nep-mkt New Economics Papers
on Marketing
Issue of 2017‒10‒22
fourteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Salience in Retailing: Vertical Restraints on Internet Sales By Magdalena Helfrich; Fabian Herweg
  2. Peer-to-Peer Markets with Bilateral Ratings By T. Tony Ke; Baojun Jiang; Monic Sun
  3. Online Auctions and Digital Marketing Agencies By Francesco Decarolis; Gabriele Rovigatti
  4. Let's lock them in: Collusion under Consumer Switching Costs By Fourberg, Niklas
  5. Why Firms Should Care for All Consumers By Planer-Friedrich, Lisa; Sahm, Marco
  6. Advertising Competition in the Free-to-Air TV Broadcasting Industry By Marc Ivaldi; Jiekai Zhang
  7. Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail By Thomas W. Quan; Kevin R. Williams
  8. Consumer surplus from energy transitions By Roger Fouquet
  9. Social Media and the News Industry By Alexandre de Corniere; Miklos Sarvary
  10. The Taxman calls. How does Facebook answer? Global Effects of Taxation on Online Advertising By Angel Cuevas; Ruben Cuevas; Andrea Lassmann; Federica Liberini; Antonio Russo
  11. The Children of the Missed Pill By Tomás Rau; Miguel Sarzosa; Sergio S. Urzúa
  12. The effect of switching costs on prices: an application to the Peruvian mobile phone market By Tilsa Ore Monago;
  13. Understanding and tackling unethical consumption: The case of counterfeit consumption By Jingshi Liu; Amy N. Dalton; Jiewen Hong
  14. Effects of Top Management Team Characteristics on Corporate Charitable Activities: Evidence from the Board for Small and Medium-sized Enterprises in China By Xin Huang; Koichi Nakagawa; Jie Li

  1. By: Magdalena Helfrich; Fabian Herweg
    Abstract: We provide an explanation for a frequently observed vertical restraint in ecommerce, namely that brand manufacturers partially or completely prohibit that retailers distribute their high-quality products over the internet. Our analysis is based on the assumption that a consumer’s purchasing decision is distorted by salient thinking, i.e. by the fact that he overvalues a product attribute - quality or price - that stands out in a particular choice situation. In a highly competitive low-price environment like on an online platform, consumers focus more on price rather than quality. Especially if the market power of local (physical) retailers is low, price tends to be salient also in the local store, which is unfavorable for the high-quality product and limits the wholesale price a brand manufacturer can charge. If, however, the branded product is not available online, a retailer can charge a significant markup on the high-quality good. As the markup is higher if quality rather than price is salient in the store, this aligns the retailer’s incentives with the brand manufacturer’s interest to make quality the salient attribute and allows the manufacturer to charge a higher wholesale price. We also show that, the weaker are consumers’ preferences for purchasing in the physical store and the stronger their salience bias, the more likely it is that a brand manufacturer wants to restrict online sales. Moreover, we find that a ban on distribution systems that prohibit internet sales increases consumer welfare and total welfare, because it leads to lower prices for final consumers and prevents inefficient online sales.
    Keywords: internet competition, relative thinking, retailing, salience, selective distribution
    JEL: D43 K21 L42
    Date: 2017
  2. By: T. Tony Ke (MIT Sloan School of Management); Baojun Jiang (Washington University in St. Louis); Monic Sun (Boston University)
    Abstract: We consider a platform that matches service providers with potential customers. Ratings of a service provider reveal the quality of his service while ratings of a consumer reveal the cost to serve her. Under a competitive search framework, we study how bilateral ratings influence market competition and segmentation. Two types of equilibria exist under bilateral ratings. In the first type, low-cost consumers only apply to high-quality service providers, who post a higher price, have longer queues and are less likely to accept an application than low-quality providers. High-cost consumers apply to all service providers and have a lower acceptance rate. In the second type of equilibria, both high- and low-quality service providers serve all consumers. Across all equilibria, equilibrium prices may decrease as the fraction of high-quality providers increases, as consumers become more costly to serve, and as the platform's commission rate increases. Compared with a platform with unilateral ratings where only service providers are rated, a platform with bilateral ratings may soften service providers' competition, leading to higher equilibrium prices. Lastly, we find that in the case of incomplete market coverage, high-quality service providers may charge lower prices than low-quality providers in equilibrium, because by charging a lower price, a high-quality service provider attracts more consumer applications, which enables him to cherrypick a low-cost consumer, while a low-quality service provider faces with consumers with higher serving costs and thus charge a higher price to make up the serving cost.
    Keywords: Platform; Peer-to-Peer; Competitive Search; Matching; Reviews; Information Disclosure; Segmentation
    JEL: D82 D83 M31
    Date: 2017–09
  3. By: Francesco Decarolis (Einaudi Institute for Economics and Finance, Via Sallustiana, 62, Rome, Italy); Gabriele Rovigatti (University of Chicago Booth School of Business, 5807 S. Woodlawn Ave, Chicago, IL)
    Abstract: We present an empirical investigation of the role of marketing agencies in Google’s online ad auctions. By combining data on advertisers’ affiliation to marketing agencies with data on bidding in ad auctions, we analyze how changes in the concentration of clients in the same industry under the same ad network are associated with changes in keyword bidding in terms of entry, exit, and pricing strategies. Moreover, by exploiting the case of a recent merger between agencies, we estimate through a difference-in-differences strategy that an increase in concentration leads to reduction in the average cost-per-click of the keywords affected by the merger.
    Keywords: Online Advertising, Internet Auctions, Marketing Agency, Ad Network, Agency Trading Desk
    JEL: C72 D44 L81
    Date: 2017–09
  4. By: Fourberg, Niklas
    Abstract: I study consumer switching costs’ effect on firms’ price setting behavior in a 2x2 factorial design experiment with and without communication. For Bertrand duopolies the price level under consumer switching costs is lower vis-à-vis new consumers but not affected towards old consumers. Markets are overall less tacitly collusive which translates into higher incentives to collude explicitly. The results have antitrust implications especially for the focus of cartel screening.
    JEL: C7 C9 L13 L41
    Date: 2017
  5. By: Planer-Friedrich, Lisa; Sahm, Marco
    Abstract: We compare the strategic potential of Corporate Social Responsibility (CSR) and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR.
    JEL: D43 L13 L21
    Date: 2017
  6. By: Marc Ivaldi; Jiekai Zhang
    Abstract: This paper empirically investigates the advertising competition in the French broadcast television industry within a two-sided market framework. We use a unique dataset on the French broadcast television market including audience, prices, and quantities of advertising of twenty-one TV channels from March 2008 to December 2013. We specify a structural model of oligopoly competition and identify the shape and magnitude of the feedback loop between TV viewers and advertisers. We also implement a simple procedure to identify the conduct of firms on the market. We find that the nature of competition in the French TV advertising market is of the Cournot type. Further, we provide empirical evidence that the price-cost margin is not a good indicator of the market power of firms operating on two-sided markets. Finally, we provide a competition analysis. The counterfactual simulation suggests that the merger of advertising sales houses would not have significantly affected the equilibrium outcomes in this industry because of the strong network externalities between TV viewers and advertisers. These results provide a critical evaluation of the 2010 decision of the French competition authority to authorize the acquisition of two broadcast TV channels by a large media group under behavioral remedies.
    Keywords: advertising, competition, media, TV, two-sided market, market conduct
    JEL: D22 K21 L13 L22 L41 M37
    Date: 2017
  7. 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 45% lower than previous studies.
    Keywords: Product Variety, Demand Estimation, Long Tail, Online Retail
    JEL: C13 L67 L81
    Date: 2017–06
  8. By: Roger Fouquet
    Abstract: Energy transitions have led to major advances in human wellbeing. How- ever, little evidence exists about the scale of the net benefits. By developing a new method for identifying the demand curve, and by using a unique, his- torical data set, this paper estimates the consumer surplus associated with heating, transport and lighting over more than two hundred years and iden- tifies the gains from a number of key energy transitions. For certain energy transitions, the increase was dramatic, re ecting the transformations in soci- ety and lifestyles that mobility and illumination provided in the nineteenth and twentieth centuries. Yet, the net benefits related to heating technologies only rose modestly. Finally, due to saturation effects of the demand for en- ergy services, future technological developments and energy transitions may benefit consumers (though not necessarily society as a whole) less than those in the past.
    Date: 2017–09
  9. By: Alexandre de Corniere (Toulouse School of Economics, France); Miklos Sarvary (Columbia Business School, USA)
    Abstract: The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a parsimonious model to understand the impact of content bundling by a social platform. In our model consumers can access news either directly through a newspaper's website, or indirectly through a platform, which also offers social content. Even though the platform shares revenues with newspapers whose content it publishes, content bundling harms newspapers. Its effect on news quality and news consumption depends on the media market structure and on whether the platform can personalize the content bundle.
    Keywords: User-Generated Content (UGC), Media Competition, News Quality
    JEL: L13 L43 L96
    Date: 2017–10
  10. By: Angel Cuevas (Universidad Carlos III Madrid); Ruben Cuevas (Universidad Carlos III Madrid); Andrea Lassmann (KOF, ETH Zurich); Federica Liberini (KOF, ETH Zurich); Antonio Russo (KOF, ETH Zurich)
    Abstract: We study the effects of the taxation of digital platforms on the online advertising market. We exploit novel data on daily unit prices of Facebook ads targeted to country-specific audiences, collected around a major change in the firm's accounting practices following the introduction of the UK Diverted Profit Tax. We show that a substantial increase in ads prices followed such change, although with heterogeneous intensity across countries. These results are in line with a model of a platform operating in the global advertising market. We show that taxation of profits generated in one country makes the price charged to advertisers from that country (resp. other countries) increase (decrease). Accordingly, we demonstrate that aggregate advertising prices in OECD countries increased more, after the policy change, the larger is the market share of UK-based advertisers.
    Keywords: tax incidence; digital economy; online advertising
    JEL: H22 H25 F16
    Date: 2017–09
  11. By: Tomás Rau; Miguel Sarzosa; Sergio S. Urzúa
    Abstract: We use sharp, massive and unexpected price increases of oral contraceptives—product of a documented case of collusion among pharmaceutical retailers in Chile—as a natural experiment to estimate the impact of access to the Pill on fertility and newborn health. Our empirical strategy combines multiple sources of information and takes into account the seasonality of conceptions and the general trends of fertility, as well as the dynamics that arise after interrupting Pill's intake. Our estimates suggest that due to the price hike, the weekly birth rate increased by 4%. We show large effects on the number of children born to unmarried mothers, from mothers in their early 20's, and to primiparae women. Moreover, we find evidence of significant deterioration of newborn health as measured by the incidence of low birthweight and infant mortality. We suggest that the “extra” conceptions faced dire conditions during gestation as a result of mothers' unhealthy behaviors. In addition, we document a disproportional increase of 27% in the weekly miscarriage and stillbirth rates, which we interpret as manifestations of active efforts of termination in a country where abortion was illegal. As the “extra” children reached school age, we find lower school enrollment rates and higher participation in programs for students with special needs. Our results suggest that access to contraceptives may prevent conceptions that will turn out to be in relatively poor health, and thereby may improve the average health of children conceived.
    JEL: I14 I15 K42 L13 L4 L41
    Date: 2017–10
  12. By: Tilsa Ore Monago (Stony Brook University, Department of Economics, 100 Nicolls Road, Stony Brook, NY 11794-4384);
    Abstract: Based on a game theoretical model I previously developed, I present some evidence of the effect of the unlocked-handset policy recently implemented in Peru based on market analysis and reduced form empirical methods using consumer panel data. From the market analysis, declining prices are observed with the implementation of the policy in January 2015, also the switching rate rocketed since then. To retain consumers and attract rival's consumers, companies responded also with very low on-net prices through their "private network" with unlimited minutes, which may have increased the network effects in the market. From my estimation, I found a significant negative effect of switching costs on demand for voice traffic (which suggest a positive effect of the unlocked-handset policy on demand) and positive network effects on the demand.
    Keywords: switching costs; mobile telecommunications; unlocked-handsets policy
    JEL: L13 L43 L96
    Date: 2017–12
  13. By: Jingshi Liu (Department of Marketing, Hong Kong University of Science and Technology); Amy N. Dalton (Department of Marketing, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Jiewen Hong (Department of Marketing, Hong Kong University of Science and Technology)
    Abstract: This research examines how consumers feel when they use counterfeits, and how these feelings affect purchase intentions toward counterfeits and genuine brands. We find that counterfeit users experience mixed emotions, stemming from concerns about the signals the counterfeit might send to others. Accordingly, mixed emotions are stronger in public versus private settings, and among consumers chronically concerned about social signaling (i.e., consumers high in social-adjustive motives). Because mixed emotions can be unpleasant, counterfeit users subsequently gravitate away from counterfeits and toward genuine brands (which communicate largely positive social signals and thus elicit no mixed emotions). In this manner, counterfeit consumption may drive demand for genuine brands. A final experiment tests implications for reducing counterfeit consumption. As predicted, consumers exposed to anti-counterfeiting advertisements designed to elicit mixed emotions are willing to pay a higher price premium for genuine over counterfeit products. Collectively, these findings identify the emotional consequences of counterfeit consumption and highlight that an effective way to understand and reduce counterfeit consumption is to focus on the social context in which many counterfeits are used.
    Date: 2017–08
  14. By: Xin Huang (Graduate School of Economics, Osaka University); Koichi Nakagawa (Graduate School of Economics, Osaka University); Jie Li (School of Management, Shanghai University)
    Abstract: Employing data from Chinese companies listed on the board for small and medium-sized enterprises (SMEs), the research examines the relationship between top management team (TMT) characteristics and corporate charitable activities in China. My findings confirm: 1) Firms less engaged in charitable activities are likely to have TMTs characterized by more educational specialty in science and engineering, and more functional background in output functions; 2) TMT age heterogeneity has a significant and positive effect on corporate charitable activities, while TMT educational specialty heterogeneity has a negative influence on corporate charitable activities; 3) TMT age, tenure, educational level and these heterogeneities of tenure, educational level and functional background have little or no influence on corporate charitable activities. Based on the upper echelons theory, the study can provide evidence for further research on top management teams and corporate social responsibility in an emerging economy.
    Keywords: top management team; charity; heterogeneity; corporate social responsibility; Chinese companies
    JEL: M54 M12 M14
    Date: 2017–10

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.