Selling
Do Low-Price Guarantees Guarantee Low Prices? Evidence from Competition between Amazon and Big-Box Stores
Ran Zhuo
Journal of Industrial Economics, December 2017, Pages 719-738
Abstract:
It has long been understood in theory that price-match guarantees can be anticompetitive, but to date, scant empirical evidence is available outside of some narrow markets. This paper broadens the scope of empirical analysis, studying a wide range of products sold on a national online market. Using an algorithm that extracts data from charts, I obtain a novel source of data from online price trackers. I examine prices of goods sold on Amazon before and after two big-box stores (Target and Best Buy) announced a guarantee to match Amazon's prices. Employing both difference-in-difference and regression-discontinuity approaches, I robustly estimate a positive causal effect of six percentage points. The effect was heterogeneous, with larger price increases for initially lower-priced items. My results support anticompetitive theories which predict price increases for Amazon, a firm that did not adopt the guarantee, and are consistent with plausible mechanisms for the heterogeneous impact.
The Effects of Media Slant on Firm Behavior
Vishal Baloria & Jonas Heese
Journal of Financial Economics, forthcoming
Abstract:
The media can impose reputational costs on firms because of its important role as an information intermediary and its ability to negatively slant coverage. We exploit a quasi-natural experiment that holds constant the information event across firms, but varies the availability of a major news outlet in local markets. We find that firms subject to the threat of slanted coverage suppress the release of negative information before the event and release it subsequently. Our results are consistent with theory on the active role firms can play in managing their reputational capital through anticipatory actions to avoid negative media coverage.
The Effects of Tipping on Consumers' Satisfaction with Restaurants
Michael Lynn
Journal of Consumer Affairs, forthcoming
Abstract:
This paper contributes to the policy debate about whether or not tipping should be outlawed by identifying the potential pros and cons of tipping from a consumer perspective and assessing their net effects in a field study that compares restaurant customer satisfaction under tipping and no-tipping systems. Recent changes in the restaurant chain Joe's Crab Shack's policies regarding tipping provided an opportunity to assess the effects of those changes on customer satisfaction. Analyses indicate that online ratings of the dining experience were reliably higher when the rated restaurants operated under a tipping system than when they operated under a no-tipping, service-inclusive pricing system. These findings provide an important counter-argument to those calling for the abolition of restaurant tipping.
Collective Action and Customer Service in Retail
Suresh Naidu & Adam Reich
ILR Review, forthcoming
Abstract:
This article examines the relationship between workplace collective action at a large retail employer and customers' perceptions of service. The authors show that increases in workplace collective action, as measured by signed labor organization membership cards, are associated with lower customer ratings of service, as measured by Yelp reviews. Drawing on qualitative interviews with 80 workers, the authors discuss several possible explanations for the negative association between worker organizing and customer service, arguing that this correlation poses an underappreciated obstacle for labor organizing in the service sector.
Last Place Aversion in Queues
Ryan Buell
Harvard Working Paper, December 2017
Abstract:
This paper investigates whether people exhibit last place aversion in queues and its implications for their experiences and behaviors in service environments. An observational analysis of customers queuing at a grocery store, and three online field experiments in which participants waited in virtual queues, revealed that waiting in last place diminishes wait satisfaction while increasing the probabilities of switching and abandoning queues. After controlling for other factors, people in last place were more than twice as likely to switch queues, which increased the duration of their wait and diminished their overall satisfaction. Moreover, people in last place were more than four times more likely to renege from queues, altogether giving up on the service for which they were queuing. The results indicate that this behavior is partially explained by the inability to make a downward social comparison; namely, when no one is behind a queuing individual, that person is less certain that continuing to wait is worthwhile. Furthermore, this paper provides evidence that queue transparency is an effective service design lever that managers can use to reduce the deleterious effects of last place aversion in queues. When people can't see that they're in last place, the behavioral effects of last place aversion are nullified, and when they can see that they're not in last place, the tendency to renege is greatly diminished.
Purchase, pirate, publicize: Private-network music sharing and market album sales
Jonathan Lee
Information Economics and Policy, forthcoming
Abstract:
I quantify the effects of private-network music sharing on aggregate album sales in the BitTorrent era using a panel of US sales and private-network downloads for 2109 albums during 2008. Exogenous shocks to the network's sharing constraints address the simultaneity problem. In theory, private-network activity could crowd out sales by building aggregate file sharing capacity or increase sales through word of mouth. I find evidence that private-network sharing results in decreased album sales for top-tier artists, though the economic impact is quite modest. However, private-network activity seems to help mid-tier artists. The results are consistent with claims that word of mouth is stronger for lesser-known artists and that digital sales are more vulnerable to increases in file sharing capacity. I discuss policy implications and alternatives to costly legal efforts to shut down private file sharing networks.
The Effect of Subscription Video-on-Demand on Piracy: Evidence from a Household-Level Randomized Experiment
Miguel Godinho de Matos, Pedro Ferreira & Michael Smith
Management Science, forthcoming
Abstract:
We partner with a major multinational telecommunications provider to analyze the effect of subscription video-on-demand (SVoD) services on digital piracy. For a period of 45 consecutive days, a group of randomly selected households who used BitTorrent in the past were gifted with a bundle of TV channels with movies and TV shows that could be streamed as in SVoD. We find that, on average, households that received the gift increased overall TV consumption by 4.6% and reduced Internet downloads and uploads by 4.2% and 4.5%, respectively. However, and also on average, treated households did not change their likelihood of using BitTorrent during the experiment. Our findings are heterogeneous across households and are mediated by the fit between the preferences of households in our sample for movies and the content available as part of the gifted channels. Households with preferences aligned with the gifted content reduced their probability of using BitTorrent during the experiment by 18% and decreased their amount of upload traffic by 45%. We also show using simulation that the size of the SVoD catalog and licensing window restrictions limit significantly the ability of content providers to match SVoD offerings to the preferences of BitTorrent users. Finally, we estimate that households in our sample are willing to pay at most $3.25 USD per month to access a SVoD catalog as large as Netflix's in the United States. Together, our results show that, as a stand-alone strategy, using legal SVoD to curtail piracy will require, at the minimum, offering content much earlier and at much lower prices than those currently offered in the marketplace, changes that are likely to reduce industry revenue and that may damage overall incentives to produce new content while, at the same time, curbing only a small share of piracy.
Location Still Matters: Evidence from an Online Shopping Field Experiment
John Morgan, David Ong & Zemin Zachary Zhong
Journal of Economic Behavior & Organization, February 2018, Pages 43-54
Abstract:
Many empirical studies of online price dispersion show that sellers post different prices for homogeneous goods. However, seller heterogeneity is difficult to control for and posted prices may not reflect price dispersion in actual transactions. We contribute to this literature by selling identical simple goods (cell phone credits) at different prices from sellers that were identical except in name and with minimal ratings. The only way consumers could find us in this extremely thick market is to rank by price from lowest to highest. Out of 514 sales, 73 were of the higher priced item, for which we had non-negligible demand even when the price gap was 2.5%. Thus, even this selected sample of price-sensitive consumers do not necessarily buy the lowest priced item, all else being equal. Using independent variation in screen location and price, we are able to distinguish for the first time between search cost and limited attention based price dispersion.
Is Cash King for Sales Compensation Plans? Evidence from a Large Scale Field Intervention
Madhu Viswanathan et al.
Journal of Marketing Research, forthcoming
Abstract:
The pervasive use of merchandise (i.e., non-cash) incentives in sales compensation plans is an empirical and theoretical puzzle given the supposed superiority of cash incentives in the standard theory (i.e., principal-agent models) and the scant, and contradictory empirical evidence. We conducted a large scale field intervention that switched 580 salespeople at a large frozen food manufacturer away from their cash plus " merchandise points" bonus to a commensurate all-cash bonus. After controlling for salesperson, seasonality, year, and target effects, we estimated that sales, on average, dropped by 4.36%. Further, we estimated individual-level sales changes and effort changes to validate our incentive-effort-sales causal chain. Our results show that the top salespeople experienced the largest drops. A post-intervention survey of social and individual difference variables reveals that salespeople from households with more discretionary financial resources, and those who think more abstractly about the uses of cash income exhibited smaller reductions in effort and sales. While the absence of a control group prevents us from making strong causal inferences, this set of results nevertheless provides descriptive and suggestive evidence for separate mental accounts as the most promising explanation for the greater utility provided by merchandise incentives.
Training Aspiring Entrepreneurs to Pitch Experienced Investors: Evidence from a Field Experiment in the United States
David Clingingsmith & Scott Shane
Management Science, forthcoming
Abstract:
Accredited investors finance more than 75,000 U.S. startups annually. We explain how training aspiring entrepreneurs to pitch their new business ideas to these investors affects their odds of continued funding discussions. We model accredited investors' decision to continue investigation as a real option whose value is a function of their experience and the information contained in the entrepreneurs' pitches. We derive four hypotheses from the model, which we test through a field experiment that randomly assigns pitch training at four elevator pitch competitions. The data support all four hypotheses and are inconsistent with alternative explanations.
Philanthropic Campaigns and Customer Behavior: Field Experiments on an Online Taxi Booking Platform
Jasjit Singh, Nina Teng & Serguei Netessine
Management Science, forthcoming
Abstract:
Firms commonly undertake philanthropic campaigns as a means of attracting and retaining customers. Such campaigns often take the form of charity-linked promotions, whereby a firm donates a specific amount to a charitable cause when a customer takes up the promotion through a related purchase. We carried out three field experiments to study such promotions in the context of an online taxi-booking platform. Customers were randomly assigned to different treatment groups, which received either a charity-linked or a discount-based promotion from a range of monetary amounts. Take-up rates for charity-linked promotions were not only much smaller than for discount-based promotions but also less sensitive to the exact amount involved, consistent with a view that the decision to take up a charity-linked promotion was driven in part by a "warm glow" from mere association with giving. We also find a selection effect in promotion take-up: charity-linked promotions were disproportionately taken up by people who had already been more active customers. Although a promotion take-up does seem to represent new demand rather than mere substitution of a booking that would have occurred anyway, longitudinal data analysis reveals little evidence of a lasting treatment effect on long-term demand beyond the promotion period for either kind of promotion. Given the high cost relative to benefit for the promotional bookings themselves, this finding raises concerns regarding the prevalent practice of firms devoting significant funds for short-term promotions without rigorously examining their exact impact.
Building a Social Network for Success
Asim Ansari et al.
Journal of Marketing Research, forthcoming
Abstract:
This paper proposes a framework for studying how a brand, firm, or an individual can use networking activities to manage a social network and drive its success. Using data from ego-networks of music artists, the paper models how artists can enhance their social networking presence and stimulate relationships between fans to achieve long-term benefits in terms of music plays. The authors use a Bayesian modeling framework to model the heterogeneous and dynamic impact of networking activities on network structure and on music popularity, while relying on instrumental variables from another independent online social network to handle potential endogeneity. The results imply that artists can shape network structure via marketing activities and thereby achieve a long-term impact on success that far exceeds the direct and short-term impact in magnitude. Specifically, improving the density of ego-networks enables long-term effects over and above those that stem from growth in network size. Furthermore, the relative effectiveness of activities can differ between the short and the long-term.