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.     

通道费:大零售商挖掘市场效率的一种机制设计

本文运用数值例子和一般化博弈模型对1个生产商、1个大零售商和n个小零售商的市场进行了考察,给出了大零售商对生产商拥有讨价还价力量、生产商对小零售商拥有讨价还价力量时的市场均衡。结论为:(1)在大零售商使用包含通道费在内的"三部费"合约的市场均衡中,上下游可以实现纵向一体化利润。与生产商对下游完全拥有市场力量的情形相比,消费者剩余不会降低,市场价格不会上升,生产商获得的利润也不会减少。(2)大零售商的利润来自于消除上下游市场外部性,以及对市场效率改进的边际贡献。通道费可以视作是大零售商通过挖掘市场效率而获利的一种机制设计。(3)从政策角度看,用单一禁止通道费来提高市场效率和社会福利的目标往往难以实现。与其简单地取消进场费,还不如把政策的着力点放在支持小零售商、改善零售市场结构效率上。     

On Market Integration and Product R&D: A Monopoly Case

Applying a monopoly model with endogenous quality choice to the case of multiple national markets, we consider the effect of market integration on product R&D incentives (i.e., quality-improving), profit, and consumer surplus. We demonstrate that the effect of market integration depends on the difference in income distributions between two countries and the level of trade cost. In particular, if the difference in income distributions between two countries is large (small) and/or trade cost is low (high), market integration can decrease (increase) the level of product quality and social welfare in the two countries.     

外资零售企业进入、混合竞争与中国培育大型流通企业政策——基于混合寡占博弈模型的流通政策分析

组建与培育具有国际竞争力的大型国有控股流通企业集团是转型经济时期我国政府的一种积极的市场治理方式。通过构建三类混合寡占零售博弈模型和均衡分析表明,在多种所有制零售企业共同参与竞争时,国内社会总体福利的大小与外资零售企业的信息技术管理水平并不成简单正相关关系;当国有零售企业完全以社会总剩余最大化为目标时,即使其效率低于外资企业、市场的价格小于国有企业的边际成本,它的存在也将提升社会福利;国有零售企业具有规定市场规模、维护市场稳定的重要功能;明确国有流通企业在不同状态下目标函数预期,合理构建零售市场的组织结构与所有制结构,可以有效增强我国零售市场的供给保障和调控能力。     

Buyer Power,Transport Cost and Welfare

Manufacturers produce substitute products and sell to consumers in a linear city through competing retail stores. A low cost store obtains large market share by selling at low prices. Assume that a big retailer may exert buyer power by demanding wholesale discounts from manufacturers. The model identifies exclusionary effects of buyer power against competing retailers. It is also found that certain level of buyer power of a discount retailer may maximize social welfare, while that of a regular price retailer may maximize total consumer surplus. Nevertheless, excessive buyer power hurts both consumers and society.     

An empirical assessment of the welfare effects of reciprocal dumping

Can two-way trade in similar products lead to lower welfare than if such trade was banned? Theory answers yes. To empirically investigate this proposition we examine Swedish imports of bottled water. Assuming one-shot (Bertrand and Cournot) competition, we can use the estimates from a structural model of demand to uncover marginal costs. We simulate the effect on consumer and producer surplus of banning imports. We do not find convincing evidence that banning imports would increase overall welfare. Given our choice of market this suggests we should not be overly concerned with the welfare effects of two-way trade in consumer goods that are close to homogenous.     

Effects of Joint Outsourcing on Consumer Welfare

This work models outsourcing under oligopolistic competition with nonlinear costs. I show that in a covered market, if each firm’s marginal cost before outsourcing is lower than the industry’s average cost, outsourcing leads to increased prices and decreased consumer welfare. Joint outsourcing is more profitable if the firms’ equilibrium quantity produced is in the economies of scale part of their cost curve.     

Valuation and management of money-back guarantee options

In this article, we model money-back guarantees (MBGs) as put options. This use of option theory provides retailers with a framework to optimize the price and the return option independently and under various market conditions. This separation of product price and option value enables retailers to offer an unbundled MBG policy, that is, to allow the customer to choose whether to purchase an MBG option with the product or to buy the product without the MBG but at a lower price. The option value of having an MBG is negatively correlated with the likelihood of product fit and with the opportunity to test the product before purchase, and positively correlated with price and contract duration. Simulation of our model reveals that when customers are highly heterogeneous in their product valuation and probability of need-fit, and if return costs are low, an unbundled MBG policy is optimal. When customers have high likelihood of fit or return costs are excessive, no MBG is the best policy. When customers have small variance in product valuation, but vary greatly in likelihood of product fit, the retailer may prefer to offer a bundled MBG contract, extracting consumer surplus by charging a price close to the valuation level.     

Separation versus Affiliation with Partial Vertical Ownership in Network Industries

Abstract

The separation of integrated monopolies and new market entrants has changed vertical interactions between suppliers and dealers. Firms have substituted full integration with vertical restraints, leading to collusive behaviour harmful to competition. We examine how a partial vertical ownership (an affiliation) of one of the competing downstream retailers by the upstream monopoly could help internalise the production decision after a complete divestiture. Our results in a Cournot framework confirm the positive role of partial integration on firms’ profits and consumer surplus in increasing social welfare. These results are consistent with empirical studies of economies after vertical separation in network industries.     

Seller honesty and product line pricing

We study upselling in markets where the seller observes consumer need but the consumer herself may not (e.g., medical care, durable repairs, financial and legal services). The seller may recommend excessive product features to uninformed consumers. In a monopoly with two types of consumer (one with a basic need and the other an advanced need) and two types of service (a basic service which fulfills only the basic need and an advanced service which fulfills both needs), we investigate the firm’s honesty and product-line pricing. We reach several results. First, the firm is honest if the basic service is superior (in that it generates higher per-capita social surplus than the advanced service under the efficient allocation) or if the consumers with the basic need are sufficiently many. Second, when there exist informed consumers who neglect seller recommendation, the presence of informed consumers may cause consumer welfare to decrease, and a larger informed population may cause firm profits and social welfare to increase or decrease. Lastly, when the informed consumers boycott a dishonest firm and withhold purchase, firm profits may increase because the threat of boycotting makes the firm more credible and allows a higher price of the advanced service.     

Sociodemographic and spatial disaggregation of e-commerce channel use in the grocery market in Great Britain

The UK Grocery e-commerce industry is amongst the most developed in the world with an estimated value of £11.4Billion in 2018. Assisted by technological developments, the market has experienced dramatic growth over the past two decades. Grocery retailers have invested in online infrastructure and home delivery networks. As a result, consumers have a range of options which enable them to shop interchangeably between in-store and online channels. The proliferation of new grocery shopping channels such as home delivery or ‘click and collect’ (collect in store or collection from a non-store collection point), coupled with changing consumer behaviour, provides new challenges for retailers in understanding consumer dynamics in this market. This paper explores consumer behaviour and preferences for e-commerce in the grocery retail industry in Great Britain (GB) using a survey of 19,033 respondents from the major market research company YouGov. Respondents were asked a range of questions around uptake and channel usage in the grocery e-commerce sector. The survey presents a novel opportunity to analyse self-reported consumer behaviour in GB, with survey responses attached to key sociodemographic and locational information. We find that sociodemographics are an important driver of groceries e-commerce usage and channel choice, with females, more affluent households and those in the 25–44 age group most likely to use home delivery, corroborating previous research. Contrasting previous research, we also find statistically significant evidence of relatively high values of home delivery use among over-55s. Whilst overall usage is lower, we find a particular affinity to collection facilities among males and skilled manual workers. Spatially, we find evidence of both the innovation-diffusion theory and the efficiency theory at both a national and local authority district level, using a brief case study of Yorkshire and the Humber. These insights can support grocery retailers as they further develop costly localised infrastructure to support e-commerce. It could also assist retailers in understanding the localised drivers of channel choice as they seek to shift demand from home delivery (with high costs faced by the retailer in relation to the ‘last mile’) to click and collect (in which the customer faces the costs associated with the last mile).     

产品质量、议价能力与通道费

零售商通道费的产生机理和福利效应是理论界研究的热点,而零售商现有货架上的在售商品对潜在厂商交易条件的影响却少有研究。文章在货架稀缺的视角下,以包含产品质量的经典效用函数为起点,基于现实中零售商普遍采用的预付费合约和相应商务谈判过程的实际,建立了量化零售商产品质量和议价能力的渠道博弈模型,考察了通道费的产生条件、作用机制和福利效果,并探讨了预付费合约本身的现实基础和例外情况。结果表明：当预付费模式是一种刚性的制度安排时,通道费是否产生取决于零售商的议价能力和现有产品质量,只有议价能力和产品质量都很低的零售商才无法收取通道费;当零售商有能力在预付费模式和买断模式之间选择时,预付费一定实现为通道费,代理费必然不会产生。对生产商而言,通道费迫使低质量厂商退出市场,客观上起到了产品质量筛选的作用。这一筛选机制也决定了消费者福利的损益。     

Raising Rivals’ Fixed Costs

This article demonstrates that raising fixed costs can serve as a credible mechanism for a well placed firm to exclude its rivals. We identify a number of credible avenues, such as increased regulation, vexatious litigation and increased prices for essential inputs, through which such a firm can raise fixed costs. We show that for a wide range of oligopoly models this may be a profitable strategy, even if the firm’s own fixed costs are affected as much (or even more) than its rivals and even if it is less efficient. The resulting reduction in the number of firms in the market is detrimental to consumer welfare and hence worthy of scrutiny by competition and regulatory authorities.     

The Impact of Search and Recommendation Systems on Sales in Electronic Commerce

The Internet and related technologies have vastly expanded the variety of products that can be profitably promoted and sold by online retailers. Furthermore, search and recommendation tools reduce consumers’ search costs in the Internet and enable them to extend their search from a few easily found best-selling products (blockbusters) to a large number of less frequently selling items (niches). As a result, Long Tail sales distribution patterns emerge that illustrate an increasing demand in niches. We show in this article how different classes of search and recommendation tools affect the distribution of sales across products, total sales, and consumer surplus. We hereby use an agent-based simulation which is calibrated based on real purchase data of a video-on-demand retailer. We find that a decrease in search costs through improved search technology can either shift demand from blockbusters to niches (search filters and recommendation systems) or from niches to blockbusters (charts and top lists). We break down demand changes into substitution and additional consumption and show that search and recommendation technologies can lead to substantial profit increases for retailers. We also illustrate that decreasing search costs through search and recommendation technologies always lead to an increase in consumer surplus, suggesting that retailers can use these technologies as competitive advantage.     

The retailer's brand promotion strategy under competition: The impact of supply uncertainty

While retailers are committed to promoting product brands to increase sales quantity and brand visibility, retailers are exposed to supply uncertainty. Therefore, we explore the brand promotion strategies of retailers in a competitive model. We then investigate the decision model under three different brand strategies and explore the equilibrium outcomes of stakeholders under supply uncertainty. In addition, we analyze and discuss social welfare under different scenarios. The results show that when the promotion cost is high (i.e., the cost effect dominates the market expansion effect), neither retailer promotes the product brand. When the promotion cost is low (i.e., the market expansion effect dominates the cost effect), both retailers tend to promote the product brands. When the promotion cost and market expansion match each other, only one retailer promotes the product brand becomes the equilibrium strategy. It is worth noting that when both retailers promote the product brand, the retailer falls into a prisoner's dilemma. In addition, we find that the supply uncertainty level diminishes the cost affordability and the motivation of retailers to promote the product brands. Interestingly, the supply uncertainty level reduces the possibility of retailers being in a prisoner's dilemma. Besides, market expansion (supply uncertainty) contributes to improving (diminishing) social welfare.     

人工智能时代个性化定价行为的反垄断规制--从大数据杀熟展开

人工智能时代,数据规模显著扩张,算法能力持续优化。科技实力雄厚、市场力量强大的经营者凭借大数据与算法工具的紧密结合,收集和分析能够反映消费者特征和行为的相关信息,以无限接近消费者购买能力和支付意愿上限的方式对消费者实施个性化定价。个性化定价行为涉及对条件相同的交易相对人在交易价格上实施差别化待遇,可能构成反垄断法所禁止的价格歧视行为。但与以往反垄断实施重点关注的排他性价格歧视不同,个性化定价突出表现为直接针对终端消费者实施的剥削性价格歧视,且在具体情形下呈现出不同的限制竞争效果,引发消费者选择能力与选择范围的双重限制。鉴于此,个性化定价行为的反垄断规制需要准确识别涉案行为,综合判断竞争效果,慎重选择福利标准。对于同时降低消费者剩余和社会总福利的个性化定价行为,可认定其具有限制竞争效果且不具备正当理由,从而构成违法价格歧视;对于降低消费者剩余却提高社会总福利的个性化定价行为,如果选择消费者福利标准则可认定其构成违法价格歧视,如果选择社会总福利标准则可认定其具备正当理由;对于同时提高消费者剩余与社会总福利的个性化定价行为,因涉及消费者之间的剩余转移,对其竞争效果的评价仍待反垄断实施予以明确。     

From E-Channel to Channel Mix and Channel Integration

Based on longitudinal research, this paper elucidates the evolution of the e-channel. The results show that that the e-channel is still of limited importance in many areas, when measured by market share. However, the new channel is an important source of information boosting both consumer power and capability. Another important result is that firms, as well as consumers, still perceive the e-channel as promising. One reason is that today's time-pressed consumers are increasingly in need of affordable services to make their everyday life easier, which puts pressure on firms for developing an e-channel capable to perform cost efficient services. An additional result is that the e-channel and the physical channel do, in fact, complement each other rather than only compete. Therefore, to utilise the potential of the e-channel, a service provider strategy of channel mix and channel integration is suggested.     

Compete in Price or Service?—A Study of Personalized Pricing and Money Back Guarantees

Retailers use both pricing and service strategies to respond to intensified competition. Here we develop a duopoly model to investigate the impact of the increasingly popular personalized pricing strategy (PPS) and the widely used Money Back Guarantee (MBG) customer returns policy. We consider two retailers who differ in customer satisfaction rates. Each retailer chooses a pricing strategy, PPS or uniform pricing, and a product return strategy, MBG or ‘no returns.’ We show that both PPS and MBG are dominant strategies, but their impact on retailers’ prices and profits are different; while PPS intensifies price competition and may lead to a prisoner’s dilemma in which both retailers may lose profit, MBG mitigates price competition and may result in a Pareto improvement in both retailers’ profits. Both PPS and MBG increase the size of the overall market, but not the total duopoly profit. The total customer surplus and social welfare may increase under either strategy. In addition, we obtain some interesting observations as to how our results may change if the product quality/customer satisfaction rate is endogenously chosen in the duopoly. Some of our findings are in contrast to related results reported in the literature.     

Pricing and return strategy of online retailers based on return insurance

With the development of e-commerce, online shopping has become increasingly common, and as a result, consumers inevitably encounter the problem of returns. Therefore, pricing, return policy and return insurance strategy have attracted considerable research attention. In this paper, we construct four models to study pricing, return policy and return insurance strategy. We show that when a product's net residual value is greater than or equal to zero, online retailers should offer a money-back guarantee (MBG) return policy; however, they do not have to offer free return insurance because the latter does not increase their market share and profit, nor does it increase consumer surplus. The optimal strategy of insurance providers is unaffected by whether the policyholder is an online retailer or a consumer and should be neutral, which helps insurance providers gain the trust of policyholders. Consumers should buy products only when online retailers offer an MBG return policy; however, consumers should not do so if the online retailer provides free return insurance.     

Bedeutung der Energieeffizienz für die Energiewende

The increase of the share of renewables in Germany’s energy mix will not emerge from market mechanisms, and hence the costs of externalities have to be distributed among market participants. In order to preserve their competitiveness, energy intensive industries in Germany are exempt from these costs, which in turn leads to a surplus load for remaining consumers. In the context of an efficient energy system transformation, this policy measure is questionable. Even if high electricity prices lead to higher input costs in the short term, an exception for energy intensive industries cannot be justified. On the contrary, this mechanism impedes incentives for investments in energy efficiency and therefore reduces competitiveness in the long term.