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on Marketing |
| By: | Baumann, Stuart |
| Abstract: | In markets where firms sell similar goods to their competitors, firms may be able to free-ride off the costly price signalling of competitor firms by engaging in price comparative advertising. As the goods are similar, consumers can reason that if one good is high quality (revealed through price signalling) then so is the other. This paper models this phenomenon and finds that in equilibrium there will be firms price signalling as well as freeriding firms that signal through price comparative advertising. Welfare is strictly higher in markets where advertising firms are active relative to pure price signalling markets. In some cases advertising markets can be even more efficient than full information markets as advertisers surrender market power to avoid costly price signalling. |
| Keywords: | Comparative advertising, Price Signalling |
| JEL: | D82 D83 M37 |
| Date: | 2017–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79872&r=mkt |
| By: | Planer-Friedrich, Lisa; Sahm, Marco |
| Abstract: | We examine the strategic use of Corporate Social Responsibility (CSR) in imperfectly competitive markets. The level of CSR determines the weight a firm puts on consumer surplus in its objective function before it decides upon supply. First, we consider symmetric Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Third, we consider heterogeneous firms and show that asymmetric costs imply asymmetric CSR levels. |
| Keywords: | Corporate Social Responsibility,Market Concentration,Cournot Competition,Entry Deterrence,Strategic Delegation,Evolutionary Stability |
| JEL: | D42 D43 L12 L13 L21 L22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:124&r=mkt |
| By: | John Vickers |
| Abstract: | Abstract The paper synthesizes and develops the welfare analysis of regulating relative prices, for example price differences, of which banning price discrimination is a special case. Welfare results are derived directly by convexity arguments using functions of welfare levels. The method is also used to obtain results about e¤ects on consumer surplus. |
| Keywords: | Price discrimination |
| JEL: | D42 L12 |
| Date: | 2017–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:828&r=mkt |
| By: | Marco A. Marini (University of Rome La Sapienza) |
| Abstract: | This paper introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either pruning or proliferating their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is the equidistance of firms’ products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily lose their stability. In addition, introducing a standard infinitely repeated-game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance. |
| Keywords: | Vertically Differentiated Market, Price Collusion, Product Pruning, Product Proliferation, Endogenous Qualities, Endogenous Alliance Formation, Coalition Structures, Grand Coalition, Coalition Stability, Core, Simultaneous and Sequential Game of Coalition Formation |
| JEL: | D42 D43 L1 L12 L13 L41 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2017.29&r=mkt |
| By: | Daniel McFadden |
| Abstract: | A common problem in applied economics is to determine the impact on consumers of changes in prices and attributes of marketed products as a consequence of policy changes. Examples are prospective regulation of product safety and reliability, or retrospective compensation for harm from defective products or misrepresentation of product features. This paper reexamines the foundations of welfare analysis for these applications. We consider discrete product choice, and develop practical formulas that apply when discrete product demands are characterized by mixed multinomial logit models and policy changes affect hedonic attributes of products in addition to price. We show that for applications that are retrospective, or are prospective but compensating transfers are hypothetical rather than fulfilled, a Market Compensating Equivalent measure that updates Marshallian consumer surplus is more appropriate than Hicksian compensating or equivalent variations. We identify the welfare questions that can be answered in the presence of partial observability on the preferences of individual consumers. We examine the welfare calculus when the experienced-utility of consumers differs from the decision-utility that determines market demands, as the result of resolution of contingencies regarding attributes of products and interactions with consumer needs, or as the result of inconsistencies in tastes and incomplete optimizing behavior. We conclude with an illustrative application that calculates the welfare impacts of unauthorized sharing of consumer information by video streaming services. |
| JEL: | D11 D12 D60 D61 K13 L51 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23535&r=mkt |
| By: | N. Berardi; P. Sevestre; J. Thébault |
| Abstract: | We characterize the dispersion of grocery prices in France based on a large original data set of prices in more than 1500 supermarkets. On average across products, the 90th percentile of relative prices is 17 percentage points higher than the 10th and the mean absolute deviation from quarterly average product prices is 5%. We show that temporal price variations (including sales and promotions) explain only little of the observed price dispersion, while the spatial permanent component of price dispersion largely dominates. Price dispersion across stores in France essentially results from persistent heterogeneity in retail chains' pricing, while local conditions regarding demand or competition contribute to a much lower extent. |
| Keywords: | price dispersion, retail chain, wholesaler. |
| JEL: | E31 D40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:632&r=mkt |
| By: | Lee, Sang-Ho; Park, Chul-Hi |
| Abstract: | This article investigates the strategic environmental corporate social responsibility (ECSR) of polluting firms in the presence of eco-firms. When the firms decide ECSR sequentially within the framework of the managerial incentive design and then face simultaneous price competition, we show that firms will adopt ECSR and purchase abatement goods to mitigate competition if the products are more substitutable, but the late adopter chooses lower ECSR and thus earns higher profit. It can partially explain the current expansive adoption of ECSR as an industry-wide wave. |
| Keywords: | environmental corporate social responsibility; eco-firms; abatement goods; late adopter advantage |
| JEL: | L13 L21 M14 |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79881&r=mkt |
| By: | Stuart Baumann; Margaryta Klymak |
| Abstract: | This paper examines a consumer search market exhibiting vertically differentiated firms, heterogeneous consumers and endogenous consumer market entry. In an asymmetric information setting high and low quality firms make equal sales and profit in this market. Conversely when there is full information, search frictions induce an unravelling mechanism that leads to a unique re ned equilibrium where all consumers approach low quality firms and high quality firms make no sales or profit. This presents a rationale for why low quality firms may disclose their quality and high quality firms may not even when disclosure is costless. |
| Keywords: | Consumer Search, Quality Disclosure |
| JEL: | D82 D83 L15 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:280&r=mkt |
| By: | G. de Jong (VU Amsterdam, The Netherlands); C.L. Behrens (VU Amsterdam, The Netherlands); H. van Herk (VU Amsterdam, The Netherlands); E.T. Verhoef (VU Amsterdam, The Netherlands) |
| Abstract: | We posit and empirically test the hypothesis that airlines are able to charge a fare premium in markets that originate in their domestic country relative to similar markets that originate in foreign countries. To this end, we focus on intercontinental one-stop air travel trips for which the main, intercontinental, flight legs are identical, while the feeder legs depart from a mixture of domestic- and foreign origins. We collect a unique database of published fares for such trips and estimate reduced form fare regressions with main flight leg fixed effects. We find that trips from and to domestic airports (compared with foreign airports) are characterized by about 9.5 per cent higher fares, even after adding controls for airport dominance, trip operating costs, the competitive environment and origin catchment area characteristics. These findings demonstrate that airlines have substantial domestic market power, enabling them to raise fares at their domestic airports irrespective of aforementioned market conditions. The magnitude of this domestic country effect is large relative to the traditional airport dominance effect, suggesting that the distinction between domestic- and foreign origins is a crucial determinant of the degree of market power that airlines can exert in the international airline industry. |
| Keywords: | market power, airline competition, price discrimination, international aviation |
| JEL: | L11 L13 L93 R40 |
| Date: | 2017–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170009&r=mkt |
| By: | Escobari, Diego |
| Abstract: | This paper uses the random-coefficients logit methodology that controls for potential endogeneity of prices and allows for general substitution patterns to estimate various demand systems. The estimation takes advantage of an original ticket-level revealed preference data set on travels from the New York City area to Toronto that contains prices and characteristics of not only flight choices but also of all non-booked alternative flights. Consistent with having higher valuations, our results show that travelers buying closer to departure have a higher utility of flying. Moreover, consumers' heterogeneity decreases as the flight date nears. At the carrier level, we identify which carriers have more price-sensitive consumers and which carriers face greater competition. In addition, the results suggest that our multi-airport metropolitan area can be considered as a single market and that JFK and Newark are relatively closer substitutes. Overall, consumers are more willing to switch to alternative carriers than between airports or departure times. |
| Keywords: | Airline choice; Airport choice; Departure time choice; Substitution patterns; Airline demand; Elasticities |
| JEL: | C33 C36 D12 D40 L93 R41 |
| Date: | 2017–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79857&r=mkt |