Forecasting the Electronification of Payments with Learning Curves: The Case of Finland

This paper examines the electronification of noncash payments in Finland and the extent to which noncash payment means are used as substitutes for cash. We model the processes of cash substitution and electronification of payments as 'S'-shaped learning curves and generate forecasts by extrapolating these curves. The 'S'-shaped learning curves fit the data well. Our results indicate that in Finland the cash substitution process as a whole is approaching the saturation point. Although the electronification process is clearly ongoing as regards larger-value bill payments, for small-value point-of-sale payments we seem to have reached saturation. Electronification of payments, having progressed swiftly and extensively in Finland, is already beginning to slow down. We conclude the paper with a discussion of the reasons for this turn of events and of the different factors that affect the speed of diffusion of new means of payment.payments; electronification; learning curves

Reference-based transitions in short-run price elasticity

Marketing literature has long recognized that price response need not be monotonic and symmetric, but has yet to provide generalizable market-level insights on reference price type, asymmetric thresholds and sign and magnitude of elasticity transitions. In this paper, we introduce smooth transition models to study reference-based price response across 25 fast moving consumer good categories. Our application to 100 brands shows that 77% demonstrate reference-based price response, of which 36% reflects historical reference prices, 31% reflects competitive reference prices, and 33% reflects both types of reference prices. This reference-based price response shows asymmetry for gains versus losses on three levels: the threshold size, the sign and the magnitude of the elasticity difference. For historical reference prices, the threshold size is larger for gains (20%) than for losses (12%) and the assimilation/contrast effects for gains (-0.41) are smaller than the saturation effects for losses (0.81). For competitive reference prices, the threshold size is smaller for gains (3%) than for losses (16%), and the saturation effects are larger for gains (0.33) than for losses (0.15). These results are moderated by both brand and category characteristics that affect reference price accessibility and diagnosticity. Historical reference prices more often play a role for national brands, for planned purchases and in inexpensive categories with low price volatility and high purchase frequency. When price discounting, high-share brands face larger latitudes of acceptance. When raising prices, saturation effects set in later for brands with high price volatility and for categories with high price spread and for planned purchases. As for competitive reference prices, saturation effects set in later for expensive brands with high price volatility and in categories with lower price volatility, higher price spread and higher concentration. Sales, revenue and margin implications are illustrated for price changes typically observed in consumer markets.asymmetric price thresholds;competitive versus historical reference prices;empirical generalizations;kinked demand curve;saturation versus assimilation/contrast effects;smooth-transition regression models

Entanglement between Demand and Supply in Markets with Bandwagon Goods

Whenever customers' choices (e.g. to buy or not a given good) depend on others choices (cases coined 'positive externalities' or 'bandwagon effect' in the economic literature), the demand may be multiply valued: for a same posted price, there is either a small number of buyers, or a large one -- in which case one says that the customers coordinate. This leads to a dilemma for the seller: should he sell at a high price, targeting a small number of buyers, or at low price targeting a large number of buyers? In this paper we show that the interaction between demand and supply is even more complex than expected, leading to what we call the curse of coordination: the pricing strategy for the seller which aimed at maximizing his profit corresponds to posting a price which, not only assumes that the customers will coordinate, but also lies very near the critical price value at which such high demand no more exists. This is obtained by the detailed mathematical analysis of a particular model formally related to the Random Field Ising Model and to a model introduced in social sciences by T C Schelling in the 70's.Comment: Updated version, accepted for publication, Journal of Statistical Physics, online Dec 201

Recognising and building on freshman students' prior knowledge of economics

The results of three surveys of freshman economics students (2008-2010) at the Waikato Management School, New Zealand, suggest that incoming students have significant levels of prior economics knowledge. Given this head start in knowledge, we have expanded our freshman lecture material with more advanced content than students would normally encounter in a microeconomics principles class. This paper examines the sources of incoming students’ prior economics knowledge and discusses some of the changes made to the learning material. The changes relate principally to the links we make between students’ basic, prior economics knowledge and the more advanced learning content that demonstrates how formal economics training can add considerable value in thinking more deeply about current affairs, business issues and daily life experiences