Customer Relationship and Sales

I construct a search model to formalize the intuitive idea that sellers hold sales to attract buyers and build customer relationships. The market consists of a large number of buyers and sellers. All sellers sell a homogeneous good and all buyers have the same publicly known valuation of the good. Buyers know the terms of trade offered by sellers before choosing which seller to visit. A buyer is related to a seller if the buyer just bought a good from the seller and the relationship is broken if the buyer fails to continue to buy from the seller. Sellers are restricted to offer the same price to all buyers, but they are allowed to give priority to their related buyers. I prove that there is an equilibrium in which a seller gives priority to the related buyer and a buyer makes repeat purchases from the related seller. In the equilibrium, a seller who does not have a related buyer posts a low (sale) price to attract the buyers who are unrelated to any seller and, once the seller is related to a buyer after a trade, the seller will post a high (regular) price to sell only to the related buyer. The fraction of related sellers is endogenous in the equilibrium. I calibrate the steady state of the model to the data and find that the sale price represents a sizable markdown, and the regular price a sizable markup, on the marginal cost. With the calibrated model, I examine comparative statics and dynamics of the equilibrium with respect to changes in the cost of and the demand for the good.Sales; Customer relationship; Directed search

Competition and Collusion in Grain Markets: Basmati Auctions in North India

Many small wholesale grain markets in India are characterized by large numbers of sellers, and a relatively small number of buyers, thereby lending the price formation process open to manipulation through collusion. Government intervention limits the extent of such manipulation by instituting regulated markets where the rules of exchange are clearly spelled out. The key institutional features of these markets are (a) sales through open ascending auctions; (b) the presence of "commission agents" representing both buyers and sellers. We present simple models of noncooperative and collusive behavior in auctions incorporating the above, and some more market specific, assumptions. We exploit data from a primary survey of a market for basmati paddy in North India. The main findings are (i) the collusive model explains the data better; (ii) the incentives of sellers and a subset of the large buyers are aligned; (iii) this, along with a Principal-Agent slack between millers and commission agents who buy for them, facilitates the form that collusion takes, and (iv) due to (ii) and (iii), the impact of collusion on market prices is not necessarily adverse. Insofar as the features of the market we study are common to grain markets in North India, we believe that these findings may be of much wider significance.

Motivated sellers and predation in the housing market

We develop an equilibrium search model of the housing market where sellers may become distressed as they are unable to sell. A unique steady state equilibrium exists where distressed sellers attempt liquidation sales by accepting prices that are substantially below fundamental values. During periods where a large number of sellers are forced to liquidate customers exhibit ‘predation’: they hold off purchasing and strategically slow down the speed of trade, which in turn causes more sellers to become distressed. The model naturally suggests several proxies of liquidity. Interestingly, the average time on the market (TOM), one of the most frequently used statistics in the literature, does a poor job within the context of liquidation sales and predation. Specifically we show that TOM falls during periods of predatory buying, which, if interpreted on face value, indicates that the market becomes more liquid with predation. We propose an alternative proxy – the profit loss in fire sales – which appears to be a more robust measure of liquidity than TOM

Which Location to Register For Sellers in C2C E-Market in China? A Study on Taobao.Com

As there are a large number of sellers and products on C2C shopping websites, consumers are faced with the problem about how to choose the right goods whereas sellers are confronted with the problem concerning how to set up online shops and provide commodities. Based on signaling theory and research findings about regional economics, we put forward an analysis model between the difficulty in identifying quality of goods and the quality signal intensity of geographic location, and make an empirical test by the actual data from Taobao.com. What this study finds is that, under the environment of C2C e-commerce in China, the geography location may affect the distribution of these online stores and their sales performance. For local specialty products, the quantity and the average sales of seller stores from the origin locations are more than those from the other locations; for the branded consumer electronics, the quantity and the average sales of seller stores from the first-tier cities are higher than those from other cities

Predicting Turnover of Direct Sellers

As an industry, direct selling is ubiquitous. An estimated 5.3 million people were direct sellers in the United States in 2016. Of those 5.3 million direct sellers, 4.5 million were part-time and 800,000 were full-time. Moreover, in 2016, direct selling generated an estimated US$35.54 billion in retail sales that, in turn, had a US$83.11 billion impact on the United States economy. In a broad sense, direct selling is simultaneously considered to be a distribution channel, an industry, and a business model. Traditional major modes of direct selling include person-to-person and party-plan selling at a home or in the workplace, with online sales now gaining traction in the direct selling marketplace. Individuals become direct sellers for a multitude of reasons, including a desire to earn a living as a full-time direct seller, to earn supplemental income as a part-time direct seller, or to work at a part-time job to earn extra money to make a special purchase. Consequently, there can be relatively high turnover among direct sellers, especially those whose goal was to earn extra money to make a special purchase. Turnover is an issue in direct selling for several reasons, including the time and resources direct selling companies expend to recruit, train, and support direct sellers as well as the potential loss of customers and revenues when a direct seller exits the industry. As such, being able to predict which direct sellers are likely to leave the industry before considerable company and individual resources are expended would be beneficial to all concerned marketplace constituents. This research attempted to predict direct seller turnover by analyzing responses to a set of 12 reasons why a national sample of individuals decided to join a direct selling company. This was done by first comparing the number and nature of reasons that subsamples of current and former direct sellers gave for joining a direct selling company. Significant differences were observed between the two direct seller groups for nine of the 12 reasons studied and for the total number of reasons given for joining a direct selling company. This was followed by a binary logistic regression analysis that successfully predicted the work status of 63 percent of the combined sample of current and former direct sellers. Although data for the present research were derived from a relatively large nationwide survey of current and former direct sellers, the study should be viewed as exploratory given the absence of information on the topic and the lack of theoretically based hypotheses

Determinants and Effects of Reserve Prices in Hattrick Auctions

We use a unique hand collected data set of 6,258 auctions from the online football manager game Hattrick to study determinants and effects of reserve prices. We find that chosen reserve prices exhibit both very sophisticated and suboptimal behavior by the sellers. On the one hand, reserve prices are adjusted remarkably nuanced to the resulting sales price pattern. However, reserve prices are too clustered at zero and at multiples of e 50,000 as to be consistent with fully rational behavior. We recover the value distribution and simulate the loss in expected revenue from suboptimal reserve prices. Finally, we find evidence for the sunk cost fallacy as there is a substantial positive effect on the reserve price when the player has been acquired previously

Inventories and the Stockout Constraint in General Equilibrium

We study the implications of a stockout constraint in a dynamic general equilibrium model, which can explain both standard business cycle and inventory facts. Under this constraint, inventories and demand are complements in generating sales, and hence the optimal level of inventories increases in expected demand. We show that the inventory to sales ratio is both persistent and countercyclical because the cost of carrying inventories is mainly determined by the interest rate. We use this model to disentangle output and sales, by matching the key inventory moments, and find that preference and productivity shocks are equally important in the data. Finally, we assess whether improvements in inventory management can explain the Great Moderation. We find that, although improvements in inventory management can reduce the need for inventory holdings, which decreases output volatility relative to sales volatility, lower levels of inventories actually increases sales volatility. Because these two effects offset each other, a change in inventory management does not change output volatility to any great extent