Research summary:We study how two dimensions of reputation (i.e., generalized favorability and being known) and attribution of crisis responsibility affect firm value at the onset of a crisis. Analyzing 126 corporate crises befalling publicly listed firms in China from 2008 to 2014, we find that generalized favorability serves as a buffer, while being known can be a burden, in influencing firm value. We also find that the buffering effect of generalized favorability is stronger when the attribution of crisis responsibility is low (vs. high). In addition, there is a negative interaction effect between the two dimensions of reputation such that the buffering effect of generalized favorability weakens when firms are better known. We discuss our contributions to research on corporate reputation and crisis management. Managerial summary:Corporate reputation is an intangible asset, especially at the onset of a corporate crisis. This research sheds light on the "double-edged sword" of corporate reputation by examining the effects of two reputation dimensions (i.e., being liked and being known) on firm value. Our results suggest that well-liked firms can leverage their generalized favorability among stakeholders to assuage firm value loss, whereas well-known firms may have to better communicate with stakeholders to overcome the burden of stakeholders' attention that escalates firm value loss. To better cope with the onset of a crisis, firms should therefore enhance their generalized favorability and simultaneously avert stakeholders' excessive attention. In addition, well-liked firms can further buffer against the loss in firm value by reducing the perceived intentionality of a crisis.

People are frequently exposed to potentially attractive events that are subsequently and unexpectedly reversed and to potentially painful events, which are also unexpectedly reversed. In the process of being returned to the initial asset position, does the sequence in which the positive and negative events occur matter? This issue of the combined effect of pleasurable and painful stimuli has received scant theoretical or empirical attention. We attempt to fill this lacuna in the literature by studying the retrospective evaluation of surprises that return individuals to their original economic state. Although such surprises do not change an individual's original economic state, we argue that the individual's psychological state changes, and the final affective state is, among other things, a function of the sequence in which the events occur. From a theoretical standpoint, several perspectives can be brought to bear on the issue. For instance, one reading of mental accounting, based on prospect theory's value function, would predict that losses should dominate gains, and therefore, regardless of sequence, people should be unhappy when exposed to two economically equivalent outcomes of different signs. Conversely, the literature on intertemporal choice would suggest that a series that ends on an up note is preferred to a series that ends on a down note, because people like to defer gratification so that they may savor positive outcomes. Similarly, people apparently have a preference for "happy endings." Finally, the extant literature on "recency effects" would predict that the last event in a series should have a disproportionate influence on overall affect. Our model relies on a shift in the reference point to explain how a surprising reversal of an event will lead to a nonzero evaluation of the sequence. We suggest that people's reference points shift immediately but imperfectly after a stimulus is presented. Intuitively, this implies that the first stimulus will shift the reference point in its direction, as a result of which the evaluation of a sequence of events in which an initial event is unexpectedly reversed will be more favorable if the first event is a loss than if it is a gain. This model captures the unanticipated nature of the second event (i.e., the surprise element) by allowing the first event to move the reference point. Consequently, by the time the next event occurs the reference point has been updated, as a result of which the zero economic outcome of the sequence yields nonzero utility. We further posit that the magnitude of the reference point shift should be affected by the time elapsed between the two stimuli. Specifically, the reference point shifts gradually with time, until it is fully updated. Consequently, the final affective state of the sequence is also a function of the temporal distance between the two events. The main predictions of the model were empirically supported first in a survey using a mall-intercept sample. Subsequently, we conducted a study of student subjects involving ...

The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks, such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that, indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc. do not vary between holiday and non-holiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.

People are frequently faced with making a new choice decision after a preferred option becomes unavailable. Prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options. The authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo. In a series of experiments, they observe that when an option turns out to be unselectable following a choice problem in which it was selectable, the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start. They also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria. They conclude with a discussion of the theoretical and managerial implications of the research.

Although the existing literature in economics and marketing offers growing evidence on the use of price points, there is a lack of direct evidence on the link between price points and price rigidity. We examine this issue in the retail setting using two datasets. One is a large weekly transaction price dataset, covering 29 product categories over an eight-year period from a large US supermarket chain. The other is from the Internet, and includes daily prices over a two-year period for hundreds of consumer electronic products with a wide range of prices. Across the two datasets, we find that 9 is the most frequently used price-ending for the penny, dime, dollar and the ten-dollar digits. Exploring the relationship between price points and price rigidity in these datasets, we find that the most common price changes are in multiples of dimes, dollars, and tendollar increments. When we econometrically estimate the probability of a price change, we find that 9-ending prices are at least 24 percent (and as much as 73 percent) less likely to change in comparison to prices ending with other digits. We also find that the average size of change of 9-ending prices are systematically larger when they do change, in comparison to non 9-ending prices. This link between price points and price rigidity is remarkably robust across the wide variety of price levels, product categories, and retailers examined in this study. To make sense of these findings, we offer a behavioral explanation building on the emerging literature on rational inattention. We argue that consumers may find it rational to be inattentive to the rightmost digits of retail prices because of the costs of processing price information. In response, firms may find it profitable to set the rightmost digits at 9, and therefore, be rigid in their pricing around these price points. We conclude that price points are a significant source of retail price rigidity in our datasets, and that rational inattention can offer a plausible explanation for their presence.