Brand familiarity and product knowledge in customization

I adopt Hotelling's model with two firms. Each consumer has a most preferred variety and possesses a certain level of category‐specific knowledge. When a firm offers customization, consumers must interact with the firm to create their products. Consumers familiar with the brand can do this seamlessly, whereas consumers unfamiliar with the brand have difficulty expressing their individual needs (the difficulty decreases with consumers' knowledge). The firms first simultaneously decide whether to customize, then engage in price competition. Although customization makes the products less differentiated, the frictions caused by consumer co‐design activities relax price competition. Customization by one of the firms occurs in equilibrium.     

Sourcing Co-Created Products: Should Your Suppliers Collaborate on Cost Reductions?

Review of Industrial Organization - We study how a multi-product downstream firm should source from the upstream market—single-source versus multi-source—in a situation where the...     

Exposure order effects and advertising competition

This paper applies the theories of exposure order effects, developed in the psychology literature, to an industrial organization model to explore their role in advertising competition. There are two firms and infinitely many identical consumers. The firms produce a homogeneous product and distribute their brands through a common retailer. Consumers randomly arrive at the retailer and buy their most preferred brands. The order in which a consumer sees the advertising messages affects his brand preferences. Under the primacy effect the consumer prefers the brand he first saw advertised, under the recency—the last encountered brand. The equilibrium of the advertising game is characterized separately under the primacy and the recency effects. In the first setting all consumers are initially unaware of the product existence. The equilibrium advertising intensities, remarkably, do not depend on the type of exposure order effect. In the other two settings some consumers have already formed their brand preferences. The primacy and the recency effects give rise to different equilibrium outcomes.     

Customization with Vertically Differentiated Products

We consider a duopoly market with heterogeneous consumers. The firms initially produce vertically differentiated standard products located at the end points of the variety interval. Customization provides ideal varieties for consumers but has no effect on quality. The firms first choose whether to customize their products, then engage in price competition. We show that the low‐quality firm never customizes alone; customization becomes more likely as the difference between the firms’ qualities increases; and less likely as the fixed cost of customization increases. We extend the base model by relaxing two important assumptions—uniform pricing and exogenous quality. The main conclusions with uniform pricing continue to hold when price customization is allowed. In the second extension the firms’ qualities are endogenously determined. We show that the firms choose to be either substantially differentiated in quality or nondifferentiated.     

Learning in Advance Selling with Heterogeneous Consumers

Advance selling occurs when consumers order a firm's product prior to the regular selling season. It reduces uncertainty for both the firm and the buyers and enables the firm to better forecast its future demand. The distinctive feature of this paper is that there are both experienced and inexperienced consumers, with the former knowing their valuations of the product in advance. We show that pre‐orders from experienced consumers lead to a more precise forecast of future demand by the firm and that the optimal pre‐order price may be at a discount or a premium relative to the regular selling price. Copyright © 2016 John Wiley & Sons, Ltd.     

Wolves' contribution to structural change in grazing systems among swiss alpine summer farms: The evidence from causal random forest

The return of wolves to Swiss mountains and the damage they cause to sheep and goat herds in the region have raised concerns about a consequent wave of farm closures. In this paper, we examine the relationship between wolf attacks and the decline of Alpine summer farms, a specific high-altitude farm type. We collected farm structure data and monitoring data on wolf attacks between 2004 and 2021 and analysed them using a causal random forest method, enabling a detailed analysis of the relation between wolf attacks and the number of different types of Alpine summer farms at a regional level. The results show that the farming systems are unaffected by incidental and infrequent wolf attacks, but that a high number of wolf attacks in a region is related to faster decrease in number of grazing systems where sheep are most vulnerable to such attacks. In contrast, systems that allow for better herd protection tend to show an increase in areas with frequent wolf attacks.     

Price experimentation with strategic buyers

A two-period model in which a monopolist endeavors to learn about the permanent demand parameter of a specific repeat buyer is investigated. The buyer may strategically reject the seller’s first-period offer for one of two reasons. First, in order to conceal information (i.e., to pool), a high-valuation buyer may reject high prices that would never be accepted by a low-valuation buyer. Second, in order to reveal information (i.e., to signal), a low-valuation buyer may reject low prices that would always be accepted by a high-valuation buyer. Given this, the seller often finds it optimal to post prices that reveal no useful information. Indeed, in the equilibrium where there is no signaling, the seller never charges an informative first-period price. Learning may occur in the equilibrium where there is maximal signaling, but the scope for learning is quite limited even in this case. Indeed, in order to preempt information transmission through signaling, the seller may be induced to set a first-period price strictly below the buyer’s lowest possible valuation.