Browsing by Subject "Pricing"

Now showing 1 - 7 of 7
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    Attention modes in consumer decision making: attending to the physical environment makes price more important
    (2014-05) Rahinel, Ryan
    At every waking moment, one's attention is situated along a continuum from experiencing, where one focuses on their immediate environment, to mind-wandering, where one focuses on environment-independent thoughts, feelings, and daydreams. The framework developed and tested in this research predicts how this spectrum of attention affects the relative weight consumers place on price information in their judgments and decisions. Six studies provide empirical support for the framework, with the core finding being that people in an experiencing (mind-wandering) mode systematically attach more (less) weight to price information. This effect stems from the price attribute's characteristic of changeability, or capability for exhibiting temporal variation. People in an experiencing (versus mind-wandering) mode place a greater importance on noticing change, and therefore subsequently estimate that a changeable stimulus (such as a price) is more likely to change. Such differences in beliefs of change likelihood lead to the observed differences in price weighting effects across the attention modes. These findings shed new light on the underlying psychology of attention as well as the role of price in judgment and decision making.
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    Improving Carsharing and Transit Service with ITS
    (Minnesota Department of Transportation, 2008-09) Douma, Frank; Gaug, Ryan; Horan, Tom; Schooley, Ben
    This report examines Intelligent Transportation Systems (ITS) as they apply to carsharing and transit. Two modes that provide mobility to those who do not own a car. In the first study, researchers developed and administered a survey to members of HOURCAR, a local not-forprofit carsharing organization (CSO), and a randomly selected control group. The data reveals that (1) each HOURCAR removes 2.5 other vehicles; (2) HOURCAR members demonstrate an interest in deciding whether a car is their most efficient option for their trip, (3) HOURCAR respondents were not significantly different from the control group in terms of household size, income, age or housing type; and (4) most members indicated convenience and financial considerations were key to joining. The second study seeks to understand how citizen perceptions of trust and confidence in an agency, and its services, are impacted by the use of advanced traveler information systems (ATIS), specifically, an online trip planner developed and maintained by MetroTransit. A survey and focus group indicate connections between online use and perceptions about the agency. Notably, a strong positive view of the trip planner was associated with trust in the agency to perform the service.
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    Interstate 35E MnPASS Managed Lanes Extension: Little Canada Road to County Road 96 Pre-Implementation Study
    (Center for Transportation Studies, University of Minnesota, 2015-06) Douma, Frank
    This report summarizes work to study the feasibility of extending MnPASS Express Lanes on I-35E between Little Canada Road and County Road 96 in the northeastern part of the Twin Cities metropolitan area. During peak rush hour periods, MnPASS Express Lanes provide a congestion-free option to transit vehicles, carpools and motorcycles, as well as single-occupant vehicles for a fee. The work was funded by a Value Pricing Pilot Program grant from the Federal Highway Administration. This was a pre-implementation planning study designed to develop and evaluate conceptual alternatives for extending MnPASS Express Lanes between Little Canada Road and County Road 96 on I-35E and to identify and evaluate methods for improving bus transit and carpool use in the MnPASS lanes on I-35E. The study sought to explore and analyze a number of scenarios to provide a higher level of service for all I-35E corridor users: those using the general purpose traffic lanes, those using the MnPASS Express Lanes, and those using transit. The goal for the project was to achieve greater efficiency in the corridor through better use of existing infrastructure and to optimize highway system performance and customer service through supportive land-use planning for transit and bike/pedestrian traffic. The study engaged community stakeholders and corridor users to analyze the design, operations, benefits, costs, and public acceptability of each conceptual alternative. The study also engaged community stakeholders in identifying and evaluating additional transit enhancements that could increase transit and carpool use in the I-35E MnPASS Express Lanes. Note: Appendix H (land use study) is a separate document and listed under the report PDF.
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    Optimal Pricing with New Models of Consumer Behavior
    (2015-09) Liu, Yan
    Revenue management is a commonly used practice in many industries, such as airlines, hotels, fashion, and car rentals. It takes advantage of customers' different valuations for a product or products and charges different prices to different customers to extract customers' surplus. In revenue management, most literature assumes that customers are myopic and will buy immediately if the price is low and leave otherwise. In recent years there has been much research involving strategic customers who have the ability to predict future prices and thus make a purchase at the price that maximizes their utility. In Chapter 2 and 3, I will study a different type of customer behavior, which we call patient customer behavior. A patient customer will wait up to some fixed number of time periods for the price of the product to fall below his or her valuation at which point the customer will make a purchase. If the price does not fall below a patient customer's valuation at any time during those periods, then that customer will leave without buying. Chapter 4 describes a learning and pricing problem in which the seller does not know the fraction of patient customers. In practice, customers may wish to search for product information before making purchase decisions. That is, they may wish to research the product or products under consideration. This research behavior will introduce costs to customers, which may include time cost, travel cost, and mental processing cost. Since such research costs could be part of a customer's utility, they may affect a customer's purchasing behavior and thus the firm's strategy. However, most literature in revenue management does not consider the existence of customers' search cost. In Chapter 5, I consider a pricing problem in which customers face uncertainty about whether they will like certain products. Those customers can incur research costs to learn product information. In summary, I will focus on deriving optimal pricing decisions for companies that face customer behavior that is more complex than typically assumed in traditional models.
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    Pricing under Imperfect Awareness
    (2019-05) Roose Guthmann, Rafael
    The study of price determination in markets has been a defining element of the science of economics. In this dissertation, I have developed models of strategic pricing under imperfect awareness. Imperfect awareness in this context means that decision makers are not aware of every trader operating in the market, instead, trading is constrained to the set of traders which the decision maker is aware of. The degree of trader's awareness can evolve over time. I study pricing dynamics in such markets. I show that prices and allocations approximate perfect competition as awareness increases in a variety of environments. In Chapter 2, I study pricing in a dynamic duopoly. Buyers may be imperfectly aware of operating sellers, but they can gain awareness regarding sellers through a word-of-mouth matching mechanism. I show that there is a unique subgame perfect equilibrium. The unique equilibrium features price dispersion with asymmetric price posting strategies. I show that, depending on the parameters, the distribution of prices of one seller first order stochastically dominates the prices posted by the other seller. I also show that the price posting strategies of each seller depend on his or her relative degree of market experience. In Chapter 3, I extend the model developed in Chapter 2 to an infinite horizon environment with a continuum of sellers. I show that a Markov perfect equilibrium exists, is unique, and features asymmetric price posting strategies. In this equilibrium entrants post prices that are strictly lower than prices posted by more mature competitors, average markups decline over time as the market for the product matures, and the distribution of prices features substantial price dispersion at both the individual and aggregate levels. This model explains a several deviations from competitive conditions that are empirically observed in product markets as being caused by imperfect awareness. In Chapter 4, I study a market with a continuum of buyers and sellers (such as the model of Chapter 3). In this case, I focus on a static setting and introduce differentiated products. Consumers have imperfect awareness regarding product varieties. Even in this market with differentiated products, I show that the equilibrium approximates perfect competition when consumers are aware about a high number of product varieties. It concludes that, when unawareness about product varieties exist, markups increase when the degree of product differentiation is higher, but for any degree of product differentiation, markups vanish when unawareness about varieties vanish.
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    Two essays on the effect of social norms on marketing actions
    (2012-12) Mallucci, Paola
    Research has demonstrated that social norms can impact behavior and consumption in a meaningful way. A better understanding of social norms can result in a better understanding of consumers and of market dynamics and indicate a way for firm to improve their profitability.In Essay 1: The Effect of Social Pressure on Corporate Social Responsibility, I investigate consumers' reactions to products that include donations (a form of Corporate Social Responsibility, CSR). I identify ``warm glow'' and ``social pressure'' as the two principal drivers. On one hand, products offered by CSR-engaged firms are more appealing because of the warm glow consumers derive from choosing a product associated with a donation to their favored causes; such products directly enhance customer utility. On the other hand, once donations reach a threshold amount, consumers might feel social pressure to reciprocate the firm's donation. While such pressure can move some consumers to buy the product, it reduces utility and can lead some consumers to opt out of the market. Plainly, warm glow is favorable to selling CSR products, but does social pressure aversion imply that rational firms will never employ such appeals? Large numbers of firms do rely on social pressure based appeals (e.g., the Pink Ribbon campaign for breast cancer). When and why is this a wise choice?In two separate experiments, I find evidence for warm glow and social pressure effects. I formalize and quantify these effects with a novel utility function that embodies these opposing effects and find them to be of the same order of magnitude; hence, both are managerially relevant. To develop this idea further, I build a model of a profit-maximizing firm that recognizes these warm glow and social pressure aversion preferences of its customers. Under a duopolistic market structures, I find that if warm glow is large enough, a firm will also engage in social pressure appeals despite its customers' aversion to social pressure. Put differently, despite its negative effect on consumers' preferences, employing social pressure in a CSR context can be profitable. Why? Intuitively, social pressure diminishes price sensitivity. In Essay 2: Fairness Ideals in Distribution Channels, I examine the norm of fairness. Existing research suggests that concerns for fairness may significantly affect the interactions between firms in a distribution channel. I analytically and experimentally evaluate how firms make decisions in a two-stage dyadic channel, in which firms decide on investments in the first stage and then on prices in the second stage. I find that firms' behavior differs significantly from the predictions of the standard economic model and is consistent with the existence of fairness concerns. Using a Quantal Response Equilibrium (QRE) model, in which both the manufacturer and retailer make noisy best responses, I show fairness significantly impacts channel pricing decisions. Additionally, I compare four principles of distributive fairness: strict egalitarianism, liberal egalitarianism, and libertarianism, previously considered in the fairness literature, and a new principle of distributive fairness the sequence-aligned ideal that is studied first time in literature. Surprisingly, the new ideal, according to which the sequence of moving determines the formation of equitable payoff for players, significantly outperforms other fairness ideals.
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    Value Creation and Competition in the Grocery Delivery Market
    (2021-05) Rabello de Castro, Vitoria
    This dissertation contains three chapters, each of which is pertinent to the topic of how value is created to consumers and platform competition in the same-day grocery delivery market. All chapters make use of tools from empirical Industrial Organization. All data describing choices made by consumers used for both empirical evidence and demand estimation presented in chapters 1 and 2, respectively, pertain to the Nielsen Company (US), LLC and marketing databases provided by the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. In the first chapter, I use the roll-out of two major same-day delivery services in several metro areas in the United Stated to study the impact of these new alternatives on consumers' retailer choice. To do so, I construct a new dataset with the timing of entry decisions of two grocery delivery platforms combine this geographic entry information with scanner data on consumer purchases to evaluate how store choices change once these new services are introduced. To measure the importance of user switching costs, in the second chapter, I estimate a demand model where consumersincur costs to update their delivery platforms choices over time. I extend Katz (2007)'s store choice model to a dynamic setting where, in addition to choosing bundles of products and retailers, consumers also pay a sunk cost to subscribe to memberships that augment their choice set of online retail alternatives. In addition to the revealed preference relations used in Katz (2007) which identify utility parameters, I estimate costs associated with subscriptions (fees and switching costs) using a second set of moments. I construct these moments using revealed preference conditions which compare the utility of maintaining the consumer's subscription choice to the utility of switching. To estimate switching costs, I use constraints that impose rational switching behavior identifying bounds on differential continuation values between subscriptions. I present evidence that switching costs are substantial: fewer than 50% of customers switch to a competitor in the face of savings of up to $40 per purchase. Using the model, I find that switching costs significantly affect consumer platform use. In the absence of switching costs, consumers would alternate between platforms from one purchase to the next ten times more often. By itself, this suggests a potential harm from the major firm's acquisition as lock-in would allow the combined firm to exercise market power in the future. In the third chapter, I model firm decisions as a dynamic entry game in which consumers' transition across platforms, predicted by the estimated demand model, governs the law of motion of firm revenues. Firms then compete in continuous time across independent markets in a similar fashion to Arcidiacono et al. (2016). I use this empirical framework to conduct a retrospective analysis of this recent acquisition. I show that an important aspect of the welfare impact of Big Tech's acquisition of the national grocery chain was Grocer Partner's strategic entry response. Big Tech's main rival could have responded to the merger by either conceding or entering markets more rapidly. When met with the competitive threat presented by the merger, Grocer Partner's own intent to build a loyal customer base increases this firm's incentive to chase a first mover advantage by entering new geographical markets earlier. Moreover, because Grocer Partner's entry costs are low, this firm is able to pursue this accelerated entry strategy giving rise to fierce competition for new markets. I find that the acquisition significantly increased both firms' speed of entry cross new markets, giving consumers earlier access to the services and generating important welfare gains in the short run. Specifically, had the acquisition not happened, both firms would have entered new markets over two years later, on average. The combined costs associated with the two firms' earlier entry due to the acquisition amount to a loss of $624 M in producer surplus. However, consumer benefits across markets that were served earlier due to this merger are larger, representing a total welfare gain of $846 M. Additionally, the fact that this merger allowed the large online retailer to enter multiple markets earlier provides an explanation for the premium paid for the acquisition. Moreover, until this merger occurred, this retail chain was Grocer Partner's largest affiliated retailer, giving it access to approximately 23 million consumers. This supports the fact that Grocer Partner anticipated how the acquisition would affect its ability to serve certain markets and reacted through earlier entry. I perform a second counterfactual that simulates a potential horizontal merger between Big Tech and Grocer Partner resulting in a monopoly. I find that, due to the lack of significant competitive threat, the monopolist would not have an incentive to serve markets early. This shows the role of competition in the timing of entry of these services. I also show that consumer losses due to delayed entry by the monopolist are larger than cost savings from this merger. In both analysis, the focus is on entry timing and firms do not choose prices in the model. For this reason, this paper is limited in its ability to capture possible future harm to consumers through prices. However, I use the demand model to show how consumers' substitution patterns as response to price changes under switching costs shed light onto issue. I find evidence that competition is important to keep prices low, especially if the firm' business model relies on economies of scale. This paper contributes to the literature on the role of consumer inertia in competition by measuring the importance of switching costs for entry strategies in a nascent market and highlighting the implications of this mechanism for consumer welfare. There is a large body of literature relating switching costs to price competition. There is also a theoretical literature relating switching costs to other dimensions of firm strategic behavior, including entry decisions: Klemperer (1988), Farrell and Shapiro (1988), Klemperer (1995), Farrell and Klemperer (2007), Klemperer (1987) and Schmidt (2010). Furthermore, switching costs are deemed theoretically important for preserving advantages to early movers: Lieberman and Montgomery (1988), Shapiro and Varian (2000), Amit and Zott (2001). However, the implications of switching costs for entry decisions have been studied less extensively empirically and measurement of first-mover advantages is sparse (Gómez and Maícas (2011)). This paper also relates to the literature measuring the importance of entry timing to firm decisions. In my setting, the source of early entry incentives is explicitly present in the demand model. I model the mechanism driving consumers' inertia and its relationship with firms' strategic behavior. There is a vast theoretical work on this topic since the early technology diffusion literature (Reinganum (1981a)), (Reinganum (1981b)) and (Fudenberg and Tirole (1985)). The empirical literature on this issue is much sparser due to the difficulty to single-out the motive driving timing from other sources of strategic behavior.