nep-mkt New Economics Papers
on Marketing
Issue of 2017‒02‒12
fifteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Discount Pricing By Armstrong, Mark; Chen, Yongmin
  2. The Willingness to Pay for Organic Attributes in the UK By Adelina Gschwandtner; Michael Burton
  3. The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma By Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
  4. The Business of Business is Business: Why (Some) Firms Should Provide Public Goods when they Sell Private Goods By Chien-Yu Lai; Andreas Lange; John A. List; Michael K. Price
  5. Does willingness to pay increase with the number and strictness of sustainability labels? Some initial evidence on embedding effects in laboratory experiments using the Becker-DeGroot-Marschak mechanism. By Tebbe, Eva; von Blanckenburg, Korbinian
  6. Vertical Mergers in Platform Markets By Jérôme Pouyet; Thomas Trégouët
  7. Fed Cattle Marketing: A Field Experiment By Janzen, Matthew; Coatney, Kalyn; Rivera, Daniel; Harri, Ardian; Busby, Darrell; Groves, Matt
  8. The Economics of Zero-Rating and Net Neutrality By SOMOGYI, Robert
  9. Digital Music Industry - Background Synthesis By Sellin, Derek; Seppälä, Timo
  10. Consumer Willingness to Pay for Tennessee Certified Beef By Merritt, Meagan; Lewis, Karen; Griffith, Andrew; Jensen, Kimberly
  11. The Taste for Variety: Demand Analysis for Nut Products in the United States By Cheng, Guo; Dharmasena, Senarath; Capps, Oral Jr
  12. Determining the Location of a Tennessee Milk Condensing Plant By Mendez, David F.; Hughes, David W.; Yu, T. Edward; Griffith, Andrew P.
  13. Gauging interventions for sustainable travel: a comparative study of travel attitudes in Berlin and London By Jens Kandt; Philipp Rode; Christian Hoffmann; Andreas Graff; Duncan Smith
  14. Impact of Food Reserve Programs on Price Levels and Volatility: Natural Experiment from Benin Rice Market in West Africa By Lawani, Abdelaziz; Reed, Michael; Fiamohe, Rose
  15. Spatial Pricing in Ride-Sharing Networks By Bimpikis, Kostas; Candogan, Ozan; Saban, Daniela

  1. By: Armstrong, Mark; Chen, Yongmin
    Abstract: We investigate the marketing practice of framing a price as a discount from an earlier price. We discuss two reasons why a discounted price---rather than a merely low price---can make a rational consumer more willing to purchase. First, a high initial price can indicate the seller has chosen to supply a high-quality product. Second, a seller with limited stock runs a clearance sale, later consumers infer that an unsold product may be poor quality, but if the initial price was higher they do not downgrade their evaluation of quality as much. In either case, if able to do so a seller has an incentive to engage in fictitious pricing, where the reported initial price is exaggerated.
    Keywords: Reference dependence, sales tactics, false advertising, fictitious pricing, consumer protection
    JEL: D42 D83 L15 M31 M37
    Date: 2017–01
  2. By: Adelina Gschwandtner; Michael Burton
    Abstract: There has been almost no recent formal economic analysis of the WTP of British consumers for organic products. Given the rising demand for organic products on one hand and the decline in the organically farmed area in the UK on the other hand, this is an important topic to address. The present paper analyses the demand for organic products using both stated and revealed preferences from exactly the same consumers. The stated preference model is based on the respondent’s choice from hypothetical choice sets. Attributes in the stated preference model are based on the ranges of the actual levels of attributes found in shops and are presented to respondents using a fractional factorial statistical design. Three different hypothetical bias treatments are applied in order to reduce hypothetical bias. The stated preference results are validated with the help of actual consumption data from the weekly shopping of the same consumers. The results show that there exists a core of organic consumers of about 20-30% of the sample that have a positive willingness to pay for the organic label. However, consumers seem to be willing to pay mor e for other attributes such as a higher quality, environmentally friendly production and no chemical usage. Attributes such as animal welfare, and a longer expiry date do not seem to have the same relevance for the UK consumers.
    Date: 2017–02
  3. By: Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
    Abstract: This paper shows that a pro-competitive shock leading to a steep price drop in one market segment may benefit substitute products. Consumers move away from the cheaper product and demand for the substitutes increases, possibly leading to a drop in consumer surplus. The channel leading to this outcome is non-price competition: the competitive shock on thefirst set of products decreases the firms' ability to invest in promotion, which cripples their ability to lure consumers. To assess the empirical relevance of these findings, we study the effects of generic entry into the pharmaceutical industry by exploiting a large product-level dataset for the US covering the period 1994Q1 to 2003Q4. We find strong empirical support for the model's theoretical predictions. Our estimates rationalize a surprising finding, namely that a molecule that loses patent protection (the originator drug plus its generic competitors) typically experiences a drop in the quantity market share-despite being sold at a fraction of the original price.
    Keywords: Asymmetric competition; Generic entry; Pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2017–01
  4. By: Chien-Yu Lai; Andreas Lange; John A. List; Michael K. Price
    Abstract: This note links the commodity bundling literature with the literature on the private provision of public goods. We discuss the potential profitability of bundling strategies for both private firms and charitable organizations. Even in the absence of consumption complementarities, we show important cases when private and public goods should be bundled. For example, both a monopolist and a charity can profit from bundling the goods they provide. Linking sales to charitable contributions can also be beneficial for for-profit firms as it alleviates price-competition. Beyond providing a theoretical framework for understanding the incentive properties of bundling private and public goods, the study lends insights into the debate on the efficacy of corporate social responsibility.
    JEL: D4 H4 L1
    Date: 2017–01
  5. By: Tebbe, Eva; von Blanckenburg, Korbinian
    Abstract: The environmental need for and economic opportunities provided by sustainability in food production are becoming increasingly popular in both society and research. Interacting with this, labels signaling sustainable product attributes are gaining importance, although uncertainty concerning the environmental, micro- and macroeconomic benefits of such labels persist. One of the questions still incompletely answered is whether consumers are willing to pay more for labeled than for unlabeled products and whether this willingness increases with the number of labels on a food product. To tackle this question, we conduct a laboratory experiment, testing consumer valuations of different labeling strategies. Using the Becker-deGroot-Marschak mechanism, consumer willingness to pay (WTP) for 15 food products is measured. The products were endowed with up to six different sustainability labels, such that each grocery item was available in eight product versions. 191 respondents were allocated to groups, of which each was confronted with a different set of product versions. In order to compare labeling schemes across all products, we calculated an aggregated standardized relativized WTP. The results indicate that participants are prone to allocating WTP premiums to labeled products, more than to unlabeled products. However, the premiums do not vary with an increasing number of labels, independent of whether the labels signal substitute or complementary sustainability information. Thus, the results are not entirely in line with normative notions of magnitude variation, but rather with behavioral economic concepts.
    JEL: L15 D12 D44
    Date: 2016
  6. By: Jérôme Pouyet (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We analyze the competitive impact of vertical integration between a platform and a manufacturer when platforms provide operating systems for devices sold by manufacturers to customers, and, customers care about the applications developed for the operating systems. Two-sided network effects between customers and developers create strategic substitutability between manufacturers' prices. When it brings efficiency gains, vertical integration increases consumer surplus, is not profitable when network effects are strong, and, benefits the non-integrated manufacturer. When developers bear a cost to make their applications available on a platform, manufacturers boost the participation of developers by affiliating with the same platform. This creates some market power for the integrated firm and vertical integration then harms consumers, is always profitable, and, leads to foreclosure. Introducing developer fees highlights that not only the level, but also the structure of indirect network effects matter for the competitive analysis.
    Keywords: Vertical integration,two-sided markets,network effects
    Date: 2016–12
  7. By: Janzen, Matthew; Coatney, Kalyn; Rivera, Daniel; Harri, Ardian; Busby, Darrell; Groves, Matt
    Abstract: To improve meat quality and consistency, cattle feeders have moved towards implementing marketing strategies based on visual estimates of physiological characteristics (e.g. 0.5 inches backfat). Recognizing that physiological targets will not necessarily result in profit maximization; this research aims to develop a market timing method accounting for animal growth, output price and cost dynamics to enhance the likelihood of maximizing profit on an individual basis. A natural field experiment in Iowa is utilized to evaluate the potential for the new methodology. One hundred twenty three cattle are randomly assigned into each treatment. The first treatment consists of marketing an individual when it attains a visual estimate of 0.5 inches of backfat (EPM). The second treatment consists of marketing an individual when its value of the marginal product equals marginal factor costs (PMR). Profit between treatments is compared utilizing three methods: realized, uniform carcass base price, and uniform cash prices.
    Keywords: Fed Cattle, Dynamic Growth, Marketing, Experiment, Agribusiness, D24, C44, C99,
  8. By: SOMOGYI, Robert (Université catholique de Louvain, CORE, Belgium)
    Abstract: This paper studies zero-rating, an emerging business practice consisting in a mobile internet service provider (ISP) excluding the data generated by certain content providers (CPs) from its consumers' monthly data cap. Being at odds with the principle of net neutrality, these arrangements have recently attracted regulatory scrutiny all over the word. I analyze zero-rating incentives of a monopolistic ISP facing a capacity constraint in a two-sided market where consumption provides utility for homogeneous consumers as well as advertising revenue for CPs. Focusing on a market with two CPs competing with each other and all other content which is never zero-rated, I identify parameter regions in which zero, one or two CPs are zero-rated. Surprisingly, the ISP may zero rate content when content is either very unattractive or very attractive for consumers, but not in the intermediary region. I show that zero-rating harms consumers if content is unattractive, whereas it improves social welfare in the case of attractive content.
    Keywords: Zero-rating; Sponsored Data; Net Neutrality; Data Cap; Capacity Constraint
    JEL: D21 L12 L51 L96
    Date: 2016–12–31
  9. By: Sellin, Derek; Seppälä, Timo
    Abstract: After 15 years of decline, music industry revenues appear finally to have turned a corner with the growth of paid streaming services. However, the industry as a whole may not be equipped to handle the changes brought on by new technology: with affordable home recording equipment, independent artists can release music directly to online platforms; with streaming services, massive per-play consumption reports are generated daily; and with low artist payments reflecting consumer expectations that music should be free, there is growing pressure for the industry to be more transparent with royalty calculations and faster with their payments. In this paper, we describe the state of the global music industry today, and present historical and systemic factors which have led to the industry’s lack of transparency and complexity. We summarize the primary copyrights and licenses involved in music, and present a simplified value web as a basis for future research into possible global solutions. We identify three process layers for infrastructure related to managing assets, rights, reporting, and payments, regardless of physical format: (1) rights ownership, (2) consumption data, and (3) payment systems. Focusing on rights ownership, we summarize the major issues with today’s infrastructure, metadata, and protocols, highlighting causes for industry “black boxes,” the blockages in the system causing creators’ royalty payments to get stuck in the system. Finally, we look at past collaborative initiatives, primarily the Global Repertoire Database (GRD), in order to gain key learnings, and we acknowledge nascent blockchain-related efforts. With the digital music industry thus synthesized, we outline further research to arrive at a future industry architecture and to understand the impacts of the likely music supply chain transformation, and the related managerial implications.
    Keywords: Digital platforms, music industry, value web, global rights database, black boxes, metadata, blockchain
    Date: 2017–02–06
  10. By: Merritt, Meagan; Lewis, Karen; Griffith, Andrew; Jensen, Kimberly
    Keywords: Beef Cattle Attributes, Consumer Willingness to Pay, Choice Experiment, Consumer/Household Economics, Demand and Price Analysis, Marketing, Q10, Q13,
    Date: 2017–02
  11. By: Cheng, Guo; Dharmasena, Senarath; Capps, Oral Jr
    Abstract: The purpose of this study is to augment the classical demand model with consumer’s variety-seeking behavior using 2004-2014 weekly Nielsen scanner data for nut products. We introduce an index variable of taste for variety into the Quadratic Almost Ideal Demand System model with pre-committed quantities. Results show that consumers do respond to the price of nut products since the pre-committed quantities only account for 10% of total consumptions. Consumers purchase more tree nut products while seeking variety, including pecan, walnut, and pistachio, and demand interrelationships among nut products change after allowing consumers to compensate through income.
    Keywords: Taste for variety, Nut products, Nielsen data, Demand analysis, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, D11 D12,
    Date: 2017–02
  12. By: Mendez, David F.; Hughes, David W.; Yu, T. Edward; Griffith, Andrew P.
    Keywords: Location Programming, Dairy Processing, Local Food Supply, Agribusiness, Industrial Organization, Livestock Production/Industries,
    Date: 2017
  13. By: Jens Kandt; Philipp Rode; Christian Hoffmann; Andreas Graff; Duncan Smith
    Abstract: So-called ‘soft’ policy instruments that respond to the psychological aspects of travel are regularly acknowledged as necessary complements to ‘hard’ infrastructure investments to effectively promote sustainable travel in cities. While studies investigating subjective orientations among travellers have proliferated, open questions remain including the role of recent technological advances, the expansion of alternative mobility services, locally specific mobility cultures and residential selection. This paper presents the methods, results and policy implications of a comparative study aiming to understand mobility attitudes and behaviours in the wider metropolitan regions of Berlin and London. We specifically considered information and communication technology (ICT), new types of mobility services such as car sharing, electric cars and residential preferences. In each region, we identified six comparable segments with distinct attitudinal profiles, socio-demographic properties and behavioural patterns. Geocoding of the home address of respondents further revealed varying contextual opportunities and constraints that are likely to influence travel attitudes. We find that there is significant potential for uptake of sustainable travel practices in both metropolitan regions, if policy interventions are designed and targeted in accordance with group-specific needs and preferences and respond to local conditions of mobility culture. We identify such interventions for each segment and region and conclude that comparative assessment of attitudinal, alongside geographical, characteristics of metropolitan travellers can provide better strategic input for realistic scenario-building and ex-ante assessment of sustainable transport policy.
    Keywords: travel attitudes; travel behaviour; cluster analysis; comparative study; transport policy
    JEL: L91 L96
    Date: 2015–10
  14. By: Lawani, Abdelaziz; Reed, Michael; Fiamohe, Rose
    Abstract: Following the food price crisis of 2007-2008 many governments has responded with food reserve/stock programs. The role of those programs is to regulate price levels and reduce price volatility. These programs have been controversial for many decades because of the cost associated with their implementation and their effectiveness to regulate and stabilize prices. The present research uses the food reserve program implemented by the Benin government from 2008 to 2016 following the food prices crisis of 2007-2008 as a natural experiment to test the impact of such programs on prices levels and volatility. Using the model of competitive storage as theoretical background and the exponential generalized autoregressive conditional heteroskedastic (EGARCH) regression model as an estimation method, the study shows that the food reserve program has not been effective in regulating prices level and in stabilizing prices on rice market in Benin.
    Keywords: Asymmetric EGARCH, Stabilization program, Competitive commodity storage model, Benin, Agricultural and Food Policy, Demand and Price Analysis, Food Security and Poverty, International Development, Q18, Q17, F14,
    Date: 2016
  15. By: Bimpikis, Kostas (Stanford University); Candogan, Ozan (Chicago University); Saban, Daniela (Stanford University)
    Abstract: We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Riders at different locations are heterogeneous in terms of their destination preferences, as captured by the demand pattern of the underlying network. Drivers decide whether, when, and where to provide service so as to maximize their expected earnings given the platform's pricing policy. Our findings highlight the impact of the demand pattern of the underlying network on the platform's optimal profits and aggregate consumer surplus. In particular, we establish that both profits and consumer surplus are maximized when the demand pattern is "balanced" across the network's locations. In addition, we show that profits and consumer surplus are monotonic with the balancedness of the demand pattern (as formalized by the pattern's structural properties). Furthermore, we explore the widely adopted compensation scheme that allocates a constant fraction of the fare to drivers and identify a class of networks for which it can implement the optimal equilibrium outcome. However, we also showcase that generally this scheme leads to significantly lower profits for the platform than the optimal pricing policy especially in the presence of heterogeneity among the demand patterns in different locations. Together, these results illustrate the value of accounting for the demand pattern across a network's locations when designing the platform's pricing policy, and complement the existing focus on the benefits of dynamic (surge) pricing to deal with demand fluctuations over time.
    Date: 2016–11

This nep-mkt issue is ©2017 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.
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