Show and tell
Do Airlines Pad Their Schedules?
Silke Forbes, Mara Lederman & Zhe Yuan
Review of Industrial Organization, February 2019, Pages 61–82
We analyze how schedule times, actual flight times and on-time performance have changed in the U.S. airline industry between 1990 and 2016. We find schedule times have increased in most years, with the largest increases after 2008. Actual flight times and total travel times have also increased but by less than schedule times and the gap has grown over time. This has resulted in reduced arrival delays even though flights are, in fact, taking longer to complete. We discuss the implications of these findings for quality provision and information disclosure within the airline industry.
Cancellation Policy as a Signal of Trust and Quality in the Sharing Economy: The Case of Airbnb
Lior Zalmanson, Davide Proserpio & Irit Nitzan
University of Southern California Working Paper, November 2018
We study the effect of cancellation policy settings on listing demand in the context of Airbnb, a popular home-sharing platform. We employ a difference in differences strategy to show that, contrary to previous findings in the traditional accommodation industry, listings with a strict cancellation policy have, on average, four percentage points higher demand than listings with a more lenient policy. We complement these findings with a survey of real Airbnb users aimed at understanding the mechanisms behind our results. We find that Airbnb guests perceive listings with a strict cancellation policy to be of higher quality and their host to be more trustworthy. These results suggest that the cancellation policy of a listing can act as a signal of quality and, in turn, can increase the listing demand. Overall, our findings suggest that sharing economy platforms like Airbnb do not only offer a new business model and value proposition, but they also have the potential to affect consumer behavior and their decision-making process in ways that are different from more traditional settings.
Mitigating the Negative Effects of Customer Anxiety through Access to Human Contact
Michelle Shell & Ryan Buell
Harvard Working Paper, February 2019
It is a well-established result in social psychology that when people feel anxious, they seek advice from others. However, increasingly companies that operate in high-anxiety settings (like financial services, health care, and education) are deploying self-service technologies (SSTs), through which anxious customers transact without human contact. The impact of customer anxiety on service relationships is neither well understood, nor consistently factored into service design. In this paper, two laboratory experiments and one field experiment, conducted in financial service contexts, document the negative effects of anxiety on customer choice satisfaction, firm trust, and long-term engagement, and explore the impact of giving self-service consumers the option to interact with a person. Participants engaged in an online investing simulation who are made to feel anxious due to market downturns are less satisfied with their choices and report lower levels of trust in the firm. Providing participants with the opportunity to interact with an expert, or even another participant, dampens anxiety’s negative effects on choice satisfaction and, by extension, firm trust. Interestingly, we find that very few participants who are offered the option to interact with a person take advantage of the opportunity, which is consistent with the idea that it is the mere availability of human contact that mitigates anxiety’s deleterious effects. Finally, in a field experiment conducted with a credit union’s self-service term loan approval process, the incorporation of access to human contact increased customer loan acceptance by 16%, suggesting that access to human contact can improve long-term service engagement.
A Tangled Web: Should Online Review Portals Display Fraudulent Reviews?
Uttara Ananthakrishnan, Beibei Li & Michael Smith
Carnegie Mellon University Working Paper, December 2018
The growing interest in online product reviews for legitimate promotion has been accompanied by an increase in fraudulent reviews. However, beyond algorithms for initial fraud detection, little is known about what review portals should do with fraudulent reviews after detecting them. In this paper, we address this question by studying how consumers respond to potentially fraudulent reviews and how review portals can leverage this knowledge to design better fraud management policies. To do this, we combine theoretical development from the trust literature with randomized experiments and statistical analysis using large-scale data from Yelp. We find that consumers tend to increase their trust in the information provided by review portals when the portal displays fraudulent reviews along with non-fraudulent reviews, as opposed to the common practice of censoring suspected fraudulent reviews. The impact of fraudulent reviews on consumers’ decision-making process increases with the uncertainty in the initial evaluation of product quality. We also find that consumers do not effectively process the content of fraudulent reviews (negative or positive). This result furthers the case for a decision heuristic that will incorporate the motivational differences between positive fraudulent reviews and negative fraudulent reviews to effectively aid consumers' decision making.
Advertising Exposure and Portfolio Choice: Estimates Based on Sports Sponsorships
University of Oregon Working Paper, February 2019
Product market advertising, by acting as a costly signal of quality, is thought to increase the demand for a company's stock as well as its products. I construct a dataset of publicly traded sports sponsors in the US and develop an instrument for investor exposure to advertising via these sponsorships. I show that investors living in a city where major professional sports teams are sponsored by a given company, local or non-local, are more likely to purchase stocks in that company. The portfolio effects from sports sponsorships are large and suggest that advertising is even more important than local bias.
The Performance Measurement Trap
Dmitri Kuksov & Miguel Villas-Boas
Marketing Science, January-February 2019, Pages 68–87
This paper investigates the effect of performance measurement on the optimal effort allocation by salespeople when firms are concerned about retention of salespeople with higher abilities. It shows that introducing a salesperson performance measurement may result in productivity, profit, and welfare losses when all market participants optimally respond to the expected information provided by the measurement and the (ex post) optimal retention efforts of the firm cannot be (ex ante) contractually prohibited. In other words, the dynamic inconsistency of the management problems of inducing the desired effort allocation by the salespeople and the subsequent firm objective to retain high-ability salespeople may result in performance measurement yielding an inferior outcome.
Explaining the Popularity of Cultural Elements: Networks, Culture, and the Structural Embeddedness of High Fashion Trends
Frédéric Godart & Charles Galunic
Organization Science, forthcoming
When organizations strategically adopt cultural elements — such as a name, a color, or a style — to create their products, they make crucial choices that position them in markets vis-à-vis competitors, audiences, and other stakeholders. However, although it is well understood how one specific cultural element gets adopted by actors and diffuses, it is not yet clear how elements fare when considered within an industry choice-set of elements. Their popularity depends on idiosyncratic features (such as the category they belong to), or on structural factors such as their embeddedness (through connections to producers, audiences, or even other cultural elements). We develop an integrated perspective on the popularity of cultural elements in markets. We use a network perspective to show that the popularity of elements is fostered by being structurally embedded among many unconnected elements, in addition to not being affiliated to actors widely exposed in the media. We develop our study by using a unique data set of fashion stylistic elements in the global high-end fashion industry from 1998 to 2010.
Infringing Use as a Path to Legal Consumption: Evidence from a Field Experiment
Hong Luo & Julie Holland Mortimer
NBER Working Paper, January 2019
Copyright infringement may result from frictions preventing legal consumption, but may also reveal demand. Motivated by this fact, we run a field experiment in which we contact firms that are caught infringing on expensive digital images. Emails to all firms include a link to the licensing page of the infringed image; for treated firms, we add links to a significantly cheaper licensing site. Making infringers aware of the cheaper option leads to a fourteen-fold increase in the ex-post licensing rate. Two additional experimental interventions are designed to reduce search costs for (i) price and (ii) product information. Both interventions-immediate price comparison and recommendation of images similar to those infringed-have large positive effects. Our results highlight the importance of mitigating user costs in small-value transactions.