Brand value in horizontal alliances : the case of twin-cars.

Rival firms often cooperate horizontally in order to share risks and achieve scale advantages in production or in their research and development projects. The output of these strategic alliances is usually sold by the individual ally company under its own brand and using its own marketing mix strategies. Marketing strategies create a cumulative effect that is reflected in brand value. Although horizontal alliances often have a significant overall impact on firm profitability, undesired brand value dilution is a worrisome possibility for the partners and therefore a relevant subject of study. In this paper, we consider brand value to be the economic added value of a brand, and propose two marketbased measures of brand value: (1) price premia (which are relevant for a unit sale) and (2) revenue premia (which also account for the premia in sales volume). We apply this analysis to the Spanish market for new automobiles, in which successful and long-lasting horizontal alliances have formed. Our findings suggest that, during the introduction stage of the product life cycle, horizontal allies did not charge different price premia, but that horizontal allies profit from differences in brand reputation obtained from demand side effects such as revenue premia (specifically, the impact on sales volume). Consequently, horizontal cooperation among brands does not dilute their value at the introduction stage. Furthermore, our results suggest that horizontal allies do charge different price premia during the growth stage of the product life cycle. Consequently, horizontal allies have recognized strategies that do not dilute brand value in intense competition mitigating the brand value diluting riskBrand value; Revenue premia; Automobile market; Price premia; Marketing;

Exclusive dealing as a barrier to entry? Evidence from automobiles.

Exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market. We ask whether such contracts may act as an entry barrier, and provide an empirical analysis of the European car market. We first estimate a demand model with product and spatial differentiation, and quantify the role of a dense distribution network in explaining the car manufacturers’ market shares. We then perform policy counterfactuals to assess the pro.t incentives and entry-deterring effects of exclusive dealing. We find that there are no individual incentives to maintain exclusive dealing, but there can be a collective incentive by the industry as a whole, even absent efficiencies. Furthermore, a ban on exclusive dealing would shift market shares from the larger European firms to the smaller entrants. More importantly, consumers would gain substantially, mainly because of the increased spatial availability and less so because of intensified price competition. Our findings suggest that the European Commission’s recent decision to facilitate exclusive dealing in the car market may not have been warranted.

Does Adding Inventory Increase Sales? Evidence of a Scarcity Effect in U.S. Automobile Dealerships

What is the relationship between inventory and sales? Clearly, inventory could increase sales: expanding inventory creates more choice (options, colors, etc.) and might signal a popular/desirable product. Or, inventory might encourage a consumer to continue her search (e.g., on the theory that she can return if nothing better is found), thereby decreasing sales (a scarcity effect). We seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventory and sales — e.g., dealers influence their inventory in anticipation of demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer’s lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Hence, expanding variety across sub-models should be the first priority when adding inventory—adding inventory within a sub-model is actually detrimental. In fact, given how vehicles were allocated to dealerships in practice, we find that adding inventory actually lowered sales. However, our data indicate that there could be a substantial benefit from the implementation of a “maximizes variety, minimize duplication” allocation strategy: sales increase by 4.4 percent without changing the number of vehicles at each dealership, and a 5.2 percent is possible if inventory is allowed to decrease by 2.8 percent (and no more than 10 percent at any one dealer)

Empirical Studies In Retail Operations

This dissertation contains three essays. The first essay, entitled \textit{ Does Inventory Increase Sales? The Billboard and Scarcity Effects in U.S. Automobile Dealerships } looks into the relationship between inventory and demand beyond the obvious stockout effect. Inventory might signal a popular, and therefore a desirable, product, thereby increasing sale. Or, inventory might encourage a consumer to continue her search, thereby decreasing sales. In this paper we seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventories and demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer\u27s lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Based on this insight, given a fixed set of cars, they should be allocated among a group of dealers so as to maximize each dealer\u27s variety. The second essay, entitled \textit{ Severe Weather and Automobile Assembly Productivity }, is related to the first one in that presents a detail analysis of the exogenous shock presented there: The weather impact on vehicles assembly lines. It is apparent that severe weather should hamper the productivity of work that occurs outside. But what is the effect of extreme rain, snow, heat and wind on work that occurs indoors, such as the production of automobiles? Using weekly production data from 64 automobile plants in the United States over a ten-year period, we find that adverse weather conditions lead to a significant reduction in production. Across our sample of plants, severe weather reduces production on average by 1.5\%. While it is possible that plants are able to recover these losses at some later date, we do not find evidence that recovery occurs in the week after the event. Our findings are useful both for assessing the potential productivity shock associated with inclement weather as well as guiding managers on where to locate a new production facility. The third essay, entitled \textit{ Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information }. In this essay we focus the attention on the impact of inventory information disclosure. Increasingly, retailers are integrating their offline and online channels to reduce costs or to improve the value proposition they make to their customers. Using a proprietary dataset, we analyze the impact of the implementation of a buy-online-pickup-in-store project. Contrary to our expectations, the implementation of this project is associated with a reduction in online sales and an increase in store sales and traffic. We interpret the results in light of recent operations management literature that analyzes the impact of sharing inventory availability information online. The implementation of a buy-online-pickup-in-store project provides an exogenous shock to the verifiability of the inventory information that the firm shows to their customers. Our analysis illustrates the challenges of drawing conclusions about complex interventions using single channel data

Essays on empirical industrial organization

This dissertation consists of three self-contained chapters. The common theme is the analysis of the role that endogenous and strategic participation decisions play forming market structure and the design of regulatory policy that takes such responses into account. The first two chapters are concerned with the effects of vertical restraints in the entry and brand positioning by dealerships in the car retail industry. In Chapter 1, I look at the effects of exclusive dealing and analyze whether car manufacturers use exclusivity with foreclosing motives. In Chapter 2, I explore the consequences of allowing for territorial protections in the formation of retail networks. The third part of this dissertation is co-authored with Hidenori Takahashi and Yuya Takahashi. In Chapter 3, we study participation decisions in the procurement of public infrastructure project. We analyze the role that information about potential entry has coordinating entry among firms

The Economics of the U.S. Automotive Industry: Studies on Regulation and Competition

This dissertation is about the U.S. automobile industry. In the first part, I study an environmental policy that ascribes a fee or a rebate to each new vehicle in the marketplace, depending on the vehicle’s fuel economy rating; thus, it is called a ’feebate’. Feebates can be designed to reach optimal outcomes given assumptions on people’s preferences and welfare from buying cars. Since a feebate is a function from fuel economy ratings to cash, I study how feebate functional form affects the efficacy of the policy as well as some distributional outcomes. I conclude that a feebate policy, represented by a logistic functional form in which larger portions of consumers face high marginal incentives to increase fuel economy, brings about improved outcomes over other functional forms. The second part of this dissertation explores the nature of local competition and tests the existence of local market power held by car dealerships. In the empirical model, I exploit variation in local competition that is caused by factors external to the dynamics of local demand and supply. I compare the pricing response of dealerships in affected local markets relative to the pricing behavior of dealerships in markets which were not affected. I find that decreased competition caused consumers to pay higher prices for their vehicles both through a sales mix, as well as a negotiations, mechanism. I find evidence that dealers target consumers strategically, as the incidence of the price increases falls disproportionately on buyers of SUVs who engaged in a secondary transaction of a trade-in. I conclude that dealers exercise local market power when afforded by consumers who signal higher willingness to pay and bargaining disutilities

Are Consumers Affected by Durable Goods Makers' Financial Distress? The Case of Auto Manufacturers

The financial decisions of durable goods makers can impose spillovers on their consumers. Namely, durable goods provide a consumption stream that frequently depends on services provided by the manufacturer (e.g., warranties, parts, and maintenance). Manufacturer bankruptcy, or even the possibility thereof, threatens this service provision and can substantially reduce the value of its products to their current owners. We test this hypothesis in one of the largest durable goods markets, automobiles, using data on millions of used cars sold at wholesale auctions around the U.S. during 2006-8. We find that an increase in an auto manufacturer’s financial distress results in a contemporaneous drop in the prices of its cars at auction, controlling for a host of other influences on price. The estimated effects are statistically and economically significant. Furthermore, cars with longer expected service lives (those within manufacturer warranty, having lower mileage, or in better condition) see larger price declines than those with shorter remaining lives. These patterns do not seem to be driven solely by reduced demand from auto dealers affiliated with the troubled manufacturers or by contemporaneous declines in new car prices. Our estimates imply a potentially large indirect cost of financial distress on car manufacturers.

Product-Service Bundling in Manufacturing Firms

abstract: Most advanced economies have evolved into service economies with the majority of their activity and jobs being in the service sector. The manufacturing sector is also going through a similar shift towards services. Manufacturers are increasingly complementing their products with new services in order to satisfy a broader array of customer needs and increase the value of their offerings. This shift has offered significant opportunities to the sector and the success of major firms such as IBM, Caterpillar, and Rolls-Royce in competing through services has been remarkable. Despite the increased importance of services in the manufacturing sector, the academic literature is yet to investigate the many questions that arise under this new manufacturing paradigm. Perhaps for the same reason study of servitization is listed as a research priority in recent publications both in the field of service operations management and in the field services marketing. This dissertation covers three essays aimed at disentangling multiple aspects of the role of services in the manufacturing sector. The literature on the drivers and implications of transition towards services in manufacturing firms is limited. The three studies in this dissertation aim at shedding light on this issue. Specifically, the first essay looks at the innovation benefits of service transactions with customers. This paper demonstrate the value of services in getting manufacturers closer to customers and allowing them glean useful information from their service interactions. The second essay investigates the antecedents of service strategy adoption. We suggest that the extant diversification theory does not fully explain servitization and this phenomenon represents a unique type of diversification, which is likely driven by different factors. Through econometric analysis of financial data over a 27-year period, this study explores characteristics of product, firm resources, competition, and industry that encourage adoption of service strategies in manufacturing sector. Finally, the third essay takes a deeper dive and focuses on dealerships, as service centers, in the automobile industry. It investigates the role of dealerships in the success of automakers and explores dealership traits that are critical for market success of an automobile brand.Dissertation/ThesisDoctoral Dissertation Business Administration 201

SERVICE NEEDS FORECASTING: An Approach for the Motor Industry Using Analogies with Medical ER Management Models.

During the past years, the industry has shifted position and moved towards “the luxury universe” whose customers are demanding, treating individuals as unique and valued customer for the business, offering vehicles produced with the state of the art technologies and implementing the highest finishing standards. Due to the competitive level in the market, motor makers enable processes which equalizes customer services to E.R. management, being dealt with the maximum urgency that allows the comparison between both, car workshops and emergency rooms, where workshop bays or ramps will be equal to emergency boxes and skilled technicians are equivalent to the health care specialist, who will carry out tests and checks prior to afford any final operation, keeping the “patient” under control before it is back to normal utilization. This paper ratify a valid model for the automotive industry to estimate customer service demand forecasting under variable demand conditions using analogies with patient demand models used for the medical E

Three Essays on Informed Trading

This thesis consists of three essays examining the behavior of informed traders in financial markets and how they affect asset pricing. It examines informed traders’ role in shaping securities prices in three ways. It examines whether on a macro and micro basis insider traders move prices to a different degree than non-insiders. In addition, it uses econometric methods to determine what exchange generates permanent price trends in UK shares. Lastly, it looks at another side effect of fragmentation – how a ‘best execution’ mandate and related market structure changes affect transactions costs in liquid UK, French, and German shares. These studies expand on current literature in various ways – extant insider trading literature has either primarily focused on daily price movement and volume or had consisted of case studies, the conclusions of which may be idiosyncratic and therefore unrepresentative of typical insider behavior. The new phenomenon of multilateral trading facilities (also known as electronic communications networks) and the proliferation of algorithmic or computer-mediated trading had not been examined in price discovery papers, due to their relative novelty. In addition, despite a bevy of literature offering informed insight into the impact of the European Union’s Markets in Financial Instruments Directive (MiFID), there has been a dearth of empirical studies assessing its impact on European securities markets. Chapters 2 and 3 examine MiFID and computerized trading from two different perspectives: that of which trades lead to permanent prices, and that of transactions costs. The conclusions drawn in this thesis will be of interest to regulators, market operators, and traders, as they offer insight into the impact of market structure and how it impacts informed traders who participate in them