Knowing Your Customer
Local Political Preference and Digitization Effectiveness: Evidence from the Rapid Diffusion of Video Technology
Mohammad Rahman & James Reeder
Purdue University Working Paper, September 2025
Abstract:
This paper investigates how regional political preferences influence the effectiveness of digital transformation efforts in business-to-business (B2B) sales. We exploit the exogenous shock of COVID-19, which triggered a rapid and widespread shift to video-based selling, to examine whether political context moderates the performance of digitally delivered communication. Leveraging proprietary sales data from a national firm and linking it to county-level voting outcomes from the past five US presidential elections, we estimate a model with extensive controls for market, firm, and infrastructure characteristics. Our analysis reveals that in strong Republican-leaning counties, the use of video communication tools led to significantly lower sales performance relative to other counties. This effect is specific to digital channels and does not extend to traditional communication methods. We perform a battery of tests to rule out other candidate mechanisms, such as access to digital infrastructure and client-level characteristics, and find that the divide along party lines still holds. Using our estimates, we perform a counterfactual policy analysis to better understand the implications of regional political preference that moderates the effectiveness of digitization. From this exercise, we provide two findings: a targeted mixed strategy of both face-to-face and digital communications performs best and that the divide in digitization effectiveness is drawn mostly from those clients who have higher ties to the firm. These findings contribute to the literature on digital transformation and institutional context by demonstrating that political preferences can systematically shape technology effectiveness, with implications for firms seeking to optimize digital strategies across politically heterogeneous markets.
The Interplay Between Product Variety and Customer Retention: Theory and Evidence
Ulrich Kaiser, Reinhold Kesler & Markus Reisinger
Management Science, forthcoming
Abstract:
The optimal number of products to offer consumers is one of the core strategic problems that firms face. This is increasingly so in digital markets where many firms offer a large product variety. In these markets, consumers purchase products repeatedly, making customer retention an important aspect for firm performance. In this paper, we study the interplay between these two variables, product variety and customer retention. First, we provide a novel game-theoretic model to analyze this interplay and also determine how the optimal product variety depends on the market environment. Second, we provide suggestive evidence for our theoretical predictions using data for video games from Steam. Our data set allows us to measure the key variables in our game-theoretic model and additionally contains plausible instrumental variables for empirical identification. We show theoretically that investment in product portfolio size and investment in customer retention are substitutes because the former increases demand from switching consumers, whereas the latter increases the repurchase probability of current consumers. We then derive predictions on how market conditions determine a firm's product variety, for which we find evidence in our empirical analyses: there is (i) a negative relation between product portfolio size and customer retention, (ii) an inverted U-shaped relationship between market value and product variety, and (iii) a positive relation between consumer heterogeneity and product variety. Both our theoretical and empirical results are robust to a wide set of robustness checks.
Ads as Cues
Pedro Bordalo et al.
NBER Working Paper, October 2025
Abstract:
Why do we see both advertising and powerful consumer habits for well-known and intrinsically similar brands? We offer an explanation based on the idea that, as in Bordalo et al. (2020), a consumer is more likely to demand a good if she recalls the pleasure it gave her in the past. In turn, the consumer is more likely to recall goods that are consumed more frequently and more similar to cues, subject to interference from other goods. Our model yields context-dependent brand habits where ads work as memory cues. It predicts that ads: i) are more effective for more habitual consumers and ii) exhibit spillovers, within and across products, that are stronger for more habitual consumers and for goods with more similar ads. Using data from NielsenIQ and Nielsen we find support for these predictions in 20 undifferentiated and highly advertised product categories. Memory offers new insights on how advertising affects market competition and consumer welfare.
Multiple Unit Offers and Rate Calculations: How Rates Influence Price and Promotion Sensitivity
Daniel Villanova & Rajesh Bagchi
Journal of Marketing, forthcoming
Abstract:
Consumers are often faced with multiple unit offers (e.g., $40 for 5 lbs of coffee) in the marketplace and must figure out how to evaluate them. While the total price (e.g., $40) is always provided, the associated rate information is not (e.g., $8/lb for coffee). The focus of this research is on understanding the role that these rates play in influencing consumer decision-making. The authors find that regardless of whether rates are provided by managers or calculated by consumers, consumers are more sensitive to promotional offers with dollar per unit (vs. unit per dollar) rates because dollar per unit rates increase price salience. Additionally, when rate information is not provided, the authors document how these rates are computed by consumers. The authors find that consumers prefer to use the larger numerosity element as their rate's numerator, which leads to calculating units per dollar rates when the multiple unit offer's quantity is larger in numerosity than the price but dollars per unit rates when price is larger in numerosity than the quantity. The authors discuss theoretical, practical, and policy implications.
Engaging Customers with AI in Online Chats: Evidence from a Randomized Field Experiment
Shunyuan Zhang & Das Narayandas
Management Science, forthcoming
Abstract:
We examine how artificial intelligence (AI) affected the productivity of customer service agents and customer sentiment in online interactions. Collaborating with a meal delivery company, we conducted a randomized field experiment that exploited exogenous variation in giving agents access to AI-generated suggestions. We found that AI improved both the efficiency and effectiveness of the interactions: AI-assisted agents responded faster, engaged customers more deeply, and achieved greater improvements in customer sentiment. The benefits were most pronounced for less-experienced agents. However, AI's impact varied by conversation type: It improved efficiency and customer sentiment in subscription cancellation requests but was the least effective in repeat complaint scenarios because of systemic issues beyond the AI's capability. A text analysis of agent messages suggests that improved customer sentiment was explained by AI-assisted agents exhibiting higher levels of key response characteristics: empathy, information, and solution. Furthermore, we exploit a unique data feature: Customers first chatted with an automated chatbot without any human intervention before they were transferred to human agents (who may or may not have had AI assistance). We found that if customers who had experienced chatbot comprehension failures were then connected to AI-assisted human agents, the involvement of AI negatively affected customer sentiment. This is because unusually rapid responses in the latter scenario led customers to believe they were still communicating with a chatbot only, suggesting a spillover from their initial negative chatbot experiences. Companies should understand the conversation contexts, such as customer intent and chatbot interactions, when integrating AI into their customer support strategies.
List prices and "hot" real estate markets
Eric Schmidbauer & Dmitry Lubensky
Real Estate Economics, forthcoming
Abstract:
In this article, we develop a novel microfoundation for the dynamics of "hot" real estate markets, emphasizing the strategic role of list prices. Our model features partial seller commitment: sellers must accept offers at or above the list price but retain discretion to reject lower bids. This institutional feature gives rise to two key forces in equilibrium: a bid inflation effect, in which high-valuation buyers inflate their bids to improve their chance of acceptance, and a bid discouragement effect, in which marginal buyers strategically drop their bids well below list to avoid near-list rejections. These effects create a discontinuity in the bidding function and help account for why bids just below list are not often observed. We show that this behavior results in higher list prices, increased sales prices, and a higher sales-to-list price ratio as the number of buyers increases -- key indicators of a hot market. Unlike many traditional models, our framework allows for sales at, above, or below list price and sheds light on how bidding behavior and pricing respond to market conditions.
The Illusion of Victory: How Gambling Affinity Influences Extended-Warranty Decisions
Robert Schindler & Mathew Isaac
Journal of Public Policy & Marketing, forthcoming
Abstract:
An extended warranty is a commonly purchased financial product that involves the promise to reimburse the buyer of a durable good for repairs during the period of coverage. Although such product repairs are infrequently needed, nine studies (including three in the Web Appendix; six preregistered; N = 3,304) show that many consumers who choose to buy extended warranties expect that purchasing the warranty will ultimately prove to be a financially savvy decision (i.e., will provide a positive return on investment). Further, this tendency is more pronounced among consumers with greater affinity for gambling. The authors argue that this "illusion of victory" is a major factor in extended-warranty purchases, with important implications for consumer welfare. Given that extended warranties are disproportionately purchased by low-income consumers, societal benefits may be realized if financial products that protect consumers from small losses (vs. large, catastrophic losses) are clearly distinguished and governed by separate regulations.
Concealing Prices: How Delayed Price Disclosure Influences Consumer Purchase Decisions
Felipe Affonso et al.
Journal of Consumer Research, forthcoming
Abstract:
This article presents the first systematic empirical investigation into a longstanding question in retail: Is it better to display prices upfront or reveal them later in the purchase process? Two large-scale field studies demonstrate that delayed price disclosure can either increase or decrease sales. Supporting lab studies reveal that one plausible explanation is that a price delay allows price beliefs to shift consumers' internal reference prices upward or downward, creating either positive or negative price expectation disconfirmations when prices are revealed. When consumers anticipate prices should be expensive (e.g., from premium brands or upscale stores), a price delay allows price beliefs to shift price expectations upward, making purchases more likely when prices are revealed. Conversely, when consumers anticipate prices should be inexpensive (e.g., sales events or discount stores), a price delay allows price beliefs to shift price expectations downward, making purchases less likely when prices are revealed. Our findings offer retailers actionable insights on when to reveal prices to customers. In doing so, the authors contribute to the literature on price obfuscation and challenge the conventional wisdom that shopping experiences should always minimize friction.
The Redistributive Impact of Technological Innovation: Evidence from Used Car Auctions
Xiaogang Che, Tong Li & Jun Zhao
Vanderbilt University Working Paper, July 2025
Abstract:
Using eBay used car auction data, we examine the extent to which the Model 3 announcement impacts the prices and transaction quantities of sedan and hatchback vehicles. Our analysis reveals that while the average auction final price decreases significantly, the transaction quantity remains unaffected. We further find robust evidence indicating that the price decline primarily results from a decrease in buyers' willingness to pay, approximately 6 percent, driven by lowered expectations of the cars' future residual values. Exploiting the second-price auction structure, we recover private value distributions using order statistics and conduct welfare analysis without needing to estimate the level of competition. Despite significant valuation declines, consumer surplus remains unchanged, indicating that eBay's auction platform continues to support efficient price discovery. The entire welfare loss is absorbed by sellers, highlighting short-run supply inelasticity and the redistributive effect of innovation shocks in used durable goods markets.