nep-mkt New Economics Papers
on Marketing
Issue of 2017‒05‒28
nine papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Examining the influence of products’ quality perception in specialty retailing By Cristina Calvo Porral; Jean-Pierre Lévy-Mangin
  2. Vertical Differentiation With Optimistic Misperceptions And Information Disparities By Alberto Cavaliere; Giovanni Crea
  3. Convincing early adopters: Price signals and Information transmission By Nicolás Figueroa; Carla Guadalupi
  4. Intertemporal Price Discrimination with Multiple Products By Rochet, Jean-Charles; Thanassoulis, John
  5. A Study of the Evolution of Nature and Narration of Brands in an Emerging Market By Koshy, Abraham; Narayanan, Priya
  6. Product Choice and Price Discrimination in Markets with Search Costs By Fabra, Natalia; Montero, Juan Pablo
  7. The Impact of Customer Orientation on Quantity and Quality of User-Generated Content: A Multi-Country Case Study of Mobile Applications By Bosul Yoo; Sotaro Katsumata; Takeyasu Ichikohji
  8. Price Discrimination and Dispersion under Asymmetric Profiling of Consumers By Paul Belleflamme; Wing Man Wynne Lam; Wouter Vergote
  9. Open Source and Competition Strategy Under Network Effects By Yu Wang; Yu Chen; Bonwoo Koo

  1. By: Cristina Calvo Porral; Jean-Pierre Lévy-Mangin
    Abstract: This paper addresses the following issue: “Does the products’ perceived quality influence on satisfaction and loyalty towards the specialty retailing?” For this purpose we propose a conceptual model on the creation of satisfaction and loyalty in the specialty retailing setting, to examine the influence of products’ quality perception. Data were analyzed through Structural Equation Modelling (SEM) on a sample of 592 consumers. Our findings show that the specialty food store-based attributes have different influence depending on the products’ quality perception, while suggesting its moderating role. Our major contribution is the examination of one subjective consumer-based variable in the specialty retailing setting.
    Keywords: Specialty retailing, perceived quality, satisfaction, loyalty, customer
    JEL: L81 M31
    Date: 2017–02
  2. By: Alberto Cavaliere (Department of Economics and Management, University of Pavia); Giovanni Crea (Department of Economics and Management, University of Pavia)
    Abstract: We consider vertical differentiation with quality uncertainty and information disparities, in a duopoly where products have credence attributes and a minimum quality standard exists. Optimistic misperceptions further relax price competition but uninformed consumers may be cheated in equilibrium due to minimum product differentiation when informed consumers buy low quality goods. Optimistic misperceptions turn out to be an incentive for product differentiation when informed consumers buy high quality goods, even if the real quality differentiual is always lower than expected by uninformed consumers. Increasing the share of informed consumers may counterbalance the effect of optimism on equilibrium prices but in the meantime reduce the incentives for product differentiation.
    Keywords: asymmetric information, brand premium, quality uncertainty
    JEL: L15 L13 D82
    Date: 2017–05
  3. By: Nicolás Figueroa; Carla Guadalupi
    Abstract: We study the optimal pricing strategy for a new product when consumers learn from both prices and early adopters’ purchase decisions. In our model, a long-lived monopolist faces a representative consumer each period. The monopolist is privately informed about his type, the probability of producing good-quality products. First-period consumers are early adopters, who learn quality before purchasing the product. Second-period consumers learn about product quality only after observing the public history, namely past price and early adopters’ purchase decisions. In this context, prices play a dual role, acting as signals of the firm’s type but also facilitating or impeding information transmission between early adopters and second-period consumers. Our main result is that separation might occur through either high or low prices (with respect to the full-information monopoly price), depending on the elasticity of demand. When demand for good-quality products is less elastic, high prices are less costly for high-type firms due to both a static (through demand) and dynamic (through information transmission) effects. On the one hand, high-type firms are marginally less affected by high prices, since they lose fewer consumers. On the other hand, early sales at higher prices carry good news about quality to second-period consumers, since such sales are more likely to come from a good than from a bad-quality product. The opposite happens occurs when demand for good-quality products is more elastic. We provide two market examples for each case and show that in the case of disruptive (incremental) innovations high (low) prices can be used as signals of quality. We finally discuss consumer welfare under the two resulting alternative equilibria, and show that the observability of early adopters’ purchase decisions improves consumer welfare when separation occurs through high prices.
    JEL: K10 K30 K40
    Date: 2017
  4. By: Rochet, Jean-Charles; Thanassoulis, John
    Abstract: We study the multiproduct monopoly profit maximisation problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly-ordered then optimality for the seller requires intertemporal price discrimination and it can be implemented by dynamic pricing on the cross-sell to the bundle. If consumers are perfectly negatively correlated, reducing the cross-sell price at a single point in time is optimal. For general valuations we show that if the cross-partial derivative of the profit function is negative then dynamic pricing on the cross-sell is more profitable than fixing prices. So we show that the celebrated Stokey (1979) no-discrimination-across-time result does not extend to multiple good sellers when consumers' valuations are drawn from the tilted uniform, the shifted uniform, the exponential, or the normal distribution. We extend our results to welfare, to complementarities in demand, and to the determination of optimal discount schedules.
    Keywords: Multidimensional Mechanism Design; Second Degree Price Discrimination; Bundling; Time Discounting; Cross-sell.
    JEL: D42 L11
    Date: 2017–05
  5. By: Koshy, Abraham; Narayanan, Priya
    Abstract: Brands evolve over time as a result of factors that facilitate or force. Such changes could, firstly, be the result of changes in the operating environment, such as changes in either consumer-related aspects like consumer needs, tastes, preferences, and buying behavior; or changes in external aspects such as technological developments, regulations, competitive landscape and competitive behavior. The paper studies how local (Indian) brands have evolved over the past in terms of their nature and narration, through an analysis of the elements of brand identity and image, brand communication, and brand portfolio. The paper then identifies the parallels that this evolution might have with evolution of an emerging market, where technology, competitive scenario, consumer expectations and consumer demographics have evolved rapidly. A study of ten local brands through case studies and consumer perceptions shows that brand identity is perceived to lie on the spectrum of completely changed to completely unchanged. This evolution can be the result of strategy or situation, or a combination of both. Also, brand evolution can be classified along a two-dimensional matrix of gradation of transformation (drastic vs. gradual) and driver of transformation (internal vs. external). Components of brand identity might change and yet, identity might be perceived as remaining unchanged. Based on the pattern of evolution, brands can be categorized into four groups: stable brands (no change), contemporized brands (marginal change), evolved brands (major change), and transitional brands (sequential change). Unlike prior literature, the current study provides a useful framework to analyze the evolution of brands in an emerging market.
    Date: 2017–05–23
  6. By: Fabra, Natalia; Montero, Juan Pablo
    Abstract: In a seminal paper, Champsaur and Rochet (1989) showed that competing firms choose non-overlapping qualities so as to soften price competition at the cost of giving up profitable opportunities to price discriminate. In this paper we show that an arbitrarily small amount of search costs is enough to give rise to an equilibrium with overlapping qualities. In markets with search costs, competing firms face the monopolist's incentive to price discriminate, which induces them to offer the full quality range even if this forces them to compete head-to-head. Hence, even though search costs increase prices and reduce consumers surplus for given quality choices, search costs can also lead to lower prices and higher consumer surplus whenever they induce firms to offer broader and overlapping product lines. Our analysis also provides predictions regarding pricing by multi-product firms in markets with search costs under various retail market structures. Product choices and pricing by online bookstores motivate our findings.
    Keywords: retail competition.; search; second degree price discrimination; vertical differentiation
    Date: 2017–05
  7. By: Bosul Yoo (Graduate School of Economics, Osaka University); Sotaro Katsumata (Graduate School of Economics, Osaka University); Takeyasu Ichikohji (Faculty of Business Administration, Toyo University)
    Abstract: This study examines preceding factors of user innovation behavior using a case of smartphone applications to examine indirect and direct effects of consumer attitude on user innovation. Specifically, this study focuses on two aspects of the user innovation evaluation: quality and quantity. Quality of user innovation in particular has the potential to contribute to the profitability of firms that provide SNS or other community services. This study proposes a structural model to examine the relationship between these two user innovation aspects and preceding attitude factors, involvement, consumer knowledge, and customer orientation. The empirical analysis is based on a consumer survey to examine commonalities and differences in two countries: Japan and China. In each country, two services are chosen as representative cases of the user-generated content business model to measure user innovation behaviors based on the two aspects mentioned. By clarifying the preceding factors of user innovation behavior, this study has implications for new business models and future innovation research.
    Keywords: User Innovation, UGC (User-Generated Content), DSMM (Digital, Social Media, and Mobile Marketing), Customer Orientation
    JEL: M31 M15 O30
    Date: 2017–05
  8. By: Paul Belleflamme (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Wing Man Wynne Lam (Department of Economics, University of Liège); Wouter Vergote (CEREC, University Saint-Louis - Bruxelles)
    Abstract: Two duopolists compete in price on the market for a homogeneous product. They can use a 'profiling technology' that allows them to identify the willingness-to-pay of their consumers with some probability. If both firms have profiling technologies of the exact same precision, or if one firm cannot use any profiling technology, then the Bertrand paradox continues to prevail. Yet, if firms have technologies of different precisions, then the price equilibrium exhibits both price discrimination and price dispersion, with positive expected profits. Increasing the precision of both firms’ technologies does not necessarily harm consumers.
    Keywords: price discrimination,price dispersion,Bertrand competition
    Date: 2017–04
  9. By: Yu Wang (School of Economics, Nanjing University); Yu Chen (University of Graz); Bonwoo Koo (University of Waterloo)
    Abstract: This study analyzes a firm's decision to adopt an open source strategy in the development of a primary system product that has an indirect network effect on complementary accessory products, and evaluates its impact on market competition and social welfare. It shows that open source systems can drive proprietary systems out of the market if system development costs are high and the network effect is strong. This study also shows that the presence of open source systems can benefit proprietary firms due to consumers' higher willingness-to-pay for accessory products, and increase total industry profit and social welfare.
    Keywords: Hotelling model, packaged goods, network effect, horizontal product differentiation
    JEL: L14 L15 L17 L86
    Date: 2017–05

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