Selling out
Economic Value of Celebrity Endorsements: Tiger Woods' Impact on Sales of Nike Golf Balls
Kevin Chung, Timothy Derdenger & Kannan Srinivasan
Marketing Science, March/April 2013, Pages 271-293
Abstract:
In this paper we quantify the economic worth of celebrity endorsements by studying the sales of endorsed products. We do so with the use of two unique data sets consisting of monthly golf ball sales and professional golfer (celebrity) rankings. In particular, we examine the impact Tiger Woods had on sales of Nike golf balls. Our identification of the causal effect of a celebrity is grounded in the celebrity's random performance over time. Using two different approaches, reduced form and structural, we find that there are substantial celebrity endorsement effects. From our structural model, we determine that endorsements not only induce consumers to switch brands, a business stealing effect, but also have a primary demand effect. We determine that from 2000 to 2010, the Nike golf ball division reaped an additional profit of $103 million through the acquisition of 9.9 million in sales from Tiger Woods' endorsement effect. Moreover, having Tiger Woods' endorsement led to a price premium of roughly 2.5%. As a result, approximately 57% of Nike's investment in Woods' $181 million endorsement deal was recovered just in U.S. golf ball sales alone.
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Sales Mechanisms in Online Markets: What Happened to Internet Auctions?
Liran Einav et al.
NBER Working Paper, May 2013
Abstract:
Consumer auctions were very popular in the early days of internet commerce, but today online sellers mostly use posted prices. Data from eBay shows that compositional shifts in the items being sold, or the sellers offering these items, cannot account for this evolution. Instead, the returns to sellers using auctions have diminished. We develop a model to distinguish two hypotheses: a shift in buyer demand away from auctions, and general narrowing of seller margins that favors posted prices. Our estimates suggest that the former is more important. We also provide evidence on where auctions still are used, and on why some sellers may continue to use both auctions and posted prices.
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Damon Phillips, Catherine Turco & Ezra Zuckerman
American Journal of Sociology, January 2013, Pages 1023-1054
Abstract:
Why are some diversified market identities problematic but others are not? We examine this question in the context of high-status corporate law firms, which often diversify into one low-status area of work - family law (FL) - but face a barrier (strong disapproval from existing clients) that prevents diversification into another such area - plaintiffs' personal injury law (PIL). Drawing on a qualitative study of the Boston legal market, we argue that this barrier reflects a situation where loyalty norms have been violated, and it surfaces because service to individual plaintiffs is tantamount to betraying the interests of corporate clients. Our analysis clarifies identity-based limits to diversification, indicating that they are rooted in concerns about the firm's commitments as well as its capabilities, and suggests a more general refinement of theory on status and conformity.
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Consumer Biases and Mutual Ownership
Ryan Bubb & Alex Kaufman
Journal of Public Economics, September 2013, Pages 39-57
Abstract:
We show how ownership of the firm by its customers, as well as nonprofit status, can prevent firms from using contractual terms that take advantage of consumer biases. By eliminating an outside residual claimant with control over the firm, these alternatives to investor ownership reduce the incentive of the firm to offer such terms. However, customers who are unaware of their behavioral biases may fail to recognize this advantage of non-investor-owned firms. We present evidence from the consumer financial services market that supports our theory. Comparing contract terms, we find that mutually owned firms offer lower penalties, such as default interest rates, and higher up-front prices, such as introductory interest rates, than do investor-owned firms. However, consumers most vulnerable to these penalties are no more likely to use mutually owned firms.
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More is Less: Why Parties May Deliberately Write Incomplete Contracts
Maija Halonen-Akatwijuka & Oliver Hart
NBER Working Paper, April 2013
Abstract:
Why are contracts incomplete? Transaction costs and bounded rationality cannot be a total explanation since states of the world are often describable, foreseeable, and yet are not mentioned in a contract. Asymmetric information theories also have limitations. We offer an explanation based on "contracts as reference points". Including a contingency of the form, "The buyer will require a good in event E", has a benefit and a cost. The benefit is that if E occurs there is less to argue about; the cost is that the additional reference point provided by the outcome in E can hinder (re)negotiation in states outside E. We show that if parties agree about a reasonable division of surplus, an incomplete contract can be strictly superior to a contingent contract.
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Customer Satisfaction, Competition, and Firm Performance: An Empirical Investigation
Daniel Simon & Miguel Gómez
Managerial and Decision Economics, forthcoming
Abstract:
We conduct two empirical studies to test two hypotheses: (1) rivals' customer satisfaction increases a firm's own customer satisfaction; and (2) rivals' customer satisfaction reduces a firm's sales. Study One uses a panel dataset of annual store-level customer satisfaction data from a supermarket chain for the periods 1998-2001. Study Two considers a range of industries by using a panel dataset of brand-level customer satisfaction ratings from the American Customer Satisfaction Index spanning the periods 1994-2003. Results from both studies provide support for our hypotheses.
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The impact of credit scoring on consumer lending
Liran Einav, Mark Jenkins & Jonathan Levin
RAND Journal of Economics, Summer 2013, Pages 249-274
Abstract:
We study the adoption of automated credit scoring at a large auto finance company and the changes it enabled in lending practices. Credit scoring appears to have increased profits by roughly a thousand dollars per loan. We identify two distinct benefits of risk classification: the ability to screen high-risk borrowers and the ability to target more generous loans to lower-risk borrowers. We show that these had effects of similar magnitude. We also document that credit scoring compressed profitability across dealerships, and provide evidence consistent with the view that credit scoring may have substituted for varying qualities of local information.
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Corporate social responsibility and access to finance
Beiting Cheng, Ioannis Ioannou & George Serafeim
Strategic Management Journal, forthcoming
Abstract:
We investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to (1) reduced agency costs due to enhanced stakeholder engagement and (2) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. We provide evidence that both better stakeholder engagement and transparency around CSR performance are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables approach, and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and environmental dimension of CSR.
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Corporate Social Responsibility in the Banking Industry: Motives and Financial Performance
Meng-Wen Wu & Chung-Hua Shen
Journal of Banking & Finance, September 2013, Pages 3529-3547
Abstract:
The current study investigates the association between corporate social responsibility (CSR) and financial performance (FP), and discusses the driving motives of banks to engage in CSR. Three motives, namely, strategic choices, altruism, and greenwashing, suggest that the relationship between CSR and FP is positive, non-negative, and non-existent, respectively. We obtained our sample, which covered 2003 to 2009, from the Ethical Investment Research Service (EIRIS) databank and Bankscope database. The data consists of 162 banks in 22 countries. We then classified the banks into four types based on their degree of engagement in CSR. This study proposes the use of an extended version of the Heckman two-step regression, in which the first step adopts a multinomial logit model, and the second step estimates the performance equation with the inverse Mills ratio generated by the first step. The empirical results show that CSR positively associates with FP in terms of return on assets, return on equity, net interest income, and non-interest income. In contrast, CSR negatively associates with non-performing loans. Hence, strategic choice is the primary motive of banks to engage in CSR.
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Corporate social responsibility and stakeholder value maximization: Evidence from mergers
Xin Deng, Jun-koo Kang & Buen Sin Low
Journal of Financial Economics, forthcoming
Abstract:
Using a large sample of mergers in the US, we examine whether corporate social responsibility (CSR) creates value for acquiring firms' shareholders. We find that compared with low CSR acquirers, high CSR acquirers realize higher merger announcement returns, higher announcement returns on the value-weighted portfolio of the acquirer and the target, and larger increases in post-merger long-term operating performance. They also realize positive long-term stock returns, suggesting that the market does not fully value the benefits of CSR immediately. In addition, we find that mergers by high CSR acquirers take less time to complete and are less likely to fail than mergers by low CSR acquirers. These results suggest that acquirers' social performance is an important determinant of merger performance and the probability of its completion, and they support the stakeholder value maximization view of stakeholder theory.
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Paywalls and the Demand for News
Lesley Chiou & Catherine Tucker
Information Economics and Policy, June 2013, Pages 61-69
Abstract:
Given the preponderance of free content on the Internet, news media organizations face new challenges over how to manage access to and the pricing of their content. It is unclear whether content should be free or whether customers should pay via a "paywall." We use experimental variation from a media publisher's field test of paywalls to examine demand for online news across several local media markets. We find a 51 percent drop in visits after the introduction of a paywall and a far larger drop for younger readers.
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The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness
Henri Servaes & Ane Tamayo
Management Science, forthcoming
Abstract:
This paper shows that corporate social responsibility (CSR) and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures. For firms with low customer awareness, the relation is either negative or insignificant. In addition, we find that the effect of awareness on the CSR-value relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is consistent with the view that CSR activities can add value to the firm but only under certain conditions.
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Do Investors Value a Firm's Commitment to Social Activities?
Waymond Rodgers, Hiu Lam Choy & Andrés Guiral
Journal of Business Ethics, June 2013, Pages 607-623
Abstract:
Previous empirical research has found mixed results for the impact of corporate social responsibility (CSR) investments on corporate financial performance (CFP). This paper contributes to the literature by exploring in a two stage investor decision-making model the relationship between a firm's innovation effort, CSR, and financial performance. We simultaneously examine the impact of CSR on both accounting-based (financial health) and market-based (Tobin's Q) financial performance measures. From a sample of top corporate citizens, we find that: (1) a firm's social responsibility commitment (CSR) contributes to its financial performance; (2) after controlling for investment in innovation activities, CSR continues to have a positive impact on a firm's financial performance; (3) the customer dimension of CSR has a positive effect on both CFP measures, whereas the employee dimension indicates a significant impact only on financial heath; and (4) the community relation dimension of CSR only affects the market-based CFP measure of firms with high innovation intensity.
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Arpita Ghosh & Aaron Roth
Games and Economic Behavior, forthcoming
Abstract:
We study markets for private data using differential privacy. We consider a setting in which a data analyst wishes to buy information from a population from which he can estimate some statistic. The analyst wishes to obtain an accurate estimate cheaply, while the owners of the private data experience some cost for their loss of privacy. Agents are rational and we wish to design truthful mechanisms. We show that such problems can naturally be viewed and solved as variants of multi-unit procurement auctions. We derive auctions for two natural settings: 1. The analyst has a fixed accuracy goal and wishes to minimize his payments. 2. The analyst has a budget and wishes to maximize his accuracy. In both results, we treat each agentʼs cost for privacy as insensitive information. We then show that no individually rational mechanism can compensate individuals for the privacy loss incurred due to their reported valuations for privacy.
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An economic analysis of online streaming music services
Tim Paul Thomes
Information Economics and Policy, June 2013, Pages 81-91
Abstract:
Streaming music services represent the music industry's greatest prospective source of revenue and are well established among consumers. This paper presents a theory of a streaming music business model consisting of two types of services provided by a monopolist. The first service, which offers access free of charge, is of low quality and financed by advertising. The second service charges its users and is of high quality. The analysis demonstrates that if users are highly tolerant of commercials, the monopolist benefits from advertising funding and hence charges a high price to users of the fee-based service to boost demand for the advertising supported service. The analysis addresses the welfare consequences of such a business model and shows it is an effective policy for combating digital piracy.