The promoter's role in ticket pricing: Implications of real options for optimal posted prices and rationing

We consider the problem of pricing event tickets for initial sale when demand is uncertain. It is a standard industry practice for a performer to contract with a promoter who underwrites the event and offers the tickets for sale at a posted price that is sticky in that it is either fixed or costly to adjust once sales begin. Promoters, therefore, bear price risk, and we show that bearing the risk associated with posting a sticky offer price amounts to writing a put option on the ticket revenue. Further, we show that optimal posted-offer prices can be expected to result in rationing (surpluses) if price uncertainty and price elasticity of demand are material (immaterial), even when the demand forecast is accurate. Our results have implications for a more general set of pricing problems in which items are offered for sale at sticky posted prices.     

Catalytic finance: When does it work?

In a model of debt crisis caused partly by creditor coordination failure, we show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.     

A symmetric LPM model for heuristic mean-semivariance analysis

While the semivariance (lower partial moment degree 2) has been variously described as being more in line with investors’ attitude towards risk, implementation in a forecasting portfolio management role has been hampered by computational problems. The original formulation by Markowitz (1959) requires a laborious iterative process because the cosemivariance matrix is endogenous and a closed form solution does not exist. There have been attempts at optimizing an exogenous asymmetric cosemivariance matrix. However, this approach does not always provide a positive semi-definite matrix for which a closed form solution exists. We provide a proof that converts the exogenous asymmetric matrix to a symmetric matrix for which a closed form solution does exist. This approach allows the mean-semivariance formulation to be solved using Markowitz's critical line algorithm. Empirical results compare the cosemivariance algorithm to the covariance algorithm which is currently the best optimization proxy for the cosemivariance. We also compare our formulation to Estrada's (2008) cosemivariance formulation. The results demonstrate that the cosemivariance algorithm is robust to a 45 security universe and is still effective at increasing portfolio skewness at a 150 security universe. There are four major benefits to a usable mean-semivariance formulation: (1) managers may engineer skewness into the portfolio without resorting to option strategies, (2) managers will be able to evaluate the skewness effect of option strategies within their portfolio, (3) a workable mean-semivariance algorithm leads to a workable n-degree lower partial moment (LPM) algorithms which provides managers access to a wider variety of investor utility functions including risk averse, risk neutral, and risk seeking utility functions, and (4) a workable LPM algorithm leads to a workable UPM/LPM (upper partial moment/lower partial moment) algorithm.     

Read my lips: The role of information transmission in multilateral reform design

Context-specific knowledge is crucial to crafting multilateral reform programs. Nonetheless local knowledge often consists of unverifiable information, thus the quality of countries' reports depends on the conflict of interests faced by the recipient and the multilateral. We compare the performance of a “delegation-scheme” against a “centralization-scheme.” We find that recipients' discretion in the choice of reforms (delegation) should only be increased when the countries' local knowledge is strictly more important than the multilateral's information. Conversely, a reduction in the conflict of interests may lead the multilateral in to allowing the recipient less freedom in designing reforms (centralization). Our empirical results support these theoretical predictions.     

The determinants of international investment and attention allocation: Using internet search query data

This paper explores the joint determination of home bias and attention allocation. We overcome the typical challenge associated with evaluating attention allocation theories by using a new internet search query dataset to measure how much information investors decide to process. Employing an instrumental variables approach, we find empirical evidence of a two-way causality between home bias and attention. Our estimates suggest that if all countries were to receive the same level of attention as the U.S., then the average home bias by U.S. investors would fall from 85.2% to 57.3%.     

Value‐at‐Risk bounds with two‐sided dependence information

Value‐at‐Risk (VaR) bounds for aggregated risks have been derived in the literature in settings where, besides the marginal distributions of the individual risk factors, one‐sided bounds for the joint distribution or the copula of the risks are available. In applications, it turns out that these improved standard bounds on VaR tend to be too wide to be relevant for practical applications, especially when the number of risk factors is large or when the dependence restriction is not strong enough. In this paper, we develop a method to compute VaR bounds when besides the marginal distributions of the risk factors, two‐sided dependence information in form of an upper and a lower bound on the copula of the risk factors is available. The method is based on a relaxation of the exact dual bounds that we derive by means of the Monge–Kantorovich transportation duality. In several applications, we illustrate that two‐sided dependence information typically leads to strongly improved bounds on the VaR of aggregations.     

Transparency and empowerment in an investment environment

In a laboratory-controlled environment we provide experimental evidence on the effects of transparency (complete over incomplete information) and empowerment on trust and trustworthiness. We implement a simple version of the standard two-person investment game in a repeated game context with multiple treatments under two information environments. We find that when principals are empowered by being able to penalize agents who may not act in a way the principal believes is in the principal's best interest, the level of trust and investment increases over that which is realized in the absence of empowerment regardless of the degree of transparency. In transparent environments the effect of empowerment is about the same regardless of whether empowerment is introduced or removed. However, in opaque environments, the loss of empowerment has a substantially greater negative effect on trust than the positive effect associated with the introduction of empowerment.     

Home bias and high turnover: Dynamic portfolio choice with incomplete markets

Why do investors trade a lot in foreign assets and hold so little of them in their portfolios? This paper shows that both observations can arise naturally in the presence of nondiversifiable nontraded consumption risk when each country specializes in production, preferences exhibit consumption home bias, and asset markets are incomplete. Using a general equilibrium two-country, two-sector (tradable and nontradable) model of the world economy with production I show that low diversification occurs because variations in relative prices (i) increase the riskiness of foreign assets and (ii) facilitate risk-sharing across countries. Large and volatile capital flows are necessary to take advantage of international risk premia differentials that occur in response to productivity changes in the nontradable sector. I characterize the optimal portfolio holdings, the evolution of the investment opportunity set, the risk premium, and the dynamics of capital flows using a new methodology for solving dynamic general equilibrium models with incomplete markets and portfolio choice.     

Joint In-Season and Out-of-Season Promotion Demand Forecasting in a Retail Environment

Inaccurate forecasts of demand during promotions diminish the already meager profit margins of retailers. No forecasting method described in the literature can accurately account for the combination of seasonal sales variations and promotion-induced sales peaks over forecasting horizons of several weeks or months. We address this research gap by developing a forecasting method for seasonal, frequently promoted products that generates accurate predictions, can handle a large number of sales series, and requires minimal training data. In our method's first stage, we forecast the seasonal sales cycle by fitting a harmonic regression model to a decomposed training set, which excludes promotional and holiday sales, and then extrapolate that model to a testing set. In the second stage, we integrate the resulting seasonal forecast into a multiplicative demand function that accounts for consumer stockpiling and captures promotional and holiday sales uplifts. The final model is then fitted using ridge regression. We use sales data from a grocery retailing chain to compare the forecasting accuracy of our method with popular seasonal and promotion demand forecasting models at multiple aggregation levels for both short and long forecasting horizons. The significantly more accurate forecasts generated by our model attest to the merit of the approach developed here.     

Corporate Social Responsibility as a Signalling Device for Foreign Direct Investment

A rise in CSR (corporate social responsibility) has accompanied rise in foreign direct investment (FDI) to developing countries in the 1990s. CSR may be serving a signalling function when the entering firm is of an unknown type. Although countries are now competing keenly to attract foreign firms, even so, excessive tax or excess transfers by firms can still cause a Prisoner’s Dilemma structure to the payoffs resulting in an inefficient Nash equilibrium. CSR allows the accommodating firm to reveal its type, making cooperation the equilibrium outcome. The game differs from standard models since signalling changes the payoffs. A unique separating equilibrium exists where only the accommodating firms signal. But, under certain parameter values, a pooling equilibrium where all firms signal, becomes possible. A number of results are derived including the size of CSR expenditure required as a fraction of profits. An example demonstrates their relevance in practical situations.     

Would You Like to be a Prosumer? Information Revelation,Personalization and Price Discrimination in Electronic Markets

Electronic commerce and flexible manufacturing allow personalization of initially standardized products at low cost. Will customers provide the information necessary for personalization? Assuming that a consumer can control the amount of information revealed, we analyze how her decision interacts with the pricing strategy of a monopolist who may abuse the information to obtain a larger share of total surplus. We consider two scenarios, one where consumers have different tastes but identical willingness to pay and another with high and low valuation customers. In both cases full revelation may only result if the monopolist can commit to a maximum price before consumers decide about disclosure.     

Government transparency: the citizen perspective and experience with food and health products policy

Citizen engagement (involvement of everyday citizens in policy decisions) is now seen as a major component of governance and policy making. Government transparency is a central tenet of citizen engagement. This study was sought by Health Canada in order to learn from citizen groups in other countries about the nature and degree of transparency related to food and health product review in their country. Health Canada anticipated learning from their experiences and perceptions so that it could increase the transparency of its own review and regulatory process. The opinions of a cross‐section of stakeholders in the United States, the European Union (especially the UK), Australia and New Zealand, solicited via an e‐mail survey, were analysed. The results clearly indicate that, in general, respondents do not feel that their food and health product review system is transparent. These opinions varied depending on which of the seven dimensions of transparency was being examined. Of the 64 recommendations tendered for increasing government transparency, the 32 suggestions for improving their own systems were quite different from the 32 made for Health Canada to consider. Collectively, they provide rich insights into the refinement and clarification of the food and health product review process.     

Responsible Personal Finance: The Role of Conscientiousness in Bank and Pension Savings in Chile

We investigate the role of trait conscientiousness, from the Big Five personality traits, in explaining individual saving behavior. Conscientiousness is a disposition to be responsible and pursue non‐immediate goals; thus, we expect this trait to positively predict saving behavior. Using a nationally representative survey from Chile, we find the expected effect of conscientiousness on pension and bank savings.     

Biased and overconfident,unbiased but going for it: How framing and anchoring affect the decision to start a new venture

Cognitive heuristics, biases, and overconfidence have been suggested as an explanation for entrepreneurial entry. Nevertheless, empirical research on the subject has produced mixed findings and has under-explored the cognitive mechanisms leading to overconfidence in entrepreneurial settings. In two within-subject experiments, we focus on three cognitive heuristics—reference point framing, outcome salience framing, and anchoring in conjunctive events—and examine their effects on perceived risk, confidence, required and estimated probabilities of success, and the decision to start a new venture. Our findings show that reference point framing and outcome salience framing affect the decision to enter directly and indirectly via risk perception, but do not affect confidence. In addition, the effect of anchoring is contingent on the congruence between its semantic and its numeric influences. Overconfidence only obtains when the numeric and semantic influences of anchoring are aligned and aimed at enhancing the salience of potential positive outcomes, i.e., through high probabilities of success.     

Violence against women and new venture initiation with microcredit: Self-efficacy,fear of failure,and disaster experiences

Domestic violence is the most prevalent form of gender-based violence that threatens the wellbeing and dignity of women. In this paper, we examine whether and how exposure to physical or sexual assault by male partners influences women's decision to initiate a new business when they have access to financing. We collected primary data from rural Bangladesh in collaboration with a microfinance institution that provided small collateral-free loans to a group of married women. We conducted a baseline survey before loan disbursement and then conducted a follow-up survey 12 to 15 months later to collect information on loan usage. We find that women who experienced physical or sexual violence by their husband before receiving a loan are less likely to initiate a new business with their loan than those who did not experience such violence. Exposure to domestic violence obstructs the initiation of new businesses through reduced entrepreneurial self-efficacy and increased fear of business failure. The adverse impact of domestic violence is more detrimental for women who recently experienced another potentially traumatic event—an environmental disaster—than for those without such an experience.     

Price recall: Brand and store type differences

Price is among the most important choice criteria for customers, whose price knowledge is often surprisingly inaccurate. This study aims at providing new insights into differences in price recall across brands and store types, and their potential effect on marketing efficiency and customers’ store choice. Towards this aim, we analyze the price recall of consumers for 51 food items by a random-effects panel estimation employing a survey with 715 participants. Our results show that customers recall national brand prices better than private labels, almost irrespectively of the store type; consumers overestimate store brand prices in both store types; the effect, however, is much higher for the convenience store. These outcomes have consequences for the marketing strategy: despite a price-matching guarantee for the store brands in the convenience store, the price image is still in favor of the discounter. This result raises doubts on the effectiveness of the price-matching guarantee, at least in this context. The everyday low price strategy of the discounter seems to pay off in terms of the price image. Though both stores charge the exact same prices for their store brands, prices at the discounter are on average perceived to be significantly lower.     

Visual attention to the main image of a hotel website based on its position,type of navigation and belonging to Millennial generation: An eye tracking study

This article focuses on the role played by the images that hotels use on their websites. Under this approach, this study analyses the main image used in a hotel website, considered an area of outstanding interest, which can help to improve the first impression when arriving at the website and, with it, increase the number of bookings. The absence of studies on this matter aroused the interest in it.The proposed experiment allows to check how these images influence the pattern or metrics of visual attention of users as well as their cognitive processing. The eye tracking technology was chosen with the intention of knowing several aspects of this fixation behaviour according to: the position of the image on the website, whether or not it belongs to the Millennial generation and the type of navigation it performs (exploratory vs. goal oriented), in addition to proposing some interaction effects between these classification variables studied.The results achieved revealed that an image in the upper area of a website is more effective, but there are some differences in the visual attention among groups of participants. This attention to it will depend, in part, on the type of task to be carried out within the website and the user age. Specifically, goal-oriented users showed a lower recurrent interest in the main image. The fixation was shorter in the group belonging to the Millennial generation, who do not need, given their greater experience in the web, a longer time to process the cognitive load of the image. Although the hypotheses proposed on the basis of the literature are not entirely satisfactory, the present study allows laying the foundations for more complex future works.     

Effects of employees’ opportunities to influence in-store music on sales: Evidence from a field experiment

The effects of in-store music on consumer behavior have attracted much attention in the marketing literature, but surprisingly few studies have investigated in-store music in relation to employees. By conducting a field experiment in eight Filippa K fashion stores in Stockholm, Sweden, we investigate whether it is beneficial for store owners to give employees more opportunities to influence the in-store music. We randomly assigned the stores into a treatment group and a control group, with the employees in the treatment stores having the opportunity to influence the in-store music through an app developed by Soundtrack Your Brand (SYB). The experiment lasted 56 weeks and sales data were also gathered 22 weeks before the experiment, resulting in a total of 4626 observations. Our results show that sales decreased by 6% when the employees had the opportunity to influence the music played in the store, and the effect is driven by a reduction in sales of women's clothing. Interviews with the employees revealed that they had diverse music preferences, frequently changed songs, and preferred to play high-intensity songs. Employees thus seem to make choices regarding the in-store music that reduce sales, implying that store owners might want to limit their opportunities to influence the background music.     

Some implications of search and switching costs for the price dynamics of electronic markets

This article develops a model, based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e‐commerce. Switching costs and intertemporal cost correlation lock‐in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservation prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.     

The value of household life cycle variables in consumer expenditure research: An empirical examination

We examine why studies reach contradictory conclusions concerning the value of the household life cycle model as a predictive tool in consumer expenditure research. Using a database of roughly 14,000 Canadian households, we find that household life cycle variables do not generally enhance prediction over a more parsimonious model containing a basic set of socioeconomic and demographic variables, even when comparing less aggregated to more aggregated expenditure categories. However, they do enhance prediction for categories that are defined such that the typical users of the category fall into a fairly narrow age range. The theoretical and applied significance of our findings are discussed and directions for future research are offered. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.