Free Riding and Sales Strategies for the Internet

We examine manufacturers' decisions of whether and how to offer their products for sale over the internet. Manufacturers that rely on promotion of their products by brick and mortar retailers must consider the possibility that internet retailers can free ride off of that promotional effort. This creates an incentive for manufacturers to limit the availability of their products over the internet and to control the pricing of their products over the internet. We examine three categories of products: fragrances, DVD players, and side by side refrigerators. Our evidence suggests that manufacturers that limit distribution in the physical world also use various mechanisms to limit distribution online. In particular, we find evidence that these manufacturers attempt to prevent the sale of their products by online retailers who sell goods at deep discounts. Furthermore, we show that manufacturers who distribute their goods directly through manufacturer websites tend to charge very high prices for the products, consistent with the hypothesis that manufacturers internalize free rider issues. While our main focus is on free riding, our evidence on pricing practices is germane to the growing literature on price dispersion on the internet.

Risk Taking by Mutual Funds as a Response to Incentives

This paper examines the agency conflict between mutual fund investors and mutual fund companies. Investors would like the fund company to use its judgement to maximize risk-adjusted fund returns. A fund company, however, in its desire to maximize its value as a concern has an incentive to take actions which increase the inflow of investment. We use a semiparametric model to estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-1992 period. The shape of the flow-performance relationship creates incentives for fund managers to increase or decrease the riskiness of the fund which are dependent on the fund's year-to-date return. Using a new dataset of mutual fund portfolios which includes equity portfolio holdings for September and December of the same year, we show that mutual funds do alter their portfolio riskiness between September and December in a manner consistent with these risk incentives.

The Effect of Word of Mouth on Sales: Online Book Reviews

We examine the effect of consumer reviews on relative sales of books on Amazon.com and BarnesandNoble.com. We find that 1) reviews are overwhelmingly positive at both sites, but there are more reviews and longer reviews at Amazon.com, 2) an improvement in a book's reviews leads to an increase in relative sales at that site, and 3) the impact of 1-star reviews is greater than the impact of 5-star reviews. The results suggest that new forms of customer communication on the Internet have an important impact on customer behavior.

Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data

We examine the retail prices and wholesale prices of a large supermarket chain in Chicago over seven and one-half years. We show that prices tend to fall during the seasonal demand peak for a product and that changes in retail margins account for most of those price changes; thus we add to the growing body of evidence that markups are counter-cyclical. The pattern of margin changes that we observe is consistent with loss leader' models such as the Lal and Matutes (1994) model of retailer pricing and advertising competition. Other models of imperfect competition are less consistent with retailer behavior. Manufacturer behavior plays a more limited role in the counter-cyclicality of prices.

Evolution of the Chandra CCD Spectra of SNR 1987A: Probing the Reflected-Shock Picture

We continue to explore the validity of the reflected shock structure (RSS) picture in SNR 1987A that was proposed in our previous analyses of the X-ray emission from this object. We used an improved version of our RSS model in a global analysis of 14 CCD spectra from the monitoring program with Chandra. In the framework of the RSS picture, we are able to match both the expansion velocity curve deduced from the analysis of the X-ray images and light curve. Using a simplified analysis, we also show that the X-rays and the non-thermal radio emission may originate from the same shock structure (the blast wave). We believe that using the RSS model in the analysis of grating data from the Chandra monitoring program of SNR 1987A that cover a long enough time interval, will allow us to build a more realistic physical picture and model of SNR 1987A.Comment: 14 pages, 1 Table, 8 figures, accepted for publication in MNRA

Best Prices

We explore the role of strategic price-discrimination by retailers for price determination and inflation dynamics. We model two types of customers, "loyals" who buy only one brand and do not strategically time purchases, and "shoppers" who seek out low-priced products both across brands and across time. Shoppers always pay the lowest price available, the "best price". Retailers in this setting optimally choose long periods of constant regular prices punctuated by frequent temporary sales. Supermarket scanner data confirm the model's predictions: the average price paid is closely approximated by a weighted average of the fixed weight average list price and the "best price". In contrast to standard menu cost models, our model implies that sales are an essential part of the price plan and the number and frequency of sales may be an important mechanism for adjustment to shocks. We conclude that our "best price" construct provides a tractable input for constructing price series.

HI in NGC 5433 and its Environment: High-Latitude Emission in a Small Galaxy Group

We present HI synthesis maps of the edge-on starburst NGC 5433 and its environment, obtained with the VLA in its C and D configurations. The observations and spectral model residuals of the main disc emission in NGC 5433 reveal 3 extraplanar features. We associate 2 of these features with coherent extraplanar extensions across multiple spectral channels in our data, including a complete loop in position-velocity space. Interpreting the latter as an expanding shell we derive a corresponding input energy of 2 x 10^54 ergs, comparable to that for the largest supershells found in the Galaxy and those in other edge-on systems. NGC 5433 is in a richer environment than previously thought. We confirm that KUG 1359+326 is a physical companion to NGC 5433 and find two new faint companions, both with Minnesota Automated Plate Scanner identifications, that we label SIS-1 and SIS-2. Including the more distant IC 4357, NGC 5433 is the dominant member of a group of at least 5 galaxies, spanning over 750 kpc in a filamentary structure. A variety of evidence suggests that interactions are occurring in this group. While a number of underlying mechanisms are consistent with the morphology of the high-latitude features in NGC 5433, we argue that environmental effects may play a role in their generation.Comment: 18 pages including 10 figures. Accepted for publication in MNRAS. For higher resolution Fig. 1, see http://www.astro.cornell.edu/~spekkens/papers/ v2: Proof-corrected cop

Is Habit a Powerful Policy Instrument to Induce Prosocial Behavioral Change?

Recent literature suggests the power of interventions to change habits. In a dense slum in Nairobi, we adopt best practices from the habit literature to encourage toilet use instead of alternatives that damage community health. Offering subsidies increased toilet usage, effects continue for one month after discounts end, but erode thereafter. Treatments designed to induce habit formation (marketing, time-limited discounts encouraging repetition, discounts for longer periods, targeting `habitual types’) generated no greater persistence. We see some persistent behavior change due to learning about the new toilet option. It appears difficult to induce pro-social behavior without private benefits through habit change

The "CAPS" Prediction System and Stock Market Returns

We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the "CAPS" website run by the Motley Fool company (www.caps.fool.com). These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period. These results are mostly driven by the fact that negative picks on the site strongly predict future stock price declines; positive picks on the site produce returns that are statistically indistinguishable from the market. A Fama French decomposition suggests that these results are largely due to stock-picking rather than style factors or market timing.