HOW DOES ADVERTISING AFFECT MARKET PERFORMANCE? A NOTE ON GENERIC ADVERTISING

We propose a novel approach to estimating the effect of advertising on market performance that relies on the preferences of firms participating in generic advertising programs. Generic advertising campaigns provide a unique window to observe advertising effects on market performance, because rotations in market demand systematically redistribute advertising rents among firms according to observable characteristics on producer size. We examine producer attitudes towards generic advertising in the “Beef. It's What's for Dinner!” campaign of the U.S. Beef Checkoff program, the subject of the recent and controversial Supreme Court ruling on generic advertising as a form of government speech. We find the likelihood producers favor an expansion of the advertising program increases in their operating scale. This finding is consistent with an advertising campaign that has led to a counterclockwise rotation of market demand and a commensurate increase in market performance in the U.S. beef market. (JEL L1, M37, Q13)     

PRODUCT COMPATIBILITY HINDERS PRE-EMPTIVE ADVERTISING

This paper considers competition in systems of complementary products and examines how compatibility affects the use of informative advertising by an incumbent to deter entry. Advertising increases demand for a product; customers become price sensitive and competition increases, pre-empting new market entrants. However, compatibility reduces competition, so incumbent advertising becomes less effective at deterring entry and additional, costly advertising would be required to induce deterrence. Moreover, compatibility increases advertising by a potential entrant; with efficient advertising technology, consumers are informed about all products and the incumbent cannot deter entry by using additional advertising. Therefore, product standardization policies that encourage compatibility can support new market entrants by discouraging pre-emptive advertising strategies. (JEL D21, D43, L13, L15)     

Gender differences in tournament and flat-wage schemes: An experimental study

We present a new experiment that explores gender differences in both performance and compensation choices. While most of the previous studies have focused on tournament vs. piece-rate schemes, the originality of our study consists in examining the gender gap in the context of a flat wage scheme. Our data indicate that females exert a significantly higher effort than men in fixed payment schemes. We find however no gender difference in performance under the tournament scheme, due to a combination of two effects. On the one hand, men more significantly increase their effort when switching from a flat wage to a tournament scheme. On the other hand, when switching from the flat wage to a tournament scheme, women have less margin to increase performance since their effort was already relatively high with a flat wage. We also find that females are more likely than males to choose a flat-wage scheme than a tournament. This gap however narrows dramatically when feedback on previous experience is provided.     

THE SOCIAL IMPACT OF BROADBAND HOUSEHOLD INTERNET ACCESS

Broadband changes everything. Or so we are told. But does it? There is only one way to find out - follow people who move from narrowband to broadband internet access and see what changes. This paper reports exactly this kind of analysis using data from a two wave European panel study (e-Living) and the lagged endogenous regression approach to see if switching to broadband increases the time spent online, the use of online communication services, the breadth of internet activities and the amount of online spend, and whether it decreases the time spent watching TV and the level of social leisure activities. The results suggest, in the main, that switching to broadband made little difference for this group of early broadband adopters who were already heavy internet users. There was no evidence of an online spend or social leisure substitution effect although there was evidence of a reduction in time spent watching television, and an increase in email in use, time spent online and breadth of internet use. In all cases however it was the previous levels of behaviour that were the most significant and switching to broadband was, in general, one of the least strong effects.     

Estimating customer utility of energy efficiency standards for refrigerators

A frequent argument against efficiency standards is that they prohibit products that represent optimal choices for customers and thus lead to reduced customer utility. In this paper we propose and test a method to estimate such losses. Conjoint analysis is used to estimate utility functions for individuals that have recently bought a refrigerator. The utility functions are used to calculate the individuals' utility of all the refrigerators available in the market. Revealed utility losses due to non-optimal choices by the customers seem consistent with other data on customer behaviour. The same utility estimates are used to find losses due to energy efficiency standards that remove products from the market. Contrary to previous claims, we find that efficiency standards can lead to increased utility for the average customer. This is possible because customers do not make perfect choices in the first place.     

TRACKING CUSTOMER SEARCH TO PRICE DISCRIMINATE

The electronic technologies of the Internet make it possible for sellers to track potential customers and discriminate between the informed and uninformed. In this article, we report an experiment that investigates the market impact of firms tracking customers and offering discriminatory prices based on search history. We find that consumers, on average, face the same prices when sellers have the ability to track customers and price discriminate as when sellers post a single price for all buyers. However, informed buyers receive lower prices when sellers can detect buyer search, whereas uninformed buyers receive lower prices when firms cannot track customers. (JEL D43 , L13 , C92 )     

GEOGRAPHICALLY LOCALIZED KNOWLEDGE: SPILLOVERS OR MARKETS?

Using detailed data on California biotechnology, we find that the positive impact of research universities on nearby firms relates to identifiable market exchange between particular university star scientists and firms and not to generalized knowledge spillovers. Poisson and two-stage Heckman regressions indicate the number of star-firm collaborations powerfully predicts success: for an average firm, five articles coauthored by academic stars and the firm's scientists imply about five more products in development, 3.5 more products on the market, and 860 more employees. Stars collaborating with or employed by firms, or who patent, have significantly higher citation rates than pure academic stars. (JEL O31, D62, L65, L66)     

THE RELATIONSHIP BETWEEN BETTING AND LOTTERY PLAY

We apply a novel daily time series data set of daily turnover from one of Britain's leading bookmakers to analyze potential substitution between lottery play and bookmaker betting. We find some evidence that bettors do substitute away from horse race, soccer and numbers betting when the effective price of lottery tickets is unusually low, that is, when there is a rollover or other special draw. This substitution has a highly specific pattern of timing that varies by sector. Our results further suggest that bettors rationally engage in forward-looking substitution within their betting portfolios . ( JEL D12, L83)     

TESTING A PRODUCTION-BASED ASSET-PRICING MODEL

We develop a dynamic production-based asset-pricing model from the solution cf a representative firm's investment and financing problem. Nonnegative correlation between capital stocks and asset returns is accommodated, as well as equity premia arisingfrom dtfferential costs of stock versus bondfinance. Under our adjustment-costs specfication, the returns on the firm's financial instruments become linear functions of the firm's average capital productivity, its investment-capital ratio, and financial instrument-specific costs. Empirical tests using U.S. T-bill rates and common stock returns yield plausible parameter estima tes and coofrm the significance qfthesefictors.     

ANTI‐POACHING AGREEMENTS IN LABOR MARKETS

We analyze competition for experienced workers among wage‐setting firms. The firms can design poaching offers with higher wages to workers who switch from rivals relative to wages paid to their own existing employees. We evaluate the profit and welfare effects of anti‐poaching agreements that eliminate poaching offers as a recruiting method. Anti‐poaching agreements increase industry profits, whereas workers are made worse off. We show that the effects of anti‐poaching agreements on total welfare are determined by the magnitude of workers' switching costs and the productivity change associated with switching employers. (JEL L41, L40, J42)     

The role of individualism vs. collectivism in the formation of repurchase intent: A cross-industry comparison of the effects of cultural and personal values

As repurchase intent drives profitability and firms are facing culturally diverse customers, managers should know how individualism (vs. collectivism) influences the formation of repurchase intent. This research models individualism as a dimension of both national culture and personal values. Based on HLM of data from six countries and ten industries, study 1 shows that cultural individualism is more influential than personal individualism. Individualism positively moderates the effect of customer satisfaction and negatively moderates the effects of public brand image and relational switching costs on repurchase intent. While the effects of customer satisfaction and relational switching costs are moderated more strongly for services, the effect of public brand image is moderated more strongly for products. Study 2 illuminates psychological processes operating behind these moderating effects: importance of relational switching costs – reliance on salespeople; importance of public brand image – meeting social preferences (impressing others, expressing group identify), but not trustworthiness; importance of customer satisfaction – customization, distinctiveness, but not functional benefits. This research also tests extant theories about the main effect of individualism on repurchase intent. The results provide valuable, novel suggestions for cross-cultural adaptation of marketing strategy.     

HOW TO HAGGLE and TO STAY FIRM: BARTER AS HIDDEN PRICE DISCRIMINATION

Barter transactions, conducted openly by established corporations, play an increasingly significant role in the U.S. economy. The model developed here helps explain why firms use barter and yields predictions concerning the circumstances under which barter is likely to occur. It is shown that when two firms barter goods used as inputs, price discrimination occurs. This price discrimination is hidden from the firms' other customers because the real values of the transacted goods to the barterers are different from the accounting prices used in the transaction. Since price discrimination that is observed by potential customers might have an adverse effect on the selling firm's future bargaining power, barter will have value as a means of hiding price discrimination.     

APPLICATIONS BARRIER TO ENTRY AND EXCLUSIVE VERTICAL CONTRACTS IN PLATFORM MARKETS

Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to an applications barrier to entry. Exclusive contracts in vertical relationships between the platform provider and software supplier can heighten entry barriers. We test these theories in the home video game market. We find that indirect network effects from software on hardware demand are present, and that exclusivity takes market share from rivals, but only when most games are nonexclusive. The marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to domination by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting. (JEL L42, L63, D12)     

“Get to Know the Unknown”: Understanding Religion and Advertising

The relationship between religion and advertising has mostly been theorized in terms of “religion in advertising” or “advertising as religion.” This article pursues two goals: First, it offers a substantial critique of previous studies of advertising and religion in order to take stock and discern future directions of research. Second, it presents the results of an empirical qualitative study of print advertisements which responds to some of the open questions of previous research. It shows that advertising partially fulfills religious functions, focusing on those to do with self-actualization and meaning making within an immanent horizon, and less so on community-related functions. Based on these results, I argue that in the study of religion and advertising, “religion” cannot be limited to specific religious traditions, but has to be understood more broadly. Also, the conventional distinction between “religion in advertising” and “advertising as religion” has to be overcome in order to understand the phenomenon.     

THE EFFECT OF CONCEALED WEAPONS LAWS: AN EXTREME BOUND ANALYSIS

Lott and Mustard [1997] provide evidence that enactment of concealed handgun ("right-to-carry") laws deters violent crime and induces substitution into property crime. A critique by Black and Nagin [1998] questions the particular model specification used in the empirical analysis. In this paper, we estimate the "model uncertainty" surrounding the model specified by Lott and Mustard using an extreme bound analysis (Leamer [1983]). We find that the deterrence results are robust enough to make them difficult to dismiss as unfounded, particularly those findings about the change in violent crime trends. The substitution effects are not robust with respect to different model specifications. (JEL K42)     

WHAT DOES REPUTATION REALLY ASSURE? THE RELATIONSHIP OF TRADEMARKS TO EXPECTATIONS AND LEGAL REMEDIES

Theoretical and empirical considerations suggest that trademarks guarantee more than just quality: they assure specific performance, that is, fulfillment of the specific terms of the contract. The specific performance hypothesis implies that a firm's investment in trademark capital varies directly with the damages that its customers expect to bear from a breach and the legal difficulties of obtaining compensation. The hypothesis also helps to explain why competitors of firms whose products are recalled lose wealth, why some damages allowed by law intentionally provide less than full compensation, and why firms who sell only to other firms also invest in trademarks.     

Consumers’ Insights About Spirituality in Advertising

While the study of spirituality in advertising is an emerging area of scholarship, previous research tends to focus more on the spiritual message rather than on the consumer. Although some studies report on the meanings consumers derive from spiritual advertising messages, the definitions of spirituality as religion in these studies are not in alignment with the holistic approach applied here. In this article, we interview consumers and ask what meanings may emerge from their responses to spiritually dense commercials. (By spiritually dense we mean commercial messages rich with spiritual core ideas, as described in the Spirituality in Advertising Framework). Four themes have emerged from the data: authenticity, the journey, inspiration, and nature. We analyze these findings in light of both theory and practice. Consideration of ethical issues and the positive dimension of spirituality in advertising are also discussed.     

Advertising, Individual Consumption Levels, and the Natural Environment, 1900–2000

One central determinant of global environmental change is the continued expansion of personal consumption levels. In order to more fully understand the relationship between consumption and environmental degradation, the determinants of consumption must first be identified. Prior research in this area has focused on economic factors, primarily personal disposable income and population demographic characteristics. The role of cultural factors, including advertising, has been actively mentioned in theoretical analyses of the driving forces of individual consumption. However, this has not been empirically tested. In this article, we conduct an analysis of the impact of advertising on consumption levels in the United States. We start with a theoretical discussion of the literature on advertising and consumption. Based on this literature, we establish three hypotheses regarding the relationship between advertising expenditure and personal consumption. These hypotheses are then tested using time series analysis over the time period 1900–2000. The results show that advertising significantly impacts overall consumption and that these effects vary by type of consumption. We conclude with a discussion of the implications of this analysis for further research into the driving forces of global environmental change.     

Does volunteer work pay off in the labor market?

Focusing on the investment motive for volunteer work, this paper examines whether volunteer work has an economic payoff upon the labor market in France. Using a switching regression model with endogenous switching, we find that in the public sector volunteers receive a positive wage premium that does not influence their involvement, while the premium is negative in the private sector. We also find little evidence of the presence of alternative types of returns on the labor market, such as employment mobility or entry into the labor market. Our findings are more consistent with a consumption motive and we suggest that volunteering is carried out with a relational purpose.     

Neighborhood Effects in Temporal Perspective

Theory suggests that neighborhood effects depend not only on where individuals live today, but also on where they lived in the past. Previous research, however, usually measured neighborhood context only once and did not account for length of residence, thereby understating the detrimental effects of long-term neighborhood disadvantage. This study investigates the effects of duration of exposure to disadvantaged neighborhoods on high school graduation. It follows 4,154 children in the PSID, measuring neighborhood context once per year from age 1 to 17. The analysis overcomes the problem of dynamic neighborhood selection by adapting novel methods of causal inference for time-varying treatments. In contrast to previous analyses, these methods do not "control away" the effect of neighborhood context operating indirectly through time-varying characteristics of the family, and thus they capture the full impact of a lifetime of neighborhood disadvantage. We find that sustained exposure to disadvantaged neighborhoods has a severe impact on high school graduation that is considerably larger than effects reported in prior research. Growing up in the most (compared to the least) disadvantaged quintile of neighborhoods is estimated to reduce the probability of graduation from 96% to 76% for black children, and from 95% to 87% for nonblack children.