nep-mkt New Economics Papers
on Marketing
Issue of 2016‒07‒30
five papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Consumers on a Leash: Advertised Sales and Intertemporal Price Discrimination By Aniko Ory
  2. False Advertising By Rhodes, Andrew; Wilson, Chris M
  3. Determinants of Consumer Sentiment over Business Cycles: Evidence from the U.S. Surveys of Consumers By Kajal Lahiri; Yongchen Zhao
  4. Intertemporal price discrimination: dynamic arrivals and changing values By Garrett, Daniel F.
  5. The effect of retail mergers on prices and variety: An ex-post evaluation By Argentesi, Elena; Buccirossi, Paolo; Cervone, Roberto; Duso, Tomaso; Marrazzo, Alessia

  1. By: Aniko Ory (Cowles Foundation, Yale University)
    Abstract: The Internet allows sellers to track “window shoppers,” consumers who look but do not buy, and to lure them back later by targeting them with an advertised sale. This new technology thus facilitates intertemporal price discrimination, but simultaneously makes it too easy for a seller to undercut her regular price. Because buyers know they could be lured back, the seller is forced to set a lower regular price. Advertising costs can, therefore, serve as a form of commitment: a seller can actually benefit from higher costs of advertising. Based on this framework, the impact of commitment on prices, profits, and welfare are analyzed using a dynamic pricing model. Furthermore, it is demonstrated how buyers’ time preferences give rise to price fluctuation or an everyday-low-price in equilibrium.
    Keywords: Advertising, Coases conjecture, commitment, dynamic pricing, intertemporal price discrimination, online markets, everyday-low-pricing
    JEL: D11 D21 D42 D90 L11 L12
    Date: 2016–07
  2. By: Rhodes, Andrew; Wilson, Chris M
    Abstract: There is widespread evidence that some firms use false advertising to overstate the value of their products. We consider a model in which a policymaker is able to punish such false claims. We characterize an equilibrium where false advertising actively influences rational buyers, and analyze the effects of policy under different welfare objectives. We establish precise conditions where policy optimally permits a positive level of false advertising, and show how these conditions vary intuitively with demand and market parameters. We also consider the implications for product investment and industry self-regulation, and connect our results to the literature on demand curvature.
    Keywords: Misleading Advertising; Product Quality; Pass-through; Self-Regulation
    JEL: D83 L15 M37
    Date: 2016–07–18
  3. By: Kajal Lahiri (Department of Economics, University at Albany, State University of New York); Yongchen Zhao (Department of Economics, Towson University)
    Abstract: We study the information content of the University of Michigan’s Index of Consumer Sentiment as well as its five components. Using household data from the Surveys of Consumers, we identify the main determinants of these indicators and document their varying role over the business cycle. Our results suggest that while at the aggregate level, macroeconomic conditions explain sentiment well, important and additional information is contained at the level of households. We compare the role of objective and subjective information in determining household level sentiment, and show that significant heterogeneity in the absorption of news from local network sources is a major feature of consumer sentiment. The differential interpretation of current macroeconomic conditions is found to be more pervasive in periods of falling sentiment that typically predates business cycle peaks, and thus helps sentiment to foreshadow recessions.
    Keywords: Consumer confidence, Cross-sectional heterogeneity, Asymmetry, News, Recessions.
    JEL: E27 E27 C25 C55
    Date: 2016–07
  4. By: Garrett, Daniel F.
    Abstract: We study the profit-maximizing price path of a monopolist selling a durable good to buyers who arrive over time and whose values for the good evolve stochastically. The setting is completely stationary with an infinite horizon. Contrary to the case with constant values, optimal prices fluctuate with time. We argue that consumers'randomly changing values offer an explanation for temporary price reductions that are often observed in practice.
    JEL: D82 L12
    Date: 2016–07
  5. By: Argentesi, Elena; Buccirossi, Paolo; Cervone, Roberto; Duso, Tomaso; Marrazzo, Alessia
    Abstract: Unlike most retrospective merger studies that only focus on price effects, we also estimate the impact of a merger on product variety. We use an original dataset on Dutch supermarkets to assess the effect of a merger that was conditionally approved by the Dutch Competition Authority (ACM) on prices and the depth of assortment. We find that the merger did not affect prices but it led the merging parties to decrease the depth of their assortment, thereby reducing consumer choice. This effect is mainly driven by a reduction in variety for stores that were not re-branded after the merger, suggesting that the merging firms reposition their product offerings in order to avoid cannibalization. We also find that the reduction in variety for the merging parties is partially compensated by competitors increasing variety, except in very concentrated markets where all firms decrease variety. The issuance of divestitures partially outweighed the negative effect of the merger. Yet, it appears that additional divestitures would have been necessary to remove completely the adverse effect of the merger on the depth of assortment.
    Keywords: Mergers,Variety,Ex-post Evaluation,Retail sector,Supermarkets,Grocery
    JEL: L1 L41 L66 L81 D22 K21 C23
    Date: 2016

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