Knowledge that Transforms

Whereas the extant literature on entry-order effects establishes that first entrants often earn higher market shares (“market-share advantage”), the literature on distribution suggests that increased distribution has a positive effect on sales. Can distribution help us better understand entry-order effects on market shares? This paper examines how the first entrant in a geographical market achieves a market-share advantage through distribution. For this purpose, I propose a simple method of decomposing sales into physical distribution and sales performance. The data come from a manually collected panel on six major Japanese convenience-store chains from 47 geographical markets between 1991 and 2007. Using an instrumental variable approach to address the potential endogeneity of entry order, I find first entrants have a positive market-share advantage over later entrants. Specifically, the physical distribution, measured by the number of outlets in a market, drives most of the advantage. Meanwhile, the positive effect on sales performance for the first chain brand becomes nonexistent when I control for the outlet density. This paper further finds that the density of own outlets is nonmonotonically (inverted U) related to sales performance per outlet, suggesting dynamic outlet expansion faces a trade-off between the business-stealing effect in a chain (“cannibalization”) and the advertising effect through repetition. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1029 .

It has been shown that a monopolist can use advance selling to increase profits. This paper documents that this may not hold when a firm faces competition. With advance selling a firm offers its service in an advance period, before consumers know their valuations for the firms’ services, or later on in a spot period, when consumers know their valuations. We identify two ways in which competition limits the effectiveness of advance selling. First, while a monopolist can sell to consumers with homogeneous preferences at a high price, this homogeneity intensifies price competition, which lowers profits. However, the firms may nevertheless find themselves in an equilibrium with advance selling. In this sense, advance selling is better described as a competitive necessity rather than as an advantageous tool to raise profits. Second, competition in the spot period is likely to lower spot period prices, thereby forcing firms to lower advance period prices, which is also not favorable to profits. Rational firms anticipate this and curtail or eliminate the use of advance selling. Thus, even though a monopolist fully exploits the practice of advance selling, rational firms facing competition either mitigate it or avoid it completely. The online appendix is available at https://doi.org/10.1287/mksc.2016.1006 .

We test an information theory of prosocial behavior whereby ego utility and self-signaling crowd out the effect of consumption utility on choice. The data come from two field experiments involving purchases of a consumer good bundled with a charitable donation. Across experimental cells, we randomize the price level and the donation level. A model-free analysis of the data reveals nonmonotonic regions of demand when the good is bundled with relatively large charitable donations. Subjects also self-report lower ratings of “feeling good about themselves” when offered bundles with large donations and price discounts. The evidence suggests that price discounts crowd out consumer self-inference of altruism. Alternative motivation-crowding theories are rejected due to their inability to explain the nonmonotonic data moments. The standard use of interaction effects and other falsification checks to explore the underlying choice mechanism in an experimental setting is complicated in our self-signaling context. Instead, a novel feature of our analysis consists of using the experimental data to estimate the structural form of a model of consumer demand with self-signaling. We specify a model in which consumers obtain both consumption and ego utility from their choices. Ego utility derives from a consumer’s posterior self-beliefs after making her choice. An estimator is proposed that handles the potential multiplicity of equilibria that can arise in the self-signaling model. The model estimates allow us to quantify the economic role of ego utility and to explore the underlying signaling mechanism. Nested tests reject the hypothesis of no self-signaling. Alternative model specifications that potentially allow for nonmontonic demand without the self-signaling structure exhibit an inferior fit to the data. The model estimates imply that consumer response to the donations are mainly driven by ego utility and not by consumption utility (i.e., not by altruistic motives). The findings from the combination of a field experiment and a structural model contribute to a growing literature on self-signaling and consumer behavior by quantifying the magnitude of self-signaling on preferences and choices. The results also have implications for the design of a cause marketing campaign and the potential negative synergies between price and nonprice promotions. Data are available at https://doi.org/10.1287/mksc.2016.1012 .

Multichannel retailing has created several new strategic choices for retailers. With respect to pricing, an important decision is whether to offer a “self-matching policy,” which allows a multichannel retailer to offer the lowest of its online and store prices to consumers. In practice, we observe considerable heterogeneity in self-matching policies: There are retailers who offer to self-match and retailers who explicitly state that they will not match prices across channels. Using a game-theoretic model, we investigate the strategic forces behind the adoption (or non-adoption) of self-matching across a range of competitive scenarios, including a monopolist, two competing multichannel retailers, as well as a mixed duopoly. Though self-matching can negatively impact a retailer when consumers pay the lower price, we uncover two novel mechanisms that can make self-matching profitable in a duopoly setting. Specifically, self-matching can dampen competition online and enable price discrimination in-store. Its effectiveness in these respects depends on the decision-making stage of consumers and the heterogeneity of their preference for the online versus store channels. Surprisingly, self-matching strategies can also be profitable when consumers use “smart” devices to discover online prices in stores. Our findings provide insights for managers on how and when self-matching can be an effective pricing strategy. The online appendix is available at https://doi.org/10.1287/mksc.2017.1035 .