20 research outputs found
Informative advertising with discretionary search
We examine a market for a search good in which consumers are uncertain about the firm’s product quality, but may search to gather information before buying. We show that credible information can be conveyed to consumers even when the firm faces a market with little or no preference heterogeneity. Rather, differences in willingness-to-pay arise from the endogenous search decisions by consumers. A fundamental assumption is that search is not required for purchase and consumers may bypass it altogether. In this case search induces a dispersion in preferences that is detrimental for the firm’s ability to capture value. This provides an incentive for the firm not to overstate its quality. When quality is common knowledge (but product fit is uncertain before search), increases in quality lead to a higher market price, but firm profits and consumer surplus are non-monotonic because of changes in the search regime. In particular if quality is high enough for search to be worthwhile the firm faces downward pressure in prices and consumers become better off. These effects reverse at higher levels of product quality. Surprisingly, when product quality is unknown but credible information is available consumers become worse off with the probability of facing a high type firm, because this firm prefers to target high value consumers and not serve those who do not find that the product fits their needs.preprintinpres
Prepurchase information acquisition and credible advertising
Consumers can decide whether to acquire more information about their valuations prior to purchase. In this paper, we examine pricing and advertising strategies when consumers can engage in prepurchase information acquisition. We show that consumer information acquisition can increase valuation heterogeneity and undermine a firm’s ability to extract consumer surplus. As a result, interestingly, a higher product quality can exert a nonmonotonic impact on equilibrium information acquisition, hurt firm profitability, and lead to lower consumer surplus. We also demonstrate that prepurchase information acquisition can be an endogenous mechanism to enable credible advertising in a cheap-talk setting. We show that quality claims in advertisements can be informative even when the firm can freely misrepresent its advertising message. Informative advertising can arise because a higher perceived quality can not only increase consumers’ expected value, but it also induces more information acquisition and thus hurts the firm’s ability to extract consumer surplus. This novel explanation for the credibility of cheap-talk advertising is distinguished from those identified in the literature (e.g., matching between firm types and heterogenous consumers, restrictive communication on multidimensional attributes). Moreover, we show that a higher quality can soften competition by inducing more information acquisition, thus benefiting the rival firm’s profitability.authorsversionpublishe
Refocusing Loyalty Programs in the Era of Big Data: A Societal Lens Paradigm
Big data and technological change have enabled loyalty programs to become more prevalent and complex. How these developments influence society has been overlooked, both in academic research and in practice. We argue why this issue is important and propose a framework to refocus loyalty programs in the era of big data through a societal lens. We focus on three aspects of the societal lens-inequality, privacy, and sustainability. We discuss how loyalty programs in the big data era impact each of these societal factors, and then illustrate how, by adopting this societal lens paradigm, researchers and practitioners can generate insights and ideas that address the challenges and opportunities that arise from the interaction between loyalty programs and society. Our goal is to broaden the perspectives of researchers and managers so they can enhance loyalty programs to address evolving societal needs
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On the Roles of Information in the Interaction of Agents in Markets
Markets are rich environments for study. Two features in particular make them attractive settings for the study of the roles of information. First, they are often characterized by a significant amount of uncertainty, an essential ingredient for information to be relevant. Second, strategic interactions abound.Each chapter of this dissertation uses a different `lens' so as to focus on particular roles of information in strategic market settings. First, information is considered in its pure `aid to decision-making' role, in which agents use it to improve their decisions, not only based on the expected future conditions but also on the expected actions of the other agents which in turn depend on the information they are likely to hold. Second, information is considered in its `influencer' and `coordinator' roles. It can be used to influence the decisions of agents which will in turn affect the welfare of the original transmitters, while increasing overall market coordination. Finally, information is considered in its `homogenizer' role, in the sense that actions and preferences may become more similar after its repeated use and subsequent transmission. The purpose of this study is to propose, document and estimate mechanisms by which information fulfills these specific roles in actual market settings.This dissertation is organized in the following way. Chapter 1 analyzes the use of information acquired by decision-makers in a strategic context. Chapter 2 introduces the layer of the information transmitter as a separate strategic entity, who may have different interests from those of the receivers. Finally, Chapter 3 considers the case where the same agents are simultaneously receivers, users and transmitters of information.These scenarios are analyzed in well-defined market contexts. Chapter 1 looks at the role of information in the production and capacity decisions of DRAM producers. I estimate the precision of market information used by firms in the DRAM industry, implicit in the patterns and accuracy of their actions. The value of information is estimated as well as its impact on the decisions of the firms. Chapter 2 investigates advertising between firms and consumers in a market for a search good. It is shown that even if firms have an interest in providing biased information through advertising, it is still possible for it to convey credible content that may be useful to consumers. In addition it is shown that the precision of information delivered is sparser as the quality of the product or service in question decreases. Finally, Chapter 3 analyzes the context of online movie ratings and estimates how the opinions of consumers shape the opinions of subsequent consumers, ad infinitum. It is estimated that roughly half of the consumers' valuations for movies is a function of the valuations of other consumers who have had a chance to rate the movie earlier. A sensitivity analysis of how some extreme initial ratings influence consumer valuations is performed, revealing considerable effects
Dynamic effects of price promotions: field evidence, consumer search, and supply-side implications
© 2018, Springer Science+Business Media, LLC, part of Springer Nature.This paper investigates the dynamic effects of price promotions in a retail setting through the use of a large-scale field experiment varying the promotion depths of 170 products across 17 categories in 10 supermarkets of a major retailer in Chile. In the intervention phase of the experiment, treated customers were exposed to deep discounts (approximately 30%), whereas control customers were exposed to shallow discounts (approximately 10%). In the subsequent measurement phase, the promotion schedule held discount levels constant across groups. We find that treated customers were 22.4% more likely to buy promoted items than their control counterparts, despite facing the same promotional deals. Strikingly, the magnitude of the dynamic effects of price promotions (when promotional depths are equal across conditions) is 61% of the promotional effects induced by offering shallow vs. deep discounts during the interventio
Multiplicity of equilibria and information structures in empirical games: challenges and prospects
Abstract Empirical models of strategic games are central to much analysis in marketing and economics. However, two challenges in applying these models to real world data are that such models often admit multiple equilibria and that they require strong informational assumptions. The first implies that the model does not make unique predictions about the data, and the second implies that results may be driven by strong a priori assumptions about the informational setup. This article summarizes recent work that seeks to address both issues and suggests some avenues for future research