Marketing Strategy, Product Safety, and Ethical Factors in Consumer Choice

Firms that wish to be morally responsible in providing products that meet a high standard of safety may face problems competing against firms that make unsafe products and sell these products at cheap prices; these problems may be compounded when consumers do not accurately process information about safety and risk. This paper presents a conceptual argument that the tort system may serve to promulgate information which makes it feasible for firms to market safe products even in the face of these competitive obstacles.To corroborate the conceptual argument, the paper presents the results of an experimental study about the impact of negligence liability information on consumer product safety evaluation. The results show that provision of negligence information heightens consumer concern for safety and firms' ethical behavior, and increases the proportion of consumer choices in favors of the brands sold by manufacturers with a favorable track record for quality. More importantly, they indicate that provision of negligence information reduces the likelihood that brands which conform to inferior safety standards will be chosen by consumers who care about safety standards.     

Durable Goods Monopoly,Buyer Uncertainty,and Concurrent Selling and Renting

Stylized durable goods monopoly models typically conclude that monopolists prefer to rent their output due to commitment problems associated with sales. However, we commonly observe monopolistic firms in durable goods industries simultaneously selling and renting output. To address this apparent discrepancy a simple two‐period asymmetric information model is constructed where buyers are uncertain of the good's durability and the firm's manufacturing costs. This is a natural asymmetric information specification since the firm typically has more precise knowledge of product durability and production costs than buyers do. The analysis indicates that a monopolist may wish to concurrently sell and rent output when buyers do not have perfect knowledge. If, for example, consumers believe that product durability and manufacturing costs are higher than they truly are, the firm may wish to simultaneously sell and rent output. Thus buyers' expectations about firm costs and product durability are of critical importance in durable goods models, particularly in terms of explaining concurrent rentals and sales.     

Reputation and product tampering in service industries

This theoretical paper aims to identify the role of trust and reputation between consumers and firms when there is product tampering or other types of product liability. When product tampering occurs, trust implicitly built towards brand or corporation by consumers or customers can be dissipated. This article assesses the impact of quality uncertainty and measurement costs on the trust relationship between consumers and corporations. The ideas are also applied to the case of bank runs. Preliminary findings indicate that in cases where the trust between consumer and firms is strong, and there are high measurement costs and uncertainty, the reputational relationship between customers and firms can experience strong repercussions.     

疏忽责任与责任保险的需求

本文研究侵权法体系里疏忽责任制度的两个重要特点。首先,根据单侧模型的分析,在疏忽责任制度里过度严格的行业标准并不会抑制企业的风险活动,因为他们可以选择成为"疏忽"而不需要去忍受过多的预防成本;其次,研究了为什么理论上疏忽责任制度里不存在责任保险的需求,但实际上在实施疏忽责任制度的国家里责任保险却异常发达的原因;通过信息模型,给出了责任保险存在的两个必要条件:一是信息的价值必须为正,二是阻止的成本必须大于满足不成为"疏忽"标准的注意成本和保险成本之和。     

Owner as Manager,Extended Horizons and the Family Firm

Previous work on firm ownership structure suggests that organizations in which ownership and control are combined may be undervalued relative to the market investment rule because decision makers have an incentive to forgo investment projects that managers in firms with specialized ownership find profitable. However, the specialization of ownership and decision-making functions may result in substantial agency costs. This paper shows that these tradeoffs may not exist in family firms. The extended horizons characteristic of family businesses may provide the necessary incentives for decision makers to invest according to the market rule while limiting agency costs that arise when ownership and control are separated. Family ties, loyalty, insurance, and stability are expected to be effective in lengthening the horizons of managers and in providing the incentives for family managers to make efficient investments in the family business.     

Scale economies,entry, and welfare

This study shows how scale economies, initial size differences among firms, potential competition, and adjustment costs may influence the entry of firms into a dynamic oligopoly. It also examines the effects of these factors on the final size distribution of firms in an industry, and on the welfare levels of consumers and producers. We find that low to moderate scale economies are insufficient for Cournot-Nash competition to drive small firms from the market. Only when scale economies are quite high will the distribution of firm sizes become degenerate. Potential competition and the size of incumbent firms' capital stocks are additional barriers to entry. The welfare conclusion is that there may be a government role to preserve potential competition, but also to dissuade small firms from entering certain markets where there are economies of scale.     

The spatial selection of heterogeneous firms

We show that heterogeneous firms choose different locations in response to market integration. Specifically, decreasing trade costs lead to the gradual agglomeration of efficient firms in the larger country where they have access to a bigger pool of consumers. In contrast, high-cost firms seek protection against competition from efficient firms by locating in the smaller country. However, when the spatial separation of markets ceases to be a sufficient protection against foreign competition, high-cost firms choose to set up in the larger market. Hence, the relationship between economic integration and international productivity gap first increases and then decreases with market integration.     

The spatial selection of heterogeneous firms

We show that heterogeneous firms choose different locations in response to market integration. Specifically, decreasing trade costs lead to the gradual agglomeration of efficient firms in the larger country where they have access to a bigger pool of consumers. In contrast, high-cost firms seek protection against competition from efficient firms by locating in the smaller country. However, when the spatial separation of markets ceases to be a sufficient protection against foreign competition, high-cost firms choose to set up in the larger market. Hence, the relationship between economic integration and international productivity gap first increases and then decreases with market integration.     

Quality disclosure in the presence of strategic consumers

Consider a market for short-life products, such as smartphones, where a firm and consumers have asymmetric quality information, the firm sells products in two periods, and consumers make purchase decisions strategically. We investigate when a firm should disclose quality and the interaction between consumers' strategic behavior and the firm's disclosure behavior. We obtain several findings. First, regardless of whether consumers have low or high patience, the firm should disclose quality information if product quality is high and conceal it if product quality is low. However, for products with moderate quality levels, the firm will disclose more quality information to consumers with relatively high or low patience levels than when consumer patience is moderate. Second, firms will disclose less information when consumers behave strategically than when they are myopic. Third, when concealing quality information is an equilibrium, product prices are affected only by disclosure costs and independent of true product quality. Finally, the firm can benefit from consumers' strategic behavior and a higher disclosure cost, but greater patience might be detrimental to consumer surplus and social welfare.     

Can Mergers to Monopoly,Price Fixing,and Market‐Division Agreements Raise Welfare?

Naked market division, price fixing agreements and mergers which result in dominant positions have long been opposed by the courts and the government because of the high likelihood that they will result in a reduction in output and an increase in price. We show that the opposite may be true if the market is characterized by marketing spillovers. When marketing investment is required to educate consumers about the general capabilities or qualities of a product, marketing efforts by one producer will benefit rival producers. A theoretical model of these types of markets shows that marketing spillovers can forestall entry altogether or force incumbent firms to engage in ‘limit marketing’ that leaves the market underserved from a welfare‐maximizing perspective. Under these circumstances, market output and social welfare are potentially raised not only through horizontal agreements among competitors, but also through cost‐raising strategies and commitments to predatory behavior by incumbent firms.     

The effect of overspending on tariff choices and customer churn: Evidence from mobile plan choices

Understanding the relation between consumer overspending, tariff choices and customer churn is extremely important in many industries. If consumers are insensitive to their overspending and keep making mistakes in tariff choices, firms may profit from overspending and do not have to worry about customer churn. In this paper, using a rich panel data from a major mobile network operator in China, we show evidence that consumers respond to financial incentives and try to reduce overspending by switching to another plan or terminating the relationships with the operator. Given the trade-off between profiting from overspending and reducing customer churn faced by the operator, we conduct a simple policy simulation and show that the operator should encourage consumers to reduce their overspending. We also show that the effects of switching decisions on future overspending and the hazard of churn differ among upward switchers (i.e. consumers who switch to a larger plan) and downward switchers (i.e., consumers who switch to a smaller plan). Specifically, we find that consumers who switch down are more likely to reduce their future overspending, while consumers who switch up are less likely to churn.     

Acquisition of Market Information,Returns to Scale and the Viability of Competitive Equilibrium

In this paper the economies of scale arising from the acquisition of costly information and their implications for the existence of a competitive equilibrium are investigated. As is known, the existence of economies in the scale of production undermines the possibility of a competitive equilibrium. This paper demonstrates that this kind of problem arises when firms face market uncertainty, i.e. in competitive markets, uncertainty about the price of production factors or about the price of output. It is shown that, under these circumstances, firms have incentives to purchase market information, i.e. information capable of reducing price uncertainty. In turn, the acquisition of costly information generates economies of scale that prevent the occurrence of a competitive equilibrium, unless such increasing returns to scale are tamed by the decreasing utility of uncertain returns due to risk aversion, or—in the short run—by increasing marginal costs of production.     

Defying Distance? Cross‐Border Acquisitions by Emerging‐Economy Firms

We argue that emerging‐economy firms’ international location choices are driven by the pursuit of dynamic efficiency rather than the immediate minimization of transaction and learning costs, and hence the relationship between country distance and the number of cross‐border acquisitions will be less negative for these firms relative to advanced‐economy firms. We then test the hypothesis with respect to four measures of country distance—geographic, economic, cultural, and institutional—and find support for the hypothesis. Our study provides empirical support for claims in the literature about differences in the international expansion behavior of emerging‐economy firms with respect to location. In addition, our study makes a theoretical contribution by showing that the theoretical perspective of dynamic efficiency can explain the difference in the location choices for cross‐border acquisitions by emerging‐economy firms relative to those by advanced‐economy firms. © 2016 Wiley Periodicals, Inc..     

Legally astute managers as a source of value in organizations

The legal and compliance departments in organizations have more influence than ever before. Why then are companies so vulnerable to legal liability? The problem may not be with talented legal professionals, but with the lack of legal knowledge held by MBAs and other business school graduates that make day-to-day decisions in modern organizations. Firms can close this knowledge gap and minimize legal liability by training their managers in legal astuteness—the ability of a manager to address legal issues successfully—by instilling four essential traits: respecting the rule of law, recognizing legal issues, resolving problems proactively, and reporting complex legal issues to experts. Job candidates should also be screened for traits of legal astuteness. A legally astute candidate, especially a graduate of a business school that requires legal education for all its students, can be a cultural ambassador for legal astuteness and a valuable liaison between legal and compliance departments and the candidate’s functional area. A legally ignorant candidate will require significant training and a frank assessment of the legal risk they bring to the organization. Modern firms in today’s legal environment face two choices: hire a legally astute manager now or deal with a compliance headache later.     

International trade,risk taking and welfare

This paper shows that the gains from opening up to international trade are smaller when firms do not fully internalize downward risk. I develop a general equilibrium model with two key assumptions. First, when faced with adverse productivity shocks, employers can lay off workers without fully paying the social costs of their layoff decisions, a common feature of many institutions. Second, when opening to international trade, the elasticity of demand perceived by an industry increases. In this setup, I show that international trade induces firms to take more risk and (i) raises the equilibrium unemployment rate, (ii) increases the volatility of sectoral sales and (iii) increases welfare proportionately less than in the absence of the externality. Inducing firms to internalize the costs of layoff (Blanchard and Tirole, 2003) therefore appears even more important in a globalized world.     

Consumers' Perspectives on Mandatory versus Voluntary Provisions of Food Safety Regulations in India

This article aims at analyzing the perceptions of consumers on approaches of food safety regulations—mandatory versus voluntary—though a primary survey of 620 urban respondents belonging to six districts of Uttar Pradesh, India. A structured questionnaire was administered personally to randomly selected samples for assessing the consumers' responses on choices of food quality attributes—search, experience, and credence—and their views on who is responsible for food safety provisions. The study establishes the empirical relationship between consumers' food safety concerns in purchase decisions with the approaches of food safety regulations. The relationship between the approaches of food safety provisions and choices of quality attributes with socio-demographic profiles of consumers was also analyzed. The results of this study provide practical implications for policy makers at the right stage when the government is in the process of implementing the Food and Safety Standards Act in the country.     

Illusion of safety: How consumers underestimate manipulation and deception in online (vs. offline) shopping contexts

Online commerce changes how consumers shop for products and services—while also giving firms more control over consumers' shopping experience, more access to their information, and leading more firms to use these platforms to their financial advantage. In this research, I examine consumer perceptions of firms when they shop for products and services online (vs. offline), to determine whether consumers feel firms might use certain kinds of manipulative and deceptive tactics against consumers. Results show consumers believe firms are less likely to use manipulative and deceptive practices to increase consumer spending, when they shop online (vs. offline) for products and services. These findings remain consistent despite key individual differences (in ethnicity, gender, age, and time spent online). This research also demonstrates how certain cues can make consumers more (vs. less) suspicious of firms when they shop online and discusses the implications these findings have for consumer financial welfare.     

The market value for product attribute improvements under price personalization

Personalization of the marketing mix is a topic of much interest to marketing academics and practitioners. Using discrete choice demand theory, we investigate the aggregate market value for product attribute improvements when firms are engaged in personalized pricing. Our results provide a theoretically grounded rule for how to aggregate consumer valuations to assess the overall profitability of attribute improvements under price personalization. Under common pricing, each consumer contributes the same margin. Profitability of an attribute improvement is thus driven by inducing more consumers to buy. Consumers with high choice probabilities are given less weight in the market valuation under common pricing as they are less responsive to attribute improvements. Under personalized pricing, profitability of an attribute improvement is driven by extraction of consumer surplus from high valuation consumers. Consumers with higher valuations, and consequently higher choice probabilities, are given more weight in the market valuation under personalized pricing. Since individual consumers play a more central role in the market valuation under personalized pricing, estimation of consumer-level valuations is of increased importance. Under common pricing, the market valuation for an attribute improvement is robust to extreme estimates of the consumer-level valuations. Through our theoretical and empirical analyses, we demonstrate that this robustness does not hold under personalized pricing.     

Strategic R&D Investment Under Liability Law

This paper analyzes the incentives of duopolists to invest in advanced care technology under liability law. We establish that investment incentives under strict liability are in line with the taxonomy of Fudenberg and Tirole (1984), whereas the investment incentives under negligence most likely are not. Indeed, investment incentives under negligence are dependent on the timing of the policy maker’s regulations, whether or not due care is firm specific, and whether or not precautionary measures are durable.     

Knowledge, values and internationalisation—introduction to the special edition

Internationalisation is increasingly being seen as an organisational learning process. However, entrepreneurial enterprises tend to be smaller, more innovative and more agile than their larger counterparts. When they internationalise, entrepreneurial firms often expand at a rapid rate. The cultures of so-called ‘born global’ firms also appear to differ from firms that internationalise in a more gradual, stepwise fashion. This raises interesting questions about how entrepreneurial firms acquire and manage knowledge about markets, networks and capabilities in turbulent and uncertain environments and how the values embedded in organisational cultures might influence strategic choices. The following articles in this special edition of the Journal of International Entrepreneurship focus specifically on how innovative firms—particularly small and medium-sized enterprises—recognise and exploit market opportunities, how they learn from international market entry and penetration experiences to improve core capabilities and how values may influence supply chain management and start-up decisions.