nep-mkt New Economics Papers
on Marketing
Issue of 2015‒09‒05
ten papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Complementarities in Consumption and the Consumer Demand for Advertising By Tuchman, Anna E.; Nair, Harikesh S.; Gardete, Pedro M.
  2. Dynamic Pricing of Electricity: A Survey of Related Research By Dutta, Goutam; Mitra, Krishnendranath
  3. Consumer Rights in the New Economy: Amending the Consumer Protection Act, 1986 By Pathak, Akhileshwar
  4. Churn vs. Diversion: An Illustrative Model By Yongmin Chen; Marius Schwartz
  5. Income and Wealth Effects on Private-Label Demand: Evidence From the Great Recession By Jean-Pierre Dubé; Günter J. Hitsch; Peter E. Rossi
  6. Competition and Product Choice in Option Demand Markets By Gilad Sorek
  7. Theory of pricing as relativistic kinematics By S. I. Melnyk; I. G. Tuluzov
  8. How are U.S. consumers using general purpose reloadable prepaid cards?: are they being used as substitutes for checking accounts? By Greene, Claire; Shy, Oz
  9. Making Money by Giving It for Free: Radiohead's Pre-release Strategy for In Rainbows By Bourreau, Marc; Dogan, Pinar; Hong, Sounman
  10. Prestige without Purpose? Reputation, Differentiation, and Pricing in U.S. Equity Underwriting By Fernando, Chitru S.; Gatchev, Vladimir A.; May, Anthony D.; Megginson, William L.

  1. By: Tuchman, Anna E. (Stanford University); Nair, Harikesh S. (Stanford University); Gardete, Pedro M. (Stanford University)
    Abstract: The standard paradigm in the empirical literature is to treat consumers as passive recipients of advertising, with the level of ad exposure determined by firms' targeting technology and the intensity of advertising supplied in the market. This paradigm ignores the fact that consumers may actively choose their consumption of advertising. Endogenous consumption of advertising is common. Consumers can easily choose to change channels to avoid TV ads, click away from paid online video ads, or discard direct mail without reading advertised details. Becker and Murphy (1993) recognized this aspect of demand for advertising and argued that advertising should be treated as a good in consumers' utility functions, thereby effectively creating a role for consumer choice over advertising consumption. They argued that in many cases demand for advertising and demand for products may be linked by complementarities in joint consumption. We leverage access to an unusually rich dataset that links the TV ad consumption behavior of a panel of consumers with their product choice behavior over a long time horizon to measure the co-determination of demand for products and ads. The data suggests an active role for consumer choice of ads, and for complementarities in joint demand. To interpret the patterns in the data, we fit a structural model for both products and advertising consumption that allows for such complementarities. We explain how complementarities are identified. Interpreting the data through the lens of the model enables a precise characterization of the treatment effect of advertising under such endogenous non-compliance, and assessments of the value of targeting advertising. To illustrate the value of the model, we compare advertising, prices and consumer welfare to a series of counterfactual scenarios motivated by the "addressable" future of TV ad-markets in which targeting advertising and prices on the basis of ad-viewing and product purchase behavior is possible. We find that both profits and net consumer welfare may increase, suggesting that it may be possible that both firms and consumers become better off in the new addressable TV environments. We believe our analysis holds implications for interpreting ad-effects in empirical work generally, and for the assessment of ad-effectiveness in many market settings.
    Date: 2015–06
  2. By: Dutta, Goutam; Mitra, Krishnendranath
    Abstract: In this paper, we survey 82 papers related to revenue management and dynamic pricing of electricity and lists future research avenues in this field. Dynamic pricing has the potential to modify electric load profiles by charging different prices at different demand levels and hence can act as an effective demand side management tool. There are different forms of dynamic prices that can be offered to different markets and customers. Forecasting of demand, and demand price relationship play an important role in determining prices and helps in scheduling load in dynamic pricing environments. Consumers’ willingness-to-pay for electricity services is also necessary in setting price limits. Elasticity of demand is an indication of the demand response to changing prices. Market segmentation can enhance the effects of such pricing schemes. Appropriate scheduling of electrical load enhances the consumer response to dynamic tariffs.
  3. By: Pathak, Akhileshwar
    Abstract: Liberalisation and globalisation of the India economy, inaugurated in 1990, ushered in a qualitatively different economy. In these decades, there has been expansion of goods and services; diversification in the means of reaching the consumer; proliferation of trade practices; coming in of e-commerce; vigorous sales promotion; and aggressive advertising. The persona of a consumer has undergone a transformation. The legislative regime for protection of consumer needs reform. The government has suggested changes in the Consumer Protection Act, 1986. Taking this as the context, the article reviews the proposed amendments and identifies further areas for amendment. The article has identified four overarching aspects of consumer rights for review, unfair terms in contracts; unfair trade practices; commerce through online platforms; and definition of consumer.
  4. By: Yongmin Chen (Department of Economics, University of Colorado, Boulder); Marius Schwartz (Department of Economics, Georgetown University)
    Abstract: An important question in merger analysis is how much of a firm's lost output after a unilateral price increase will shift to the merger partner. To estimate this diversion ratio, antitrust agencies sometimes use data on consumer switching ("churn"), potentially caused by various reasons. This paper uses a tractable model of oligopoly competition to investigate the relation between churn and diversion, depending on what caused the churn. If the cause is an exogenous decrease in a firm's product quality and all prices remain constant, or an increase in its marginal cost that induces a price increase only by that firm, then churn ratios will equal the corresponding diversion ratios; for the same quality or cost shocks, if churn is observed after all prices adjust to the new equilibrium, churn ratios will generally differ from diversion ratios, but nevertheless will still track the ranking of diversion ratios across the firm's competitors. If the exogenous shock is an increase in a rival's product quality, or a decrease in its cost that leads to a price decrease, the churn ratio to that rival will always overstate the diversion ratio. We also consider churn caused by shifts in consumer preferences, broadly interpreted to include changed circumstances or learning about product attributes. Plausibly, churn ratios can then suggest a wrong ranking of how intensely the firm competes with various rivals.
    Keywords: churn ratio, diversion ratio, merger, unilateral price effects, antitrust
    JEL: L4 D43
    Date: 2015–08–11
  5. By: Jean-Pierre Dubé; Günter J. Hitsch; Peter E. Rossi
    Abstract: We measure the causal effects of income and wealth on the demand for private-label products. Prior research suggests that these effects are large and, in particular, that private-label demand rises during recessions. Our empirical analysis is based on a comprehensive household-level transactions database matched with price information from store-level scanner data and wealth data based on local house value indices. The Great Recession provides a key source of the variation in our data, with a large and geographically diverse impact on household incomes over time. We estimate income and wealth effects using “within” variation of income and wealth at the household level. Our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization. We establish a precisely measured negative effect of income on private-label shares. The effect of wealth is negative but not precisely measured. However, the estimated effect sizes are small, in contrast with prior academic work and industry views. An examination of the possible supply-side response to the recession shows only small changes in the relative price of national-brand and private-label products. Our estimates also reveal a large positive trend in private-label shares that predates the Great Recession. We examine some possible factors underlying this trend, but find no evidence that this trend is systematically related to specific private-label quality tiers or to the overall rate of private-label versus national-brand product introductions.
    JEL: D1 D12 E21 E3 L0 L00 L1 L10 L11 L16
    Date: 2015–08
  6. By: Gilad Sorek
    Abstract: This paper provides first analysis of horizontal product differentiation in health care markets with option demand. I show that differentiation choices in option demand market differ from those obtained in spot markets analyzes. This is because option demand induces competition over inclusion under insurance coverage, whereas in spot markets providers are competing over the marginal consumers. In addition providers that are perceived as substitutes in the spot market - after exact medical needs reveal, may be perceived as complements in option market - before actual medical needs emerged. I show that in the model option demand market competition in simultaneous moves yields efficient horizontal differentiation and excessive investment in quality. Moreover I show that sequential moves result in asymmetric equilibrium with first mover-gains to the leading provider, too little horizontal differentiation and yet higher expected utility for consumers (compared with simultaneous moves).
    Keywords: Health Insurance; Option Demand; Product Differentiation
    JEL: I11 I13 L1
    Date: 2015–08
  7. By: S. I. Melnyk; I. G. Tuluzov
    Abstract: The algebra of transactions as fundamental measurements is constructed on the basis of the analysis of their properties and represents an expansion of the Boolean algebra. The notion of the generalized economic measurements of the economic quantity and quality of objects of transactions is introduced. It has been shown that the vector space of economic states constructed on the basis of these measurements is relativistic. The laws of kinematics of economic objects in this space have been analyzed and the stages of constructing the dynamics have been formulated. In particular, the principle of maximum benefit, which represents an economic analog of the principle of least action in the classical mechanics, and the principle of relativity as the principle of equality of all possible consumer preferences have been formulated. The notion of economic interval between two economic objects invariant to the selection of the vector of consumer preferences has been introduced. Methods of experimental verification of the principle of relativity in the space of economic states have been proposed.
    Date: 2014–12
  8. By: Greene, Claire (Federal Reserve Bank of Boston); Shy, Oz
    Abstract: Owners of general purpose reloadable prepaid cards (GPR) who do not have checking accounts comprise 4.8 percent of U.S. adults, according to the 2012 Survey of Consumer Payment Choice. This report explores two important aspects of prepaid card use: Do owners of GPR prepaid cards who lack checking accounts use these cards differently than those who have checking accounts? Are these cards substituting for payment services that have traditionally been provided only via traditional checking accounts?
    Keywords: prepaid cards; nonbank payment services; bank‐like services; Survey of Consumer Payment Choice; Diary of Consumer Payment Choice
    JEL: G23
    Date: 2015–06–01
  9. By: Bourreau, Marc (Telecom ParisTech and CREST-LEI, Paris); Dogan, Pinar (Harvard University); Hong, Sounman (Yonsei University)
    Abstract: In 2007 a prominent British alternative-rock band, Radiohead, pre-released its album In Rainbows online, and asked their fans to "pick-their-own-price" (PYOP) for the digital download. The offer was available for three months, after which the band released and commercialized the album, both digitally and in CD. In this paper, we use weekly music sales data in the US between 2004-2012 to examine the effect of Radiohead's unorthodox strategy on the band's album sales. We find that Radiohead's PYOP offer had no effect on the subsequent CD sales. Interestingly, it yielded higher digital album sales compared to a traditional release. Our findings suggest the PYOP strategy generated higher sales revenues overall, even if one assumes no revenues were obtained directly from the PYOP channel. However, this "success story" does not readily apply to similar strategies adopted by other bands. We show that Nine Inch Nail's free provision of its new album, The Slip, resulted in lower revenues from the album's digital sales.
    JEL: L82
    Date: 2014–07
  10. By: Fernando, Chitru S. (University of OK); Gatchev, Vladimir A. (University of Central FL); May, Anthony D. (Wichita State University); Megginson, William L. (University of OK)
    Abstract: Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study helps resolve both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence of price and service differentiation based on underwriter reputation. High-reputation banks receive average reputational premia equaling 0.65% (0.47%) of average IPO (SEO) underwritten proceeds, which constitutes 10% (13%) of their underwriting spreads. Equity issuers working with high-reputation underwriters receive significant benefits, including higher offer values and lower percentage spreads net of reputational premia.
    JEL: G24 G32 L14 L15
    Date: 2015–06

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