A Metric for Measuring Customer Turnover Prediction Models

The interest for data mining techniques has increased tremendously during the past decades, and numerous classification techniques have been applied in a wide range of business applications. Hence, the need for adequate performance measures has become more important than ever. In this application, a cost-benefit analysis framework is formalized in order to define performance measures which are aligned with the main objectives of the end users, i.e., profit maximization. A new performance measure is defined, the expected maximum profit criterion. This general framework is then applied to the customer churn problem with its particular cost-benefit structure. The advantage of this approach is that it assists companies with selecting the classifier which maximizes the profit. Moreover, it aids with the practical implementation in the sense that it provides guidance about the fraction of the customer base to be included in the retention campaign

Firm’s Intangible Assets and Multinational Activity: Joint-Venture Versus FDI

This paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period, two-country equilibrium model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that Foreign Direct Investment is more likely to emerge when know-how easily spills over – i.e. when firms are endowed with more intangible assets or they belong to high tech industries. Probit estimates, from an entirely new firm-level dataset, constructed by the author, show that the experience of Italian multinationals in Asia is in line with our theoretical predictions.Intangible assets, Internalisation, FDI, Joint-venture, Asia

Essays in applied microeconomics

This dissertation consists of three self-contained papers, which contribute to different strands of the literature on industrial organization and microeconomic theory. The first paper analyzes price collusion between platforms in a two-sided market model. I show that higher indirect network externalities have two opposing effects on the sustainability of a cartel. First, collusive profits increase while stage game Nash profits fall - this makes collusion more desirable. Second, the incentive to deviate increases as demand reacts more sensitively. The latter effect dominates because of the induced feedback effects and collusion becomes harder to sustain as indirect network externalities become stronger. The second paper, which is joint work with Johannes Koenen, examines the impact of patent protection on upstream innovation incentives in a vertical industry with complementary inputs and consecutive investment periods. We show that in case of fixed-order sequential bargaining between suppliers and a downstream firm, ironclad intellectual property rights lead to a complete breakdown of investments into components due to hold-up problems, despite full bargaining power of the investing parties. Knowledge diffusion that allows the downstream firm to buy an older version of the component at a cheaper price in later periods is thus beneficial for all firms. Allowing for a stochastic bargaining sequence alleviates the complete hold-up under patent protection. Yet, upstream innovation might still be higher under knowledge diffusion. The third paper, which was written jointly with Pia Dovern-Pinger, empirically investigates the existence of the compromise effect, referring to the tendency of individuals to choose an intermediate option in a choice set, using field data from a German Specialties Restaurant. The analysis of demand behavior in response to changes in the menu confirms experimental evidence. While demand generally decreases in prices, individuals tend to avoid alternatives at the lowest or highest end of the price spectrum. In contrast, an expansion of the dish choice set leads customers to choose less extreme options. Finally, group size and other background factors matter, although no clear direction of the effects can be identified

Portfolio Construction: The Efficient Diversification of Marketing Investments

Efforts in the marketing sciences can be distinguished between the analysis of individual customers and the examination of portfolios of customers, giving scarce theoretical guidance concerning the strategic allocation of promotional investments. Yet, strategic asset allocation is considered in financial economics theory to be the most important set of investment decisions. The problem addressed in this study was the application of strategic asset allocation theory from financial economics to marketing science with the aim of improving the financial results of investment in direct marketing promotions. This research investigated the components of efficient marketing portfolio construction which include multiattribute numerical optimization, stochastic Brownian motion, peer index tracking schemes, and data mining methods to formulate unique investable asset classes. Three outcomes resulted from this study on optimal diversification: (a) reduced saturative promotional activities balancing inefficient advertising cost and enterprise revenue objectives to achieve an investment equilibrium state; (b) the use of utility theory to assist in the lexicographic ordering of goal priorities; and (c) the solution approach to a multiperiod linear goal program with stochastic extensions. A performance test using a large archival set of customer data illustrated the benefits of efficient portfolio construction. The test asset allocation resulted in significantly more reward than that of the benchmark case. The results of this grounded theory study may be of interest to marketing researchers, operations research practitioners, and functional marketing executives. The social change implication is increased efficiency in allocation of large advertising budgets resulting in improved corporate performance

What's a face worth: Noneconomic factors in game playing

Where behavior defies economic analysis, one explanation is that individuals consider more than the immediate payoff. We present evidence that noneconomic factors influence behavior. Attractiveness influences offers in the Ultimatum and Dictator Games. Facial resemblance, a cue of relatedness, increases trusting in a two-node trust game. Only by considering the range of possible influences will game-playing behavior be explained

Pricing Software Upgrades: The Role of Product Improvement & User Costs

The computer software industry is an extreme example of rapid new product introduction. However, many consumers are sophisticated enough to anticipate the availability of upgrades in the future. This creates the possibility that consumers might either postpone purchase or buy early on and never upgrade. In response, many software producers offer special upgrade pricing to old customers in order to mitigate the effects of strategic consumer behavior. We analyze the optimality of upgrade pricing by characterizing the relationship between magnitude of product improvement and the equilibrium pricing structure, particularly in the context of user upgrade costs. This upgrade cost (such as the cost of upgrading complementary hardware or drivers) is incurred by the user when she buys the new version but is not captured by the upgrade price for the software. Our approach is to formulate a game theoretic model where consumers can look ahead and anticipate prices and product qualities while the firm can offer special upgrade pricing. We classify upgrades as minor, moderate or large based on the primitive parameters. We find that at sufficiently large user costs, upgrade pricing is an effective tool for minor and large upgrades but not moderate upgrades. Thus, upgrade pricing is suboptimal for the firm for a middle range of product improvement. User upgrade costs have both direct and indirect effects on the pricing decision. The indirect effect arises because the upgrade cost is a critical factor in determining whether all old consumers would upgrade to a new product or not and this further alters the product improvement threshold at which special upgrade pricing becomes optimal. Finally, we also analyze the impact of upgrade pricing on the total coverage of the market