nep-mkt New Economics Papers
on Marketing
Issue of 2015‒04‒25
five papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The influence of product liability on vertical product differentiation By Baumann, Florian; Friehe, Tim; Rasch, Alexander
  2. Consumer Search and Prices in the Automobile Market By José Luis Moraga-González; Zsolt Sándor; Matthijs R. Wildenbeest
  3. Consumer Search and Double Marginalization By Maarten Janssen; Sandro Shelegia
  4. Consumers' Attitudes and Their Inflation Expectations By Ehrmann, Michael; Pfajfar, Damjan; Santoro, Emilianio
  5. Loyalty Programs and Consumer Behaviour: The Impact of FFPs on Consumer Surplus By Christiaan Behrens; Nathalie McCaughey

  1. By: Baumann, Florian; Friehe, Tim; Rasch, Alexander
    Abstract: This paper explores the impact of product liability on vertical product differentiation when product safety is perfectly observable. In a two-stage competition, duopolistic firms are subject to strict liability and segment the market such that a low-safety product is marketed at a low price to consumers with relatively small harm levels whereas the safer product is sold at a high price to consumers with high levels of harm. Firms' expected liability payments are critically influenced by how the market is segmented, creating a complex relationship between product liability and product differentiation. We vary the liability system's allocation of losses between firms and consumers. Shifting more losses to firms increases the safety levels of both products, but decreases the degree of product differentiation. Some shifting of losses is always socially beneficial, but the optimum may require that some compensable losses stay with the consumers.
    Keywords: product liability,accident,harm,imperfect competition,product safety,vertical product differentiation
    JEL: D43 K13 L13
    Date: 2015
  2. By: José Luis Moraga-González (VU University Amsterdam); Zsolt Sándor (Sapientia Hungarian University of Transylvania, Romania); Matthijs R. Wildenbeest (Indiana University, United States)
    Abstract: In many markets consumers have imperfect information about the utility they derive from the products that are on offer and need to visit stores to find the product that is the most preferred. This paper develops a discrete-choice model of demand with optimal consumer search. Consumers first choose which products to search; then, once they learn the utility they get from the searched products, they choose which product to buy, if any. The set of products searched is endogenous and consumer specific. Therefore imperfect substitutability across products does not only arise from variation in their characteristics but also from variation in the costs of searching them. We apply the model to the automobile industry. Our search cost estimate is highly significant and indicates that consumers conduct a limited amount of search. Estimates of own- and cross-price elasticities are lower and markups are higher than if we assume consumers have full information.
    Keywords: consumer search, differentiated products, demand and supply, automobiles
    JEL: C14 D83 L13
    Date: 2015–03–06
  3. By: Maarten Janssen; Sandro Shelegia
    Abstract: The well-known double marginalization problem understates the inefficiencies arising from vertical relations in consumer search markets where consumers are uninformed about the wholesale prices charged by manufacturers to retailers. Con- sumer search provides a monopoly manufacturer with an additional incentive to increase its price, worsening the double marginalization problem and lowering the manufacturer's prots. Nevertheless, manufacturers in more competitive wholesale markets may not have an incentive to reveal their prices to consumers. We show that retail prices decrease in search cost, and so both industry prots and consumer surplus increase in search cost.
    JEL: D40 D83 L13
    Date: 2014–12
  4. By: Ehrmann, Michael (Bank of Canada); Pfajfar, Damjan (Board of Governors of the Federal Reserve System (U.S.)); Santoro, Emilianio (University of Copenhagen)
    Abstract: This paper studies consumers' inflation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households' financial situation and their purchasing attitudes are important determinants of their forecast accuracy. Respondents with current or expected financial difficulties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than that of the average household in response to increasing media reporting about inflation. Equivalent results are found during recessions.
    Keywords: Consumer Attitudes; Inflation Expectations; News on Inflation
    JEL: C53 D84 E31
    Date: 2015–03–10
  5. By: Christiaan Behrens (VU University Amsterdam); Nathalie McCaughey (Monash University, United States)
    Abstract: Frequent Flier Programs (FFPs) are said to impact airline consumer behaviour such that revenue of sponsoring airlines increases. Prior research relies on aggregate industry data to study FFPs. We examine the impact of FFPs on individual consumer behaviour in a quasi-natural experimental set-up using a combined discrete choice and count data model. We exploit an unanticipated change in the FFP to avoid self-selection bias. We derive the causal effect of redesigning a frequency reward program into a customer tier program on average transaction size, purchase frequency, revenues of the sponsoring airline, and compensating variation. We find that, on average, revenues increased by 8$ per member over a 16 month period. The welfare impact is small but positive. We find that, on average, consumer surplus increased by 5$ per member over a 16 month period. The results vary su bstantially across individuals. In line with previous studies, our results suggest that moderate buyers increase their average transaction size and purchase frequency most due to the introduction of the customer tier program.
    Keywords: Loyalty programs; Frequent Flier Programs; Two-stage budgeting model; Longitudinal demand models; Airline pricing
    JEL: D12 L11 R41 L93
    Date: 2015–04–16

This nep-mkt issue is ©2015 by João Carlos Correia Leitão. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.