Conference Sessions - Jesse H. Jones Graduate School of ...

FD05
■ FD05
Legends Ballroom VI
Game Theory III: General
Contributed Session
Chair: Niladri Syam, Associate Professor, University of Houston,
4800 Calhoun Road, Houston, TX, 77204, United States of America,
nbsyam@uh.edu
1 - A Model of the “It” Products in Fashion
Kangkang Wang, Washington University in St. Louis, Campus Box
1133, Olin Business School, St. Louis, MO, 63130,
United States of America, wangka@wustl.edu, Dmitri Kuksov
One of the characteristics of fashion is unpredictability and apparent randomness of
fashion hits. Another one is the strong influence of the fashion editor
recommendations on consumer demand. This paper proposes an analytical model of
fashion hits in the presence of competition and a fashion editor acting on behalf of
high-type consumers, in which we consider fashion as a means used by consumers to
signal belonging to the high class in a matching game. We show that consistently
with the observed market phenomenon, in equilibrium, the editor randomizes
between available products. Furthermore, this randomization is essential for the
market for fashion to exist when low-type consumers’ valuation of meeting high-type
consumers is high enough. Whenever the low-type consumer demand for a product
is positive, an increase in price results in higher probability of the product being
chosen by the editor but lower low-type consumer demand. We also show that in
equilibrium, firms always price as to attract strictly positive demand from the lowtype
consumers. The equilibrium price and profits are non-monotone in the low-type
consumer valuation, with the equilibrium profit first increasing and then decreasing.
2 - Would ”False” Promotions be Profitable? Evidence from
Experimental Data
Yiting Deng, Duke University, Fuqua School of Business,
Durham, NC, United States of America, yiting.deng@duke.edu,
William Boulding, Richard Staelin
Retailers use many different kinds of consumer promotions to attract customers to
their stores. However, not all promotions are real. For instance, one issue of the
ShopSmart Magazine pointed out that around last Thanksgiving, a famous retailer
had a coffeemaker “on sale” for $61.99, a discount from the retailer’s posted $69.99
“regular” price. However, the manufacturer’s suggested retail price (MSRP) is only
$59.99. Given the fact that retailers commonly price items below MSRP, the retailer’s
promotion regarding the coffeemaker is actually “false”. In this study, we examined
the key factors that affect a firm’s decision of whether to apply real or false
promotion from a profitability perspective. Our study is comprised of two major parts:
an analytical model on firm decision process and an empirical model based on data
collected from a controlled experiment. In the analytical model, we solved for regions
of relevant parameters that support different promotional strategies, including
offering “false” promotions. We then used the experimental data to identify the
parameter values and in turn investigate whether such false promotions can be
profitable. In the experiment, we asked the subjects to make two consecutive product
choices among two stores and provided them information about the truthfulness of
the store promotions. We then applied structural equation models to the
experimental data to identify the relative significance and magnitude of different
factors in the consumer choice process. Primary results indicate that while the
undetected false promotion can positively affect sales, the detected false promotion
has negative effects on store image and in turn lowers consumers’ willingness to
purchase from the store.
3 - Facts and Slant in News Production
Yi Zhu, University of Southern California, 3660 Trousdale Parkway,
Los Angeles, CA, 90089, United States of America, zhuy@usc.edu,
Anthony Dukes, Kenneth Wilbur
More and more consumers regularly read the news through the internet. Following
the shift of readers’ preferences, newspapers, magazines, and TV networks have also
been broadcasting their news on the internet. The increasing use of blogs and the
emergence of online social network platforms, like Facebook, YouTube and Twitter,
have greatly lowered barriers to the production and delivery of news. This new
technology intensifies the competition for “eyeballs” among news providers. In this
paper, we ask how increased competition affects the presentation of facts and slant in
news production. To answer this question, we examine a model that incorporates the
following features: a) the number of facts contained in the news is bounded by the
choice of media slant. If a news report is more slanted from the truth, there are fewer
facts that can be reported truthfully; b) consumers are not only looking for news that
is consistent with their opinions, but they also value the facts in the news. Therefore,
news producers must optimally balance consumers’ desire for facts and their taste for
slant. Under the monopoly case, we find that the news provider slants the news less
so that it can deliver a higher number of facts. As competition arises, however, we
find that the news producers report more slanted news to avoid the head-to-head
fight. As a result, news reporting becomes more polarized with fewer facts.
MARKETING SCIENCE CONFERENCE – 2011
64
4 - Production Networks in Co-creation
Niladri Syam, Associate Professor, University of Houston,
4800 Calhoun Road, Houston, TX, 77204, United States of America,
nbsyam@uh.edu, Amit Pazgal
Co-Creation, the participation of the consumer in the production of goods and
services, has gained increased popularity of late due to advances in information
technology and flexible manufacturing. In this research we distinguish between two
types of co-creation: proprietary and non-proprietary. The former involves the price
mechanism mediating the exchange between firm and customer while the latter does
not. We study, (1) production externalities between firm and customers, (2)
production externalities between the customers themselves, and (3) pricing by firms.
The main result in the non-proprietary setting is that the firm’s effort decreases in the
number of customers (free-riding effect). We also find that the firm’s effort decreases
in the degree of substitutability between its efforts and customers’ efforts. In a
proprietary setting free-riding is eliminated. This is a major distinction between cocreation,
which is often proprietary, and the extant public goods literature. Also, the
firm’s effort increases in the degree of substitutability between its effort and the
customers’ efforts. Again this stands in contrast to the non-proprietary case. Overall,
we contribute not only by investigating the increasingly important phenomenon of
co-creation, but also by developing a novel general method to analyze production
externalities in the presence of the price mechanism.
■ FD06
Legends Ballroom VII
Channels V: Strategy
Contributed Session
Chair: Volker Trauzettel, Professor, Pforzheim University of Applied
Sciences, Tiefenbronner Str, 65, Pforzheim, 75175, Germany,
volker.trauzettel@hs-pforzheim.de
1 - Name-your-own-price as a Competitive Distribution Channel in the
Presence of Posted Prices
Xiao Huang, Assistant Professor, John Molson School of Business,
Concordia University, 1455 de Maisonneuve Blvd West, MB 011-323,
Montreal, QC, H3G1M8, Canada, xiaoh@jmsb.concordia.ca,
Greys Sosic
Priceline.com patents the innovative marketing strategy, Name-Your-Own-Price
(NYOP), that sells opaque products through customer-driven pricing. In this paper,
we study how competitive suppliers with substitutable, non-replenishable goods may
sell their products (1) as regular goods through a direct channel at posted prices,
and/or (2) as opaque goods through a third-party channel, which allows for the
NYOP approach. We model the third-party channel as an intermediary firm that
collects the difference between the customers’ bids and reservation prices set by the
suppliers, and discuss different channel strategies and customers’ bidding strategies.
We show that high-end customers may demonstrate low-end behavior (that is, name
their prices prior to attending the direct channel, making an even lower bid than the
low-end customers), and that the intermediary firm benefits more from horizontally
differentiated goods than from vertically differentiated ones. We also use dynamic
programming approach to analyze how should suppliers competitively determine
channel prices for given initial inventory levels with the goal of maximizing the
average expected profit, and show that time and inventory levels have very different
impact in dual-channel versus single-channel settings. Our results suggest that the
suppliers may not benefit from the existence of a profit-maximizing NYOP channel.
In particular, a monopolist would opt out of the NYOP channel and sell at posted
prices only, which implies that NYOP is not appropriate for customer discrimination
in the regular-goods market. Numerical results show that suppliers are able to
generate higher expected profits in the absence of the NYOP channel.
2 - The Optimal Online Common Agency Strategy in the Presence of Instore
Display Advertising
Hao-An Hung, Graduate Institute of International Affairs and Global
Strategy, National Taiwan Normal University, 5F, No. 637, Bei-an
Road, Taipei, Taiwan - ROC, owenhung@hotmail.com, I-Huei Wu
In the tourism and some retail industries, the online common agency such as
Priceline has attracted much attention from both marketers and researchers. This
kind of new channel sells opaque products which contains limited product
information and may intend to serve only those price-sensitive segments. In order to
compete with the others in the industry, service providers (i.e., airlines) tend to
redesign their in-store display advertising to fit consumer’s preference much better
and to create the image differentiation. In this paper, we try to not only capture the
price discrimination effect behind the online common agency but also consider the
impact of in-store display advertising invested by service providers. We build a gametheoretic
model where service providers can decide to invest on either the online
common agency or their own websites and consider whether to launch in-store
display advertising. By analyzing this model, we attempt to answer the following
questions: (i) In the case where in-store display advertising can enhance only the