What's in store
Digital Goods Are Valued Less Than Physical Goods
Ozgun Atasoy & Carey Morewedge
Journal of Consumer Research, forthcoming
Digital goods are, in many cases, substantive innovations relative to their physical counterparts. Yet, in five experiments, people ascribed less value to digital than to physical versions of the same good. Research participants paid more for, were willing to pay more for, and were more likely to purchase physical goods than equivalent digital goods, including souvenir photographs, books (fiction and nonfiction), and films. Participants valued physical goods more than digital goods whether their value was elicited in an incentive compatible pay-what-you-want paradigm, with willingness to pay, or purchase intention. Greater capacity for physical than digital goods to garner an association with the self (i.e., psychological ownership), underlies the greater value ascribed to physical goods. Differences in psychological ownership for physical and digital goods mediated the difference in their value. Experimentally manipulating antecedents and consequents of psychological ownership (i.e., expected ownership, identity-relevance, perceived control) bounded this effect, and moderated the mediating role of psychological ownership. The findings show how features of objects influence their capacity to garner psychological ownership before they are acquired, and provide theoretical and practical insights for the marketing, psychology, and economics of digital and physical goods.
Advertising Spending and Media Bias: Evidence from News Coverage of Car Safety Recalls
Graham Beattie et al.
NBER Working Paper, October 2017
Do news media bias content in favor of advertisers? We examine the relationship between advertising by auto manufacturers in U.S. newspapers and news coverage of car safety recalls. This context allows us to separate the influence of advertisers, who prefer less coverage, from that of readers, who demand more. Consistent with theoretical predictions, we find that newspapers provide less coverage of recalls by their advertisers, especially the more severe ones. Competition for readers from other newspapers mitigates bias, while competition for advertising by online platforms exacerbates it. Finally, we present suggestive evidence that lower coverage increases auto fatalities.
At Your Service on the Table: Impact of Tabletop Technology on Restaurant Performance
Tom Tan & Serguei Netessine
University of Pennsylvania Working Paper, September 2017
Some industries such as healthcare and financial services have reported significant productivity gains from introduction of new technologies. However, more traditional, labor-intensive industries are lagging behind. We use granular data to examine the impact of a customer-facing technology (a tabletop device that facilitates the table service process) on the check size and meal duration aspects of restaurant performance. The restaurant chain in our study implemented tabletop devices in a staggered manner, offering us a quasi-experimental setting in which to apply a difference-in-difference technique and identify the causal effect of the technology. We find that the tabletop technology is likely to improve average sales per check by 2.91% and reduce the meal duration by 9.74%, which increases the sales per minute or sales productivity by approximately 10.77%. Various robustness checks of our empirical strategy and post-hoc analyses find that efficient customers, who have lower cost of adopting new technology, generate more sales and have shorter meal duration than the inefficient customers do. Tabletop technology allows low-ability waiters to improve their performance more significantly than high-ability waiters. Overall, our results indicate great potential for introducing tabletop technology in a large service industry that currently lacks digitalization.
Double Mental Discounting: When a Single Price Promotion Feels Twice as Nice
Andong Cheng & Cynthia Cryder
Journal of Marketing Research, forthcoming
This research finds that when a single gain has strong associations with multiple costs, consumers often mentally deduct that gain from perceived costs multiple times. For example, with some price promotions (e.g., spend $200 now and receive a $50 gift card to spend in the future), consumers mentally deduct the value of the price promotion from the cost of the first purchase when they receive the promotion, as well as from the cost of the second purchase when they use the promotion. Multiple mental deductions based on a single gain result in consumers’ perceptions that their costs feel lower than they actually are, and can trigger higher expenditures. This mental accounting phenomenon is referred to as “double mental discounting” is driven by the extent to which gains feel associated, or coupled, with multiple purchases. This paper also documents methods to decouple promotional gains from purchases, thus mitigating double mental discounting.
Auctions Versus Posted Prices in Online Markets
Jonathan Levin et al.
Journal of Political Economy, forthcoming
Auctions were very popular in the early days of internet commerce, but today online sellers mostly use posted prices. We model the choice between auctions and posted prices as a trade-off between competitive price discovery and convenience. Evidence from eBay fits the theory. We then show that the decline in auctions was not driven by compositional shifts, but by changing seller incentives. We estimate the demand facing sellers, and document falling sale probabilities and falling relative demand for auctions. Both favor posted prices; our estimates suggest the latter is more important for the auction decline. Survey evidence provides further support.
Market Thickness and Matching (In)efficiency: Evidence from a Quasi-Experiment
Jun Li & Serguei Netessine
University of Pennsylvania Working Paper, September 2017
Market thickness is a key parameter that can make or break a platform’s business model. Thicker markets can offer more opportunities for participants to meet and higher chances that a potential match would exist. However, they can also be vulnerable to potential search frictions. In this paper, using data from an online peer-to-peer holiday rental platform, we aim to identify and measure the causal impact of market thickness on matching efficiencies. In particular, we exploit an exogenous shock to market size caused by a one-time migration of listings from other platforms, which gave rise to a quasi-experimental design. We find that increased market thickness actually leads to lower matching efficiency. A 1% increase in market thickness results in a 0.13% decrease in matching probability. As a result, the platform lost 4.0% of potential matches due to the increased market size. We attribute the effect to increased search friction, which is especially prominent when the matching needs to take place within limited time. Within one month before travel, each additional inquiry made by the traveler will lead to a 34.0% increase in the average quoted price and a 68.3% decrease in matching rate, whereas it has barely any effect when the travel date is more than three months ahead. Our results offer insights for future empirical and theoretical research on matching market. They also highlight the importance for platform owners to watch out for increased search frictions as markets grow and invest in technologies to facilitate more efficient search.
What Makes Popular Culture Popular? Product Features and Optimal Differentiation in Music
Noah Askin & Michael Mauskapf
American Sociological Review, October 2017, Pages 910-944
In this article, we propose a new explanation for why certain cultural products outperform their peers to achieve widespread success. We argue that products’ position in feature space significantly predicts their popular success. Using tools from computer science, we construct a novel dataset allowing us to examine whether the musical features of nearly 27,000 songs from Billboard’s Hot 100 charts predict their levels of success in this cultural market. We find that, in addition to artist familiarity, genre affiliation, and institutional support, a song’s perceived proximity to its peers influences its position on the charts. Contrary to the claim that all popular music sounds the same, we find that songs sounding too much like previous and contemporaneous productions — those that are highly typical — are less likely to succeed. Songs exhibiting some degree of optimal differentiation are more likely to rise to the top of the charts. These findings offer a new perspective on success in cultural markets by specifying how content organizes product competition and audience consumption behavior.
The Value of Multidimensional Rating Systems: Evidence from a Natural Experiment and Randomized Experiments
Pei-Yu Chen, Yili Hong & Ying Liu
Management Science, forthcoming
Online product ratings offer information on product quality. Scholars have recently proposed the potential of designing multidimensional rating systems to better convey information on multiple dimensions of products. This study investigates whether and how multidimensional rating systems affect consumer satisfaction (measured by product ratings), based on both observational data and two randomized experiments. Our identification strategy of the observational study hinges on a natural experiment on TripAdvisor when the website started to allow consumers to rate multiple dimensions of the restaurants, as opposed to only providing an overall rating, in January 2009. We further obtain rating data on the same set of restaurants from Yelp, which controls for the unobserved restaurant quality over time and allows us to identify the causal effect using a difference-in-differences approach. Results from the econometric analyses show that ratings in a single-dimensional rating system have a downward trend and a higher dispersion, whereas ratings in a multidimensional rating system are significantly higher and convergent. Findings from two randomized experiments suggest that the multidimensional rating system helps consumers find products that better fit their preferences and increases the confidence of their choices. We also show that the observed results cannot be explained by the priming effect due to rating system interface or a list of other alternative explanations. The combined evidence from the natural experiment and randomized experiments support the view that the multidimensional rating system enhances rating informativeness and provide implications for designing online rating systems that help consumers match their preferences with product attributes.
The Name Game: How Naming Products Increases Psychological Ownership and Subsequent Consumer Evaluations
Jennifer Stoner, Barbara Loken & Ashley Stadler Blank
Journal of Consumer Psychology, forthcoming
Naming products is quite prevalent in American culture; however, we are not aware of any consumer research that explores the effects of this phenomenon. Across three studies, we demonstrate that when consumers name products, their evaluations of those products increase (e.g., attitudes, purchase intentions, willingness to accept). We find that name fit and creativity as well as subsequent psychological ownership drive this effect. We also demonstrate that the naming effect is quite robust — replicating across multiple products, presentation formats, and populations as well as persisting over time. These results contribute to consumer research by opening up a new substantive line of inquiry into the effects of naming products.
The economic advantages of chain organization
RAND Journal of Economics, Winter 2017, Pages 1103–1135
This article considers the rapid spread of chain firms in many industries. The conventional explanation is that chains generate economies of scale in costs. Alternatively, the structure of chains may enhance demand by helping firms develop reputations, among other reasons. I quantify the value of these explanations empirically with a large, detailed data set on the hotel industry, combining a reduced-form analysis of revenues with a structural estimation of firm costs. Revenue analysis shows substantial evidence of a large chain premium. Cost estimation shows that after accounting for unobserved heterogeneity, chain-affiliated firms receive no cost advantage relative to independent firms.
Advertising as a search deterrent
RAND Journal of Economics, Winter 2017, Pages 949–971
This article examines a monopoly firm's incentive to disclose information through advertising when consumers can choose between buying immediately and searching for additional information. Because sales drop when search reveals low match values to consumers, the firm has an incentive to deter search. We show that partial information disclosure emerges as a useful tool for search deterrence when search costs are low. Informative advertising and consumer search can be viewed as complements in producing information. Although transparency policies reduce search expenditures and improve purchase decisions, whether they are socially desirable depends on the magnitude of search costs.
Forecasting with Social Media: Evidence from Tweets on Soccer Matches
Alasdair Brown et al.
Economic Inquiry, forthcoming
Social media is now used as a forecasting tool by a variety of firms and agencies. But how useful are such data in forecasting outcomes? Can social media add any information to that produced by a prediction/betting market? We source 13.8 million posts from Twitter, and combine them with contemporaneous Betfair betting prices, to forecast the outcomes of English Premier League soccer matches as they unfold. Using a microblogging dictionary to analyze the content of Tweets, we find that the aggregate tone of Tweets contains significant information not in betting prices, particularly in the immediate aftermath of goals and red cards.