Caveat emptor
Silvia Bellezza, Joshua Ackerman & Francesca Gino
Harvard Working Paper, April 2015
Abstract:
Consumers are often faced with the opportunity to purchase a new, enhanced product (e.g., a new phone), even though the device they currently own is still fully functional. We propose that consumers act more recklessly with their current products and are less concerned about losing or damaging them when in the presence of appealing product upgrades. Careless behaviors and cognitions toward currently owned products stem from a desire to justify the attainment of upgrades without appearing wasteful. A series of studies with actual owners of a wide array of durable goods and evidence from a real-word dataset of lost Apple iPhones demonstrate how the availability of product upgrades increases cavalier behavior toward possessions. These patterns are moderated by motivation to attain the upgrade, such that consumers who are particularly interested in upgrading will be more careless with owned products relative to individuals who are less interested in upgrading. Moreover, we demonstrate that product neglect in the presence of upgrades can occur without explicit, careless intentions. Finally, theoretical and managerial implications of these findings are discussed.
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The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry
Itai Ater & Eugene Orlov
Review of Economics and Statistics, March 2015, Pages 180-194
Abstract:
We argue that the rise of online travel agencies changed the nature of competition in the airline industry - from competition on elapsed scheduled flight times to price competition. Using flight-level data between 1997 and 2007 and geographical Internet growth patterns, we find a positive relationship between Internet access and flight times. The magnitude of this relationship is larger in competitive markets without low-cost carriers and for flights with shortest scheduled times. We also find that flight delays increased as more passengers gained Internet access. These findings suggest that the Internet may adversely affect firms' performance and incentives to provide high-quality products.
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Peggy Liu, Cait Lamberton & Kelly Haws
Journal of Marketing, May 2015, Pages 74-90
Abstract:
Firms commonly add small financial benefits to communications designed to acknowledge consumers' loyalty or support. But is it always better to provide some financial benefit as opposed to simply saying "thank you?" Although this question has important implications for customer relationship management, little research provides an answer. This paper demonstrates that, in fact, a financial acknowledgment (defined herein as an acknowledgment with a monetary benefit) can lead to less positive outcomes than offering a verbal acknowledgement (defined herein as an acknowledgment without a monetary benefit), a phenomenon termed the "trivialization effect." Results explain this effect in terms of shifting evaluation standards: whereas a verbal acknowledgement is evaluated relative to verbal gratitude expression norms, a financial acknowledgment is evaluated relative to both verbal norms and customers' monetary expectations. The authors also demonstrate two practical, theory consistent ways in which firms can structure financial acknowledgments to eliminate the trivialization effect. Thus, this research shows both the peril of small financial benefits as a means of expressing customer appreciation and practical, low-cost ways to salvage their potential.
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Music piracy: Bad for record sales but good for the iPod?
Tin Cheuk Leung
Information Economics and Policy, June 2015, Pages 1-12
Abstract:
Music piracy is a double-edged sword for the music industry. On the one hand, it hurts record sales. On the other hand, it increases sales of its complements. To quantify the effect of music piracy, I construct a unique survey data set and use a Bayesian method to estimate the demand for music and iPods, and find three things. First, music piracy decreases music sales by 24% to 42%. Second, music piracy contributes 12% to iPod sales. Finally, counterfactual experiments show that, if music were free, the increase in Apple's profits from iPod can more than compensate the loss of musicians. The last result implies that a Pareto improving iPod tax is possible.
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Consumers, Experts, and Online Product Evaluations: Evidence from the Brewing Industry
Grant Jacobsen
Journal of Public Economics, forthcoming
Abstract:
The growth of the Internet has led to a dramatic increase in the number of consumer or "user" product ratings, which are posted online by individuals who have consumed a good, and are available to other individuals as they make decisions about which products to purchase. These ratings have the potential to substantially improve the match between products and consumers, however the extent to which they do so likely depends on whether the ratings reflect actual consumer experiences. This paper evaluates one potential source of bias in consumer ratings: mimicry of the reviews of experts. Using a rich dataset on consumer product ratings from the brewing industry and a regression discontinuity empirical framework, I show that expert reviews influence consumer ratings. Consumer ratings fall in response to negative expert reviews and increase in response to positive expert reviews. The results are most pronounced for strongly negative or strongly positive expert reviews. This mimicry limits the extent to which information on product quality from actual consumer experiences diffuses to the population. I suggest that "nudges" could be implemented to limit the extent to which mimicry affects ratings.
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The Effect of Competition on eBay
Peter Newberry
International Journal of Industrial Organization, forthcoming
Abstract:
I examine the effect of competition on eBay Motors. I specify a simple model of auction choice and show that the expected transaction price falls with an increase in the number of competitors. I then test for this effect using data from 5,500 auctions for Chevrolet Corvettes. To address potential endogeneity of the level of competition, I introduce an instrument which takes advantage of the unique features of eBay. Results indicate that an additional competitor leads to a 6% reduction in the final transacted price ($960 for the average car). Further, I provide evidence that this effect is due to the thinning of the bidder market rather than dynamic bidding.
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The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending
Robert Phillips, Serdar Şimşek & Garrett van Ryzin
Management Science, forthcoming
Abstract:
In many markets, it is common for headquarters to create a price list but grant local salespeople discretion to negotiate prices for individual transactions. How much (if any) pricing discretion headquarters should grant is a topic of debate within many firms. We investigate this issue using a unique data set from an indirect lender with local pricing discretion. We estimate that the local sales force adjusted prices in a way that improved profits by approximately 11% on average. A counterfactual analysis shows that using a centralized, data-driven pricing optimization system could improve profits even further, up to 20% over those actually realized. This suggests that centralized pricing - if appropriately optimized - can be more effective than field price discretion. We discuss the implications of these findings for auto lending and other industries with similar pricing processes.
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The Chief Marketing Officer Matters!
Frank Germann, Peter Ebbes & Rajdeep Grewal
Journal of Marketing, May 2015, Pages 1-22
Abstract:
Marketing academics and practitioners alike remain unconvinced about the Chief Marketing Officer's (CMO's) performance implications. While some propose that firms benefit financially from having a CMO in the C-Suite, others conclude that the CMO has little or no effect on firm performance. Accordingly, strong calls for additional academic research regarding the CMO's performance implications exist. In response to these calls, we employ model specifications with varying identifying assumptions (i.e., rich data models, unobserved effects models, instrumental variable models, and panel internal instruments models) and use data from up to 155 publically traded firms over a 12 year period (i.e., 2000 - 2011) to find that firms can indeed expect to benefit financially from having a CMO at the strategy table. Specifically, our findings suggest that the performance (measured in terms of Tobin's q) of the sample firms that employ a CMO is, on average, about 15% greater than that of the sample firms that do not employ a CMO. This result appears to be quite robust to the type of model specification used. Marketing academics and practitioners should find our results intriguing given the existing uncertainty surrounding the CMO's performance implications. We also contribute to the methodology literature by collating diverse empirical model specifications, which can be used to model causal effects with observational data, into a coherent and comprehensive framework.
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Pay-What-You-Want or Mark-Off-Your-Own-Price - A Framing Effect in Customer-Selected Pricing
Marina Schröder, Annemarie Lüer & Abdolkarim Sadrieh
Journal of Behavioral and Experimental Economics, forthcoming
Abstract:
We conduct a natural field experiment to test for the effect of framing on prices paid in two customer-selected price mechanisms. In two framing conditions, we sell a soft drink and provide customers with a reference price for this drink. In the pay-what-you-want (PWYW) condition, customers are told that they can pay much as they want. In the mark-off-your-own-price (MOYOP) condition, customers are told that they can reduce the price by as much as they want. We find that prices are significantly lower and that more customers choose a price of zero in the MOYOP compared to the PWYW condition. We conjecture that the explicit request to reduce the price in MOYOP is a strong signal for customers to adjust their perception of the appropriate price downwards.
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Jeff Joireman et al.
Journal of Public Policy & Marketing, Spring 2015, Pages 32-49
Abstract:
The present research investigates whether corporate social responsibility (CSR) reduces negative and promotes positive responses to service failures among value-aligned customers. Study 1 shows that customers are less likely to experience anger and spread negative word of mouth following a service failure when a firm engages in high (donating 15% of profits to environmental conservation) but not low (donating 2% of profits) levels of environmental CSR, but only if customers are high in environmental concern. In Study 2, the authors explore the benefits of CSR policies that target a broader range of beneficiaries versus policies that offer customers a choice over the firm's CSR allocations. Compared with a no-CSR policy, CSR with choice has a stronger effect on customers' emotions and intentions by enhancing perceived value alignment, reducing anger and regret over choosing the firm, and increasing guilt over harming the firm. These emotions subsequently reduce negative word of mouth and increase positive word of mouth and repurchase intentions. The results support the benefits of value-aligned and choice-based CSR policies in the wake of service failures.
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Woodrow Eckard
Journal of Sports Economics, forthcoming
Abstract:
The uncertainty-of-outcome hypothesis (UOH) posits that sports fans value competitive contests, implying that competitive imbalance within a league will motivate stronger teams to leave. Testable hypotheses can be formulated utilizing the many college football conference realignments over the last century. The results support the UOH. For example, schools leaving an existing conference to form a new major conference, or join a preexisting one, were on average stronger than their former associates in the years before their departure. Also, the number of seed conference championships won by departing schools generally exceeded their "fair share" under an equal-likelihood assumption.
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A Dollar for Your Thoughts: Feedback-Conditional Rebates on eBay
Luís Cabral & Lingfang (Ivy) Li
Management Science, forthcoming
Abstract:
We run a series of controlled field experiments on eBay where buyers are rewarded for providing feedback. Our results provide little support for the hypothesis of buyers' rational economic behavior: the likelihood of feedback barely increases as we increase feedback rebate values; also, the speed of feedback, bid levels, and the number of bids are all insensitive to rebate values. By contrast, we find evidence consistent with reciprocal buyer behavior. Lower transaction quality leads to a higher probability of negative feedback as well as a speeding up of such negative feedback. However, when transaction quality is low (as measured by slow shipping), offering a rebate significantly decreases the likelihood of negative feedback. All in all, our results are consistent with the hypothesis that buyers reciprocate the sellers' "good deeds" (feedback rebate, high transaction quality) with more frequent and more favorable feedback. As a result, sellers can "buy" feedback, but such feedback is likely to be biased.
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Classical Deviation: Organizational and Individual Status as Antecedents of Conformity
Rodolphe Durand & Pierre-Antoine Kremp
Academy of Management Journal, forthcoming
Abstract:
Beside making organizations look like their peers through the adoption of similar attributes (which we call alignment), this paper highlights the fact that conformity also enables organizations to stand out by exhibiting highly salient attributes key to their field or industry (which we call conventionality). Building on the conformity and status literatures, and using the case of major U.S. symphony orchestras and the changes in their concert programing between 1879 and 1969, we hypothesize and find that middle-status organizations are more aligned, and middle-status individual leaders make more conventional choices than their low- and high-status peers. In addition, the extent to which middle-status leaders adopt conventional programming is moderated by the status of the organization and by its level of alignment. This paper offers a novel theory and operationalization of organizational conformity, and contributes to the literature on status effects, and more broadly to the understanding of the key issues of distinctiveness and conformity.
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The Hidden Cost of Accommodating Crowdfunder Privacy Preferences: A Randomized Field Experiment
Gordon Burtch, Anindya Ghose & Sunil Wattal
Management Science, May 2015, Pages 949-962
Abstract:
Online crowdfunding has received a great deal of attention as a promising avenue to fostering entrepreneurship and innovation. Because online settings bring increased visibility and traceability of transactions, many crowdfunding platforms provide mechanisms that enable a campaign contributor to conceal his or her identity or contribution amount from peers. We study the impact of these information (privacy) control mechanisms on crowdfunder behavior. Employing a randomized experiment at one of the world's largest online crowdfunding platforms, we find evidence of both positive (e.g., comfort) and negative (e.g., privacy priming) causal effects. We find that reducing access to information controls induces a net increase in fund-raising, yet this outcome results from two competing influences - treatment increases willingness to engage with the platform (a 4.9% increase in the probability of contribution) and simultaneously decreases the average contribution (a $5.81 decline). This decline derives from a publicity effect, wherein contributors respond to a lack of privacy by tempering extreme contributions. We unravel the causal mechanisms that drive the results and discuss the implications of our findings for the design of online platforms.
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Consumer Heterogeneity and Paid Search Effectiveness: A Large-Scale Field Experiment
Thomas Blake, Chris Nosko & Steven Tadelis
Econometrica, January 2015, Pages 155-174
Abstract:
Internet advertising has been the fastest growing advertising channel in recent years, with paid search ads comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that were designed to measure the causal effectiveness of paid search ads. Because search clicks and purchase intent are correlated, we show that returns from paid search are a fraction of non-experimental estimates. As an extreme case, we show that brand keyword ads have no measurable short-term benefits. For non-brand keywords, we find that new and infrequent users are positively influenced by ads but that more frequent users whose purchasing behavior is not influenced by ads account for most of the advertising expenses, resulting in average returns that are negative.
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The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls
Lian Fen Lee, Amy Hutton & Susan Shu
Journal of Accounting Research, May 2015, Pages 367-404
Abstract:
We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing the firm to reputational damage, loss of future sales and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.