Low Marginal Cost Research Articles

The interplay between free sampling and word of mouth in the online software market

Free sampling in digital format has become a common business practice in the online market offering consumers first-hand experience with products, due to its low marginal cost and extensive online distribution. At the same time, online word of mouth (WOM) has also been a prevalent strategy on the Internet for increasing product visibility and providing trustworthy product information. Those two online marketing strategies are generally considered to stand alone by marketers and prior research. Nevertheless, by drawing on integrated information response theory as well as theories for explaining online consumers' review sharing, we argue that free sampling complements WOM in the online market by amplifying its sales effect and facilitating its implementation. We provide supportive empirical evidence through a Bayesian analysis of software free sampling on CNET Download.com (CNETD) and sales and WOM from Amazon.com over a 25-week data set. Our results show that adoptions of CNETD free sampling positively interact with Amazon WOM in influencing Amazon software sales. In addition, more adoptions of CNETD free sampling lead to a larger volume of Amazon WOM, and this impact is more significant for less popular products. These findings contribute to our understanding of free sampling in the online market such that, in addition to its direct sales effect, free sampling can also potentially affect sales through influencing online WOM. Therefore, we suggest that marketers evaluate the free sampling strategy by including its interplay with online WOM and apply low-cost free sampling to facilitate the relatively more expensive online WOM marketing strategy, especially for unpopular products.

FUTURE FOSSIL FUEL PRICE IMPACTS ON NDC ACHIEVEMENT; ESTIMATION OF GHG EMISSIONS AND MITIGATION COSTS

The Shale Revolution in the US, a supply-side innovation in oil and gas production, has been dramatically changing the world’s fossil fuel energy markets – leading to a decrease in oil, gas and coal prices. Some projections suggest that low fossil fuel prices might continue at least over the next few decades. Uncertainty in fossil fuel prices might affect the levels of emission reductions expected from submitted nationally determined contributions (NDCs) and/or influence the difficulty of achieving the NDCs. This paper evaluated the impact of different (high, medium, and low) fossil fuel prices, sustained through to 2050, on worldwide GHG emissions reductions and associated costs (mainly marginal abatement costs (MACs)). Total global GHG emissions were estimated to be 57.5-61.5 GtCO2eq by 2030, with the range shown reflecting uncertainties about fossil fuel prices and the target levels of several NDCs (i.e., whether their upper or lower targets were adopted). It was found that lower fuel prices not only diminished the environmental effectiveness of global NDCs but also widened regional differences of marginal and total abatement costs, thereby generating more room for carbon leakage. One possible policy direction in terms of abatement efficiency, fairness and environmental effectiveness would be to require countries with low marginal and total abatement costs but having a major influence on global GHG emissions (such as China and India) to increase their mitigation efforts, especially in a low-fuel-price world.

When Hotelling Meets Vickrey: Service Timing and Spatial Asymmetry in the Airline Industry

This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical space and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travelers’ costs include a fare, a transportation cost to the facility and a schedule delay cost, which captures the monetary cost of departing earlier or later than desired. One carrier operates at each facility and schedules a single departure time. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares with simultaneous choices at each stage. We find that duopolistic competition leads to an identical departure time across carriers when their operational cost does not vary with the time of day, but generally leads to distinct service times when this cost is time dependent. When a facility possesses a location advantage, it can set a higher fee and its downstream carrier can charge a higher fare. Departure time differentiation allows the facilities and their carrier to compete along an additional differentiation dimension that can reduce or strengthen the advantage in location. By incorporating the downstream carriers into the analysis, we also find that a higher per passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operational cost for one carrier implies a higher fee at its departure facility, a lower fee at the other facility served by the rival carrier and a lower fare at both facilities.

Performance and economic assessments of integrating geothermal energy into coal-fired power plant with CO2 capture

A novel carbon capture and storage system integrated with geothermal energy was proposed to reduce energy consumption in the post-combustion CO2 capture (PCC) process. Geothermal energy at medium temperature was used to provide the heat required for solvent regeneration. A technical and economic assessment was conducted based on a 300 MWe coal-fired power plant. Additionally, the integrated system was also compared with a stand-alone geothermal power (GP) plant to evaluate individual advantages. Both an enhanced geothermal system (EGS) and a hot sedimentary aquifer (HSA) reservoir were selected to identify the effect of geological properties and heat characteristics on system performance. The results indicated that the geothermal-assisted post-combustion CO2 capture (GPCC) plant exhibited better performance than the PCC plant. The net plant average efficiency increased 5.56% and 4.42% in the EGS scenario and HSA scenario, respectively. Furthermore, the net incremental geothermal efficiency obtained corresponded to 21.34% and 20.35% in the EGS scenario and HSA scenario, respectively. The economic assessment indicated that the GPCC systems in both the EGS scenario and HSA scenario had lower marginal cost of electricity (70.84 $/MWh and 101.06 $/MWh) when compared with that of the stand-alone GP systems (151.09 $/MWh and 101.95 $/MWh).

The Merit-Order Effect of Energy Efficiency

Abstract The integration of certain amount of renewable generation in the wholesale market right-shifted the merit-order generation curve, which produces a noticeable reduction of the clearing price while slightly increases the traded energy (almost inelastic demand curve). The downward pressure on the clearing price is mainly due to the fact that the introduction of renewable generation bids with very low (even null) marginal cost, displaces to the right all kinds of conventional technologies (with higher marginal cost), including the technology which would otherwise have set the clearing market price. This right-shifted displacement of the merit-order generation curve leads to a lower wholesale clearing price, a small increment of the traded energy and a reduction of the total cost of the traded energy in the wholesale market. This is the key mechanism and its main effects on the market of the very well-known merit-order effect of the renewables. The promotion of energy-efficiency plans (industry and domestic) by policy-makers is expected to yield a reduction of the demand. As a result of the reduction of demand bids, the merit-order demand curve would experience a left-sifted displacement, which would produce a reduction of both the clearing price and the amount of traded energy. Consequently, the total cost of the traded energy also would diminish. As can be seen, the parallelism of the main effects on the market between the integration of renewable and energy efficiency evidences the existence of what can be called the merit-order effect of energy efficiency. To analyze the characteristics of this merit-order effect of the energy efficiency, a simplified model, based on the linearization of the market around the clearing point, is developed. This simplified model is also used to compare the merit-order effect of energy efficiency and renewables. A set of scenarios with energy efficiency and renewables have been generated in order to quantify the main effects on the Spanish/Iberian market for the year 2014.

Cost economies in the provision of higher education for international students: Australian evidence

In the past few decades, the additional revenues available via higher education exports (through both relatively higher prices and increased enrolments) have attracted the attention of providers in many developed countries, not least in Anglophone countries like the USA, the UK, Canada and Australia. However, while the revenue case is strong, the institutional cost structures underlying the provision of higher education services for international students remain relatively unknown at the sector level. Accordingly, we offer a comprehensive analysis of the cost economies underlying higher education provision for international students using a sample of 37 Australian public universities over the period from 2003 to 2012. The findings suggest that it is appealing to enrol additional overseas students given their lower average and marginal costs and the significant economies of scale prevailing in higher education generally. Further, while we find evidence of economies of scope for overseas students only in smaller institutions, there is no evidence of diseconomies of scope, implying the current number of overseas students and their joint production with domestic students at the least does not lead to unnecessarily higher overall costs.

Implementation and Operational Research: Cost and Efficiency of a Hybrid Mobile Multidisease Testing Approach With High HIV Testing Coverage in East Africa

In 2013-2014, we achieved 89% adult HIV testing coverage using a hybrid testing approach in 32 communities in Uganda and Kenya (SEARCH: NCT01864603). To inform scalability, we sought to determine: (1) overall cost and efficiency of this approach; and (2) costs associated with point-of-care (POC) CD4 testing, multidisease services, and community mobilization. We applied microcosting methods to estimate costs of population-wide HIV testing in 12 SEARCH trial communities. Main intervention components of the hybrid approach are census, multidisease community health campaigns (CHC), and home-based testing for CHC nonattendees. POC CD4 tests were provided for all HIV-infected participants. Data were extracted from expenditure records, activity registers, staff interviews, and time and motion logs. The mean cost per adult tested for HIV was $20.5 (range: $17.1-$32.1) (2014 US$), including a POC CD4 test at $16 per HIV+ person identified. Cost per adult tested for HIV was $13.8 at CHC vs. $31.7 by home-based testing. The cost per HIV+ adult identified was $231 ($87-$1245), with variability due mainly to HIV prevalence among persons tested (ie, HIV positivity rate). The marginal costs of multidisease testing at CHCs were $1.16/person for hypertension and diabetes, and $0.90 for malaria. Community mobilization constituted 15.3% of total costs. The hybrid testing approach achieved very high HIV testing coverage, with POC CD4, at costs similar to previously reported mobile, home-based, or venue-based HIV testing approaches in sub-Saharan Africa. By leveraging HIV infrastructure, multidisease services were offered at low marginal costs.

The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions

We investigate the optimal market entry and original equipment manufacturer (OEM) decisions of a firm facing a market in which firms’ brands can be horizontally differentiated and products can be vertically differentiated. The entrant might sell under its own brand and compete with an incumbent, become a supplier to the incumbent, or both. Findings reveal that when consumers perceive the firms are horizontally and vertically differentiated, the entrant profits by simultaneously entering the market and establishing an OEM arrangement with the incumbent. In such competitive scenarios, both buyer and seller increase profits by agreeing on wholesale prices that are not too low, which softens both horizontal and vertical conflict between the firms. Findings also show that the incumbent may prefer to pay high wholesale prices to the entrant even if the incumbent had the option to source the product independently at a lower marginal cost. When firms have the capability of producing each other’s product lines, supply relationships between them can still happen in equilibrium. In this case, an interesting result is that firms may optimally select to differentiate production and, because of the OEM relationship, sell the same product qualities to consumers. The reason for this outcome is that the OEM arrangement with differentiated production causes a strategic effect that reduces the firms’ aggressiveness when competing for consumers. Under certain conditions, the OEM arrangement can completely nullify the horizontal and vertical conflict between the firms. This paper was accepted by J. Miguel Villas-Boas, marketing.

Renewable energy strategies and energy security

This paper considers the effects of renewable energy strategies on energy security. Based on theoretical analysis, we conclude that energy supply shocks benefit firms with a sacrifice of consumer surplus, while the effects on social welfare depend on the degree of environmental concerns. Meanwhile, renewable energy strategies improve energy security by reducing the consumption of conventional energy and by reducing emissions. Furthermore, the total consumption of conventional energy decreases with the number of firms that adopt renewable energy. In addition, for low marginal costs of renewable energy, the efficiencies are equivalent for different covering rates of governmental subsidies. For high fixed costs or marginal costs, governmental subsidies yield excess capacity.

Contribution of green labels in electricity retail markets to fostering renewable energy

In European countries, retailers are obliged to disclose the energy source and the related environmental impacts of their portfolio over the preceding year. The electricity supplied in the Dutch retail market is presented as renewable energy for 34%, but this relatively high share is for 69% based on certificates (Guarantees of Origin) which are imported from in particular Norway. The certificates are used to sell green electricity to consumers. The premium for green electricity which is actually paid by Dutch consumers is no more than a few percentages of the retail price. The low level of this premium is related to the abundant supply of certificates at low marginal costs from Norway. This also means that the premium for green electricity is too low to give an incentive for investments in new capacity. Hence, the current labelling system for renewable electricity is mainly valuable, besides being an instrument for tracking and tracing of renewable energy, as a marketing instrument for electricity retailers. The effectiveness of Guarantees of Origin as a policy instrument to foster renewable electricity sources is weak. This effectiveness can be raised by implementing restrictions on the international trade or the issuance of new certificates.

The impact of inter-regional transmission grid expansion on China’s power sector decarbonization

This paper investigates the impact of the inter-regional transmission grid capacity expansion on China’s power sector decarbonization from the energy portfolio, economic efficiency and environmental perspectives. The impact is quantified based on a cluster integer unit commitment model which renders it suitable for modeling large-scale power systems with a high computational performance. The results show that, first, the inter-regional transmission grid capacity expansion has obvious economic benefit in reducing the total variable generation costs, mainly due to the increased ability of transmitting coal power with low marginal generation costs and the reduction in non-served load. Second, the expansion has a very limited impact on reducing the curtailment of renewable generation by 2030, although the extent to which the expansion can mitigate the curtailment of renewable generation increases with the share of renewable power in the generation portfolio. Third, the expansion increases CO2 emissions of the power supply in 2030 by around 2%, mainly because it facilitates more use of cheap yet low-efficiency coal generation in regions with low fuel prices. To better deliver the value of the inter-regional grid expansion for China’s power decarbonization, this paper proposes that: (1) the planning of the inter-regional and intra-regional grid development should be coordinated with the renewable power development; and (2) effective dispatch mechanisms which account for CO2 emissions or generation efficiency across regions should be established. Additionally, the government plan of the inter-regional transmission capacity in 2030 is basically sufficient in enabling bulk power delivery and promoting renewable generation across regions.

Greenhouse Gas Abatement Cost Curves of the Residential Heating Market: A Microeconomic Approach

In this paper, we develop a microeconomic approach to deduce greenhouse gas abatement cost curves of the residential heating sector. Our research is based on a system dynamics microsimulation of private households’ investment decisions for heating systems to the year 2030. By accounting for household-specific characteristics, we investigate the welfare costs of different abatement policies in terms of the compensating variation and the excess burden. We investigate two policies: (i) a carbon tax and (ii) subsidies on heating system investments. We deduce abatement cost curves for both policies by simulating welfare costs and greenhouse gas emissions to the year 2030. We find that (i) welfare-based abatement costs are generally higher than pure technical equipment costs; (ii) given utility maximizing households a carbon tax is the most welfare-efficient policy and; (iii) if households are not utility maximizing, a subsidy on investments may have lower marginal greenhouse gas abatement costs than a carbon tax.

Building a Curriculum for Social Business Entrepreneurship

AbstractIn recent years social entrepreneurship has been emerging as a viable alternative to government policies for addressing some of the society’s most pressing issues. Academics have also started to take note but only a small number of institutions of higher education offer educational opportunities for students who want to become social entrepreneurs. In this paper I show how business schools are well equipped to offer a coherent curriculum for social business entrepreneurs at a relatively low marginal cost and argue that a business-heavy curriculum is appropriate.

Profit-Maximising Rigid Prices and Vertical Integration

This article explores profit-maximising rigid pricing for a price-setting firm and relates the results to vertical integration, which is an important area of corporate strategy and antitrust policy. The setting of a profit-maximising rigid price is investigated in the face of a known distribution of short-run demand levels as a compromise between the flexible prices that would be appropriate in the short run at different levels of demand. The price and level of capacity are therefore set to maximise expected profits across varying levels of demand. With the help of computer simulations, it is shown that price rigidity increases the incentives for vertical integration, particularly where upstream production is capital intensive, due to the increased importance of rationing. The incentives will also be particularly strong for more efficient and more capital-intensive downstream production with low short-run marginal costs.

Low-Power Wearable ECG Monitoring System for Multiple-Patient Remote Monitoring

Many devices and solutions for remote electrocardiogram (ECG) monitoring have been proposed in the literature. These solutions typically have a large marginal cost per added sensor and are not seamlessly integrated with other smart home solutions. Here, we propose an ECG remote monitoring system that is dedicated to non-technical users in need of long-term health monitoring in residential environments and is integrated in a broader Internet-of-Things (IoT) infrastructure. Our prototype consists of a complete vertical solution with a series of advantages with respect to the state of the art, considering both the prototypes with integrated front end and prototypes realized with off-the-shelf components: 1) ECG prototype sensors with record-low energy per effective number of quantized levels; 2) an architecture providing low marginal cost per added sensor/user; and 3) the possibility of seamless integration with other smart home systems through a single IoT infrastructure.

Quantifying Proton Fields for Midline Brain Tumors: A Benefit/Cost Analysis of Planning Objectives.

We sought to quantify the optimum number of beams by using a midline sagittal arrangement for midline brain tumors when considering the competing demands of a high degree of target conformation and maximizing reduction of nontarget brain dose. The volume of nontarget brain tissue receiving between 5 and 20 Gy (V5-V20) was selected to measure "low-dose bath" to normal brain. An exploratory model was developed with 6 midline brain targets created by using spheres of 1-, 3-, and 5-cm diameters located in superficial and deep locations. For each, five 3-dimensional proton treatment plans with uniform beam scanning were generated by using 1 to 5 fields. Dose-volume histograms were analyzed to calculate conformation number and V5-V20. A benefit/cost analysis was performed to determine the marginal gain in conformation number and the marginal cost of V5-V20 for the addition of each field and hypothesize the optimum number of treatment fields. We tested our hypothesis by re-planning 10 actual patient tumors with the same technique to compare the averages of these 50 plans to our model. Our model and validation cohort demonstrated the largest marginal benefit in target conformation and the lowest marginal cost in normal brain V5-V20 with the addition of a second proton field. The addition of a third field resulted in a relative marginal benefit in target conformation of just 3.9% but a relative marginal cost in V5-V20 of 78.7%. Normal brain absolute V5-V20 increased in a nearly linear fashion with each additional field. When treating midline brain lesions with 3-dimensional proton therapy in an array of midline sagittal beams, our model suggests the most appropriate number of fields is 2. There was little marginal benefit in target conformation and increasing cost of normal brain dose when increasing the number of fields beyond this.

Discriminatory nonlinear pricing, fixed costs, and welfare in intermediate-goods markets

We investigate the welfare effects of third-degree price discrimination in input markets when nonlinear wholesale tariffs are feasible. After accepting their respective wholesale contracts, two downstream firms have to pay a fixed cost in order to become active in the downstream market. If the downstream firm with lower marginal cost has significantly higher fixed cost, uniform pricing leads to lower marginal wholesale prices for all downstream firms and thus higher quantities of the final product being produced. This in turn implies that banning price discrimination improves welfare and consumer surplus. If the downstream firm with lower marginal cost has only weakly higher (or even lower) fixed cost, banning price discrimination deteriorates welfare and consumer surplus.

Play It Again, Sam? Versioning in the Market for Second‐hand Video Game Software

Information goods are characterised by high fixed costs and low marginal costs of production. A potentially effective strategy that can be adopted by firms operating in such markets is versioning, whereby various features are added or subtracted from a number of distinct versions of the good. This effectively serves as a means of second‐degree price discrimination designed to extract prices closer to the maximum willingness to pay from different groups of consumers. This study tests the effectiveness of versioning as a means of exploiting differences in willingness to pay in second‐hand markets for information goods by undertaking the first hedonic price analysis of video gaming software. The empirical evidence presented in this paper is based on the analysis of an extensive cross‐sectional dataset consisting of over 5000 observations of pre‐owned video game prices in the USA. Controls are introduced for a variety of other observable characteristics, including the quality of the game‐play experience, the publisher, genre and theme of the game. The results are consistent with theoretical expectations and demonstrate that significant variations in willingness to pay can be exploited through the strategic use of versioning. The practice is therefore argued to represent an effective means by which firms in these markets can enhance revenues. Copyright © 2016 John Wiley & Sons, Ltd.

Flow-Based Forward Capacity Mechanism: An Alternative to the Regulated Capacity Remuneration Mechanisms in Electricity Market With High RES Penetration

The rapid adoption of variable renewable generation has created new challenges in the maintenance of power system adequacy. On one hand, its non-dispatchable nature increases the need for firm and flexible load-following peaking power generation. On the other hand, its significantly lower short-run marginal cost raises the missing-money issue, which increases the tendency of conventional generators in terminating their services because of the reduced economic incentives. Therefore, many regulators have begun to implement remedial measures called capacity remuneration mechanisms (CRMs) to curb the problem. Though effective in supporting the operation of these generators, the mechanisms affects the cross-border sharing of generation resources. The shortcomings are discussed in this paper. Afterwards, the paper proposes a mechanism called the flow-based forward capacity mechanism as an alternative for accommodating the involvement of both domestic and foreign capacity generators in the cross-border competition for the supply of capacity generation. The mechanism is able to recover the missing-money bear by the capacity generators in a fair manner. Additionally, it offers a concise method for gradually phasing-out the service of capacity generators as the market transforms into a full RES form.

Efficacy of some insecticides against insect pests of mungbean (Vigna radiata L.)

Efficacy and profitability of insecticidal management practices using different insecticides were tested against insect pests of mungbean at Pulses Research Center, Ishurdi, Pabna, Bangladesh during two consecutive seasons of kharif-1 2013 and 2014. Insect infestations were reduced significantly by the application of synthetic insecticides. Spraying of Imidachloprid (Imitaf 20 SL) @ 0.5 ml/l of water showed the best efficacy in reducing flower infestation and thrips population followed by Fipronil (Regent 50 SC). Spraying of Thiamethoxam + Chlorantraneliprol (Voliam flexi 300 SC) @ 0.5 ml/l of water showed the best efficacy in reducing pod borer and flea beetle infestations. Spraying of Fipronil (Regent 50 SC) performed highest efficacy against stemfly infestation. The yield and the highest net return were obtained from Voliam flexi 300 SC, the highest benefit was obtained from Regent 50 SC treated plots. This might be due to the higher cost of Voliam flexi that reduced the profit margin and showed the lower marginal benefit cost ratio (MBCR) compared to Regent. Therefore, considering the efficacy and benefit, spraying of Fipronil (Regent 50 SC) @ 0.5 ml/l is the most profitable insecticidal management approach against insect pests of mungbean followed by Imidachloprid (Imitaf 20 SL) at the same dose.Bangladesh J. Agril. Res. 40(4): 657-667, December 2015