Knowledge that Transforms

This paper investigates the impact of research productivity on the salaries of marketing faculty members. We examine how the number of articles published in various types of publications affects faculty members' nine-month salary using a sample of three years of information on 298 marketing professors from 33 research-oriented, public universities. Consistent with research conducted in other disciplines, we find a positive impact of publishing on salary. We estimate the individual salary impact for each of the four top-tier journals in marketing, finding that the biggest impact on salary comes from publishing in Marketing Science. Further, we find that publishing in Tier 1 journals in marketing has a bigger salary impact than in Tier 1 journals outside marketing. Finally, we find that faculty and department characteristics also affect salary. For example, being from a higher ranked research university and being a full professor are each associated with higher salary.

Firms often use a pool or series of advertising themes in their campaigns. Thus, for example, a firm may employ some of its advertising to promote price-related themes or messages and other of its advertising to promote product-related themes. This study examines the interdependence that can occur between pairs of themes in a pool (i.e., pooling effects), the impact of these pooling effects on the allocation of advertising expenditures, and the factors that can affect forgetting rates (or, conversely, carry-over rates) in a multitheme advertising environment. The study measures pooling, wear out, and forgetting (carry-over) effects for a campaign that uses five different advertising themes. To obtain these measures, I extend the linear Nerlove-Arrow (NA) (1962) model to a nonlinear model of advertising theme quality and goodwill and estimate the extended model using Markov chain Monte Carlo (MCMC) and particle filtering ideas. Particle filtering belongs to a class of sequential Monte Carlo (SMC) methods designed to estimate nonlinear/nonnormal state space models. Results show that forgetting (or carry-over) rates may be time varying and a function of prior goodwill (past advertising) and other advertising variables. Results show, moreover, that pooling effects can reduce theme wear out and, in turn, significantly improve advertising efficiency.

We investigate biases in product valuation and usage decisions that arise when consumers consider a new generation of a product that offers an expanded set of capabilities of uncertain value. Two experiments using a novel computer game show evidence of a valuation-usage disparity: Participants display a high willingness to pay for a new version of the game that offers a new set of controls, but fail to fully exercise the option to use these controls after purchase. This discrepancy is attributed to a fundamental difference in how new capabilities are valued at the time of purchase versus use. Consumer usage decisions appear to be driven by such myopic concerns as a desire to avoid short-term learning costs, whereas purchase decisions often fail to take into account the factors that drive usage, and are further inflated by global optimism in the future usefulness of new capabilities. We show that this lack of foresight can be explained by an intertemporal judgment model in which consumers attempt to value the option to use new capabilities as would be prescribed by economic theory, but are prone to hyperbolic discounting in their temporal valuation of present versus future costs and benefits.

Present-biased preferences capture the idea that individuals may find immediate payoffs significantly more salient than any future payoffs, rather than simply discounting the future in a time-consistent manner. In this paper we show that consumers' present-biased preferences can generate slippage, and we explore whether this can explain firms' use of mail-in rebates. We assume that the consumer population comprises members who have various degrees of present bias. The model demonstrates that if consumers have homogeneous willingness to pay for a product (and thus rebates do not serve as a mechanism for traditional price discrimination) rebates may still profitably exploit slippage, but to do so they must generate very high slippage rates. This is, because the rebate must greatly exceed the price markup because the rebate must compensate consumers for the cost of redemption and the delay in receiving the rebate. The ability of rebate programs to take advantage of present-biased consumers is quite limited in settings where there is significant variance in the degree of present bias within the population unless the extent of consumers' present bias is highly correlated with their rebate redemption costs.

This paper investigates the relationship between prices and market concentration in the auto rental industry. We assemble an original database that includes the number of auto rental operators and other exogenous demand and cost conditions at every commercial airport in the country. The data are interesting because we observe a large variation in market structure, ranging from more than 100 monopoly and duopoly markets to several competitive airports with more than eight firms. In addition, we collect daily rental prices in each market that are regressed against the number of operating firms and other control factors. Due to potential biases in treating market participants as exogenously assigned, we employ a two-stage estimation procedure in which an equilibrium model of endogenous market structure provides correction terms for the second-stage price regression. Results show that ignoring the endogeneity of market structure severely underestimates the impact of additional competitors on prices, with the competitive interaction parameters doubling in magnitude after the correction procedure. The downward bias in the competitive parameter can have important implications for horizontal mergers, which may incorrectly appear innocuous when using a model that ignores the endogeneity of market structure. More generally, our results serve as a warning on the potential biases to a large number of applications in marketing and economics that attempt to relate outcome variables such as prices, markups, or profits to the observed market structure.

We investigate price competition between firms in markets characterized by consumer variety seeking. While previous research has addressed the effect of consumer inertia on prices, there exists no research on the effects of variety seeking on price competition. Our study fills this gap in the literature. Using a two-period duopoly framework as in Klemperer's analysis of inertial markets, we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking. Specifically, our variety-seeking model implies tacit collusion between firms in both periods, unlike the inertia model of Klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period. When consumers are assumed to have rational expectations about future prices, the implied first-period prices increase further, which is consistent with what Klemperer finds in an inertial market. To summarize, while our variety-seeking analyses support two key results (pertaining to second-period prices and rational expectations) previously derived for inertial markets by Klemperer, they depart from one key result (pertaining to first-period prices).

We quantify the economic value of hardware base warranties in the U.S. server market to manufacturers, channel intermediaries, and customers. We further decompose the value of a warranty into its insurance value and its price discrimination value, which are the two main rationales for warranty provision in the server market. We use structural modeling and counterfactual experiments to accomplish the empirical task. We derive our demand model from utility maximization, which accounts for a customer's risk aversion behavior and heterogeneity. We obtain our pricing model from the profit maximization behavior of manufacturers and downstream firms in indirect channels, accounting for the institutional realities in the server market. Our empirical analysis uses quarterly data from 1999 to 2004 on server wholesale prices, retail prices, and sales for direct and indirect channels in the U.S. market. We find that manufacturers and downstream firms benefit from warranty provision and from sorting across heterogeneous customers by offering a menu of warranties. Customers also benefit from manufacturer warranty provision as well as from the menu of warranties offered. The insurance value of warranties increases and the price discrimination value of warranties decreases with warranty duration.

Innovation research tends to consider only the post-commercialization period or examine a few innovations through case studies. In this study, we examine 29 radical innovations from initial concept to mass-market commercialization. We find that these innovations were developed over an average of at least 50 years and divide this long development period into four distinct stages—conceptualization, gestation, early incubation, and late incubation. We find that the duration of a stage is longer when different firms lead product development at the beginning and end of the stage. These changes in product development leaders happen frequently, e.g., 76% of firms that were first to commercialize an innovation failed to launch it in the broader market. We also find that the time-to-takeoff for a product category is significantly related to the duration of the preceding late incubation stage. In addition, we find four different ways in which radical innovations borrow from prior seemingly unrelated innovations. We report many other findings on when (duration times), by whom (product development leaders), and how (technology borrowing) radical innovations are developed.

Two widely recognized components, central to the calculation of customer value, are acquisition and retention propensities. However, while extant research has incorporated such components into different types of models, limited work has investigated the kinds of associations that may exist between them. In this research, we focus on the relationship between a prospective customer's time until acquisition of a particular service and the subsequent duration for which he retains it, and examine the implications of this relationship on the value of prospects and customers. To accomplish these tasks, we use a bivariate timing model to capture the relationship between acquisition and retention. Using a split-hazard model, we link the acquisition and retention processes in two distinct yet complementary ways. First, we use the Sarmonov family of bivariate distributions to allow for correlations in the observed acquisition and retention times within a customer; next, we allow for differences across customers using latent classes for the parameters that govern the two processes. We then demonstrate how the proposed methodology can be used to calculate the discounted expected value of a subscription based on the time of acquisition, and discuss possible applications of the modeling framework to problems such as customer targeting and resource allocation.