Context-dependent preferences and retailing: Vertical restraints on internet sales

Attention to online sales: The role of brand image concerns

“…A relatively small literature applies salience models to study questions related to vertical contracting and brand image concerns. The two papers most closely related to ours, Helfrich and Herweg (2020) and Inderst and Obradovits (2020a), have in common that they leverage a different, secondary property of Bordalo et al's (2013) salience theory, so‐called, diminishing sensitivity . According to diminishing sensitivity, price is salient when—fixing the contrast in prices—the price level is sufficiently low.…”

“…Economists have put forward several justifications for vertical restraints (on online sales), such as ensuring high service quality (e.g., Mathewson & Winter, 1984; Telser, 1960), signaling and exclusivity concerns (e.g., Inderst, 2019; Marvel & McCafferty, 1984; Pesendorfer, 1995), different forms of commitment problems (e.g., Coase, 1972; Hart & Tirole, 1990; Nava & Schiraldi, 2019; Stokey, 1981), facilitating collusion (e.g., Jullien & Rey, 2007), informational advantages of retailers (e.g., Rey & Tirole, 1986), preventing certain types of price discrimination (e.g., Chen, 1999), exploiting context effects other than the contrast effect (e.g., Helfrich & Herweg, 2020; Inderst & Obradovits, 2020a), or simply responding to channel characteristics (e.g., Dertwinkel‐Kalt et al, 2016; Miklós‐Thal & Shaffer, forthcoming). We discuss the explanations that are most relevant for thinking about online sales and brand image concerns in more detail.…”

Salience and Online Sales: The Role of Brand Image Concerns

“…There are two papers building on the salience model that are closely related to our approach, namely Inderst and Obradovits (2017) and Helfrich and Herweg (2017). Importantly, the salience model incorporates two main assumptions: the contrast effect and diminishing sensitivity.…”

“…Importantly, the salience model incorporates two main assumptions: the contrast effect and diminishing sensitivity. While our model builds on the contrast effect, the findings in Inderst and Obradovits (2017) and Helfrich and Herweg (2017) rely on diminishing sensitivity to a given contrast. Notably, the contrast effect is much harder to reconcile with the classical model and also less explored than diminishing sensitivity, which is already an integral assumption of prospect theory (Kahneman and Tversky, 1979).…”

Loss leading with salient thinkers

“…Indeed, based on their concept of salience proposed in Bordalo, Gennaioli, and Shleifer (2013), Bordalo, Gennaioli, and Shleifer (2016) analyze a model of undifferentiated competition. Dertwinkel‐Kalt and Köster (2017) and Helfrich and Herweg (2018) extend the idea of (salience‐induced) context‐dependent preferences to a manufacturer's own offer across different sales channels, such as online and brick‐and‐mortar, thereby analyzing high‐quality manufacturers' motives to impose vertical restraints on their retailers. In Herweg, Müller, and Weinschenk (2017), a high‐quality manufacturer may introduce a decoy product to distort competition with a low‐quality competitive fringe, and in Armstrong and Chen (2009), some consumers are always inattentive to product quality.…”