High‐end Encroachment Patterns of New Products

Previous research describes two key ways in which a new product may encroach on an existing market. In high‐end encroachment, the new product first sells to high‐end customers and then diffuses down‐market; in low‐end encroachment, the new product enters at the low end and encroaches up‐market. This paper focuses on high‐end encroachment, which can further be broken down into three subtypes, which are called the immediate, the new‐attribute, and the new‐market forms of high‐end encroachment. This paper makes three key contributions. First, it provides a sound theoretical underpinning for the three distinct subtypes of high‐end encroachment—a linear reservation price curve model (LRPCM) is used to establish this theoretical foundation. Second, this paper delineates and illustrates four different ways the high‐end new‐market diffusion process may progress over time. These four are: (1) the traditional type, where the new product diffuses relatively slowly and methodically over time; (2) the fad scenario, where the new product opens a new market but then fizzles out after a relatively short period of high sales; (3) the rapid diffusion outcome, where the new product opens a new market and then rapidly diffuses down‐market; and (4) the prolonged‐niche type, where the new product purposefully restricts itself to its own niche rather than diffusing down‐market. The third key contribution of this paper is to offer managerial insights into the new‐market high‐end encroachment process by discussing two short case studies; namely, a retrospective look at the introduction of the iPhone, and a prospective look at Tesla's challenges in growing the market for its electric car. With regard to the iPhone, it helps explain why Apple precipitously dropped the price of the iPhone by one third only 68 days after its introduction. With regard to Tesla, it discusses how Tesla must leverage the revenues that stem from its current high‐end pricing power. Tesla must be able to progress down the learning curve fast enough so that it can create a virtuous cycle; a cycle in which cost reductions and technology improvements lead to price reductions and increased sales, which in turn lead to further cost reductions. At the conclusion of the paper, a step‐by‐step approach is offered to aid in determining which type of encroachment should be pursued and in determining how the encroachment pattern will eventually develop. The encroachment framework and the step‐by‐step approach are intended to help managers better assess and mitigate the risks inherent with a new product introduction.     

The effect of trust on value on travel websites: enhancing well-being and word-of-mouth among the elderly

Despite older adults’ potential for engagement in e-commerce, there is limited understanding of what makes them achieve well-being while using a travel website. In addressing this research gap relating to older adults’ travel website experiences, this study highlights the important role of trust generating value in the context of travel websites. Specifically, this paper examines the relationships between trust, functional and hedonic values, well-being, and word-of-mouth (WOM). We analyzed 300 older adults in the United States (US) who used travel websites and purchased package tours, employing the structural equation modeling technique. The results show that trust significantly influences both functional and hedonic values, both of which result in well-being. Interestingly, hedonic value has a stronger effect on well-being than functional value, leading to WOM.     

Strategic Complementarities in Bank Branching Decisions*

I study how complementarities between rival banks’ branching decisions impacts banking deregulation. I use an instrumental variables approach to separately identify a bank’s strategic response to rivals’ branching decisions from common market factors. The results indicate that some bank types are more likely to open additional branches if their rivals do. This has important implications for expansion and merger policies. These are explored using a model of consumer demand for bank services and bank branch network choices. I find that strategic complementarities in branching decisions augment the effects of a merger or expansion, leading many banking markets to become over-branched.     

Channel design,coordination, and performance: Future research directions

The marketing literature has made significant progress toward a better understanding of how firms can effectively design and manage their channels of distribution. However, the complexity of today’s channel systems raises additional issues that remain unaddressed. The purpose of this article is to suggest promising research directions in this domain. We suggest several possible avenues to relate multiple channel design and management to channel-system, channel-relationship, and customer-level outcomes. In particular, we see a great opportunity to integrate multichannel customer management and traditional channel design research. We argue that future research should account for cross-level effects and incorporate variables at more than one relationship level.     

Financing North American economic cooperation

There are great opportunities to improve the standard of living of the people of North America. The smaller nations of the area especially stand to gain from these opportunities. The essential requirements are to improve productivity by increasing the size of the market, to encourage investment where it is most productive, and to facilitate the movement of workers to productive employment. The achievement of each of these goals requires that governments reduce the barriers which they have established to inhibit the free movement of people, capital, and ideas among the nations of North America. The United States has a special opportunity to play a leadership role in education and in financing the development of the area.     

A note on an anniversary

ASSA Paper. ASA Session on Schumpeter     

Bayesian Estimation of Prediction Error and Variable Selection in Linear Regression

An important statistical application is the problem of determining an appropriate set of input variables for modelling a response variable. In such an application, candidate models are characterized by which input variables are included in the mean structure. A reasonable approach to gauging the propriety of a candidate model is to define a discrepancy function through the prediction error associated with this model. An optimal set of input variables is then determined by searching for the candidate model that minimizes the prediction error. In this paper, we focus on a Bayesian approach to estimating a discrepancy function based on prediction error in linear regression. It is shown how this approach provides an informative method for quantifying model selection uncertainty.     

Internationalization and environmentally-related organizational learning among Chinese manufacturers

Globalization has caused Chinese manufacturers to develop quickly while simultaneously meeting green barriers to export products. Whether internationalization has led to improved environmental management practices among Chinese manufacturers is also a related question. Using survey data collected from 377 Chinese manufacturers in four industrial sectors, we find that international institutional pressures positively relate to domestic environmentalism of Chinese manufacturers and their adoption of environmentally-related organizational learning practices. Environmental learning is a viable method for Chinese manufacturers to ease their environmental burdens by replicating environmental management practices of their foreign counterparts. On the policy side, the Chinese government should follow other developed countries efforts to deploy environmental regulations and policies, further motivating environmental awareness and responses in the manufacturing industry.     

Sector and importer determinants of prices for traded intermediates

While the literature on traded goods prices emphasizes final goods prices and related consumer theory to explain variation in goods prices with importer characteristics, trade in intermediates actually constitutes about two thirds of total trade. We propose a mechanism for explaining variations in the prices of intermediates as a function of importer characteristics, wherein production is vulnerable to failure and the probability of failure declines in the quality of intermediates. Higher wages mean a greater opportunity cost of failure, leading to a stronger demand for high-quality intermediates where firms face higher wages. We find empirical support for this mechanism in the case of intermediate goods using IV regressions. In addition, our findings indicate that while the cost of labour explains about one fifth of variation in imported intermediate prices, it is a non-significant determinant of imported final goods prices.