Impact of Returns Policies and Group-Buying On Channel Coordination

This dissertation investigates the role of two marketing practices—returns policies and group-buying services—in improving channel coordination. The first study (presented in Chapter Two) focuses on the interaction between two types of returns policies—returns of unwanted products from consumers to retailers and returns of unsold inventory from retailers to manufacturers. Even without the right to return unsold inventory to the manufacturer, the retailers may accept returns from consumers; by doing so, they benefit from a less pricesensitive market demand, an ability to screen for high-valuation consumers, and a competitive advantage (offering a returns policy makes a retailer more attractive to consumers). From the manufacturer\u27s perspective, accepting returns may induce the retailers to order more stock, set lower prices, generate more sales, and therefore, improves the performance of the channel. However, under some conditions (e.g., when the marginal cost of stock-outs is relatively high), this study shows that this effect disappears and the manufacturer does not accept returns from the retailer in equilibrium. The second study (presented in Chapter Three) investigates the rationale for using group-buying services vis-a-vis the traditional posted-pricing mechanism. It focuses on the behavior of consumers and explores the role of heterogeneity in their valuation for the product and cost of purchasing via group-buying in the functioning of group-buying services as a price-discrimination device. Finally, the role of group-buying services in improving channel coordination under asymmetric information is studied in Chapter Four. This analysis shows that the availability of group-buying services provides an opportunity for the manufacturer to reduce the informational rents of the retailer arising from its private information about the market condition. Interestingly, the manufacturer can avoid paying these rents and regains the first-best profitability when asymmetry in information exists regarding the relative sizes of consumer segments. In other settings (e.g., when asymmetric information exists regarding consumers\u27 price sensitivity), leveraging the group-buying mechanism nevertheless allows the manufacturer to design a contract that requires lower rents and improves channel coordination to some extent

Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

Marketing is an applied science that tries to explain and influence how firms and consumers actually behave in markets. Marketing models are usually applications of economic theories. These theories are general and produce precise predictions, but they rely on strong assumptions of rationality of consumers and firms. Theories based on rationality limits could prove similarly general and precise, while grounding theories in psychological plausibility and explaining facts which are puzzles for the standard approach. Behavioral economics explores the implications of limits of rationality. The goal is to make economic theories more plausible while maintaining formal power and accurate prediction of field data. This review focuses selectively on six types of models used in behavioral economics that can be applied to marketing. Three of the models generalize consumer preference to allow (1) sensitivity to reference points (and loss-aversion); (2) social preferences toward outcomes of others; and (3) preference for instant gratification (quasi-hyperbolic discounting). The three models are applied to industrial channel bargaining, salesforce compensation, and pricing of virtuous goods such as gym memberships. The other three models generalize the concept of gametheoretic equilibrium, allowing decision makers to make mistakes (quantal response equilibrium), encounter limits on the depth of strategic thinking (cognitive hierarchy), and equilibrate by learning from feedback (self-tuning EWA). These are applied to marketing strategy problems involving differentiated products, competitive entry into large and small markets, and low-price guarantees. The main goal of this selected review is to encourage marketing researchers of all kinds to apply these tools to marketing. Understanding the models and applying them is a technical challenge for marketing modelers, which also requires thoughtful input from psychologists studying details of consumer behavior. As a result, models like these could create a common language for modelers who prize formality and psychologists who prize realism

Rural institutions and producer organizations in imperfect markets: experiences from producer marketing groups in semi-arid eastern Kenya

"Many countries in sub-Saharan Africa have liberalized markets to improve efficiency and enhance market linkages for smallholder farmers. The expected positive response by the private sector in areas with limited market infrastructure has however been disappointing. The functioning of markets is constrained by high transaction costs and coordination problems along the production-to-consumption value chain. New kinds of institutional arrangements are needed to reduce these costs and fill the vacuum left when governments withdrew from markets in the era of structural adjustments. One of these institutional innovations has been the strengthening of producer organizations and formation of collective marketing groups as instruments to remedy pervasive market failures in rural economies. The analysis presented here with a case study from eastern Kenya has shown that while collective action – embodied in Producer Marketing Groups (PMGs) – is feasible and useful, external shocks and structural constraints that limit the volume of trade and access to capital and information require investments in complementary institutions and coordination mechanisms to exploit scale economies. The effectiveness of PMGs was determined by the level of collective action in the form of increased participatory decision making, member contributions and initial start-up capital. Failure to pay on delivery, resulting from lack of capital credit, is a major constraint that stifles PMG competitiveness relative to other buyers. These findings call for interventions that improve governance and participation; mechanisms for improving access to operating capital; and effective strategies for risk management and enhancing the business skills of the PMGs." Author's AbstractMarket imperfections, Transaction costs, Farmer organizations, Institutions, Collective action, Semi-arid tropics, Kenya, East Africa,

INSTITUTIONAL ECONOMICS AND THE EMERGENCE OF E-COMMERCE IN AGRIBUSINESS

The emergence of E-commerce in the 1990s heralded the arrival of the New Economy. However, the failure of numerous dotcoms since early 2001 has led to a debate regarding the future direction of E-commerce and its potential relevance for agribusiness. This study examines the economic implications of E-commerce for agribusiness within the framework of New Institutional Economics. The New Institutional Economics implies that E-commerce has the potential to reduce direct transactions costs in agricultural markets, but that it also may add additional indirect transactions costs. Depending upon the tradeoff between these costs, an institutional innovation which reduces the transactions costs may provide the impetus for an alternative marketing channel for agricultural output. Two models of institutional change are explored. The North model of changes in the rules of the game is found to be more consistent with the advent of E-commerce than the model of technological change suggested by Schumpeter.E-commerce, marketing channels, New Institutional Economics, Schumpeter, Agribusiness, Institutional and Behavioral Economics,

A brief empirical history of U.S. foreign-exchange intervention: 1973-1995

This paper assesses U.S. foreign-exchange intervention since the inception of generalized floating. We find that intervention was by and large ineffectual. We first identify which interventions were successful according to three criteria. Then, we test whether the number of observed successes significantly exceeds the amount that would randomly occur given the near-martingale nature of daily exchange-rate changes. Finally, we investigate whether the various characteristics of an intervention - its size, frequency, or coordination - can increase the probability of success. We find that intervention did tend to moderate same-day exchange-rate movements relative to the previous day, but this effect is not robust across subperiods or currencies and it occurs infrequently. Increasing the size of an intervention increases the probability of success, but no other variable consistently makes a difference, including coordinating interventions with other central banks.Foreign exchange administration

The Coordination Channel of Foreign Exchange Intervention

If strong and persistent misalignments of the exchange rate are caused by non-fundamental influences, such that a return to equilibrium is hampered by a coordination failure among fundamentals-based traders, then central bank intervention may act as a coordinating signal, encouraging stabilizing speculators to re-enter the market at the same time. We develop this idea in the framework of a simple microstructural model of exchange rate movements, which we then estimate using daily data on the dollar-mark exchange rate and on Federal Reserve and Bundesbank intervention operations. The results are supportive of the existence of a coordination channel of intervention effectivenessforeign exchange intervention, market microstructure, nonlinear mean reversion

Channel Management and differentiation strategies: A case study from the market for fresh produce

The paper analyses the current differentiation strategies in the market for fresh produce. First a short review of the literature on channel structure and product differentiation is presented, in order to identify, on a theoretical grounding the incentives for differentiation strategies. Second, a case study is drawn of a UK channel intermediary organisation carrying out differentiation policies in the fresh produce category (on behalf of UK multiple retailer customers) supplied by a dedicated Italian grower. Results show that in the fresh produce industry there is room for product differentiation, but with contradictory welfare effects.fresh produce, product differentiation, channel structure and management, Agribusiness, Marketing,

Voting with the Wallet

The vote with the wallet is a new, emerging feature of economic participation and democracy in the globally-integrated market economy. This expression identifies the pivotal role that responsible consumption and investment can play in addressing social and environmental emergencies which have been aggravated by the asymmetry of power between domestic institutions and global corporations. In this paper, we examine (both in general and by using examples drawn from the financial and non-financial sectors) how ÒvotingÓ for producers which are at the forefront of a three-sided efficiency which reconciles the creation of economic value with social and environmental responsibility, may generate contagion effects by triggering ethical imitation of traditional profit-maximizing actors, thereby enhancing the production of positive social and environmental externalities. Within this new framework policies which reduce the search and information costs of voting with the wallet may help socioeconomic systems to exploit the bottom-up market forces of other-regarding preferences, thereby enhancing opportunities to achieve well-being with reduced top-down government interventionsocial responsibility, other regarding preferences.