- Search Deterrence in Experimental Consumer Goods Markets (with Alexander L. Brown and Ajalavat Viriyavipart) (Working paper)
Recent theoretical research indicates that search deterrence strategies are generally optimal for sellers in consumer goods markets. Yet search deterrence is not always employed in such markets. To understand this incongruity, we develop an experimental market where profit-maximizing strategy dictates sellers should exercise one form of search deterrence, exploding offers. Sellers demonstrate a reluctance to use such offers against human buyers that is lessened when facing computerized buyers. Human buyers are three times more likely to deviate from optimal strategy by rejecting rather than accepting these offers. The differential rate of buyer suboptimal play shifts the equilibrium of the game to a point where seller gains from the use of exploding offers are greatly reduced. In sum, the results suggest the benefits of search deterrence may be substantially less than what theory predicts.
- Identify Brand Satiation Using Purchase Data (With Venkatesh Shankar) (Working paper)
In product categories such as yogurt, cereal and candy, consumers are likely to be satiated after frequent consumption of the same brand, leading to variety-seeking and switching to other brands. Prior research has modeled satiation mostly using consumption and preference data, but most firms have access to only purchase data. Identifying satiation and estimating satiation effect using purchase data remain a significant challenge. We provide rich evidence supporting effects of satiation using a scanner data set in a yogurt market and develop a Hidden Markov Model in which households may be temporarily stay in an unobserved “satiation” state. The results show that households may be occasionally satiated for a certain brand, and there is significant difference among the satiation probabilities for brands. Our Hidden Markov Model explains consumer satiation better than benchmark models.
- The Effect of Periodic Structure in Consumer Visiting Patterns (With Hua Yuan) (Working paper)
Maintaining a strong repurchasing cycle may be not easy for households, because such routinization requires a significant amount of self-control against consumption uncertainties, external shocks and other schedule conflicts. Are households with “structural” repurchase patterns associated with better self-control, or they simply face constraints which limit their timing choices? We investigate household repurchase periodicity and its impact on product choices using scanner datasets in the Yogurt and Carbonated Beverage categories. Product-market level analysis shows that “structural households”—households with strong periodic purchase patterns—are associated with weaker consumer inertia and have more product switches recorded. However, weak evidence shows that such improved decision making can be attributed to self-control; the data is more consistent with the explanation that structural households are more easily satiated and prefer more variety in product choices.
- Does Trustworthiness Matter in an Optimal Contract? (With Debing Ni and Kaiming Zheng) (Work in Progress)
We consider a modified principal-agent model, where the principal may “trigger” the agents’ reciprocity preferences by using more fixed rate compensations. With individual level information on agents’ reciprocity level, the principal may offer a wage schedule such that trustworthy agents may reciprocate and her action will be more inline with principal’s original objective. Using a two stage experimental design, we test a specific case of the theory. Our (preliminary) results indicate that principals who can access individual measures of reciprocity offered higher fixed wage to trustworthy agents; meanwhile the total wage cost didn’t rise significantly in the asymmetric endowment condition. However, in symmetric endowment condition, possible retaliation was observed.