Sang-Yong Tom Lee

Consumer Privacy and Marketing Avoidance: A Static Model

We introduce the concept of marketing avoidance---consumer efforts to conceal themselves and to deflect marketing. The setting is one in which sellers market some item through solicitations to potential consumers, who differ in their benefit from the item and suffer harm from receiving solicitations. Concealment by one consumer induces sellers to shift solicitations to other consumers, whereas deflection does not. Solicitations cause two externalities: direct harm on consumers and the (indirect) cost of consumer concealment and deflection. We find that in markets where the marginal cost of solicitation is sufficiently low, efforts by low-benefit consumers to conceal themselves will increase the cost-effectiveness of solicitations and lead sellers to market more. However, concealment by high-benefit consumers leads sellers to market less. Furthermore, concealment by low-benefit consumers increases direct privacy harm, and consumer welfare is higher with deflection than concealment. Finally, it is optimal to impose a charge on solicitations.

Analyzing Online Information Privacy Concerns: An Information Processing Theory Approach

The advent of the Internet has made the transmission of personally identifiable information common and often inadvertent to the user. As a consequence, individuals worry that companies misuse their information. Firms have tried to mitigate this concern in two ways: (1) offering privacy policies regarding the handling and use of personal information, (2) offering benefits such as financial gains or convenience. In this paper, we interpret these actions in the context of the information processing theory of motivation. Information processing theories, in the context of motivated behavior also known as expectancy theories, are built on the premise that people process information about behavior-outcome relationships. We empirically validate predictions that the means to mitigate privacy concerns are associated with positive valences resulting in an increase in motivational score. Further, we investigate these means in trade-off situation, where a firm may only offer partially complete privacy protection and/or some benefits

Buyer Shopping Costs and Retail Pricing: An Indirect Empirical Test

Suppose that consumers incur fixed shopping costs and choose stores according to advertised discounts. Then, the extent to which a store will discount advertised items should increase with the profit from other regularly-priced items. Bookstores customarily advertise discounts on bestsellers. Among conventional bookstores, we found that the bestseller discount systematically increased with the store area, selection of titles, and presence of other product categories. One standard deviation increase in store area was associated with a 3.7 (± 1.8) higher bestseller percentage discount. Among online stores, we found that the bestseller discount systematically increased with the selection of titles and number of product categories. One standard deviation increase in selection was associated with a 9.5 (± 2.2) higher bestseller percentage discount. These results indirectly confirm that booksellers discount bestsellers to attract consumers, and that consumers bear significant fixed shopping costs.

Open Source vs. Proprietary Software: Competition and Compatibility

e use a Hotelling linear city model to study competition between open source and proprietary software, where only the producer of the proprietary software aims at maximizing the profit. The producer of the proprietary software must decide on compatibility. Different compatibility strategies will lead to different network externality, and thus result in different profit for the producer of the proprietary software. We found that the proprietary produceri¯s choice of compatibility strategy depends on the market coverage conditions. When the market is fully covered, one-way compatibility is the best strategy for the proprietary software. When the market is partly covered, two-way compatibility is the best strategy. Such results are not affected by software quality. Furthermore, when the provider of the open source software pursues the maximum market share rather than reacts passively, two-way compatibility would be the best choice for both the open source and the proprietary software. Moreover, the proprietary software producer does not favor its proprietary rival changing to open source software. Such a change may lower the social welfare.

Sales and Promotions: A More General Model

We embed the Varian (1980) model in a broader setting that considers how switcher/loyal customer segments are determined. Generally, customer acquisition is deterministic while pricing is randomized. The equilibrium outcome depends on the timing of customer acquisition relative to pricing. If sellers acquire customers before setting prices, the unique equilibrium is asymmetric. If sellers acquire customers and set prices simultaneously, the unique equilibrium is symmetric. Our results provide a fundamental justification for previous analyses that variously assumed the outcome to be asymmetric or symmetric. The comparative statics for the asymmetric and symmetric equilibria are identical.