information provision in a vertically differentiated competitive marketplace this paper examines the interaction of information provision product quality and pricing decisions by competitive firms to explore the following question in a competitive market where consumers face uncertainty about product quality and or their preference for quality which firms those that sell higher or lower quality products have the higher incentive to provide what type of information we find that while the higher quality firm should always provide information resolving consumer uncertainty on product quality the lower quality firm under certain conditions will have the higher incentive to and will be the one to provide information resolving consumer uncertainty about their quality preferences in the analysis we trace the latter result to competition and to free riding on the information provision specifically in a monopoly market or when consumer free riding is restricted by the costliness of store visits the lower quality firm would have a lower incentive to provide information resolving consumer preference uncertainty than otherwise the model is also adapted to examine product returns as a possible strategy of information provision

producer experience learning by doing and yield performance current crop insurance rating procedures consider only performance for the individual crop in question recent farm legislation has given producers considerable planting flexibility and as a result many have shifted to new crops producers without a production history for the new crop may be offered levels of insurance that do not accurately reflect their expected yields likewise premium rates may not reflect a producer s actual risk for a new crop we examine the extent to which information about expected yields may be gleaned from a consideration of historical performance on other crops we also consider the extent to which yield performance exhibits learning by doing such that yields improve with experience though the results are mixed we generally find that yield performance tends to improve with experience however when yields are conditioned on historical yield performance for other crops the importance of experience is diminished significantly yield performance is related to a number of farm characteristics finally we examine the extent to which yield variability is correlated across crops for individual farmers implications for crop insurance rating practices are discussed the results demonstrate robust correlation between a farm s historical yield on other crops and a newly produced crop a factor largely ignored in current crop insurance contracts copyright 2002 oxford university press

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

an empirical analysis of the demand for multiple peril crop insurance knowledge of factors affecting farmer purchases of crop insurance is essential for evaluating the soundness and profitability of crop insurance programs despite this importance the demand for crop insurance has received limited empirical attention the present paper reports on an empirical assessment of the demand for crop insurance by iowa corn producers adverse selection in the insured pool suggests that producers with differing levels of loss risk have different demand elasticities loss risk is included in the empirical analysis and is found to influence the elasticity of demand results show average demand elasticities of about 0 32 for relative insured acres and 0 73 for liability per planted acre implications for the actuarial soundness of the industry are provided

mail versus mall a strategic analysis of competition between direct marketers and conventional retailers consumers now purchase several offerings from direct sellers including catalog and internet marketers these direct channels exist in parallel with the conventional retail stores the availability of multiple channels has significant implications for the performance of consumer markets the literature in marketing and economics has however been dominated by a focus on the conventional retail sector this paper is an effort toward modeling competition in the multiple channel environment from a strategic viewpoint at the outset a parsimonious model that accommodates the following consumer and market characteristics is introduced first the relative attractiveness of retail shopping varies across consumers second the fit with the direct channel varies across product categories third the strength of existing retail presence in local markets moderates competition fourth in contrast with the fixed location of the retail store that anchors its localized market power the location of the direct marketer is irrelevant to the competitive outcome the model is first applied in a setting where consumers have complete knowledge of product availability and prices in all channels in the resulting equilibrium the direct marketer acts as a competitive wedge between retail stores the direct presence is so strong that each retailer competes against the remotely located direct marketer rather than against neighboring retailers this outcome has implications for the marketing mix of retailers which has traditionally been tuned to attract consumers choosing between retail stores in the context of market entry conditions under which a direct channel can access a local market in retail entry equilibrium are derived our analysis suggests that the traditional focus on retail entry equilibria may not yield informative or relevant findings when direct channels are a strong presence next the role of information in multiple channel markets is modeled this issue is particularly relevant in the context of direct marketing where the seller can typically control the level of information in the marketplace sometimes on a customer by customer basis e g by deciding on the mailing list for a catalog campaign when a certain fraction of consumers does not receive information from the direct marketer the retailers compete with each other for that fraction of the market the retailer s marketing mix has to be tuned in this case to jointly address direct and neighboring retail competition the level of information disseminated by the direct marketer is shown to have strategic implications and the use of market coverage as a lever to control competition is described even with zero information costs providing information to all consumers may not be optimal under some circumstances in particular when the product is not well adapted to the direct channel the level of market information about the direct option should ideally be lowered the only way to compete with retailers on a larger scale with a poorly adapted product is by lowering direct prices which lowers profits lowering market information levels and allowing retailers to compete more with each other facilitates a higher equilibrium retail price in turn this allows a higher direct price to be charged and improves overall direct profit on the other hand when the product is well adapted increasing direct market presence and engaging in greater competition with the retail sector yields higher returns the finding that high market coverage may depress profits raises some issues for further exploration first implementing the optimal coverage is straightforward when the seller controls the information mechanism as in the case of catalog marketing the internet in contrast is an efficient mechanism to transmit information but does not provide the sellers with such control over the level of market information a key reason is that the initiative to gather information on the internet lies largely with consumers the design and implementation of mechanisms to control aggregate information levels in electronic markets can therefore be an important theme for research and managerial interest second direct marketers have traditionally relied on the statistical analysis of customer records to decide on contact policies the analysis in this paper reveals that these policies can have significant strategic implications as well research that integrates the statistical and strategic aspects could make a valuable contribution the paper concludes with a discussion of issues for future research in multiple channel markets including avenues to model competition in settings with multiple direct marketers

demand signalling and screening in channels of distribution this paper examines two ways channel members at the manufacturing and retail ends deal with asymmetric information in the context of new product introduction a manufacturer who has private information that demand for a new product will be high can differentiate itself from a manufacturer less confident of demand by undertaking high levels of pre launch advertising and offering a high wholesale price a retailer for its part can screen potentially high demand from potentially low demand products by stipulating a take it or leave it slotting allowance the assumption being that the offer will be accepted only by manufacturers confident of sufficient demand to recover the high initial cost of slotting allowances it is shown that manufacturers prefer to signal demand through advance advertising and wholesale price retailers to screen demand through slotting allowances it is shown that unless advance advertising is sufficiently effective slotting allowances yield higher total channel profits and higher social welfare

relationship organization and price delegation an experimental study price delegation to the salesforce is a practice widely adopted by firms this paper examines the relationship between price delegation and managerial profits using a laboratory economics experiment a novel feature of our experiment is that we study how varying the relationship organization of the sales manager and salesperson to allow for 1 requests by the salesperson for the manager to choose price delegation and for 2 the manager to award a small bonus after observing the salesperson s decisions can affect behavior the results show that contrary to the theoretical prediction managers choose price delegation frequently and salespeople respond reciprocally leading to higher manager profits under price delegation moreover this behavior increases when requests and bonuses are allowed we show that a behavioral economics model that incorporates positive reciprocity can explain these results well data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1778 this paper was accepted by pradeep chintagunta marketing

when showrooming increases retailer profit abstractshowrooming the phenomenon of consumers visiting a brick and mortar b m store to learn about products but then buying online to obtain lower prices is attracting increased attention both in business practice and in academic literature it is considered a major threat to the b m retailers and determining how to fight it seems to be the only consideration however the manufacturer s need for retail informational services has always been one of the essential reasons for retailers to exist and is a means for retailers to achieve profitability the popular arguments about the threat of showrooming ignore the strategic role of the manufacturer in the distribution channel this article analytically shows that when the manufacturer s decisions are considered i e when the manufacturer retailer contract is endogenous consumers ability to engage in showrooming may lead to increased rather than decreased profitability for b m retailer s thus retail efforts to restrict showrooming behavior m

salesforce compensation plans in environments with asymmetric information in this paper we present a theory of salesforce compensation plans to provide insights into why it may be advantageous for a profit maximizing firm to offer members of its salesforce the opportunity to choose from a menu of compensation plans although such contractual arrangements are not commonly used in the industry they have been introduced and implemented by firms such as ibm and st regis paper as in our previous work on salesforce compensation plans basu lal srinivasan and staelin basu a k r lal v srinivasan r staelin 1985 salesforce compensation plans an agency theoretic perspective marketing sci 4 fall 267 291 we use an agency theory framework in this paper we relax the assumptions of information symmetry and salesforce homogeneity and show the conditions under which it is optimal to offer a menu of compensation plans we also show that even when these assumptions are relaxed there are situations where offering a single plan characterized by basu lal srinivasan and staelin basu a k r lal v srinivasan r staelin 1985 salesforce compensation plans an agency theoretic perspective marketing sci 4 fall 267 291 is still optimal insights gained from the analyses are discussed in the context of an existing compensation scheme

price endings when prices signal quality this paper provides a theoretical explanation for why firms behave as though they use round prices to signal quality by replacing the linear demand curve in bagwell and riordan s 1991 price as a signal of quality model with a kinked demand curve and analyzing what price endings firms are most likely to use the following observations can be made 1 firms that are using high prices to signal quality are more likely to set those prices at round numbers and 2 price endings themselves are not necessarily signals of quality a simulation was conducted to demonstrate that these findings generally hold true even in the presence of demand spikes at 9 ending prices e g schindler and kibarian 1996 finally empirical evidence is provided to demonstrate that firms tend to use more round prices for higherquality products and that this relationship is even stronger for product categories where consumers are less able to detect the true level of quality prior to purchase

the strategic impact of references in business markets we investigate a business to business context and ask when and why a firm should announce a reference program that commits the firm to facilitating the flow of information about the efficacy of its products from early adopters to potential late adopters we model a monopolist manufacturer with a new innovation that can be sold to two potential customers we demonstrate here two benefits of a reference program that relate not to an increase in later adopters willingness to pay but to an increase in the willingness to pay of the early adopters themselves the impact on the early adopters willingness to pay arises in two ways as a result of their observation of the firm s commitment to information transmission first in a model of symmetric uncertainty we show that the announcement of a reference program facilitates dynamic pricing by the manufacturer in the sense that it allows the firm to provide temporary exclusive use of the technology to one of the customers this creates more value which the manufacturer can extract via a higher price in this way a reference program can serve as a partial substitute for an exclusive use contract in a model with asymmetric information we demonstrate that under certain conditions the firm is able to use the reference program as a signal again to the early adopting customer that its technology is of high quality however such a signal requires significant discounts to early adopters to ensure separation as a result a pooling equilibrium dominates in which the manufacturer fosters references regardless of its quality finally by allowing the firms private information to be stochastic we show that separation may be a dominant outcome

the cyclicality of real wages within employer employee matches using data from the panel study of income dynamics the author examines the cyclicality of wages within employer employee matches for the years 1970 91 recent research on wage cyclicality has suggested that wages are very procyclical tending to rise and fall with economic upturns and downturns even for workers who remain with the same employer the author finds however that the evidence for wage procyclicality within the matches he examines is rather weak except for the small group of workers who were paid by piece rate or commissions despite having acyclical wage rates men who were paid hourly had earnings movements that were very procyclical salaries exhibited little cyclicality but salaried workers who had income sources from bonuses commissions or overtime had procyclical earnings the results suggest that the increasing prevalence of incentive based pay will increase the procyclicality of wages within matches

price matching guarantees as a direct signal of low prices if consumers believe that stores offering price matching guarantees pmgs charge low prices high search cost consumers will purchase from pmg stores this leads pmg stores demand to be less pric

what can wages and employment tell us about the uk s productivity puzzle as in many european countries labour productivity in the uk has been stagnant since the start of the great recession this article uses individual data on employment and wages to try to understand whether real wage flexibility can help shed light on the uk s productivity puzzle it finds perhaps unsurprisingly that workforce composition cannot explain the reduction in wages and hence productivity that we observe even compared to previous recessions instead real wages have fallen significantly within jobs this time round why one possibility we investigate is that the labour supply in the uk is higher compared to previous recessions

warranties as signals under consumer moral hazard this article examines the use of prices and warranties as signals of product quality to consumers who choose how to maintain their purchases the seller s incentives are strongly affected by the interaction of quality and maintenance in determining product reliability two different assumptions about this interaction are made a separating equilibrium in which high quality is signalled with a low warranty and low price is shown to be possible in both cases

why are bad products so hard to kill it is puzzling that firms often continue to invest in product development projects when they should know that demand will be low we argue that bad products are hard to kill because firms face an inherent conflict when designing managers incentives rewarding success encourages managers to forge ahead even when demand is low to avoid investing in low demand products the firm must also reward decisions to kill products however rewarding managers for killing products effectively undermines the rewards for success the inability to resolve this tension forces the firm to choose between paying an even larger bonus for success and accepting continued investment in low demand products we explore the boundaries of this argument by analyzing how the timing of demand information affects product investment decisions

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

implications of reduced search cost and free riding in e commerce this paper examines a market where the provision of information service is costly but information service has the characteristics of a public good consumers on the other hand can use the information service to make an informed purchase decision and derive higher utility from consuming their ideal product however after receiving the information service from an information service provider consumers can easily free ride by purchasing at low price sellers who do not provide any information service the paper examines the competition where sellers compete by providing information service for horizontally differentiated products and where technology reduces consumers search cost it is found that in this market a seller needs to establish itself as an information service provider in order to make positive profits even when there is free riding a seller however cannot make positive profits by free riding all the time also with an increase in competition in the information service market sellers have reduced incentives to provide information service it is also found that in this market a decrease in search cost may increase or decrease social welfare

downward nominal wage flexibility real or measurement error this paper presents a new method to correct for measurement error in wage data and applies this method to address an old question how much downward wage flexibility is there in the united states we apply standard methods developed by bai and perron to identify structural breaks in time series data applying these methods to wage histories allows us to identify when each person experiences a change in nominal wages the length of the period of constant nominal wages is left unrestricted and is allowed to differ across individuals as are the size and direction of the nominal wage change we apply these methods to data from the survey of income and program participation the evidence we provide indicates that the probability of a cut in nominal wages is substantially overstated in data that are not corrected for measurement error

advertising and limit pricing we enrich milgrom and roberts 1982 limit pricing model to allow an incumbent to signal his costs with both price and advertisements our fundamental result is that a cost reducing distortion occurs in that the incumbent behaves as if there were complete information but his costs were lower than they are preentry price is therefore distorted downward and demand enhancing advertising is distorted upward as a consequence of signalling if advertising is a purely dissipative signal it is not used nor therefore distorted recent refinements of the sequential equilibrium concept are featured

signaling quality with a money back guarantee the role of transaction costs direct marketing is witnessing explosive growth as consumers increasingly purchase products from their homes their ability to judge the quality of products they buy is significantly reduced in this paper we study how money back guarantees can signal product quality in such environments we interpret product quality broadly to mean both the level of attributes promised as well as the firm s consistency in delivering on those promises key aspects of our formulation are the explicit consideration of transaction costs and alternative signals of product quality transaction costs are the costs the seller or buyer faces when redeeming a money back guarantee we show that money back guarantees signal quality by exploiting the higher probability of returns for a lower quality product and the attendant higher transaction costs however if the seller s transaction costs are very large then there are less costly ways to signal namely charging a high price we compare the signaling performance of 1 price 2 price with uninformative advertising and 3 price with a money back guarantee whereas uninformative advertising does not work at all in our model under certain conditions a money back guarantee is necessary to signal and under other conditions a money back guarantee is a useful supplement to price

on the function of sales assistance the paper provides a formal rationale for the common practice of using sales assistance the argument is made in a model where a consumer s situation determines his needs the products are differentiated and the map identifying the best match between a consumer s situation and a product is known only to the sales assistant i look at procedure which involves the consumer revealing his needs and the sales assistant identifying the best matching product this is compared to several other procedures and found to be best when the number of possible consumer situations is large it is shown that reputational considerations may keep the sales assistant honest i look at the impact of guarantees and other modifications to the model and discuss normative implications

downward nominal wage rigidity and the case for temporary infl ation in the eurozone abstract since the onset of the great recession in peripheral europe nominal hourly wages have not fallen from the high levels they had reached during the boom years this in spite of widespread in

implications of mean reverting measurement error for longitudinal studies of wages and employment this paper examines the implications of mean reverting measurement error for two influential literatures based on longitudinal survey data 1 the literature on real wage variation over the business cycle and 2 the literature on intertemporal substitution in labor supply accounting for mean reverting measurement error suggests that real wages may be even more procyclical than indicated by recent longitudinal studies we also find that the instrumental variables estimator commonly used in intertemporal substitution studies is inconsistent if changes in earnings and hours of work are measured with different degrees of mean reversion but the magnitude of the resulting inconsistency appears to be small

facilitating fit revelation in the competitive market this study examines firms strategic decisions in the competitive market regarding whether to engage in marketing activities to assist consumers in finding the fit between their personal tastes and products horizontal attributes we find that competitive firms strategies to facilitate fit revelation critically depend on the product qualities they offer in particular a firm offering a high quality product is more likely to facilitate fit revelation in the competitive market than it would as a market monopolist whereas a firm offering a low quality product is less likely to do so in addition the firm offering the high quality product implements fit revealing activities in a greater intensity than its rival that offers the low quality product if the quality difference between the two products is small and both products qualities are sufficiently high

mitigating contagion risk by investing in the safety of rivals abstract firms often benefit when an unfavorable event befalls a rival usually through a shift in demand but sometimes negative especially catastrophic events adversely affect an entire industry we refer to such phenomena as contagion and note that each firm faces not only its own direct risks but also the contagion risks imposed by rivals who for example avoid strong safety measures because investment cost exceeds expected loss the conclusion of this paper is that in the extreme case low risk firms may benefit from investing in safety improvements for their higher risk rivals for example a firm that over complies with safety requirements may benefit from investing in safety improvements in a rival that complies with regulations at a minimal level this research explores conditions under which such a contagion risk mitigation strategy is profitable our findings indicate that for a low risk firm there is a threshold above which such an investment would be profitable in a market where price sensitivity to a rival s safety is close to zero a low risk firm can decrease this threshold by extending the investment horizon the investment is less likely to pay off when firms compete on quantity as opposed to price we also show that below a threshold market price a third firm that is neutral neither needs investment nor invests may be put at a cost disadvantage when this contagion risk mitigation strategy is implemented

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

the quality double whammy this research focuses on how consumers perceive the quality level of a complex stimulus in our case a service encounter and how this perception affects consumers overall assessment of the quality level of the firm as such it should be of interest to consumer behavior theorists as well as to those involved in marketing management issues we start our presentation by developing a normative bayesian data integration and updating model somewhat similar to that put forth by rust et al 1999 the major constructs of interest in this model are the person s belief about the overall service quality level of a firm and what will happen on the next service encounter two major results following from this baseline normative model are that the updated means of these two beliefs are identical to the dynamic updating equations put forth by boulding et al 1993 and that an underlying assumption of this model is that consumers form unbiased perceptions of the complex stimulus next based on substantial empirical evidence from the behavioral literature we incorporate into this baseline model a process by which consumers form nonrandom perceptions specifically we postulate that a person s perception of a complex service encounter is a blend of the objective dimensions of the service encounter and the person s prior overall belief about the quality level of the firm the relative weights placed on these two factors are determined at least in part by the experience level of the customer and the complexity of the service encounter we then use this expanded model to compare and test different models of service quality and provide deeper insights into the process by which consumers form perceptions of both the service transaction and the overall service quality level of a firm we test this model using data from two different experiments in each experiment we manipulate the service provided and the person s initial will and should expectations using both obtrusive and unobtrusive measures of the underlying constructs of our model we employ multiple tests to determine the veracity of our expanded model relative to the baseline model these tests support the expanded model specification as found previously and as predicted by a bayesian updating process consumers prior beliefs influence their cumulative overall opinion of service quality e g anderson and sullivan 1993 bolton and drew 1991 boulding et al 1993 rust et al 1999 perhaps more importantly these prior beliefs also influence their perceptions of the data themselves which in turn affect their new updated overall opinion these two different influences of prior beliefs on cumulative evaluations of quality constitute the double whammy referred to in the title this double whammy effect has major managerial significance specifically we see from our model development that all activities of a firm will be perceived in light of a person s prior beliefs and that these priors will be double counted relative to our baseline model thus any marketing action taken by a firm will be perceived more positively or negatively depending on the person s prior belief about the quality level of the firm as such our model provides a formal explanation for the notion of brand equity as differential leverage in marketing activities as proposed by keller 1993

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

on unemployment cycles in the euro area 1999 2018 abstract this paper studies the recurrent sources of unit root unemployment fluctuations in greece italy portugal spain and the euro area by integrating wage markup and labor disutility shocks that exhibit permanent euro area wide shifts country specific trend developments and stationary changes in an estimated dsge model in all economies these labor market shocks account for a negligible share of unemployment cycles demand shocks explain about 40 of them contribute to the pre crisis convergence of unemployment rates and shape the unemployment spikes during the great recession cross country relative price distortions and supply factors account for about 40 and 20 of those cycles respectively

third party product review and firm marketing strategy product reviews by third parties are growing in popularity this paper examines when and how a manufacturing firm should adapt its marketing strategies to such reviews for example should a firm receiving an unfavorable review reduce its price or adjust its advertising should a winning product of a product review e g editor s choice boost its advertising expenditure to spread the good news how should firms strategic responses to product reviews differ across different types of product reviews description vs recommendation and different advertising media the reviewer s publication vs other media we develop a theory to address these issues and derive firms optimal responses to product reviews under different product market review media conditions we show that firms should chooseadvertising rather thanprice as a strategic variable in response to product reviews when enough consumers value horizontal product attributes surprisingly we find that using a review endorsedadvertising format i e advertisements containing third party award logos to broadcast its victory can hurt the winning product of a product review also it is not necessarily wise for the winning products to boostadvertising expenditures to spread the good news data from two industries printers and running shoes are used to illustrate some of our findings

real wage cyclicality of job stayers within company job movers and between company job movers using the british new earnings survey panel data nespd for the period 1975 to 2001 we estimate the wage cyclicality of job stayers those remaining within single jobs in a given company within company job movers and between company job movers we also examine how the proportion of internal and external job moves varies over the business cycle we find that the wages of internal movers are slightly more procyclical and wages of external movers considerably more procyclical than those of stayers notwithstanding a decomposition shows that in britain wage cyclicality arises almost entirely from the procyclicality of wages for job stayers with across and within firm mobility playing a lesser role thus there is little evidence for rigid wage models that imply that employers use changes in job titles as a means of adjusting wages to the business cycle we also show that the distinctions between private and public sectors and between workers covered and uncovered by collective agreements have important impacts on the wage estimates of both stayers and movers

informing transforming and persuading disentangling the multiple effects of advertising on brand choice decisions prior behavioral research has suggested that advertising can influence a consumer s quality evaluation through informative and transformative effects the informative effect acts directly to inform a consumer of product attributes and hence shapes her evaluations of brand quality the transformative effect affects the consumer s evaluation of brand quality by enhancing her assessment of her subsequent consumption experience in addition advertising may influence a consumer s utility directly even without providing any explicit information this is the persuasive effect in this paper we propose a framework that formally models the processes through which all three effects of advertisements impact consumers brand evaluations and their subsequent brand choice decisions in particular we model source credibility confirmatory bias and bounded rationality on the part of consumers by appropriately modifying the standard bayesian learning approach our model conforms closely to prior behavioral literature and the experimental findings therein in our empirical analysis we get significant estimates of both informative and transformative effects across brands we find interesting temporal patterns across the effects for instance the importance of transformative effects seem to grow over time while that of informative effects diminishes finally we conduct policy experiments to examine the impact of increased ad intensity on advertising effects as well as the role played by consumption ambiguity

demand signalling under unobservable effort in franchising linear and nonlinear price contracts we study the signalling strategy of a principal who is privately informed about its high demand potential to an uninformed risk neutral agent we analyze the model in the context of a contract between a franchisor and a franchisee we examine the distortions of a two part pricing scheme necessary to credibly inform the franchisee agent we also study whether the inability of the franchisor principal to observe the agent s effort moderates or exaggerates the distortions from the first best two part pricing scheme a surprising outcome is that even though the principal incurs greater signalling cost the magnitude of distortion in the two part scheme is smaller when service is unobservable than when it is not thus a signalling strategy employing the fixed and variable fees is harder to detect under moral hazard empirical studies failing to control for moral hazard may incorrectly conclude that signalling strategy does not occur we later consider a three part scheme to verify whether or not the schem

warranties durability and maintenance two sided moral hazard in a continuous time model double moral hazard in continuous time generates the familiar warranty pattern with full coverage for an initial block of time the more complete the warranty the better the producer s durability incentives and the worse the consumer s maintenance incentives using continuous time highlights the need for some warranty bound to avoid reaching the first best as an unreasonable limit early in the paper an exogenous bound is used while later the bound arises endogenously from the possibility of abuse and repair a quadratic example shows that the warranty s duration depends on the relative severity of the two moral hazard problems

multiple market entry cost signalling and entry deterrence a low cost incumbent may limit price to informatively signal her cost to an uncertain potential entrant and therefore deter entry we enrich this model by investigating the strategic pricing behavior of the incumbent when she operates in multiple markets we demonstrate that the low cost incumbent s ability to separate from a ghost high cost type is enhanced when she combines her signalling effort across markets instead of independent signalling in each market we show that in the combined least cost signalling the low cost incumbent limit prices in each market in an attempt to minimize dissipative but informative signalling costs the low cost incumbent may enter unprofitable markets but exit after credible separation

a generalized utility model of disappointment and regret effects on post choice valuation in this paper we show that performance information about forgone alternatives i e alternative that were considered but not chosen can have a significant impact on post choice valuation our approach introduces a new and parsimonious way of looking at satisfaction that combines the literature on post choice valuation with research regarding generalized expected utility theory while the post valuation literature focuses on the selected brand as the valuation s basis e g anderson and sullivan anderson e w m w sullivan 1993 the antecedents and consequences of customer satisfaction for firms marketing sci 12spring 125 143 bolton and drew bolton r j drew 1991 a multistage model of customers assessments of service quality and value j consumer res 17 375 384 we draw on a stream of research in generalized expected utility theory that considers both chosen and forgone alternatives as the basis for valuation e g bell bell d 1983 risk premiums for decision regret management sci 29 1156 1166 and bell d 1985 disappointment in decision making under uncertainty oper res 33 1 27 loomes and sugden loomes g r sugden 1982 regret theory an alternative theory of rational choice under uncertainty the econom j 92 805 824 and loomes g r sugden 1986 disappointment and dynamic consistency in choice under uncertainty rev econom stud 53 271 282 the result is a combined model of post choice valuation that explicitly incorporates both concepts specifically we extend the existing paradigm of post choice valuation to include buyers regret concerning forgone alternatives proposing a generalized utility theory based treatment of post choice product assessment that uses the intuitively appealing concepts of disappointment and regret as the basis we propose a model for conceptualizing post choice valuation that is consistent with the existing literature discuss how this model extends the construct to consider the influence of forgone alternatives and report results of an empirical test that contrasts our model to important recent work in the area e g boulding et al boulding w a kalra r staelin v a zeithaml 1993 a dynamic process model of service quality from expectations to behavioral intentions j marketing res 30february 7 27 our generalized model of post choice valuation is based on the sum of three components that represent factors that may contribute to consumers assessment of a chosen product or service the first component is expected performance the second component is disappointment which captures the discrepancy between actual and expected performance much as the disconfirmation construct in traditional satisfaction research the third component is regret which captures the difference between the performance of the chosen product service and the performance of a forgone product service this perspective is useful in that risk is captured by the disappointment and regret terms providing an intuitively appealing decomposition of post choice valuation and offering several advances over previous representations of disappointment and regret we test our model via a choice experiment participants in the empirical study were asked to make choices between successive lottery pairs they were then given outcome feedback on the forgone alternative as well as on the chosen alternative in each lottery pair immediately following outcome feedback for each choice subjects were asked to evaluate their decision our results clearly suggest an effect of regret on post choice valuation information about the forgone alternative influenced subjects valuation of the chosen alternative we also find evidence that as predicted the effects of disappointment and regret on post choice valuation are asymmetric specifically the negative effect of disappointment on post choice valuation was greater than the positive effect of elation similarly the negative effect of regret was greater than the positive impact of rejoicing our research offers five contributions to the literature on post choice valuation first our results illustrate the advantage of using generalized utility theory as the basis for conceptualizing and modeling post choice valuation we derive a model of post choice valuation that formally captures the components of disappointment and regret and show that the outcome of both the chosen alternative through disappointment and a forgone alternative through regret can influence the chosen alternative s valuation second we formally integrate the concepts of disappointment and regret which have been examined separately for many years into a single model based on a multiattribute preference structure third we argue that the effects of disappointment and regret on post choice valuation are asymmetric and present empirical evidence in this regard fourth our results suggest that word of mouth regarding forgone alternatives may affect post choice valuation extending research that has not heretofore considered forgone outcomes role in this process finally our development provides a preconsumption measure of potential disappointment and regret in modeling choice at the time of choice consumers may visualize the feelings of disappointment and or regret that will be derived at consumption taking into account both the chosen brand and forgone brands our generalized utility theory based approach to the post choice valuation construct can be useful in examining the role of disappointment and regret as preconsumption constructs

designing optimal sales contests a theoretical perspective sales contests are commonly used by firms as a short term motivational device to increase salespeople s efforts conceptually sales contests and piece rate schemes such as salary commission or quotas differ in that in sales contests payment to salespeople is based on relative rather than absolute sales levels using the agency theoretic framework where the firm is risk neutral and the salespeople are risk averse we examine how a firm should design an optimal contest to maximize its profit through stimulating salespeople s efforts specifically we investigate how many salespeople should be given awards and how the reward should be allocated between the winners three commonly used sales contest formats are studied in the first format termed as rank order tournament there are many winners and the amount of reward is based on relative rank achieved with larger amounts awarded to higher ranks we also examine two special cases of rank ordered tournament a multiple winners format where the reward is shared equally and a winner take all format where a single winner gets the entire reward we model salespeople s behavior by considering utility of the reward from achieving one of the winning ranks in the contest and assessing incremental chances of winning by exerting more effort the analysis was done for two situations based on whether the total reward is large enough for salespeople to participate in the effort maximizing sales contest or not the analysis shows that factors impacting contest design include the salespeople s degree of risk aversion number of salespeople competing in the contest and degree of sales uncertainty which reflects strength of the sales effort relationship the results show that salespeople exert lower effort when there are larger numbers of participants or when sales uncertainty is high we find that the rank order tournament is superior to the multiple winners contest format in a multiple winners format the salesperson whose performance is just sufficient to win is better off than any of the other winners as he exerts the least effort to win but obtains as high a reward as any other winners specific recommendations on contest designs are obtained assuming that sales follow either a logistic or uniform distribution assuming that sales outcome is logistically distributed and the contest budget is high enough to ensure participation our analysis shows that the total number of winners in a sales contest should not exceed half the number of the contestants this result is due to the symmetric nature of the logistic distribution our analysis also indicates that the total number of winners should be increased and the spread decreased when salespeople are more risk averse when salespeople are more risk averse their marginal values for higher rewards become smaller the spread should increase with ranks when rate of risk tolerance is high and decrease with ranks when the rate of risk tolerance is lower in the extreme case of risk neutral salespeople the optimal design is a winner take all format we also conclude that since the probability of winning the contest decreases with number of contestants the optimal number of winners should increase and interrank spread decrease when there are a larger number of participants if the firm does not allocate a large enough budget for salespeople to participate in the effort maximizing sales contest then the firm may increase the number of winners to more than half the sales force increasing the number of winners and decreasing the spread are required to encourage the salespeople to participate particularly when there are many participants who are risk averse a counterintuitive result is that the number of winners should be reduced and the spread increased when sales uncertainty is high increasing sales uncertainty leads to lower equilibrium effort levels while keeping the expected utility of the contest rewards the same therefore increased uncertainty results in higher participation incentive the firm should thus relatively reduce the number of winners in high uncertainty situations under the assumption of uniformly distributed sales the recommendation is that a winner take all contest induces maximum efforts regardless of the level of risk aversion number of players or the degree of uncertainty when the winner take all format does not meet the participation constraint our analysis recommends offering a big reward to the top salesperson and a small reward to many other sales people the small reward should be just sufficient to ensure that all salespeople participate consistent with logistic distribution the spread should decrease when salespeople are more risk averse or there are more players but should increase when sales uncertainty is larger these results highlight that some of the conclusions drawn may be sensitive to distributional assumptions

optimal sales force diversification and group incentive payments in this research we show that the interaction between territory allocation and sales force compensation two key drivers of sales productivity strongly affects the firm s profitability we analyze an agency theoretic model that jointly considers the degree of negative or positive correlation across territory outcomes differences in territories sales potentials the agency problem with risk averse salespeople and the availability of both own territory compensation elements such as commission and elements dependent on the performance of others such as group commissions or tournaments we find that allocating salespeople to negatively correlated sales territories beneficially diversifies each salesperson s portfolio of sales outcomes when this allocation includes a group commission pay component and can improve profitability even with a decrease in average territory sales performance in a larger sales force a balanced allocation of salespeople coupled with a group commission dominates an imbalanced allocation comparing piece rate compensation with or without a group commission component to tournaments alongside the allocation problem we find that tournaments are favored over piece rate plans when territories are highly positively correlated territory sales potentials are similar and salespeople have a low disutility for effort and are not very risk averse a piece rate plan conversely dominates a tournament when these conditions are reversed

monopoly provision of product quality and warranties an exploration in the theory of multi dimensional screening we address the monopoly problem of designing and pricing a product line of goods distinguished by different quality and warranty levels consumers vary in their evaluations of these attributes so that the problem is one of screening it is sufficiently complex that the local approach commonly used does not work instead we use new techniques for dealing with incentive constraints between nonadjacent consumer types these techniques allow us to characterize optimal allocations that may not be monotonic in particular although the more eager types of buyer do pay higher prices and yield the monopoly higher profit they may receive lower quality or lower warranty coverage we find preference restrictions that restore monotonicity concave risk tolerance implies that warranty coverage increases in type and constant absolute risk aversion implies that quality increases in type

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

does bait and switch really benefit consumers while the field of marketing science has long been interested in the effects of promotional efforts public policy issues involving illegal marketer fraud and deception have generally not been addressed in this body of work one key exception to this generalization is a marketing science article suggesting that the practice of bait and switch may be beneficial to consumers and furthermore that the federal trade commission should investigate revising its standards to legitimize this practice gerstner and hess 1990 this finding and recommendation seemed so significant that it is surprising that the recommendation has not to date been explored in greater detail in this paper we further explore the impact of the two components of bait and switch out of stock and upselling we do this by using moorthy s 1993 theoretical modeling framework to systematically extend and assess the gerstner and hess model we find that the previously reported increase in consumer welfare that arises from allowing out of stock conditions at retailers is actually due to the utility created by salespersons explaining product features and benefits not by the out of stock thus the ramifications of both our legal and modeling analyses are that deceptive bait and switch practices result in harm to consumers and should not be legalized our paper concludes by proposing worthwhile modeling issues for further exploration in addition we suggest that our procedure for analyzing public policy issues by exploring the confluence of law consumer behavior and marketing models can serve as a useful exemplar for further contributions to public policy by marketing scientists

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

real wages and unemployment in the big squeeze uk real wage growth has slowed down stagnated and recently turned sharply negative we document the nature of real wage changes across the wage distribution over the last three decades showing that recent patterns represent a distinct break of trend that pre dates the onset of recession we explore whether unemployment has become a stronger moderating influence on real wage growth and report using aggregate economy wide and regional panel data that real wage unemployment sensitivities have become stronger in the period from 2003 onwards finally we offer some assessment of possible drivers of this increased sensitivity of real wages to unemployment

an introduction to the wage curve en conomists and policymakers are interested in understanding the forces that determine the level of unemployment and the level of wages this paper describes an empirical discovery made with the help of international microeconometric evidence covering more than a dozen nations about a link between these two variables the connection can be portrayed on a graph with the level of unemployment on the horizontal axis and the level of wages on the vertical axis then the wage curve as shown in figure 1 is a downwardsloping locus this relationship tells us that holding others things constant if a region has a rise in unemployment in a particular year those who live there will have a fall in their wages in that year what does this curve mean how in a field where fully controlled experiments are almost impossible could there be any convincing scientific basis for this wage curve what is the relationship between the wage curve and a phillips curve other than that the curve of figure 1 looks like a phillips curve with the vertical axis mislabeled how does the wage curve fit into existing economic knowledge and is the empirical finding consistent with competitive theory this paper sketches answers to these kinds of questions the discussion draws on our book the wage curve blanchflower and oswald 1994 where the points raised here are investigated more fully it also rests upon work done by other economists whose work is listed in the paper and the bibliography

wage adjustment in the great recession and other downturns evidence from the united states and great britain using 1979 2012 cps data for the united states and 1975 2012 nes data for great britain we study wage behavior in both countries with particular attention to the great recession real wages are procyclical in both countries but the procyclicality of real wages varies across recessions and does so differently between the two countries in ways that defy simple explanations we devote particular attention to the hypothesis that downward nominal wage rigidity plays an important role in cyclical employment and unemployment fluctuations we conclude that downward wage rigidity may be less binding and have lesser allocative consequences than is often supposed

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

the option value of returns theory and empirical evidence when a firm allows the return of previously purchased merchandise it provides customers with an option that has measurable value whereas the option to return merchandise leads to an increase in gross revenue it also creates additional costs selecting an optimal return policy requires balancing both demand and cost implications in this paper we develop a structural model of a consumer s decision to purchase and return an item that nests extant choice models as a special case the model enables a firm to both measure the value to consumers of the return option and balance the costs and benefits of different return policies we apply the model to a sample of data provided by a mail order catalog company we find considerable variation in the value of returns across customers and categories when the option value is large there are large increases in demand for example the option to return women s footwear is worth an average of more than 15 per purchase to customers and increases average purchase rates by more than 50 we illustrate how the model can be used by a retailer to optimize his return policies across categories and customers

regret in repeat purchase versus switching decisions the attenuating role of decision justifiability the decision making literature has consistently reported that decisions to maintain the status quo tend to be regretted less than decisions to change it we examine the consequences of repeat purchasing maintaining the status quo versus switching in the context of information regarding the reason for the decision e g prior consumption episode brand history and we argue that there are situations in which repeat purchasing may cause as much or even more regret than switching we contend that this effect depends on whether or not there is a justifiable basis for the decision in a series of four studies we show that if there is sufficient motivation to warrant a switch consumers will feel less regret in the face of a subsequent negative outcome realized via a switch than in one realized via a repeat purchase our results imply that feelings of regret are mitigated when the consumer reflects and concludes that the decision was appropriate under the circumstances

selling formats for search goods the paper offers a comparative analysis of different ways to sell products selling formats when buyers incur evaluation costs since these costs are sunk at the moment of trade buyers may refrain from incurring them for fear of later opportunism on the part of sellers it is found that the use of many common selling formats can be explained in terms of their ability to alleviate this problem specifically i explain price advertising seller colocation and bargaining the theory explains much of the divergence in retail trading institutions and leads to several testable predictions

salesforce compensation scheme and consumer inferences we investigate the salesforce compensation strategy of a firm selling products in a category that several consumers find technically sophisticated such as electronics or financial products with legal fine print consumers are unable to judge the value difference between a baseline product and a product upgrade with add on features while the firm and the salespeople are informed of the value of these features consumers are uncertain thus consumers have to rely on sales assistance to evaluate alternatives the salesperson decision variables include selling effort and whether to oversell the consumer by overclaiming the value of added features because sales revenue depends on both the salesperson s selling effort and consumers valuation of the added features the salesforce incentive scheme which can consist of salary sales commission or consumer satisfaction based commission may induce the short term oriented salesperson to misrepresent the value of the upgrade exaggeration of the value of the added features however results in reduced satisfaction levels leading to lower profits for the firm we show that a salesperson selling products where the value of the upgrade is low prefers to make higher claims when the sales commission rate is sufficiently high we conjecture that consumers aware of the incentive structure facing the salesperson expect the true value of the add on feature to be lower than the claimed value we study the optimal compensation scheme of a firm which has to communicate her true type and retain its salesforce credibility we identify the conditions under which a high upgrade type firm indicates its true value by altering sales commission rate and satisfaction based commission rate

price versus quantity monitoring in an adverse selection context this article explores the relative usefulness of price information over quantity information the main finding is that price monitoring can induce a sales level that is greater than the full information sales level this imposes additional selling costs on the agent and reduces that agent s rents the analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring business format franchises exhibit many of the features of the setting analyzed here and the article s findings have implications for designing information systems in that sector of the economy

product warranties and double moral hazard this article explores a model of warranties in which moral hazard problems play a key role the goal is to understand the important characteristics of warranties including their provision of incomplete insurance and the relationship between product quality and coverage we analyze a model in which buyers and sellers take actions that affect a product s performance since these actions are not cooperatively determined an incentives problem arises we characterize the optimal warranty contract and undertake comparative statics to determine the predicted correlation of warranty coverage and product quality

do employers have more monopsony power in slack labor markets this article confronts monopsony theory s predictions regarding workers wages with observed wage patterns over the business cycle using german administrative data for the years 1985 to 2010 and a

monitoring and incentives in sales organizations an agency theoretic perspective our primary objective in this paper is to analyze a framework that simultaneously examines the role of both monitoring and incentives in the design of sales force control systems previous research has focused exclusively on the role of incentives in directing sales force effort we build on the structure provided by the past work and analyze an agency thoeretic model in which a sales person generates wealth for the firm by expending effort across two dimensions namely internal and external we assume that effort in the internal dimension can be monitored relatively cheaply whereas effort in the external dimension can be monitored only at infinite cost we then analyze the following two scenarios i a pure incentives world where in both effort dimensions are governed through the use of incentive pay and ii a monitoring and incentives world wherein the internal dimension is monitored and the external dimension is governed through the use of incentive pay in addition to modeling the notion of partial monitoring in this manner we also explicitly allow the firm to choose the level of risk aversion desired in its salesperson of course sales people who are relatively risk tolerant command higher reservation wages consequently such sales people are likely to be valuable only to those firms that emphasize incentive pay in their control systems our analysis across the two scenarios helps us to demonstrate the implications and value of introducing monitoring into the control structure specifically we find that monitoring allows the firm to decrease the weight placed on incentives and hire a relatively risk averse salesperson from the salesforce labor market these actions in turn permit the firm to reduce the risk premium and the reservation wage offered to the salesperson in direct contrast to these monetary savings however we find that an adverse side effect of monitoring is that it induces salespeople to overemphasize the effort devoted to the monitored dimension while underemphasizing the effort devoted to the nonmonitored dimension this adverse effect of monitoring notwithstanding we find that the overall benefit of increased monitoring is that it allows the firm to lower the a mount of total compensation paid to the salesperson these analytical findings are consistent with the prescriptions found in the popular business press where it is often stated that compensation plans that emphasize incentive pay are characterized by independence in managing activities lack of monitoring as well as high income potential these findings are also consistent with the popular wisdom that incentive laden compensation plans are generally more appropriate for individuals who are risk takers and entrepreneurial in nature we also delineate the conditions where monitoring can improve on the profits obtained in a pure incentives world specifically we find that monitoring can prove to be most valuable when the importance of internal activities is highand the level of incentives is low finally we conclude by conducting a sensitivity analysis to examine the robustness of our results to the specifications we utilize in our modeling efforts overall we view the main contribution of our research efforts as one of explicitly delineating the tradeoffs associated with the use of monitoring and incentives in the design of salesforce control systems as such our paper should be of interest to academics and practitioners interested in the design of salesforce control systems

umbrella branding as a signal of new product quality an example of signalling by posting a bond i present a signalling model in which a multiproduct firm can use its reputation as a bond for quality by using a brand name for an established product when it introduces a new experience good as out of equilibrium beliefs are specified a false signal may be taken to imply that both the established and the new product are of low quality in contrast the absence of a signal leaves open the possibility that one of the two products is of high quality hence the signal can be credible without excessive sunk costs as long as the bond posted is sufficiently large

spatial dynamics and heterogeneity in the cyclicality of real wages neither the issue of how local and aggregate labor markets interact over time nor the issue of how heterogeneity by education race and other factors interacts with these spatial dynamics has prev

setting quality expectations when entering a market what should the promise be this paper examines optimal advertised quality actual quality and price for a firm entering a market it develops a two period model where advertised quality influences expectations and hence trial and the gap between actual quality and expectations determines satisfaction which in turn impacts second period sales in such situations a company makes a choice between advertising high quality and getting trial but little repeat and advertising low quality and getting low trial but high repeat results are derived by numerical methods as well as analytically for a special case of the model the model suggests it is optimal to overstate quality when i customers rely relatively less on advertising to form quality expectations and ii customers intrinsic satisfaction with a product is high these results are consistent with deceptive advertising cases at the ftc which showed more deception for unknown firms and for firms whose customers were more satisfied they are also consistent with the decisions made by future managers mbas except that the respondents would advertise higher versus lower quality when advertising was effective

assessing salesforce marginal productivity marginal productivity of salesforce excluding checkout clerks in a retail store is difficult to assess an analytical model is presented here explaining this productivity using salesforce workers per hour as the factor of production the explanatory variable and sales transactions per hour as the level of production the explained variable the model incorporates self service transactions controls for various seasonal effects time of day day of the week month of the year and generates solutions for in store salesforce assignment across opening hours and sales points to control for possible endogeneity between the transactions and salesforce size variables instrumental variables are employed in the calibration process the model is calibrated using data from a major retail chain based in latin america both at the storewide level and for groups of individual store departments the results corroborate the existence of diminishing returns to scale for the workers per hour factor and a significant l

real wage cyclicality in the eurozone before and during the great recession evidence from micro data we study the response of real wages to the business cycle in eight major eurozone countries before and during the great recession average real wages are found to be acyclical but this reflects in large part the effect of changes in the composition of the labour force related to unemployment variations over the cycle using longitudinal micro data from the echp and silc panels to control for composition effects we estimate the elasticities of real wage growth to unemployment increases between 0 6 and 1 over the period 1994 2011 composition effects have been particularly large since 2008 and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011 in contrast at a constant labour force composition in terms of education and experience the figures indicate a significant decrease in average wages during the downturn particularly in countries most affected by the crisis overall there is no evidence of downward nominal wage rigidity during the great recession in most countries in our sample

compensation plans for single and multi product salesforces an application of the holmstrom milgrom model the agency theory approach to understanding salesforce compensation plans is modified to incorporate the intratemporal nature of the salesperson s effort rate decision i e the decision about the effort rate at any given point in time potentially depends upon the sales performance up to that point in time in the accounting period under the assumptions considered in this paper holmstrom and milgrom 1987 have shown that the optimal compensation plan is linear in total sales over the accounting period the comparative statics results obtained here corroborate most of the corresponding results in the salesforce compensation literature moreover we derive many additional results not available in the literature it is demonstrated that the commission income as a fraction of total compensation goes up with an increase in the effectiveness of the sales effort or an increase in base sales on the other hand the salary component of the total compensation goes up with increases in uncertainty absolute risk

a joint examination of quality choice and satisfaction the impact of circumstantial variables using data from an online hotel reservation site the authors jointly examine consumers quality choice decision at the time of purchase and subsequent satisfaction with the hotel stay they identify three circumstantial variables at the time of purchase that are likely to influence both the choice decisions and the postpurchase satisfaction the time gap between purchase and consumption distance between purchase and consumption and time of purchase business nonbusiness hours the authors incorporate these three circumstantial variables into a formal two stage economic model and find that consumers who travel farther and make reservations during business hours are more likely to select higher quality hotels but are less satisfied consumers who book earlier are more likely to select higher quality hotels and are more satisfied the findings suggest that incorporating circumstantial variables into formal choice models is useful in helping managers understand and predict consumer choices and satisfactio

buyer initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

covariation assessment by consumers two experiments were conducted to investigate the effect of prior beliefs and information format on consumers assessment of the relationship between price and quality for four frequently purchased grocery products in these studies consumers were shown sets of data each of which presented ranks of 10 brands of a product category on price and quality contrary to prior research on illusory correlation consumers estimates of covariation were relatively accurate and unaffected by the availability of relevant prior beliefs about the nature of the relationship between price and quality for grocery products in general or by format manipulations that varied the ease or difficulty of processing the data these findings are discussed in terms of the effect of detailed instructions the availability of simple heuristics for processing rank ordered data differences between social and consumer perceptions and the stages of consumer information processing most likely to be affected by prior beliefs

inflation and wage rigidity flexibility in the short run a recent literature uses accurate wage data from payroll records and provides compelling evidence against the conventional belief that nominal wages are downward sticky this paper provides a unique contribution to this literature by conducting a formal analysis of the role of inflation in cyclical wage rigidity flexibility analysis of payroll based wage data from the korean labor market for the period 1971 2014 finds that the degree of downward nominal wage flexibility is countercyclical and the countercyclicality becomes stronger during a deflationary relative to inflationary recession this serves as a counter example to the conventional theory of cyclical wage rigidity jel e24 e32 j30 j64

real and nominal wage rigidities and the rate of inflation evidence from west german micro data the paper examines real and nominal wage rigidities we estimate a switching regime model in which the observed distribution of individual wage changes computed from west german register data for 1976 1997 is generated by simultaneous processes of real nominal or no wage rigidity and measurement error the fraction of workers facing wage increases that are due to nominal but mostly real wage rigidity is substantial the extent of real rigidity rises with inflation whereas the opposite holds for nominal rigidity overall the incidence of wage rigidity which accelerates unemployment growth is most likely minimized in an environment with moderate inflation

why do salespeople spend so much time lobbying for low prices in business to business settings a company s sales force often spends considerable time lobbying internally for authorization to charge lower prices these internal lobbying activities are time consuming and divert attention from other tasks such as interacting with customers we explain why internal lobbying activities serve an important role they help the firm elicit truthful reporting of demand information from the sales force as a result it may be profitable for the firm to require lobbying and make the requirement onerous even though lobbying is a nonproductive activity that creates an additional administrative burden and imposes a deadweight loss

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

measuring the cyclicality of real wages how important is the firm s point of view there is a growing consensus among economists that real wages in the postwar united states have been procyclical greatly bolstering technology driven theories of business cycles at the expense of more classical models this paper makes the point that technological movements in firm s labor demand curves should be tested with a wage that is deflated by the firm s own price of output with appropriate controls for intermediate inputs and with respect to the cyclical state of the firm s own industry as opposed to the state of the aggregate economy failure to control for these factors is found to lead to substantial overrejection of the classical model in detailed industry data with controls for changes in worker composition i find that a vast majority of sectors have paid real product wages that vary inversely that is countercyclically with the state of their industry

unequal pay or unequal employment a cross country analysis of gender gaps we analyze gender wage gaps correcting for sample selection induced by nonemployment we recover wages for the nonemployed using alternative imputation techniques simply requiring assumptions on the position of imputed wages with respect to the median we obtain higher median wage gaps on imputed rather than actual wage distributions for several oecd countries however this difference is small in the united states the united kingdom and most central and northern eu countries and becomes sizable in southern eu countries where gender employment gaps are high selection correction explains nearly half of the observed negative correlation between wage and employment gaps

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

the wage curve a review in the wage qurve david g blancflower and andrew j oswald argue that there is a fundamental negative relation between wages and the unemployment rate in a worker s local labor market blancflower and oswald use large scale micro data sets to estimate this relation for the united states britain and 10 other countries i review their empirical methods and findings and provide some further evidence on the nature of the wage curve relationship in the united states i conclude that there is a strong statistical correlation between rates of pay and local unemployment although the interpretation of this correlation remains unresolved this abstract was borrowed from another version of this item

consumer uncertainty and purchase decision reversals theory and evidence this research examines how prepurchase information that reduces consumer uncertainty about a product or service can affect consumer decisions to reverse an initial product purchase or service enrollment decision one belief commonly held by retailers is that provision of greater amounts of information before the purchase reduces decision reversals we provide theory and evidence showing conditions under which uncertainty reducing information provided before the purchase decision can actually increase the number of decision reversals predictions generated from an analytical model of consumer behavior incorporating behavioral theory of reference dependence are complemented by empirical evidence from both a controlled behavioral experiment and econometric analysis of archival data combined the theory and evidence suggest that managers should be aware that their information provision decisions taken to reduce decision reversals may actually increase them data as supplemental material are available at http dx doi org 10 1287 mksc 2015 0906

firm strategies in the mid tail of platform based retailing while millions of products are sold on its retail platform amazon com itself stocks and sells only a very small fraction of them most of these products are sold by third party sellers who pay amazon a fee for each unit sold empirical evidence clearly suggests that amazon tends to sell high demand products and leave long tail products for independent sellers to offer we investigate how a platform owner such as amazon facing ex ante demand uncertainty may strategically learn from these sellers early sales which of the mid tail products are worthwhile for its direct selling and which are best left for others to sell the platform owner s cherry picking of the successful products however gives an independent seller the incentive to mask any high demand by lowering his sales with a reduced service level unobserved by the platform owner we analyze this strategic interaction between a platform owner and an independent seller using a game theoretic model with two types of sellers one with high demand and one with low demand we show that it may not always be optimal for the platform owner to identify the seller s demand interestingly the platform owner may be worse off by retaining its option to sell the independent seller s product whereas both types of sellers may benefit from the platform owner s threat of entry the platform owner s entry option may reduce consumer surplus in the early period although it increases consumer surplus in the later period we also investigate how consumer reviews influence the market outcome

quota based compensation plans for multiterritory heterogeneous salesforces we compare quota based salesforce compensation plans with the blss plan i e the optimal curvilinear agency theory based compensation plans proposed in basu lal srinivasan and staelin basu a k r lal v srinivasan r staelin 1985 salesforce compensation plans an agency theoretic perspective marketing sci 4 fall 267 291 a quota plan pays a fixed salary which is supplemented by commission income that is a prespecified fraction of the dollar sales that exceed the quota for a salesforce comprised of multiple salespersons territories we consider a basic quota plan where the commission rate and salary remain the same across salespersons however quotas vary across salespersons territories compared to the blss plan that is individually tailored to each salesperson territory the basic quota plan s total nonoptimality in profit has two components i a shapeinduced nonoptimality arising from the fact that the quota based plan does not have the same optimal shape as the curvilinear blss pl

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

signaling new product reliability with after sales service contracts prior studies on performance based contracting pbc for after sales services have highlighted its advantages over traditional resource based contracting rbc when products are established and their reliability is known to all parties we develop a game theoretic model to investigate how these insights are affected when the vendor is privately informed about the reliability of a newly developed product a novel feature of our model is the interaction between reliability signaling private information and the vendor s discretionary investment in spares inventory private action which arises naturally in the setting we consider we find that this interaction leads to contrasting equilibrium outcomes under the two contracts rbc induces the vendor to focus on inventory savings leading to underinvestment in spares whereas pbc induces the vendor to focus on reliability signaling achieved through overinvestment in inventory as a result neither contract is efficient we investigate two means to mitigate this inefficiency but either approach has caveats a making inventory verifiable removes the trade off between reliability signaling and inventory investment but results in diverging contract preferences between the vendor and the buyer b pooling inventories across multiple buyers saves inventory costs but it also hinders reliability signaling potentially exacerbating inefficiency this paper was accepted by yossi aviv operations management

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem