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on Marketing |
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Issue of 2012‒09‒09
five papers chosen by Joao Carlos Correia Leitao University of Beira Interior and Technical University of Lisbon |
| By: | Nicolas Vincent |
| Abstract: | Price rigidity is often modeled by assuming that firms face a fixed cost of price change. However, in surveys, firms report that the main reason they wish to keep prices stable is for fear of antagonizing customers. Moreover, marketing studies show that most consumers engage in very little product comparison on a typical shopping trip. In this paper, we explore the implications of these observations for price rigidity. In our model, comparing prices and characteristics of alternative brands is time-consuming. While some consumers behave as bargain hunters with zero opportunity cost form shopping, most are loyal to firms as long as posted prices are not raised. A price increase is interpreted as a signal that a better alternative may be available and triggers consumer search. Firms do not face menu costs and are free to change nominal prices, but understand that their pricing decisions will affect their customer base and hence future profits. We show that this micro-founded mechanism is akin to a nominal rigidity and naturally generates price stickiness. It is also compatible with the observation of frequent sales at the retail level and can rationalize the decreasing or flat hazard functions observed empirically. |
| Keywords: | Price stickiness, customer relations, nominal rigidities, consumer inattention |
| JEL: | E30 L16 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1230&r=mkt |
| By: | Daniel Toro-Gonzalez; Jia Yan; Karina Gallardo; Jill McCluskey (School of Economic Sciences, Washington State University) |
| Abstract: | This article estimates the demand for mint-flavored gum products using grocery store sales data and accounting for consumers’ valuation of quality. Unobserved product attributes, such as flavor quality, are important elements to consider when estimating the demand for gum. The estimation results suggest that gum is an inelastic product. A positive relationship between willingness to pay and unobserved quality was identified, implying that gum industry should be able to command a premium for higher quality mint flavored products. |
| Keywords: | Quality Differentiation, Unobserved Product Attributes, Demand Estimation, Gum |
| JEL: | C61 C62 D92 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:yan-5&r=mkt |
| By: | Babur De los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Ali Hortacsu (University of Chicago and NBER); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | This paper provides a method to estimate search costs in an environment in which consumers are uncertain about the price distribution. Consumers learn about the price distribution by Bayesian updating their prior beliefs. The model provides bounds on the search costs that can rationalize observed search and purchasing behavior. Using individual-specific data on web browsing and purchasing behavior for electronics sold online we show how to use these bounds to estimate search costs. Estimated search costs are sizable and are found to relate to consumer characteristics in intuitive ways. The model outperforms a standard sequential search model in which the price distribution is known to consumers. |
| Keywords: | consumer search, learning, electronic commerce |
| JEL: | D43 D83 L13 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2012-03&r=mkt |
| By: | Ting Liu (Department of Economics, Stony Brook University); Pasquale Schiraldi (Department of Economics,London School of Economic) |
| Abstract: | We explain why a durable-goods monopolist would like to create a shortage during the launch phase of a new product. We argue that this incentive arises from the presence of a second-hand market and uncertainty about consumers?willingness to pay for the good. Consumers are heterogeneous in their valuations. Some consumers are initially uninformed about their valuations and learn about them over time while others are informed through their lifetimes. Given demand uncertainty, first period sales may result in misallocation and lead to active trading on secondary market after the uncertainty is resolved. We characterize conditions under which the monopolist would like to restrict sales and generate a buying frenzy. We show how the monopolist may benefit from an active second-hand market. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nys:sunysb:12-07&r=mkt |
| By: | Stephen Hogg (UQ); Stan Hurn (QUT); Stuart McDonald (UQ); Alicia Rambaldi |
| Abstract: | This paper builds an econometric model of retail gas competition to explain the pricing decisions of retail outlets in terms of vertical management structures, input costs and the characteristics of the local market they operate within. The model is estimated using price data from retail outlets from the South-Eastern Queensland region in Australia, but the generic nature of the model means that the results will be of general interest. The results indicate that when the cost of crude oil and demographic variations across different localities are accounted for, branding (i.e. whether the retail outlet is affiliated with one of the major brand distributers - Shell, Caltex, Mobil or BP) has a statistically significant positive effect on prices at nearby retail outlets. Conversely, the presence of an independent (non-branded) retailer within a locality has the effect of lowering retail prices. Furthermore, the results of this research show that service stations participating in discount coupon schemes with the two major retail supermarket chains have the effect of largely off-setting the price increase derived from branding affiliation. While, branding effects are not fully cancelled out, the overall effect is that prices are still higher than if branding did not occur. |
| Keywords: | Retail Gasoline Pricing, Vertical Restraints, Shop-a-Docket Discount Scheme, Spatial Econometrics, Australia |
| JEL: | C21 L13 |
| Date: | 2012–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2012_9&r=mkt |