On sale
The Paradox of Publicity: How Awards Can Negatively Affect the Evaluation of Quality
Balázs Kovács & Amanda Sharkey
Administrative Science Quarterly, March 2014, Pages 1-33
Abstract:
Although increases in status often lead to more favorable inferences about quality in subsequent evaluations, in this paper, we examine a setting in which an increase to an actor’s status results in less favorable quality evaluations, contrary to what much of sociological and management theory would predict. Comparing thousands of reader reviews on Goodreads.com of 64 English-language books that either won or were short-listed for prestigious book awards between 2007 and 2011, we find that prizewinning books tend to attract more readers following the announcement of an award and that readers’ ratings of award-winning books tend to decline more precipitously following the announcement of an award relative to books that were named as finalists but did not win. We explain this surprising result, focusing on two mechanisms whereby signals of quality that tend to promote adoption can subsequently have a negative impact on evaluation. First, we propose that the audience evaluating a high-status actor or object tends to shift as a result of a public status shock, like an award, increasing in number but also in diverse tastes. We outline how this shift might translate into less favorable evaluations of quality. Second, we show that the increase in popularity that tends to follow a status shock is off-putting to some, also resulting in more negative evaluations. We show that our proposed mechanisms together explain the negative effect of status on evaluations in the context of the literary world.
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Digital complements or substitutes? A quasi-field experiment from the Royal National Theatre
Hasan Bakhshi & David Throsby
Journal of Cultural Economics, February 2014, Pages 1-8
Abstract:
Digital broadcast technologies have expanded the virtual capacity of live performing arts venues, but they have also raised concerns about possible cannibalisation of box office revenues. We report the results of a quasi-field experiment involving the Royal National Theatre’s live broadcasts of theatre to digital cinemas in the UK and find that, if anything, live broadcasts generate greater, not fewer, audiences at the theatre.
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Reviews without a Purchase: Low Ratings, Loyal Customers and Deception
Eric Anderson & Duncan Simester
Journal of Marketing Research, forthcoming
Abstract:
We document that approximately 5% of product reviews on the website of a large private label retailer are submitted by customers for which there is no record they have purchased the product they are reviewing. These reviews are significantly more negative than other reviews. They are also less likely to contain expressions describing the fit or feel of the items, but more likely to contain linguistic cues associated with deception. The reviews without confirmed transactions are written by over twelve thousand of the firm's best customers, who on average have each made over 150 purchases from the firm. This makes it very unlikely that the reviews are written by the employees or agents of a competitor, suggesting that deceptive reviews may not be limited to just the strategic actions of firms. Instead, the phenomenon may be far more prevalent, extending to individual customers who have no financial incentive to influence product ratings.
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Bob Fennis & Wolfgang Stroebe
Journal of Business Ethics, March 2014, Pages 109-120
Abstract:
Is self-disclosure of negative information a viable strategy for a company to lessen the damage done to consumer responses? Three experiments assessed whether self-disclosing negative information in itself lessened the damaging impact of this information compared to third-party disclosure of the same information. Results indicated that mere self-disclosure of a negative event positively affected consumers’ choice behavior, perceived company trustworthiness, and company evaluations compared to third-party disclosure. The effectiveness of the self-disclosure strategy was moderated by the initial reputation of a company, such that its impact was only observed for companies that had a poor reputation at the outset. For them, self-disclosure considerably lessened the impact of negative information compared to third-party disclosure. For companies that enjoyed a positive reputation, type of disclosure did not affect consumer responses. Mediation analysis showed that perceptions of company trustworthiness underlie the effects of the self-disclosure strategy on consumer judgment.
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Learning from Peers: Knowledge Transfer and Sales Force Productivity Growth
Tat Chan, Jia Li & Lamar Pierce
Marketing Science, forthcoming
Abstract:
We study how peers impact worker productivity growth among salespeople in the cosmetics department of a department store. We first exploit a shift assignment policy that creates exogenous variation in salespersons' peers each week to identify and quantify sources of worker learning. We find that peer-based learning is more important than learning-by-doing for individuals, and there is no evidence of forgetting. Working with high-ability peers substantially increases the long-term productivity growth of new salespeople. We then examine possible mechanisms behind peer-based learning by exploiting the multiple colocated firms in our setting that sell products with different task difficulties and compensate their sales forces using either team-based or individual-based compensation systems. The variation in incentives to compete and cooperate within and across firm boundaries, combined with variation in sales difficulty for different product classes, allows us to suggest two mechanisms behind peer-based learning: observing successful sales techniques of peers and direct teaching. Our paper advocates the importance of learning from one another in the workplace and suggests that individual peer-based learning is a foundation of both organizational learning curves and knowledge spillovers across firms.
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When Do Group Incentives for Salespeople Work?
Noah Lim & Hua Chen
Journal of Marketing Research, forthcoming
Abstract:
When should sales managers employ group incentives over individual incentives to motivate their sales force? Using economic experiments, the authors show that two-person group incentives can outperform individual incentives and that its relative efficacy depends on three important factors. First, the strength of social ties among the group members matters. Effort decisions in group-based incentives increase significantly when subjects socialize briefly before committing effort. Second, the design of the group incentive matters. For the group incentive to work better than the individual incentive, the group-based component (i.e., how much the payment scheme weights the contribution of others) in the former cannot be too large. Third, the informational feedback that group members receive matters. When group members who were socialized could observe each other's true effort, rather than just the output alone, effort surprisingly decreases. The authors show that a model that accounts for social preferences and psychological loss from having one's effort underestimated by teammates can explain salesperson behavior in group incentives well.
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Internet Penetration and Capacity Utilization in the US Airline Industry
James Dana & Eugene Orlov
American Economic Journal: Microeconomics, forthcoming
Abstract:
Airline capacity utilization increased dramatically between 1993 and 2007, after staying fairly level following deregulation. We argue that consumers' use of the Internet to investigate and purchase airline tickets reduces market frictions and allows airlines to meet demand with less capacity and higher load factors. We find that differences in the rate of change of metropolitan area Internet penetration are positively correlated with differences in the rate of change of airlines' airport-pair load factors. Consistent with our explanation, this correlation is greater on flights in more competitive markets and on flights with fewer total passengers.
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Are low-cost carrier passengers less likely to complain about service quality?
Michael Wittman
Journal of Air Transport Management, March 2014, Pages 64–71
Abstract:
Complaints made by airline passengers to the U.S. Department of Transportation (DOT) are often used in academic research and in the media as a proxy for the quality of commercial air service in the United States. In this paper, we test whether passengers of network carriers are more likely to make a complaint to the DOT about service quality failures than passengers of low-cost carriers. Through a fixed-effects regression, we find that passengers of low-cost carriers like Southwest Airlines are less likely to complain about service quality than passengers of network carriers like United Airlines, given the same levels of service quality and controlling for yearly fixed effects. This behavior could be explained by price-based expectations of service quality, lack of information about how to complain to the DOT, or qualitative differences in front-line customer service between airlines.
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Empirical Analysis of Data Breach Litigation
Sasha Romanosky, David Hoffman & Alessandro Acquisti
Journal of Empirical Legal Studies, March 2014, Pages 74–104
Abstract:
In recent years, many lawsuits have been filed by individuals seeking legal redress for harms caused by the loss or theft of their personal information. However, very little is known about the drivers, mechanics, and outcomes of those lawsuits, making it difficult to assess the effectiveness of litigation at balancing organizations' usage of personal data with individual privacy rights. Using a unique and manually collected database, we analyze court dockets for more than 230 federal data breach lawsuits from 2000 to 2010. We investigate two questions: Which data breaches are being litigated? and Which data breach lawsuits are settling? Our results suggest that the odds of a firm being sued are 3.5 times greater when individuals suffer financial harm, but 6 times lower when the firm provides free credit monitoring. Moreover, defendants settle 30 percent more often when plaintiffs allege financial loss, or when faced with a certified class action suit. By providing the first comprehensive empirical analysis of data breach litigation, our findings offer insight into the debate over privacy litigation versus privacy regulation.
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Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers
Robert Seamans & Feng Zhu
Management Science, February 2014, Pages 476-493
Abstract:
How do firms respond to entry in multi-sided markets? We address this question by studying the impact of Craigslist, a website providing classified-advertising services, on local U.S. newspapers. We exploit temporal and geographical variation in Craigslist's entry to show that newspapers with greater reliance on classified-ad revenue experience a larger drop in classified-ad rates after Craigslist's entry. The impact of Craigslist's entry on the classified-ad side appears to propagate to other sides of the newspapers' market. On the subscriber side, these newspapers experience an increase in subscription prices, a decrease in circulation, and an increase in differentiation from each other. On the display-ad side, affected newspapers experience a decrease in display-ad rates. We also find evidence that affected newspapers are less likely to make their content available online. Finally, we estimate that Craigslist's entry leads to $5.0 billion (year 2000 dollars) in savings to classified-ad buyers during 2000–2007.
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The effect of Internet distribution on brick-and-mortar sales
Andrea Pozzi
RAND Journal of Economics, Fall 2013, Pages 569–583
Abstract:
I examine the introduction of an online shopping service by a large supermarket chain also operating a network of brick-and-mortar stores. The establishment of the Internet channel led to a 13 percent increase in overall revenues, with limited cannibalization of traditional sales. I study the mechanisms underlying this result, focusing on two areas. First, I demonstrate the importance of the reduction of customers' travel costs in the attraction of new business. Second, I provide some evidence that revenues increase more in markets where the chain faces more competitors, suggesting that the online channel can help divert business from rival supermarkets.
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The Importance of the Raw Idea in Innovation: Testing the Sow's Ear Hypothesis
Laura Kornish & Karl Ulrich
Journal of Marketing Research, February 2014, Pages 14-26
Abstract:
How important is the original conception of an idea — the “raw” idea — to an innovation's success? In this article, the authors explore whether raw ideas judged as “better” fare better in the market and also determine the strength of that relationship. The empirical context is Quirky.com, a community-driven product development company for household consumer products. The data include descriptions of the raw ideas as originally proposed, the ultimate product designs that resulted from those ideas, and sales figures. In addition, they contain two measures of idea quality: those from online consumer panelists and those from expert evaluators. The authors note the following findings: First, online consumer panels are a better way to determine a “good” idea than are ratings by experts. Second, predictions with samples as small as 20 consumers are reliable. Third, there is a stronger predictive link between raw ideas and consumers' purchase intent of final product designs than there is between those intentions and market outcomes. Fourth, the commercial importance of the raw idea is large, with ideas one standard deviation better translating to an approximately 50% increase in sales rate.
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When to Sell Your Idea: Theory and Evidence from the Movie Industry
Hong Luo
Harvard Working Paper, December 2013
Abstract:
When to sell a novel idea is a difficult decision for many innovators. Selling early has financial benefits. But a later-stage sale of a more fully developed idea may attract greater buyer interest and allow the innovator to better protect his idea. I study the decision in a model that features a seller with private information and costly buyer participation. The empirical context of the study is the market for original movie ideas. Consistent with the theory, I find that inexperienced writers are excluded from selling early-stage ideas, restricting their choice to developing the idea fully or abandoning it. By contrast, writers who can attract buyers at any stage sell worse ideas earlier and better ideas later. The results have interesting implications not only for the timing of the sale of ideas, but also for the role of intellectual property protection and the value of intermediaries in the market for ideas.
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Cash is surprisingly valuable as a strategic asset
Changhyun Kim & Richard Bettis
Strategic Management Journal, forthcoming
Abstract:
Academics, politicians, and journalists are often highly critical of U.S. firms for holding too much cash. Cash holdings are stockpiled free-cash flow and incur substantial opportunity costs from the perspectives of economics. However, behavioral theory highlights the benefits of cash holdings as fungible slack resources facilitating adaptive advantages. We use the countervailing forces embodied in these two theories to hypothesize and test a quadratic functional relationship of returns to cash measured by Tobin's q. We also build and test a related novel hypothesis of scale-dependent returns to cash based on the competitive strategy concept of strategic deterrence. Tests for both of these hypotheses are positive and show that returns to cash continue to increase far beyond transactional needs.
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Product Market Competition and the Value of Corporate Cash: Evidence from Trade Liberalization
Azizjon Alimov
Journal of Corporate Finance, April 2014, Pages 122–139
Abstract:
This paper uses the 1989 Canada-U.S. Free Trade Agreement as a source of exogenous variation in product markets to establish the impact of increased competition on the market valuation of corporate cash reserves. I find that the trade liberalization leads to a significant increase in the value of cash for firms experiencing a larger shock to their competitive environment. The impact of the trade liberalization is stronger among firms that face greater risk of losing investment opportunities to rivals. I also show that these inferences about the valuation effect of competition apply more broadly to a large sample of firms.
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The Demand for Expert Opinion: Bordeaux Wine
Orley Ashenfelter & Gregory Jones
Journal of Wine Economics, December 2013, Pages 285-293
Abstract:
In this paper, we use unique data from the market for Bordeaux wine to test the hypothesis that consumers are willing to pay for expert opinion because it is accurate. Using proprietary indicators of the quality of the vintage, which are based on both publicly and privately available information, we find that additional publicly available information on the weather improves the expert's predictions of subsequent prices. This establishes that the expert opinions are not efficient, in the sense that they can be easily improved, and that these opinions must be demanded, at least in part, for some purpose other than their accuracy.