The Welfare Effects of Endogenous Quality Choice in Cable Television Markets

Crawford, Gregory S.; Shcherbakov, Oleksandr; Shum, Matthew

doi:10.2139/ssrn.2670428

Cited by 16 publications

(14 citation statements)

References 30 publications

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“…The large number of products in each product line poses a particular challenge. While existing work has modeled endogenous product choice for a single multidimensional good (Fan (2010)) or for several single-dimensional goods (Draganska et al (2009);Crawford et al (2011)), none has addressed the product choice problem of a firm with several multidimensional products. I introduce a simple and tractable method of describing this choice.…”

Section: Related Literaturementioning

confidence: 99%

Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Ngwe¹

2017

Marketing Science

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Outlet stores offer attractive prices at locations far from central shopping districts. They form a large and growing component of many firms' retailing strategies, particularly in the fashion industry. The main perspectives on why outlet stores exist can be broadly classified into inventory management, geographic segmentation, and price discrimination through consumer self-selection. I evaluate these perspectives in the context of a major fashion goods firm using newly available and highly granular data. Model-free evidence shows that inventory management and geographic segmentation do not fully explain the benefit of selling through outlet stores. Consumers who shop at outlet stores also do not differ significantly from those who shop at regular stores in terms of income. I use a structural demand model to show that consumers are segmented according to their sensitivity to travel distance and taste for product newness. I then develop a supply model to predict product development responses to changes in store locations. Through policy simulations, I discover that the firm uses outlet stores to serve lower-value consumers who self-select by traveling to outlet stores from central shopping districts. The firm sells older, less desirable merchandise through outlet stores to prevent cannibalization of regular store revenues by means of exploiting the positive correlation between consumers' travel sensitivity and taste for new products. I find that the rate of new product introduction in regular stores would fall by 16% if outlet stores were closed down, while variable profits would decline by 23%. These results imply that the existence of outlet stores may enable firms to improve quality in their regular channels, thus counteracting brand dilution effects. participants of Columbia's industrial organization colloquium for helpful comments and suggestions. All errors are my own.

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Section: Related Literaturementioning

confidence: 99%

Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Ngwe¹

2017

Marketing Science

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“…Second, this paper also contributes to the emerging literature on endogenous product choice, examples of which include Mazzeo (2002); Crawford and Shum (2006); as well as Draganska, Mazzeo, and Seim (2009). 1 The latter also studies the effect of mergers.…”

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confidence: 95%

“…Endogenizing product choice typically introduces important computational challenges. Papers in the literature either directly specify a profit function that is not derived from demand (such as Mazzeo 2002) or focus on monopoly industries (such as Crawford and Shum 2006), or examine markets with a naturally finite and discrete product choice set (such as Draganska, Mazzeo, and Seim 2009). This article builds an oligopoly model where the profit function is derived from underlying demand and the product characteristics are continuous.…”

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confidence: 99%

Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market

Fan¹

2013

American Economic Review

325

210

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This paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation, taking into account not only firms' price adjustments but also the adjustments in newspaper characteristics. A new dataset on newspaper prices and characteristics is used to estimate the model. The paper then simulates the effect of a merger in the Minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics. It finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers. (JEL G32, L13, L82, M37) Do mergers affect product characteristics? Standard merger analyses typically study price effects only and ignore changes in product characteristics. This paper endogenizes both. It is likely that firms would adjust the features of their products after a merger. Ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects. Specifically, I study how ownership consolidation affects product characteristics and welfare in the US daily newspaper market. The newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons. First of all, individual newspapers often circulate in local markets. There is substantial variation in demographics and ownership structure across these markets. This variation is crucial for this study. Secondly, the characteristics of newspapers are obviously important for welfare. For example, after an ownership consolidation, do newspaper publishers improve or diminish the content quality? Do they enlarge or shrink the local news ratio? Do they increase or decrease content variety?To address these questions, I set up a structural model of the US daily newspaper market that describes the demand for newspapers, the demand for advertising, and publishers' decisions. The model is estimated using a new dataset that I have compiled from various data sources, which includes information on newspaper

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“…The early structural literature (Berry (1994), Berry, Levinsohn and Pakes (1995)) treats product attributes as exogenous, but recent empirical models have portrayed firms as choosing product quality along with price. In the models of Crawford, Shcherbakov and Shum (2011) and Fan (2011), firms choose the levels of continuous measures of product quality (for newspapers and cable television, respectively), while firms in Draganski, Mazzeo and Seim (2009) choose which product varieties to offer (the empirical work focuses on ice cream flavors).…”

Section: Introductionmentioning

confidence: 99%

Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency

Brueckner

Luo

2014

Economics of Transportation

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Measuring Strategic Firm Interaction in Product-Quality Choices: The Case of Airline Flight Frequency Abstract This paper investigates strategic interaction among airlines in product-quality choices. Using an instrumental variables approach, the paper estimates flight-frequency reaction functions, which relate an airline's frequency on a route to its own characteristics and to the frequencies of competing airlines. A positive reaction function slope is found in some cases, indicating the presence of strategic interaction in the choice of frequencies. The paper also asks whether multimarket contact generates mutual forbearance in frequency competition, finding no evidence for such an effect. JEL-Code: L100, L930. Terms of use: Documents in EconStor may

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The Welfare Effects of Endogenous Quality Choice in Cable Television Markets

Cited by 16 publications

References 30 publications

Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market

Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency

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