NUGSB and Fuqua Business School at Duke University are pleased to host a one-day symposium on Marketing and Economics that showcases research done by GSB faculty and by Fuqua faculty. The papers in this symposium expose different methodological approaches, ranging from analytical to empirical methods, and explore a diverse set of topics in the fields of Marketing and Economics. The symposium will consist of 30-minute presentations by GSB and Fuqua faculty, including Q&A.
Brands are increasingly finding themselves on the receiving end of public insults from a variety of sources—including consumers, industry experts, and competitors—that can have an adverse impact on firm success. While sometimes warranted, many insults feel unwarranted or disproportionately aggressive. Brands generally respond to such undeserved degradation by rejecting the insult or ignoring it. This research explores a third strategy: reappropriating the insult. We reveal that reappropriation—an act of intentional self-labeling with an externally-imposed derogatory label—can garner unexpected benefits for brands in these scenarios. Across several experiments, we find that consumers who witness a brand reappropriate an insult have more positive attitudes towards and more interest in the brand. The advantage of reappropriation is driven by perceptions of the brand’s mental toughness and specific to situations in which the reappropriated insult is nonmoral in nature and is not perceived to be clearly justified. This work contributes to our understanding of how brands can recover from negative events and provides practical insights for brand managers facing certain types of hostility.
Despite the increasing number of consumers who use multiple languages in their daily lives, little is known about decision making differences in one’s native and in a foreign language. The current research investigates the impact of thinking in a foreign (vs. native) language on regulatory foci. Specifically, I show that processing information in a foreign (vs. native) language results in greater prevention (vs. promotion) motivation. Consequently, consumers comply more with loss-framed (vs. gain-framed) messages when they think in a foreign (vs. in their native) language. This effect is mediated by processing fluency and is attenuated when consumers rely on their affective responses during decision making.
Consider a leader’s decision whether to persist with an unsuccessful R&D project or to terminate the project in favor of a new project with an uncertain value. How does that decision affect the effort exerted by the manager assigned to the project? To study this question we build and analyze an equilibrium, infinite-horizon model which embeds a search problem with an agency problem. We assess the policy value of a leader’s persistence instrument under conditions of complete and incomplete information. Among other things, we find that persistence takes advantage of a manager’s incentive to gain access to future, potentially higher-payoff projects to induce effort on the current project. Furthermore, when the leader has superior information about the value of the current project, the manager may choose to delay effort to better take advantage of the information signal provided by the leader’s persistence choice.
Research in psychology shows that consumption goals can help consumers avoid excessive consumption of vice goods and the associated long-term harm. In this paper, we propose a model of self-control with consumption goals and examine how goals moderate the behavior of consumers and the firm’s strategy. We find that consumers’ personal goals lead to a lower price for a less unhealthy product but a higher price for a more unhealthy product. Furthermore, even though personal goals reduce the sales of a product, the firm can be better off if consumers have goals rather than no goals. The improvement in the firm’s profits need not be at consumers’ expense. In fact, consumer welfare increases with personal goals. In some contexts, consumption is not driven by personal goals but shaped by social norms, such as the advice of experts or social groups. We find that, unlike personal goals, normative goals make consumers less sensitive to price and do not always improve consumer welfare. Furthermore, normative goals can hurt the firm’s profits in contexts in which personal goals could improve profits. Finally, we show that our framework with dynamically inconsistent preferences yields results that are consistent with alternative formulations of consumer self-control problems, such as the dual-self model of Thaler and Shefrin and the costly self-control model of Gul and Pesendorfer.
Under the priority review voucher program, the US Food and Drug Administration rewards good deeds with speed for a different drug. Upon FDA approval of a novel drug for a neglected disease like Ebola, the developer receives a voucher it can use to speed a drug for a commercial disease like diabetes. Companies can sell vouchers; the market price is around $100 million each. The problems with the voucher program are that neglected-disease drug prices are too high, and voucher prices are too low. We propose a mechanism in which the regulator only awards vouchers for drugs with high quantities. This mechanism reduces prices for neglected-disease drugs and raises prices for vouchers by reducing voucher supply. More generally, we show how a planner can use speed rather than money to motivate firms.
The extant literature shows that a centralized firm benefits from committing to future prices since commitment solves the time-inconsistency problem that a firm faces when selling durable products. However, the implications of commitments in decentralized supply chains have not yet been fully understood. In this paper, we examine the implications of endogenous commitments in a decentralized supply chain where a manufacturer and a retailer decide whether to commit to future wholesale and retail prices, respectively. We find that in equilibria either both firms commit or neither of them commits to future prices. In fact, for a broad range of discount factors, neither the manufacturer nor the retailer makes the commitment. Furthermore, compared to exogenous commitments by both firms, endogenous commitment decisions, while beneficial for the manufacturer, may harm the retailer and the supply chain when the firm discount factor is sufficiently low. In contrast, a centralized supply chain would always commit to its future retail prices and benefit from the commitment. More importantly, we show that the no-commitment equilibrium mitigates the double marginalization problem in a decentralized supply chain, except when the firm discount factor is very low. This effect is present even when consumers are myopic, implying that strategic interaction between the manufacturer and the retailer plays a critical role.