nep-mkt New Economics Papers
on Marketing
Issue of 2017‒01‒15
fifteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Intermediaries and Consumer Search By Chen, Yongmin; Zhang, Tianle
  2. Firm pricing with consumer search By Anderson, Simon P; Renault, Régis
  3. Non-Sequential Search, Competition and Price Dispersion in Retail Electricity By Gugler, Klaus; Heim, Sven; Liebensteiner, Mario
  5. Estimating call externalities in mobile telephony By Czajkowski, Mikołaj; Sobolewski, Maciej
  6. Price Dynamics with Customer Markets By Paciello, Luigi; Pozzi, Andrea; Trachter, Nicholas
  7. A game model of new and remanufactured goods, brown and green consumers, and market share dominance By Amit Batabyal; Hamid Beladi
  8. Brand-Level Demand Analysis of Mayonnaise in Northeast Texas By Bakhtavoryan, Rafael
  9. The Impact of NuVal Shelf Nutrition Labels on Consumption: Evidence from Cold Cereal Purchases By Melo, Grace; Zhen, Chen
  11. Consumer Preferences for Natural Beef By Syrengelas, Konstantinos; Lewis, Karen Elizabeth; Grebitus, Carola; Nayga, Rodolfo M. Jr
  12. Mobile-only consumers arise from heterogeneous valuation of fixed services By Petulowa, Marc; Liang, Julienne
  13. Are all online hotel prices created dynamic? An empirical assessment By Melis, Giuseppe; Piga, Claudio A
  14. Does a Nutritious Diet Cost More in Food Deserts? By Fan, Linlin; Baylis, Kathy; Gundersen, Craig; Ver Ploeg, Michele
  15. Cross-Border Parcel Delivery Prices: Intuitions drawn from the world of telecommunications By Marcus, J. Scott; Petropoulos, Georgios

  1. By: Chen, Yongmin; Zhang, Tianle
    Abstract: This paper discusses how intermediaries, such as a search engine and an online marketplace, may affect consumer search. We propose an analytical framework that encompasses several models of search for differentiated products, with a high-quality firm being more likely to offer a product that meets each consumer's need. An intermediary improves consumer search efficiency by providing a search platform on which positions are sold to high-quality firms through competitive bidding. While the intermediary may admit too many or too few firms to its platform, compared to what would maximize consumer surplus or total welfare, its presence can nevertheless benefit consumers and improve welfare. However, the intermediary may reduce search efficiency when firms are differentiated only horizontally, when they sell experience or credence goods, or when the intermediary is biased (possibly due to vertical integration).
    Keywords: consumer search, intermediary, search engine, search platform, online marketplace, vertical differentiation
    JEL: D8 L1
    Date: 2016–12
  2. By: Anderson, Simon P; Renault, Régis
    Abstract: Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.
    Keywords: Diamond paradox; internet; price dispersion; product differentiation; random/ordered search; Reservation rule; sequential/simultaneous search; two-sided market.
    JEL: D42 D82 D83 L11 L15 M37
    Date: 2016–12
  3. By: Gugler, Klaus; Heim, Sven; Liebensteiner, Mario
    Abstract: We investigate the impact of consumer search and competition on pricing strategies in Germany's electricity retail. We utilize a unique panel dataset on spatially varying search requests at major online price comparison websites to construct a direct measure of search intensity and combine this information with zip code level data on electricity tariffs between 2011 and 2014. The paper stands out by explaining price dispersion by differing pricing strategies of former incumbents and entrant firms, which are distinct in their attributable shares in informed versus uninformed consumers. Our empirical results suggest causal evidence for an inverted U-shape effect of consumer search intensity on price dispersion in a clearinghouse environment as in Stahl (1989). The dispersion is caused by opposite pricing strategies of incumbents and entrants, with incumbents initially increasing and entrants initially decreasing tariffs as a reaction to more consumer search. We also find an inverted U-shape effect of competition on price dispersion, consistent with theoretical findings by Janssen and Moraga-González (2004). Again, the effect can be explained by opposing pricing strategies of incumbents and entrants. (authors' abstract)
    Keywords: Search; Information; Competition; Price Dispersion; Electricity Retail
    Date: 2016–05
  4. By: Shweta Mehta; Krupa Mehta
    Abstract: The idea of private labelling is not novel idea in India. The origin of private label can be found from the ancient days, where goods of private labels are sold along with the national brands. To augment earning and improve customer loyalty, a lot of retailers have bowed to private label products. Private label products are extremely eye-catching to retailers because these products can enhance gross margins. Retailers have identified that profit margins on products planned and sourced by their own teams are considerably higher than on branded products. In the present study the authors have attempted to get wider knowledge and more understanding of customers’ behaviour towards private label brands with special reference to management students in the Gandhinagar city in the state of Gujarat. A quantitative method will be used in the study. Primary data of management students’ towards private label brands will be collected through questionnaire. The results of the questionnaire will be analyzed and interpreted. Key words: Private label, Consumer behaviour, Brands Policy
    Date: 2016–09
  5. By: Czajkowski, Mikołaj; Sobolewski, Maciej
    Abstract: Recent theoretical models of network competition with call externalities demonstrate strategic incentives of incumbent providers to reduce receiver benefits in rival network by excessive off-net pricing. Such anti-competitive pricing practices have a potentially damaging impact on financial standing of a late entrant, leading to non-convergence of long-run market shares – an outcome that has been observed in many European mobile markets. The theoretical reasoning behind call externalities assumes that receiving calls contribute to consumer utility hence, receiver benefits drive subscription choices. So far no attempts have been made to test this critical assumption in a rigorous manner. We use data elicited from prepaid and postpaid users of mobile telephony in Poland in a discrete choice experiment designed specifically to model subscription choices when operators set termination-based discriminatory tariffs under calling party pays regime. Receiver benefits are controlled with an incoming price – a variable informing about the cost of off-net calls paid by subscribers originating a call from other networks. The model also accounts for switching costs and network effects. We find that call externalities are significant driver of subscription choices, albeit their influence has smaller magnitude than direct price effects. Next, we assess the impact of excessive off-net pricing on the structure of market shares of mobile operators in Poland and estimate customer base stealing effect encountered by the late entrant. Our empirical findings support a widespread view that call externalities might have indeed limited market competition and late entrants' growth in many European countries.
    Keywords: Call externalities,personal network effects,switching costs,mobile telephony,stated preference,discrete choice experiment,random parameters logit model
    JEL: L1 L86 O3
    Date: 2016
  6. By: Paciello, Luigi; Pozzi, Andrea; Trachter, Nicholas
    Abstract: The customer base of a firm is an important and persistent determinant of its performance. Using rich U.S. data on consumer shopping behavior and good prices, we document that customer turnover is sensitive to price variation. Motivated by this finding, we study an economy where the customer base of a firm is persistent because of search frictions preventing customers from freely relocating across suppliers of consumption goods, and firms set prices under customer retention concerns. The key feature of our model is that the elasticity of the customer base to price -the extensive margin elasticity of demand- depends on the customers' endogenous opportunity cost of search, and interacts with heterogeneity in firm productivity. More productive firms enjoy less customer attrition and lower elasticity of demand. An increase in customers' search intensity leads to higher demand elasticity and lower prices. This provides a new channel affecting the relationship between consumer search and price markups in response to aggregate shocks. In particular, an increase in the utility of consumption relatively to the cost of search results in higher demand elasticity and lower prices, amplifying the effects of demand shocks on output. We highlight that the price response to demand shocks is heterogeneous across firms affecting dispersion in prices and consumption across consumers.
    Date: 2017–01
  7. By: Amit Batabyal; Hamid Beladi
    Abstract: The n total consumers in the market for a particular good are made up of b brown and g green consumers so that b+g=n. The b brown (g green) consumers are not (are) environmentally conscious and hence they prefer to buy a new (remanufactured) good denoted by N and R respectively. By strategically purchasing or not purchasing the N and the R goods, the brown and the green consumers attempt to create a dominant market share for their preferred good. In this setting, we study three issues. First, we delineate the game between the brown and the green consumers in normal form and then solve for the Nash equilibrium when n=2 and b=1. Second, we find all the Nash equilibria of this game between brown and green consumers when n>2 is an even number and b=g=n/2. Finally, we increase the cost of purchasing the new and the remanufactured goods and then study how this increase affects the answers obtained for the above two issues.
    Keywords: Brown Consumer; Green Consumer; Market Share; New Good; Remanufactured Good
    JEL: D11 Q20
    Date: 2016–12
  8. By: Bakhtavoryan, Rafael
    Abstract: Mayonnaise is the most consumed condiment in the U.S. with domestic consumers spending some $2 billion on its consumption and with a couple of brands controlling a significant portion of the market. However, the demand for mayonnaise at the brand level has not been studied extensively in previous research. In this study, the Barten synthetic model was estimated to investigate the demand for mayonnaise and competition among major mayonnaise brands (private label, Hellmann’s, Kraft, and other brands) in Northeast Texas. Compensated cross-price elasticities revealed that Kraft was the major competitor to private label and other brands, while private label was the major competitor to Kraft.
    Keywords: brand competition, mayonnaise, the Barten synthetic model, Consumer/Household Economics, Demand and Price Analysis, D12,
    Date: 2017
  9. By: Melo, Grace; Zhen, Chen
    Abstract: Research examining the effect of summary shelf nutrition labels on consumers’ behavior in real market settings is scarce. Using a supermarket’s voluntary adoption of NuVal―a 1 to 100 numeric summary shelf label system―as a natural experiment, we estimate a Two-Part Model (TPM) to identify the effect of the NuVal label on consumer purchasing decisions for cold cereal. Our results show that posting the NuVal score not only increases the purchase volume of healthier cold cereal products but also increases households’ likelihood to purchase cold cereal products with higher nutrition scores. Tests for heterogeneous treatment effects reveal that lower-income households experience a large improvement in their food choices when the NuVal scores are posted.
    Keywords: Shelf Nutrition Labels, NuVal, Two-Part Model, Agricultural and Food Policy, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Health Economics and Policy, Marketing, Q18, D12,
    Date: 2017
  10. By: Sherzod Hamdamov
    Abstract: Uzbekistan, country which is situated in Central Asia, is characterised with huge amount of agricultural resources. It is a leading economy of exporting agricultural products to CIS countries, especially Russia and Kazakhstan. Government of Uzbekistan has been supporting development of entrepreneurship in the sphere of agriculture, one of the successful results of which is presence of specialized farms almost in each region of country. At present, the main task for specialized farms is to provide both domestic and foreign markets with qualified agricultural products. In the conditions of competition and free market relations, farms need to have and use appropriate strategies, especially marketing strategies for gaining good positions in domestic and foreign markets. This article explains how specialized farms to succeed on gaining competitive positions in markets through developing and implementing effective marketing strategies. Key words: marketing, marketing activity of farms, agricultural enterprises, specialized farms, product sales markets, market conquest. Policy
    Date: 2016–12
  11. By: Syrengelas, Konstantinos; Lewis, Karen Elizabeth; Grebitus, Carola; Nayga, Rodolfo M. Jr
    Abstract: The FDA received petitions to more clearly define the content of the natural label or even prohibit its use. Against this background, we conducted an online choice experiment to determine consumer preferences for boneless USDA Choice ribeye steaks. We also determined if providing consumers with information regarding the legal definition of natural had an impact on consumer preferences. Results indicate that natural labeling has a positive impact on consumer utility when consumers were not aware of the definition of natural; this impact was not found when consumers were informed of the definition of natural.
    Keywords: Beef, interaction design, natural labeling, random parameters logit, Agricultural and Food Policy, Consumer/Household Economics, Marketing, M31, M38,
    Date: 2017
  12. By: Petulowa, Marc; Liang, Julienne
    Abstract: Mobile-only users are usually considered as a consequence of fixed-mobile substitution. Via a unique dataset based on a a large European country survey and consumers' invoice data, this study reveals heterogeneous preferences for fixed services among consumers. The data is fitted in a mixed logit model and willingness to pay (WTP) for fixed communications services are estimated. Results show that mobile-only consumers have a WTP for fixed services of 15 € per month, while the WTP of users of both fixed and mobile services is thrice higher. Considering that a typical monthly fee for fixed services is around 30 € the heterogeneous preferences for fixed services constitute an alternative explanation for the existence of mobile-only users, despite the complementarity of fixed and mobile broadband.
    Keywords: fixed mobile dependence,heterogeneous preferences,substitution versus complementarity,mobile only
    JEL: L43 L50 L96
    Date: 2016
  13. By: Melis, Giuseppe; Piga, Claudio A
    Abstract: Understanding how tourist firms set their online prices is important due to their growing reliance on Online Travel Agencies (OTA). Little is known, however, about whether differences exist in the online pricing approaches adopted by hotels using an OTA. The article tests, using a big data approach, whether the diffuse narrative of a pervasive presence of dynamic pricing provides a realistic description of hotels’ pricing behavior and thus challenges the view that dynamic pricing should be considered the prevailing norm for the industry. The evidence suggests a heterogenous attitude across hotels, with uniform pricing being more widespread in most hotels of our sample, namely, the 3-star or less, while dynamic pricing is more likely applied in higher quality hotels.
    Keywords: Revenue Management; Online travel agents; Heterogeneous strategic management behaviour; dynamic pricing
    JEL: L81 L83
    Date: 2016–12–01
  14. By: Fan, Linlin; Baylis, Kathy; Gundersen, Craig; Ver Ploeg, Michele
    Abstract: Food deserts and their potential effects on diet and nutrition have received much attention from policymakers. While some research has found a correlation between food deserts and consumer outcomes, it is unclear whether food deserts truly affect consumer choices. In this article, we compare food prices in food deserts, defined as low-income, low-access census tracts, and nonfood deserts to observe whether and to what extent consumers face higher prices for a complete diet in food deserts. If a nutritionally complete diet costs significantly more in food deserts, resident consumers may be constrained from consuming healthier foods. We use data on storelevel sales from a nationally representative sample and calculate a census-tract level Exact Price Index (EPI) based on a food basket defined by the Thrifty Food Plan (TFP). The EPI addresses potential biases from both product heterogeneity and variety availability. We have three central findings. First, prices for common foods are not significantly different between food deserts and non-food deserts. Second, after controlling for differential access to food variety, we find that the EPI in food deserts is 3% to 5% higher than similar census tracts with more store access and 4% higher than low-access census tracts with higher income. Third, the higher EPI in food deserts is largely driven by the lack of supermarkets nearby.
    Keywords: food deserts, food price, price indices, product variety, nutritious diet, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Q18, D40, L66, R32, I3,
    Date: 2016–12
  15. By: Marcus, J. Scott; Petropoulos, Georgios
    Abstract: In its Digital Single Market (DSM) strategy, the European Commission has rightly noted the importance of lowering the price paid for basic cross-border delivery by consumers and by small and medium size retail shippers. Consumers and SMEs may have few alternatives to the National Postal Operators (NPOs), or may be unaware of the options that they have. These concerns led to the Commission to put forward a legislative proposal in May 2016.3 With its legislative proposal, the Commission has sought (1) to strengthen the data gathering powers of Member State postal regulatory authorities, and to oblige them to collect data at both retail and wholesale levels; (2) to increase transparency into pricing for those who use cross-border parcel delivery services; (3) to oblige Member State postal regulatory authorities to assess annually the affordability of these services; and (4) to open cross-border Terminal Dues (TD) and Inward Land Rates (ILR) arrangements to competitors There are parallels that can be drawn between the payment flows for cross-border parcel delivery and those of telecommunications, especially those of international mobile roaming. As with roaming, it is clear that the linkages between wholesale payments between and corresponding retail prices need to be properly understood in order to craft good policy. Another useful lesson is that Member State postal regulatory authorities are unlikely to address cross-border problems not only because of limitations in their respective mandates, but also because they have no incentive to take challenging measures to benefit residents of other countries. There are, however, also important differences between roaming versus parcel delivery. Where high wholesale charges were a major driver of high retail prices for international mobile roaming, the wholesale payments for cross-border parcel delivery appear instead to be below cost. This implies that it is the “spread” between retail price and the wholesale payment that is inflated, at least for small retail shippers and for consumers. Reviewing the Commission's proposed Regulation with all of this in mind, it appears to be on target. The main question that remains open is whether NPOs will be able to adjust TD and ILR rates upward to reflect true costs, as they will be strongly motivated to do; here as well, however, there are grounds for cautious optimism.
    Date: 2016

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