nep-mkt New Economics Papers
on Marketing
Issue of 2017‒07‒09
nine papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Consumer Mistakes and Advertising : The Case of Mortgage Refinancing By Grundl, Serafin J.; Kim, You Suk
  2. Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail By Thomas W. Quan; Kevin R. Williams
  3. The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing By Foros, Øystein; Nguyen, Mai Thi; Steen, Frode
  5. How do consumers make their payment choices? By Stavins, Joanna
  6. Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies By Edlin, Aaron; Roux, Catherine; Schmutzler, Armin; Thoeni, Christian
  7. Consumers’ costly responses to product-harm crises By Rosa Ferrer Zarzuela; Helena Perrone
  8. The strength of the anchoring effect on Pay What You Want payments: Evidence from a vignette experiment By Anna Kukla-Gryz; Katarzyna Zagórska
  9. Price Discovery in Some Primary Commodity Markets in India By Raushan Kumar

  1. By: Grundl, Serafin J.; Kim, You Suk
    Abstract: Does advertising help consumers to find the products they need or push them to buy products they don't need? In this paper, we study the effects of advertising on consumer mistakes and quantify the resulting effect on consumer welfare in the market for mortgage refinancing. Mortgage borrowers frequently make costly refinancing mistakes by either refinancing when they should wait, or by waiting when they should refinance. We assemble a novel data set that combines a borrower's exposure to direct mail refinance advertising and their subsequent refinancing decisions. Even though on average borrowers would lose approximately $500 by refinancing, the average monthly exposure of 0.23 refinancing advertisements reduces the expected net present value of mortgage payments on average by $13, because borrowers who should refinance are targeted by advertisers and more responsive to advertising. A counterfactual advertising policy that redirects all advertising to borrowers who should refinance would increase the gain in borrower welfare to $45.
    Keywords: Advertising; Mistakes; Mortgage; Refinancing
    JEL: D14 G21 M37
    Date: 2017–06–27
  2. By: Thomas W. Quan (University of Georgia); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Online retail gives consumers access to an astonishing variety of products. However, the additional value created by this variety depends on the extent to which local retailers already satisfy local demand. To quantify the gains and account for local demand, we use detailed data from an online retailer and propose methodology to address a common issue in such data - sparsity of local sales due to sampling and a significant number of local zeros. Our estimates indicate products face substantial demand heterogeneity across markets; as a result, we find gains from online variety that are 30% lower than previous studies.
    Keywords: Product Variety, Demand Estimation, Long Tail, Online Retail
    JEL: C13 L67 L81
    Date: 2017–06
  3. By: Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics); Nguyen, Mai Thi (Dept. of Business and Management Science, Norwegian School of Economics); Steen, Frode (Dept. of Economics, Norwegian School of Economics)
    Abstract: First, we analyze how regular days off from competition and a time-dependent price pattern affect firm performance. Second, we examine the effects on firms' profitability from consumers’ changing search- and timing behavior. We use microdata from gasoline retailing in Norway. Since 2004, firms have practiced an industry-wide day off from competition, starting on Mondays at noon, by increasing prices to a common level given by the recommended prices (decided and published in advance). Hence, firms know when and to what level to raise their price. In areas without local competition, retail prices are always equal to the recommended prices. Hinged on this, we regard recommended prices as the monopoly price level. In turn, a foreseeable low-price window is open before every restoration. During the data period, we observe an additional weekly restoration on Thursdays at noon. We show that an additional day off from competition increases firm performance. As expected, a conventional price search of where to buy reduces firms’ profitability. In contrast, consumers who are aware of the cycle and spend effort on when to buy have a positive impact on firms’ profitability. If consumers spend effort on when to buy rather than where to buy, price competition might be softened even in the low-price windows.
    Keywords: Consumer Behavior; Firm Performance; Gasoline Retailing
    JEL: L00
    Date: 2017–07–06
  4. By: Shikha Agrawal
    Abstract: Globalization and technology improvements have exposed companies to a situation with tough competition. In this new era, companies are focusing on managing customer relationships in order to efficiently maximize revenues. Today marketing is not just developing, delivering and selling, it is moving towards developing and maintaining long term relationships with customers. Relationship marketing is becoming important in financial services. CRM is an opportunity that banks can avail to rise above minor advantages by developing actual relationships with their customers. Key Words: impact, customer relationship, CRM, customer relationship management, Indian banking Policy
    Date: 2017–06
  5. By: Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: Payment transformation has generated a shift from paper to cards and electronic payments in the United States, but there is also a large degree of heterogeneity among consumers in how they pay. We present factors affecting consumer payment behavior, show data on how consumers pay in the United States, and summarize existing literature on consumer payment choice. On the supply side, technology, regulation, and cost affect payment behavior. On the demand side, consumer demographics and income, consumer preferences, and consumer assessments of payment method attributes have all been found significant. We focus on price differentiation by payment method by merchants and the effect of such price incentives on payment method use, and on the effect of demographics and of perceptions of payment characteristics on consumer payment choice, emphasizing the effect of security. The studies mentioned here utilize a growing number of data sources, including several surveys and diaries on consumer behavior conducted in the United States and in other countries. We also identify gaps where more research is needed to understand consumer payment choices.
    Keywords: consumer payments; consumer surveys; payment behavior
    JEL: D12 D14 E41
    Date: 2017–05–31
  6. By: Edlin, Aaron; Roux, Catherine; Schmutzler, Armin; Thoeni, Christian
    Abstract: We study the anti-competitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare.
    Keywords: Antitrust Law; entry deterrence; Experiment ent; Firm Strategy; Predatory Pricing
    JEL: C91 D21 K21 L12 L13
    Date: 2017–07
  7. By: Rosa Ferrer Zarzuela; Helena Perrone
    Abstract: Using an ideal setting from a major food safety crisis, we estimate a full demand model for the unsafe product and its substitutes and recover consumers' preference parameters. Counterfactual exercises quantify the relevance of di erent mechanisms -changes in safety perceptions, idiosyncratic tastes, nutritional characteristics, and prices-driving consumers' response. We find that consumers' reaction is limited by their taste for the product and its nutritional characteristics. Due to the costs associated with switching away from the a ected product, the decline in demand following a product-harm crisis tends to understate the true weight of such events in consumers' utility. Indeed, we nd that a large fraction of consumers are unresponsive to the crisis even when they significantly downgrade their product safety perception. For an accurate assessment of the crisis, managerial strategies should therefore account for how di erent demand drivers bind consumers' substitution patterns.
    Keywords: Food safety, demand estimation, scanner data, idiosyncratic utility parameters, nutritional preferences
    Date: 2017–06
  8. By: Anna Kukla-Gryz (Faculty of Economic Sciences, University of Warsaw); Katarzyna Zagórska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The goal of this paper is to empirically investigate, on the example of eBooks, the effects of the expected quality, external and internal reference prices, risk-taking propensity and perceived costs of production on the size of the voluntary payments in pay-what-you-want (PWYW) scheme. Using the results of a vignette experiment, we show that independently from the expected quality of the eBook, when individual internal reference price is higher than external reference price, voluntary payments are significantly higher if external reference price is not provided. When the external reference price is not provided then PWYW payments depend positively on consumers’ individual internal reference price, and the perceived percentage of the price believed to cover the author’s compensation and the publication costs. The originality of the research comes from separating the anchoring effect of external reference prices from the quality signal effect.
    Keywords: Laffer curve, tax evasion, labor market duality
    JEL: D01 D12 Z19 M31
    Date: 2017
  9. By: Raushan Kumar (Department of Economics, University of Delhi)
    Abstract: With the onset of wide-ranging economic reforms in India in 1991, agents have been exposed to increased price risk in commodity markets. Futures markets are one important instrument for reducing price risk, and in this study we focus on the price discovery role of futures markets. Employing daily price data for nine crops for the period 2009-2014, we find strong causation running from futures to spot prices. Since spot prices impinge on the storage and cropping pattern decisions of farmers, our results imply that providing information on futures price to farmers on a daily basis would enable them to take more efficient decisions in the present.
    Keywords: Futures markets, spot markets, primary commodities
    JEL: Q02 Q18 G13
    Date: 2017–06

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