/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

Econometric policy evaluation: A critique

We investigate the conventional wisdom that competition among interested parties attempting to influence a decision maker by providing verifiable information brings out all the relevant information. We find that, if the decision maker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties, competition may be unnecessary; while if the decision maker is unsophisticated or not well informed, competition is not generally sufficient. However, if the interested parties' interests are sufficiently opposed, or if the decision maker is seeking to advance the parties' decision maker's need for prior knowledge about the relevant variables and for strategic sophistication. In other settings, only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow defective decision making.

Relying on the Information of Interested Parties

Digital marketing: A framework, review and research agenda

In this paper, different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared. Demand estimates are used to compute price-cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed. The purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non-nested competing models. The models considered are (1) a simple linear pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios that allow for collusion, non-linear pricing, and strategic behaviour with respect to private label products. Using data on yogurt sold in several stores in a large urban area of the U.S. the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with non-linear pricing by the manufacturers or high bargaining power of the retailers.

/pdf/vertical-relationships-between-manufacturers-and-retailers-45xywo0wru.pdf

Vertical relationships between Manufacturers and Retailers: Inference with Limited Data

This paper investigates the economic value of online reviews for consumers and restaurants. We use a data set from Dianping.com , a leading Chinese website providing user-generated reviews, to study how consumers learn, from reading online reviews, the quality and cost of restaurant dining. We propose a learning model with three novel features: 1 different reviews offer different informational value to different types of consumers; 2 consumers learn their own preferences, and not the distribution of preferences among the entire population, for multiple product attributes; and 3 consumers update not only the expectation but also the variance of their preferences. Based on estimation results, we conduct a series of counterfactual experiments and find that the value from Dianping is about 7 CNY for each user, and about 8.6 CNY from each user for the reviewed restaurants in this study. The majority of the value comes from reviews on restaurant quality, and contextual comments are more valuable than numerical ratings in reviews.

/pdf/the-economic-value-of-online-reviews-2gk1r7wqkz.pdf

The Economic Value of Online Reviews

The authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state-dependent demand. Rather than assuming that firms are perfectl...

Bounded Rationality in Pricing under State-Dependent Demand: Do Firms Look Ahead, and if So, How Far?:

We investigate price competition between firms in markets characterized by consumer variety seeking. While previous research has addressed the effect of consumer inertia on prices, there exists no research on the effects of variety seeking on price competition. Our study fills this gap in the literature. Using a two-period duopoly framework as in Klemperer's analysis of inertial markets, we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking. Specifically, our variety-seeking model implies tacit collusion between firms in both periods, unlike the inertia model of Klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period. When consumers are assumed to have rational expectations about future prices, the implied first-period prices increase further, which is consistent with what Klemperer finds in an inertial market. To summarize, while our variety-seeking analyses support two key results (pertaining to second-period prices and rational expectations) previously derived for inertial markets by Klemperer, they depart from one key result (pertaining to first-period prices).

/pdf/price-competition-in-markets-with-consumer-variety-seeking-3c9tcbbz4u.pdf

Price Competition in Markets with Consumer Variety Seeking

The authors study the role of reference price in a setting in which both the price and the quantity are set through personal interaction during the transaction process, such as in business-to-business markets. Most studies on reference price in the marketing research literature focus on consumer packaged goods, for which prices are typically fixed during the shopping trip and the transaction does not involve personal interaction with a salesperson. In this study, the authors study the effect of reference price on the quantity purchased and also on the pricing outcome of the transaction. They estimate a simultaneous equation system of both pricing and quantity purchased. The findings are as follows: (1) Reference price effects exist on quantity purchased and on the transaction pricing outcome in business-to-business market transactions, (2) business customers react asymmetrically to price increases and price decreases, and (3) salespeople have their own reference prices that affect the transaction...

Role of Reference Price on Price and Quantity: Insights from Business-to-Business Markets

Out-of-stock (OOS) is commonly observed in the retail environment with consumer packaged goods, but there have been few empirical studies of the effects of OOS on consumer product choice, because there is a lack of OOS information during households' purchase occasions. The authors study the effects of OOS on consumer stockkeeping unit (SKU) preference and price sensitivity, using a unique data set from multiple consumer packaged goods categories with information on recurring OOS incidents. They obtain several substantive findings: (1) Consumers' price sensitivity tends to be underestimated when OOS is not accounted for in a discrete choice model; (2) for consumers who have shorter interpurchase time, their preference for a SKU is attenuated when it is frequently OOS; and (3) for consumers who purchase from a small number of SKUs, their preference for a SKU is reinforced when facing OOS of other similar SKUs, whereas it is attenuated when facing OOS of other similar and also frequently purchased S...

Hai Che

Papers

The Economic Value of Online Reviews

Bounded Rationality in Pricing under State-Dependent Demand: Do Firms Look Ahead, and if So, How Far?:

Price Competition in Markets with Consumer Variety Seeking

Role of Reference Price on Price and Quantity: Insights from Business-to-Business Markets

Investigating Effects of Out-of-Stock on Consumer Stockkeeping Unit Choice: