fairly robust, while the legal tools to protect consumers from being tracked and profiled by marketers and from the potential intrusions of individual privacy made possible by even more advanced Internet connected sensor and related data-based technologies are still a work in progress. At the same time, the extent of further government regulation in this area must be carefully balanced so as not to unduly restrict data dependent innovation.
    Date: 2014
  12. By: Kuroda, Toshifumi
    Abstract: Bundling under monopoly tends to increase demand and market efficiency, but likely at the expense of transferring consumers' surplus to firms. Public utilities can use this increase in demand to reduce the monthly fee per consumer. To demonstrate it, I conduct a numerical analysis of the effects of bundling under breakeven price regulation for the Japan Broadcasting Corporation. I estimate the willingness-to-pay for broadcasting services and simulate consumer choices under pure bundling and a-la-carte pricing with breakeven price regulation. Comparing pure bundling and a-la-carte pricing of terrestrial television and satellite television, the increase in demand caused by bundling is very slight due to the strong positive correlation of WTPs. However, compared with a-la-carte pricing, consumer welfare increases by 1.7% with bundling of channels and by 28.2% with bundling of genres.
    Keywords: Bundling,Public utilities,Policy analysis
    JEL: L82 L30 D49
    Date: 2014
  13. By: Hong, Ahreum; Yu, Eun; Hwang, Junseok
    Abstract: The emergence of smart TV device encourages the reconsideration of the customer's subscription on the pay TV so that the phenomenon of cord-cutting evokes the other dimension of MVPD (Multi-Channel Video Programming Distribution) industry itself. Two major paths to adopt the new platform in MVPD market cover the switching cost and effect for the new platform such as smart TV and restrain the discount price by bundling triple-play which is one provision over a single broadband connection of two bandwidth-intensive services such as high-speed Internet access and television, and the latency-sensitive telephone. The research question over this simultaneous equation model exhibits that rate of customer subscription affects with more attention from demand-pull phenomenon by the high switching cost versus bundling price for multiple play service in behavioral economics way. Behavioral economics can explain the way of consumer's choice by providing it with more realistic psychological foundations. The hypothesis investigates the incentive mechanism has positive effect from the discount rate by tying the product bundling within MVPD service provision. Shapiro and Varian (1998) examine some of the business strategy implications of switching costs at a lay reader level. The switching cost results in the lock-in effect and takes scale economies of demand side. Farrell and Shapiro (1989) mention that once they are locked in, they can be a substantial source of profit whether it is substation or not. Also customer left the current service due to that cost. The prerequisite for switching cost investigate the product complexity (Gatignon and Robertson, 1992; Klemperer, 1995), heterogeneity of supplier in market (Schmalensee, 1982), the product diversity from the supplier side (Blattberg and Deighton, 1996; Klemperer, 1995; Ram and Jung, 1990), the level of modification in consideration of customer demand (Bhardawaj et al., 1993), the experience of alternatives (Bhattachary et al., 1995), the experience of switching choice (Bhattacharya et al.,1995; Nilssen, 1992), and time limitation of selection pressure or individual characteristic of risk aversion could be the factor to reorganization of switching cost by customer. Previous literature tries to explore the path and find out the factors which effect on the customer's switching behavior.
    Keywords: Pay TV market,Switching cost,Bundling price,Smart TV,Simultaneous Equation Modeling
    JEL: L22 L82
    Date: 2014
  14. By: Tsuji, Masatsugu; Ichikawa, Yoshiharu
    Abstract: Media has been becoming increasingly diversified and public service broadcasters (PSBs) all over the world face new challenges by the Internet, and they have been restructuring their consistencies for the new environments. PSBs have been developing various management approaches by the diversification of transmission channels and the development of cross-media contents. The optimum deployment of distribution channels and content genres is currently becoming the top management priority, which is referred to as Portfolio Management. This approach for determining the portfolio of products and businesses will result in the most efficient strategic allocation of management resources. This paper thus takes NHK (Nippon Hoso Kyokai), Japan's PSB, as a research target, and analyzes its portfolio management. NHK has introduced the VFM (Value for Money) index through the measurement of WTP(Willingness to pay), and has initiated channel×genre matrix management. This study thus aims to estimate WTP to the channel×genre matrixin order to analyze how viewers evaluate NHK and its programs. To evaluate whether NHK's channel×genre matrix management is oriented to the way as pay-TV or to public service value, PSM (Propensity Score Matching) is employed. Using PSM, the sample population is divided into two groups, the consumer's view and the citizen's view, and how the distributed WTP to genre is different between two groups is examined.
    Keywords: WTP,product portfolio,channel-genre matrix,PSM,NHK
    Date: 2014
  15. By: Renato Gomes; Alessandro Pavan
    Abstract: We study centralized many-to-many matching in markets where agents have private information about (vertical) characteristics that determine match values. Our analysis reveals how matching patterns reflect cross-subsidization between sides. Agents are endogenously partitioned into consumers and inputs. At the optimum, the costs of procuring agents-inputs are compensated by the gains from agents-consumers. We show how such cross-subsidization can be achieved through matching rules that have a simple threshold structure and are assortative in the weak-order (set inclusion) sense. We then deliver testable predictions relating the optimal matching rules and price schedules to the distribution of the agents’ characteristics. The analysis has implications for the design of large matching intermediaries, such as advertising exchanges, business-to-business platforms, and online job-matching agencies.
    Keywords: vertical matching markets, many-to-many matching, asymmetric information, mechanism design, cross-subsidization JEL Classification: D82
    Date: 2014–06–01

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