scholarly journals Pricing Network Effects: Competition

2020 ◽  
Vol 12 (3) ◽  
pp. 1-32
Author(s):  
Itay P. Fainmesser ◽  
Andrea Galeotti
Keyword(s):  
Market Efficiency ◽  
Information Acquisition ◽  
Network Effects ◽  
Consumer Surplus ◽  
Consumer Product ◽  
Strategic Complements ◽  
Oligopoly Markets ◽  
Price Discriminate ◽  
Other Consumers

We study the practice of influencer marketing in oligopoly markets and its effect on market efficiency. In our model, each consumer is influenced by choices of a subset of other consumers. Firms gather information on consumers’ influence and price discriminate using this information. In equilibrium, firms charge premia/subsidize below-/ above-average-influential consumers; the premia/discounts depend on the strength of network effects and on how much information firms have on consumers’ influence. Influencer marketing leads to inefficient consumer-product matches. Firms’ investments in information are strategic complements, leading to a race for information acquisition that erodes welfare and firms’ profits but increases consumer surplus. (JEL D11, D21, D43, D83, D85, L13, M31)

scholarly journals ACCESS TO DIGITAL CAR DATA AND COMPETITION IN AFTERMARKET MAINTENANCE SERVICES

2020 ◽  
Vol 16 (1) ◽  
pp. 116-141
Author(s):  
Bertin Martens ◽  
Frank Mueller-Langer
Keyword(s):  
Real Time ◽  
Network Effects ◽  
Economies Of Scale ◽  
Service Providers ◽  
Data Access ◽  
Third Party ◽  
Similar Data ◽  
Time Data ◽  
Price Discriminate ◽  
Data Portability

Abstract Before the arrival of digital car data, car manufacturers had already partly foreclosed the maintenance market through franchising contracts with a network of exclusive official dealers. EU regulation endorsed this foreclosure but mandated access to maintenance data for independent service providers to keep competition in these markets. The arrival of digital car data upsets this balance because manufacturers can collect real-time maintenance data on their servers and send messages to drivers. These can be used to price discriminate and increase the market share of official dealers. There are at least four alternative technical gateways that could give independent service providers similar data access options. However, they suffer in various degrees from data portability issues, switching costs and weak network effects, and insufficient economies of scale and scope in data analytics. Multisided third-party consumer media platforms appear to be better placed to overcome these economic hurdles, provided that an operational real-time data portability regime could be established.

Decision Making Processes in Risky and Non-Risky Consumer Product Selection

1995 ◽  
Vol 39 (5) ◽  
pp. 356-360
Author(s):  
Cassie B. Barlow ◽  
Amy J. Hammond
Keyword(s):  
Decision Making ◽  
Oral Contraceptive ◽  
Information Search ◽  
Health Care Professionals ◽  
Information Acquisition ◽  
Gambling Behavior ◽  
Consumer Product ◽  
Product Selection ◽  
Decision Making Processes ◽  
Decision Tasks

Decision making in the domain of risk has traditionally been studied by examining gambling behavior. The control of outcome probabilities obtained in these paradigms masks much of the subjective nature of everyday risk decision choices, such as product selection and information search patterns. A study was undertaken to examine decision making processes in Risky and NonRisky consumer product decision tasks. Subjects completed two Information Display Board (IDB) decision tasks, one selecting a Risky consumer product (oral contraceptive) and one selecting a NonRisky consumer product (toothpaste). The results supported the hypotheses that consumers view the decisions to purchase risky and non-risky products differently and use different patterns of information acquisition in making decisions in the selection of these products. Few anticipated differences were found between Experienced and NonExperienced users of oral contraceptives in information acquisition. Implications for health care professionals providing oral contraceptive information to patients are discussed.

Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency

2011 ◽  
Vol 40 (1) ◽  
pp. 51-73 ◽  
Author(s):  
Dong Ook Choi ◽  
Jongeun Oh ◽  
Yeonbae Kim ◽  
Junseok Hwang
Keyword(s):  
Market Efficiency ◽  
Network Effects ◽  
Internet Portal

scholarly journals Consumer Scores and Price Discrimination

2019 ◽  
Vol 87 (2) ◽  
pp. 750-791 ◽  
Author(s):  
Alessandro Bonatti ◽  
Gonzalo Cisternas
Keyword(s):  
Willingness To Pay ◽  
Price Discrimination ◽  
Consumer Surplus ◽  
Equilibrium Price ◽  
Bayes Rule ◽  
Ratchet Effect ◽  
Disaggregated Data ◽  
Price Discriminate ◽  
Linear Aggregate ◽  
Demand Sensitivity

Abstract We study the implications of aggregating consumers’ purchase histories into scores that proxy for unobserved willingness to pay. A long-lived consumer interacts with a sequence of firms. Each firm relies on the consumer’s current score–a linear aggregate of noisy purchase signals—to learn about her preferences and to set prices. If the consumer is strategic, she reduces her demand to manipulate her score, which reduces the average equilibrium price. Firms in turn prefer scores that overweigh past signals relative to applying Bayes’ rule with disaggregated data, as this mitigates the ratchet effect and maximizes the firms’ ability to price discriminate. Consumers with high average willingness to pay benefit from data collection, because the gains from low average prices dominate the losses from price discrimination. Finally, hidden scores—those only observed by the firms—reduce demand sensitivity, increase average prices, and reduce consumer surplus, sometimes below the naive-consumer level.

The Perils of Personalized Pricing with Network Effects

2021 ◽  
Author(s):  
Bita Hajihashemi ◽  
Amin Sayedi ◽  
Jeffrey D. Shulman
Keyword(s):  
Network Effects ◽  
Consumer Surplus

This research shows when, why, and how network effects can make it such that price personalization reduces profit, demand, and consumer surplus.

scholarly journals Information Acquisition in Vertical Relations

2017 ◽  
Vol 17 (1) ◽  
Author(s):  
Pio Baake ◽  
Andreas Harasser ◽  
Friederike Heiny
Keyword(s):  
Supply Chain ◽  
Private Information ◽  
Information Acquisition ◽  
Market Demand ◽  
Strategic Complements ◽  
Market Conditions ◽  
Vertical Relations ◽  
Information Rent

Abstract We analyse a simple supply chain with one supplier, one retailer and uncertainty about market demand. Focusing on the incentives of the supplier and the retailer to enhance their private information about the actual market conditions, we show that choices on information acquisition are strategic complements. While the retailer’s incentives are mainly driven by the information rent that he can earn, the supplier will choose to acquire information only if the retailer is rather well informed, even though the information is free of charge.

scholarly journals Prepurchase Information Acquisition and Credible Advertising

2020 ◽  
Author(s):  
Pedro M. Gardete ◽  
Liang Guo
Keyword(s):  
Product Quality ◽  
Information Acquisition ◽  
Consumer Surplus ◽  
Cheap Talk ◽  
Perceived Quality ◽  
Expected Value ◽  
Consumer Information ◽  
Informative Advertising ◽  
Firm Profitability ◽  
Advertising Strategies

Consumers can decide whether to acquire more information about their valuations prior to purchase. In this paper, we examine pricing and advertising strategies when consumers can engage in prepurchase information acquisition. We show that consumer information acquisition can increase valuation heterogeneity and undermine a firm’s ability to extract consumer surplus. As a result, interestingly, a higher product quality can exert a nonmonotonic impact on equilibrium information acquisition, hurt firm profitability, and lead to lower consumer surplus. We also demonstrate that prepurchase information acquisition can be an endogenous mechanism to enable credible advertising in a cheap-talk setting. We show that quality claims in advertisements can be informative even when the firm can freely misrepresent its advertising message. Informative advertising can arise because a higher perceived quality can not only increase consumers’ expected value, but it also induces more information acquisition and thus hurts the firm’s ability to extract consumer surplus. This novel explanation for the credibility of cheap-talk advertising is distinguished from those identified in the literature (e.g., matching between firm types and heterogenous consumers, restrictive communication on multidimensional attributes). Moreover, we show that a higher quality can soften competition by inducing more information acquisition, thus benefiting the rival firm’s profitability. This paper was accepted by Matthew Shum, marketing.

scholarly journals Banning Price Discrimination under Imperfect Competition: Evidence from Colombia's Broadband

2020 ◽  
Author(s):  
Juan Sebastián Vélez-Velásquez
Keyword(s):  
Economic Theory ◽  
Price Discrimination ◽  
Low Income ◽  
Imperfect Competition ◽  
Consumer Surplus ◽  
Consumer Welfare ◽  
Market Segments ◽  
Uniform Price ◽  
Uniform Pricing ◽  
Price Discriminate

Economic theory is inconclusive regarding the effects of banning third-degree price discrimination under imperfect competition because they depend on how the competing firms rank their market segments. When, relative to uniform pricing, all competitors want higher prices in the same market segments, a ban on price discrimination will reduce profits and benefit some consumers at the expense of others. If, instead, some firms want to charge higher prices in segments where their competitors want to charge lower prices, price discrimination increases competition driving all prices down. In this case, forcing the firms to charge uniform prices can increase their profits and reduce consumer surplus. We use data on Colombian broadband subscriptions to estimate the demand for internet services. Estimated preferences and assumptions about competition are used to simulate a scenario in which firms lose their ability to price discriminate. Our results show large effects on consumer surplus and large effects on firms’ profits. Aggregate profits increase but the effects for individual firms are heterogeneous. The effects on consumer welfare vary by city. In most cities, a uniform price regime causes large welfare transfers from low-income households towards high-income households and in a few cities, prices in all segments rise. Poorer households respond to the increase in prices by subscribing to internet plans with slower download speed.

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