Sophisticated Consumers Research Articles

Optimal pricing scheme for addictive goods

AbstractThis article analyses how consumers' habit formation and addiction affect firms' pricing policies. I consider both sophisticated consumers, who realize that their current consumption will affect future tastes, and “naive” consumers, who do not. The optimal contract for sophisticated consumers is a two‐part tariff. The main result is that the optimal pricing pattern when the consumer is naive is a “bargain then rip‐off” contract, namely a fixed fee, with the first units priced below cost, and then priced above marginal cost. This holds both under symmetric and asymmetric information about the consumers' degree of sophistication.

Information disclosure and pricing in the online expert service platform

The online expert service (OES) market is thriving by providing convenient professional services such as telemedicine consultation, legal advice, and financial planning. However, the practical phenomena, namely information asymmetry and the existence of naive consumers in the OES industry, motivate us to investigate how consumers’ two-dimensional heterogeneity and the expert’s agency pricing strategy with effort costs affect the OES platform’s information disclosure decision and corresponding market outcomes. By building a game-theoretic model, we consider the monopolistic OES platform in which the expert provides service to a mass of consumers, who can be either sophisticated or naive. The platform, as the designer of the disclosure framework, is thus an additional player in the seller-consumer game. Our results show that, when the marginal cost is intermediate, the platform strategically manipulates consumers’ valuation beliefs with partial disclosure to increase profitability without significant loss of market coverage. Furthermore, when naive consumers exist, the platform counter-intuitively discloses more information compared to that of all sophisticated consumers. Moreover, interestingly, when the marginal cost is low-to-intermediate, more naive consumers bring about more disclosure and thus obtain more demand for high-end sophisticated consumers, making both the expert and platform better off.

Pemanfaatan Digital Branding UMKM Barongan Wisanggeni Guna Mendukung Tercapainya SDGs Desa Kewirausahaan

SMALL AND MEDIUM ENTERPRISES (UMKM) play a crucial role in creating jobs, distributing income, and supporting economic growth. The mastery of information and communication technology provides opportunities for UMKM through social media platforms like YouTube and Instagram. Digital strength and effective branding strategies are essential for UMKM Barongan Wisanggeni Art Gallery to face technological advancements and meet the demands of sophisticated consumers. In the context of sustainable development, Kelompok KKNT 27 supports the Sustainable Development Goals (SDGS) of Entrepreneurship Village by empowering the local economy and creating a competitive environment for future generations. The objective of this initiative is to provide education on branding for entrepreneurs and enhance the target market through product branding. The target beneficiaries are the general public in Ngadirejo Village, Blitar City. The implementation of the SDGS of Entrepreneurship Village and digital branding is expected to achieve economic independence and support sustainable development. This activity represents a tangible step in supporting UMKM and the local economy towards inclusive development.

Obfuscation of Quality Information for Dual Bounded Rational Consumers

Abstract We study the incentives for firms’ obfuscation strategies and their impact on social welfare in a market with boundedly rational consumers. We assume that firms obfuscate product information, which can prevent consumers from acquiring type information. Some naive consumers in the markets exhibited limited comprehension and default bias toward higher-quality products. We show that firms chose obfuscation in all cases except those in which consumers have a strong degree of bounded rationality and more pessimistically evaluate themselves as the naive type. This means that for firms, the benefits from second-degree price discrimination are limited and obfuscation may be a more important strategy than informing. We also find that, under certain conditions, obfuscation may result in socially desirable product allocation. This result indicate that careful consideration needs to be given to policies that reduce the incentive for firms to obfuscate, such as increasing the proportion of sophisticated consumers.

Public Disclosure and Consumer Financial Protection

AbstractThe U.S. Consumer Financial Protection Bureau has released a database of consumer complaints about banks’ financial products to the public since 2013. We find a greater reduction in mortgage applications to banks that receive more mortgage complaints in local markets after the disclosures. The effect is stronger in areas with more sophisticated consumers and higher credit competition, and for banks receiving more severe complaints. The number of monthly mortgage complaints per bank exhibits faster mean reversion after the publication of the database. These findings suggest that the public disclosure of mortgage complaints enhances product market discipline and consumer financial protection.

Satan Shoes or Satan Speech? Balancing Trademark and First Amendment Rights in the Altered Authentic Goods Context

Satan Shoes or Satan Speech? Balancing Trademark and First Amendment Rights in the Altered Authentic Goods Context

BUSINESS PROCESS IMPROVEMENT. IMPROVEMENT OF INTERNAL CERTIFICATION PROCESSES

The purpose of this paper is to expose the processes which are important to run into the organizations. Consumers around the world increasingly demand products and services that are simultaneously good for the economy, for the environment, and for society — the triple bottom line of sustainable growth. Based on your existing systems, the Sustainable organization certificate demonstrates that you have implemented and documented processes with some elements of international standards (ISO 14001 and ISO 27001). A Sustainable organization implements sustainability strategies that provide them with economic and cultural benefits attained through environmental and social responsibility and intensive care for employees. This rising demand is creating new pathways for businesses and governments to drive change for the global good. Developed countries are also home to sophisticated consumers whose choices drive business decisions worldwide and are increasingly aware of the triple bottom line of sustainable growth.

Cognitive ability, cognitive aging, and debt accumulation

Originating and managing debt are cognitively demanding tasks that have become more challenging in the past few decades with the increasing variety and complexity of available financial products. We examine how cognitive ability is related to debt burdens among older adults and whether this relationship has changed over time with the increasingly complex financial landscape. We find that cognitive ability is an important predictor of debt burdens in older age and that individuals with higher cognitive ability have taken on higher debt levels relative to their counterparts in more complex financial environments, leading to increased financial fragility among relatively more sophisticated consumers. Our findings are broadly inconsistent with financial intermediaries systematically pushing increasingly complicated financial products onto unsophisticated borrowers.

Competition in search markets with naive consumers

AbstractWe study a search market where firms may design products of inferior quality to promote them to naive consumers who misjudge product characteristics. We derive an equilibrium in which superior and inferior quality co‐exist and show that as search frictions vanish, the share of superior goods goes to zero. The presence of inferior products harms sophisticated consumers, as it forces them to search longer for superior quality. Policy interventions that reduce search frictions such as the standardization of product information may harm welfare. In contrast, educating naive consumers as well as a minimum quality standard can improve welfare.

Sequencing innovation rollout: Learning opportunity versus entry speed

AbstractResearch summaryOur article examines the deliberate creation of learning opportunities in the global rollout of innovations. Some firms launch in only a subset of markets at first, with later launches being conditional on debut‐market performance. Such sequencing decreases the downside of potential innovation failure but increases the downside of potential competitive preemption. Consistent with this trade‐off, handset makers during the feature‐phone era sequence rollout more often when innovations are novel. Also consistent is that sequencing seems to respond to firms' past experience with failure and preemption, and that it begins in markets offering strong signals of success and failure—markets with competing innovations and sophisticated consumers, respectively. Our findings contribute to the understanding of entry strategy and opens avenues for researching intentional organizational experimentation.Managerial summaryFirms can decide whether to launch innovations little by little or everywhere at once. Trial launches allow firms to test commercial viability and react to outcomes before rolling out elsewhere, but risks that competitors get their first. An immediate global launch, by contrast, reduces the scope for competitive preemption but increases the costs of potential failure. Our article uses data from the handset industry to highlight conditions that shape rollout decisions and examine the debut markets sought out for trial launches. Firms tend to trial novel innovations in particular, and their experience with prior misses as well as flops influences their preference. Trial launches often begin in markets with strong competition and discerning consumers, indicating an initial prioritization of learning over monetization. Opportunities for experimentation during market rollout thus ought to feature in strategic considerations of entry timing.

Sophisticated Consumers with Inertia: Long-Term Implications from a Large-Scale Field Experiment

Sophisticated Consumers with Inertia: Long-Term Implications from a Large-Scale Field Experiment

Translating the Hand into Print: Johann Neudörffer's Etched Writing Manual

By their very nature writing manuals encourage viewer participation, as they illustrate how to form lines into letters. In Johann Neudörffer's “Gute Ordnung” (Good order, 1538–50s) this genesis of lines extends beyond pure pedagogy. By displaying etchings in mirror writing alongside true-sided counterproofs, Neudörffer invites viewers to consider methods of mechanical production of seemingly handwritten lines. His text-images share their self-aware attention to linear aesthetics and process with drawings and etchings by Albrecht Altdorfer and Albrecht Dürer. As Neudörffer's manual taught the formation of beautiful written lines, it also trained contemporaries to become sophisticated consumers of linear beauty in figurative art.

Technology and service investments in the presence of feature fatigue and word-of-mouth

In the digital age, firms continuously look for leading technologies and make products of superior quality to satisfy new and sophisticated consumers’ needs. Although this approach strives to sell a product more appealing to customers, it also renders the product more complex and difficult to use, generating the feature fatigue effect. This is characterized by feelings frustration experienced by consumers when purchasing high-tech products with many appealing features, most of which turn out to be undesired, useless, and difficult to use. We study the impact of the feature fatigue effect on a manufacturing firm’s policies in designing its product–service portfolio. We consider two periods in order to capture the effect of customers’ word-of-mouth originating from feature fatigue, which is shared with other potential customers. Therefore, we assess not only the impact of feature fatigue but also the extent to which this effect can be alleviated by after-sales service. We capture feature fatigue by first considering a base model without this effect and then comparing the manufacturer’s decisions regarding quality, pricing, and service when it has either clear or noisy effect. Our findings reveal that feature fatigue drives manufacturers to under invest in quality and to replace penetration pricing policies with skimming policies. In addition, we demonstrate that after-sales service cannot fully mitigate the detrimental effect of feature fatigue on a manufacturer’s profits.

Applying FABRIC as a Tool to Understanding Architectural and Landscape Icons in a Time of Travel Restrictions

Iconic architecture and landscape architecture are most often understood through photographic media that mediates between the idea and the reality for those learning to design. The drastic lockdown responses to COVID-19 and the limitations on local and international travel highlighted the importance of the visual and the potential of the virtual. However, visual media can also be understood as systems that go far beyond a strict representation of an object. In this climate where publicity, politics, and perception play ever more crucial roles, representations of iconic architecture and landscapes increasingly blur the boundaries between the imaginary and the tangible. This paper examines the experience of iconic architecture and landscape in four iconic European cities (Paris, Barcelona, Seville, and Lisbon) as seen through the eyes of fifty postgraduate architecture, interior architecture, and landscape architecture students from New Zealand. It compares their understanding of a building or landscape from its photographic image before engaging with the physical reality. Students were asked to first identify iconic architecture and landscape, then closely analyze and document the essential qualities which established its pre-eminence. A subsequent visit to each of the places provided the opportunity for comparison and the testing of the realities and fictions of the icons themselves. Our research finds that today’s architecture students are savvy and sophisticated consumers of technology. It also presents FABRIC (finding, assimilating, being, reflecting, introspecting, and concluding), a conceptual framework that offers additional scaffolding for educating design students through experiential learning in a time of travel restrictions.

Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuade its existing customer base to upgrade. This is commonly achieved through a rollover strategy, which comprises the price of the new product as well as the decision to discontinue the sale of the existing product ( solo rollover) or to sell the existing product at a discounted price ( dual rollover). In this study, we argue that the timing of the new product release is an important—but commonly overlooked—third lever in the design of a successful rollover strategy. The release timing influences the consumers' perception of obsolescence, by which an existing product is considered obsolete merely by reference to a new product. This reinforces the upgrading behavior of existing customers, but it also necessitates deep discounts of the existing product to keep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rollovers in markets for digital goods (i.e., where production costs are negligible) that are composed of naive and sophisticated consumers. Under the assumption that both the old and the new product would offer a similar utility if there was no perceived obsolescence, we show that in both markets a firm selecting the release times from a continuous timeline can induce sufficiently large parts of its existing customer base to upgrade so that a solo rollover is optimal. We also characterize the resulting market segmentation, and we offer managerial as well as policy advice.

Toward usable predictive climate information at decadal timescales

Toward usable predictive climate information at decadal timescales

Deregulation and the Lawyers' Cartel

At one time, the legal profession largely regulated itself. However, based on the economic notion that increased competition would benefit consumers, jurisdictions have deregulated their legal markets by easing rules relating to attorney advertising, fees, and, most recently, nonlawyer ownership of law firms. Yet, despite reformers’ high expectations, legal markets today resemble those of previous decades, and most legal services continue to be delivered by traditional law firms. How to account for this seeming inertia? We argue that the competition paradigm is theoretically flawed because it fails to fully account for market failures relating to asymmetric information, imperfect information, and negative externalities. In addition, the regulatory costs imposed on sophisticated consumers such as corporate purchasers of legal services differ radically from those imposed on ordinary consumers who use legal services infrequently. Merely increasing the number and types of legal services providers cannot make legal markets more efficient. We illustrate our theoretical account with evidence from the United Kingdom, Europe, and Asia. For legal markets to better serve the public, regulators must tailor solutions by segment. Regulators should seek to minimize negative externalities associated with the delivery of legal services to the corporate segment and confront information asymmetries that lead to the maldistribution of legal services in the consumer segment. Deregulation alone is insufficient and may in fact exacerbate existing market failures.

Tempting goods, self-control fatigue, and time preference in consumer dynamics

We propose a dynamic model of consumer behavior under limited self-control, emphasizing the fatiguing nature of self-regulation. The temptation theory is extended in a two-good setting with tempting and non-tempting goods, where self-regulation in moderating tempting good consumption depreciates mental capital (willpower). The resulting non-homothetic feature of consumer preferences helps describe self-regulatory behavior in such an empirically relevant way that it depends on the nature of the tempting good (luxury or inferior) and on consumer wealth. First, richer consumers are more self-indulgent and impatient in consuming tempting luxuries, whereas less so in consuming tempting inferiors: impatience is marginally increasing in wealth for jewels whereas decreasing for junk foods. Second, self-control fatigue weakens implied patience for tempting good consumption. Third, upon a stressful shock, with the resulting increasing scarcity of willpower, self-indulgence and impatience for tempting good consumption increase over time. Fourth, naive consumers, unaware of the willpower constraint, display weaker self-control in the long run than sophisticated consumers in the same wealth class would do.

Public Disclosure and Consumer Financial Protection

The U.S. Consumer Financial Protection Bureau has accepted complaints about banks’ financial products and services since 2011 and has released the complaint database to the public since 2013. We analyze the effectiveness of this public disclosure in protecting mortgage borrowers. We find a greater reduction in mortgage applications to banks that receive more mortgage complaints in local markets after the disclosure. The effect is stronger in areas with more sophisticated consumers and higher credit competition, and for banks receiving more severe complaints. The number of monthly mortgage complaints per bank exhibits faster mean reversion after the publication of the database. Our findings suggest that the public disclosure of banks’ provision of inferior products and services enhances product market discipline and consumer financial protection.

Inducing Consumer Online Reviews Via Disclosure

In this study, we investigate a seller's voluntary disclosure strategy when serving two groups of consumers who arrive sequentially and are reference dependent with respect to product quality. Consumers may be naive or sophisticated, depending on whether they can make rational inferences from the seller's disclosure behavior and an experienced consumer's quality review. We show that when consumers are naive, the seller can strategically withhold high‐quality information and disclose low‐quality information to boost the reference‐dependent early adopter's subjective quality review, which in turn enhances the follower's quality expectation and allows the seller to extract more surplus in the second period. However, when consumers are sophisticated, it is difficult for the seller to enhance their quality expectations by designing his disclosure strategy to manipulate the early adopter's quality review. The seller discloses all the quality information to consumers. When the market contains both naive and sophisticated consumers, the seller is able to withhold relatively low‐quality information in advance. In such a situation, the seller exclusively serves naive customers in the first period by charging a high retail price. The earlier results are quite robust, regardless of whether the review rating is bounded or whether consumers possess heterogeneous preferences with respect to product quality.