Essays on market pricing

Jennifer Pate Offenberg, Purdue University


Below are summaries for three essays that share a common theme: each studies a market characteristic that affects price and consumer welfare. The first essay uses experimental methods to test collusive predictions derived in the price-matching literature. Laboratory data demonstrate that allowing firms to institute price-matching guarantees significantly increases market price and firms' profits. The results apply to markets with both symmetric unit costs and markets with small unit cost differences across firms. The results are robust to the order in which subjects experience each treatment, and evidence that higher profits are the rationale for widespread adoption of price-matching guarantees is also provided. The second essay documents a market for store-specific gift cards and store credit, and discusses related welfare issues. Different characteristics that affect the supply and/or demand for gift cards, and subsequently the price of gift cards are investigated. Theory employing an indifference curve diagram presents the possible welfare loss of gift "vouchers." Analyzing data from Internet auctions, several interesting findings support the theory. First, giving gift cards can create a welfare loss to the recipient relative to an equal-valued cash gift, estimated at 14-17%. It is shown that smaller-valued gift cards are less likely to create welfare losses, ceteris paribus. Categorizing the data into gift card or store credit, the dummy variable was insignificant, demonstrating there is no difference in sale price across these auctions. Finally, certain stores' gift cards sell for higher prices in the secondary market, depending on certain characteristics like type of store, product variety, and availability of online shopping. The last essay examines the impact of a seller's reputation on sale price in online auctions. A simple model is presented to demonstrate how an ineffective reputation signal may cause the bidder with the highest valuation of the item to lose the auction to a bidder with a lower valuation. Evidence from a study of 2,004 auctions shows the current reputation component as formulated by eBay has very little impact on price. The lack of information contained in the reputation score may be responsible for its ineffectiveness, and several possibilities for improvement are presented.




Kovenock, Purdue University.

Subject Area

Economics|Business costs

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