Findings

The market has decided

Kevin Lewis

October 30, 2018

Hidden Persuaders: Do Small Gifts Lubricate Business Negotiations?
Michel André Maréchal & Christian Thöni
Management Science, forthcoming

Abstract:

Gift-giving customs are ubiquitous in social, political, and business life. Legal regulation and industry guidelines for gifts are often based on the assumption that large gifts potentially influence behavior and create conflicts of interest, but small gifts do not. However, scientific evidence on the impact of small gifts on business relationships is scarce. We conducted a natural field experiment in collaboration with sales agents of a multinational consumer products company to study the influence of small gifts on the outcome of business negotiations. We find that small gifts matter. On average, sales representatives generate more than twice as much revenue when they distribute a small gift at the onset of their negotiations. However, we also find that small gifts tend to be counterproductive when purchasing and sales agents meet for the first time, suggesting that the nature of the business relationship crucially affects the profitability of gifts.


Target the Ego or Target the Group: Evidence from a Randomized Experiment in Proactive Churn Management
Miguel Godinho de Matos, Pedro Ferreira & Rodrigo Belo
Marketing Science, forthcoming

Abstract:

We propose a new strategy for proactive churn management that actively uses social network information to help retain consumers. We collaborate with a major telecommunications provider to design, deploy, and analyze the outcomes of a randomized control trial at the household level to evaluate the effectiveness of this strategy. A random subset of likely churners were selected to be called by the firm. We also randomly selected whether their friends would be called. We find that listing likely churners to be called reduced their propensity to churn by 1.9 percentage points from a baseline of 17.2%. When their friends were also listed to be called, their likelihood of churn reduced an additional 1.3 percentage points. The client lifetime value of likely churners increased 2.1% with traditional proactive churn management, and this statistic becomes 6.4% when their friends were also listed to be called by the firm. We show that, in our setting, likely churners receive a signal from their friends that reduces churn among the former. We also discuss how this signal may trigger mechanisms akin to both financial comparisons and conformity that may explain our findings.


Managerial Myopia and Product Market Reputation: Evidence from Amazon.com Reviews
Tyson Van Alfen
University of Kentucky Working Paper, August 2018

Abstract:

Using a novel dataset of customer reviews from Amazon.com, I study the impact of managerial myopia on product market reputation. Using exogenous variation due to the timing of CEO equity vesting events, I show that short-term incentive shocks predict declines in reputation. A changing product market lineup and a deterioration of existing products are two mechanisms through which reputation is affected. The effect is larger when the CEO has other short-term concerns and when the firm has a low reputation in the product market. However, higher advertising expenses mitigate the negative reputational effect among consumers. Using an alternative empirical methodology, I find that higher short-term ownership in the firm is also associated with declining product market reputation, while higher long-term ownership is associated with increasing reputation.


Computer Vision and Real Estate: Do Looks Matter and Do Incentives Determine Looks
Edward Glaeser, Michael Scott Kincaid & Nikhil Naik
NBER Working Paper, October 2018

Abstract:

How much does the appearance of a house, or its neighbors, impact its price? Do events that impact the incentives facing homeowners, like foreclosure, impact the maintenance and appearance of a home? Using computer vision techniques, we find that a one standard deviation improvement in the appearance of a home in Boston is associated with a .16 log point increase in the home’s value, or about $68,000 at the sample mean. The additional predictive power created by images is small relative to location and basic home variables, but external images do outperform variables collected by in-person home assessors. A home’s value increases by .4 log points, when its neighbor’s visually predicted value increases by one log point, and more visible neighbors have a larger price impact than less visible neighbors. Homes that went through foreclosure during the 2008-09 financial crisis experienced a .04 log point decline in their appearance-related value, relative to comparable homes, suggesting that foreclosures reduced the incentives to maintain the housing stock. We do not find more depreciation of appearance in rental properties, or more upgrading of appearance by owners before resale.


Consumer Responses to Corporate Tax Planning
Scott Asay et al.
University of Iowa Working Paper, July 2018

Abstract:

Prior research examines practitioner, investor, and executive perceptions of corporate tax planning. However, little is known about how the typical U.S. consumer views corporate tax planning. We examine consumers’ perceptions of corporate tax planning using both survey and experimental methods. First, we survey U.S. consumers and find that while most express negative preferences for tax planning, they rank it at the bottom of purchase decision factors. Few consumers recall ever seeing a negative media article about taxes. Thus, while consumers state a preference against corporate tax planning, that preference is not particularly strong. However, for the minority of consumers who have read negative articles about a firm’s tax planning, a significant portion claim to have changed their purchasing behavior accordingly. Second, we use an experiment to investigate the consumer effects of tax planning, randomly treating consumers with exposure to news about tax planning and imposing real economic consequences on the participants. We find that consumers exposed to negative tax information about a firm are significantly less likely to prefer receiving a gift card from that firm, suggesting that there is an effect of tax planning on consumer preferences even in the presence of a real economic consequence.


Determinants of Revenue in Sports Leagues: An Empirical Assessment
John Charles Bradbury
Economic Inquiry, forthcoming

Abstract:

This study investigates determinants of revenue in North America's four major professional sports leagues. Revenue is positively associated with on‐field success in baseball (MLB), basketball (NBA), and hockey (NHL), but not in football (NFL). The returns to success are not diminishing as commonly assumed, which casts doubt on the uncertainty of outcome hypothesis, and differences across leagues are consistent with revenue sharing arrangements. Estimates indicate a strong negative but diminishing relationship between stadium age and revenue. Teams in larger markets generate more revenue than smaller markets, but the returns to success do not differ according to market size.


The Effects of Downstream Competition on Upstream Innovation and Licensing
Jean-Etienne de Bettignies et al.
NBER Working Paper, October 2018

Abstract:

We study how competition between two downstream firms affects an upstream innovator's innovation strategy, which includes selecting how much innovation to produce and whether to license this innovation to one (targeted licensing) or both (market-wide licensing) downstream competitors. Our model points to a U-shaped relationship between downstream competition and upstream innovation: at low levels of competition, market-wide licensing is optimal and competition reduces innovation, while at high levels of competition targeted licensing is optimal and competition increases innovation. Empirical analysis using a large panel of US data provides clear support for these predictions linking competition, innovation and licensing.


Identity Threats, Compensatory Consumption, and Working Memory Capacity: How Feeling Threatened Leads to Heightened Evaluations of Identity-Relevant Products
Nicole Verrochi Coleman, Patti Williams & Andrea Morales
Journal of Consumer Research, forthcoming

Abstract:

Despite abundant work documenting consumers’ reliance on symbolic self-completion after experiencing a self-discrepancy, surprisingly little research has investigated the underlying psychological processes that drive this type of compensatory consumption. This paper addresses this critical gap, demonstrating that self-discrepancies triggered by identity threats reduce working memory capacity (WMC), and these reductions in WMC mediate compensatory consumption. Consumers process identity-relevant products more positively than neutral products, establishing a causal chain between self-threats, WMC, and compensatory consumption. In addition, identity-consistent experiences facilitate increases in WMC. Importantly, by utilizing negative emotions as the source of self-threat, this paper also demonstrates that identity-inconsistent emotions can serve as a source of threat that is not only impactful, but easily manipulated by managers through advertisements.


Learning from Mixed Signals in Online Innovation Communities
Christoph Riedl & Victor Seidel
Organization Science, forthcoming

Abstract:

We study how contributors to innovation contests improve their performance through direct experience and by observing others as they synthesize learnable signals from different sources. Our research draws on a 10-year panel of more than 55,000 individuals participating in a firm-hosted online innovation community sponsoring creative t-shirt design contests. Our data set contains almost 180,000 submissions that reflect signals of direct performance evaluation from both the community and the firm. Our data set also contains almost 150 million ratings that reflect signals for learning from observing the completed work of others. We have three key findings. First, we find a period of initial investment with decreased performance. This is because individuals struggle to synthesize learnable signals from early performance evaluation. This finding is contrary to other studies that report faster learning from early direct experience when improvements are easiest to achieve. Second, we find that individuals consistently improve their performance from observing others’ good examples. However, whether they improve from observing others’ bad examples depends on their ability to correctly recognize that work as being of low quality. Third, we find that individuals can successfully integrate signals about what is valued by the firm hosting the community, not just about what is valued by the community. We thus provide important insights into the mechanisms of how individuals learn in crowdsourced innovation and provide important qualifications for the often-heralded theme of “learning from failures.”


Preaching to the Choir: The Chasm Between Top-Ranked Reviewers, Mainstream Customers, and Product Sales
Elham Yazdani, Shyam Gopinath & Steve Carson
Marketing Science, forthcoming

Abstract:

The main objective in this paper is to study the effect of reviews by top- and bottom-ranked reviewers on product sales. We use designated market area sales data for 182 new music albums released over an approximately three-month period along with user review data from Amazon.com. Our estimation accounts for confounding factors in the effects of online word-of-mouth measures via the use of instrumental variables. There are several key insights. Overall, we find that bottom-ranked reviewers have a greater effect on sales than top-ranked reviewers. Top-ranked reviewers can be opinion leaders, but their influence is largely limited to special cases like very new products or products with high variance in existing reviews. Additional analysis reveals that the differences in the influence of top- and bottom-ranked reviewers is driven by both what they write (content) and who they are (identity). The results are robust across multiple product categories (music and cameras) and multiple dependent variables (sales and sales rank).


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