Takeshi Ebina

Paradox of choice and consumer nonpurchase behavior

This paper theoretically analyzes the so-called paradox of choice, introduced by Schwartz (The paradox of choice: why more is less, Harper Perennial, New York, 2004), which posits that having too many choices can make us unhappy. Although one’s possibilities broaden as the number of choices increases, the paradox of choice occurs because among a greater number of possibilities, making the best choice entails a greater number of complications and incurs higher choice costs. The purpose of this paper is to focus on a specific example of this paradox with respect to consumer nonpurchase behavior, in order to derive the optimal strategy for a firm selling goods or services for consumer purchase. In particular, in constructing a decision-making model by which to ascertain the optimal product quantity (variety) for a firm within the context of the paradox of choice, we can derive the number of product offerings needed to maximize sales. We point out that it is important for a firm to consider nonpurchase behavior. The optimal quantity is inversely proportionate to the consumer’s complications and choice costs in making a choice.

SEQUENTIAL MERGERS WITH DIFFERING DIFFERENTIATION LEVELS

We study sequential merger incentives under presence of product differentiation. Two sets of firms produce closely related goods, whereas each set produces more differentiated goods. Merger incentives under product differentiation are found to be stronger for two firms producing closely related goods than more differentiated goods. Also, after one merger, other firms are willing to follow with their own merger, resulting in sequential mergers. This result is consistent with the recent mergers in the video game software industry in Japan.

A Pricing Strategy with Consumption Externality when the Reference Group is Large

This paper provides an analysis of firms’ optimal prices when individual utility exhibits both material and other consumer effects. We construct a model and conduct an analysis in the following four steps: (1) By using a conjoint analysis of data, we set up a hierarchical Bayesian model and estimate its parameters, which are composed of individual utility functions. (2) We calculate the number of sales in each time period and derive the total sales throughout the given period. (3) We estimate the demand functions in the presence and absence of consumption externalities. (4) Finally, we calculate the profit functions and derive the optimal prices taking into account various product attributes. By applying our analysis to the book market of Japan, we find that the optimal price is lower when an externality is present than when absent. The intuition behind this result is that pricing low and selling a large number of books from an early stage increases the externality effect, yielding a higher profit for firms.

Case-based decision model matches ideal point model:: Application to marketing decision support system

This paper studies the relationship between a case-based decision theory (CBDT) and an ideal point model (IPM). We show that a case-based decision model (CBDM) can be transformed into an IPM under some assumptions. This transformation can allow us to visualize the relationship among data and simplify the calculations of distance between one current datum and the ideal point, rather than the distances between data. Our results will assist researchers with their product design analysis and positioning of goods through CBDT, by revealing past dependences or providing a reference point. Furthermore, to check whether the similarity function, presented in the theoretical part, is valid for empirical analysis, we use data on the viewing behavior of audiences of TV dramas in Japan and compare the estimation results under the CBDM that corresponds to a standard decision model with similarities and other various similarity functions and without a similarity function. Our empirical analysis shows that the CBDM with a similarity function, presented in this study, best fits the data.

An Advertising Strategy Using Consumption Externality and Forgetting in the Case of Japanese Electronic Books

We construct a two-period model in which a consumer recognizes the existence of goods after advertised by firms, and total sales of the first period affect the utility of each consumer’s purchase in the second period, indicating a consumption externality. Some consumers see advertisements in the first period and remember the product, whereas some forget the product in the second period. We show that the advertising volume changes given the differences in the forgetting rate. In particular, we apply our method to the data on Japan’s electronic books obtained through a conjoint analysis survey to clarify that a better strategy is to sell a product to a small number of people at a low price or to lower the price to a certain level during the early period, and then to sell the product to a specific consumer segment at a higher price after reflecting the externality.

Endogenous Product Boundary

This study analyzes the determinants of product boundary choice as discriminatory pricing. Specifically, we consider a model where a monopolist sells a base product with an add-on valuable only if it is consumed along with the base product. An important feature of this model is that this additional value is contingent on the valuation of the base product. We show that separation, in which case only the base product is sold, yields a higher profit than integration, where only a bundled package is sold, if and only if the range of the add-on value exceeds a threshold value and that separation is more likely to become optimal as the degree of positive contingency increases. As for welfare, consumer surplus in case of separation is always lower than that when the seller is constrained to sell the bundled package.

Product differentiation and entry timing in a continuous-time spatial competition model with vertical relations

We study the entry timing and location decisions of two exclusive buyer-supplier relationships in a continuous-time spatial competition model. In each relationship, the firms determine their entry timing and location, and negotiate a wholesale price through Nash bargaining. Then, the downstream firm immediately determines its retail price. Our findings are as follows. Ordinarily, if the supplier of the first entrant (called the leader pair) has strong bargaining power, the equilibrium location of the leader will be closer to the center, inducing a delay in entry by the second entrant (called the follower pair). This delay implies the stronger bargaining power of the supplier in the leader pair can also benefit the buyer of the pair. The location of the leader pair can change non-monotonically with an increase in the suppliers bargaining power, which has a substantial impact on the entry timing of the follower pair. However, the greater the bargaining power of the supplier in the follower pair, the closer the leader pair will be to the edge. This implies that having greater bargaining power will enhance the profitability of the supplier in the follower pair.

Optimal program for autonomous driving under Bentham- and Nash-type social welfare functions

Abstract The purpose of this paper is to formally define and solve ethical problems of how an artificial vehicle (AV) determines its driving behavior when there are some passengers in the AV and some pedestrians on a street. We construct a mathematical model introducing mainly two Bentham- and Nash-types social welfare functions, and derive optimal solutions. We show the optimal solutions are completely different depending on the functions and their parameters. Our contribution is that policymakers or managers of AVs can discuss the problem and determine an algorithm for autonomous driving by formalizing the situation and offering the optimal solutions.

Sequential Mergers and Competition Policy under Partial Privatization

This study assesses the conditions under which sequential mergers can emerge in a partially privatized oligopoly with differentiated goods. In particular, it examines: (i) the optimal merger strategies by potential merging firms, (ii) optimal merger policy, and (iii) privatization policy of policymakers. First, under the subgame perfect Nash equilibrium, sequential mergers either completely emerge or do not emerge at all. The parameter range that leads to complete sequential mergers becomes larger as the market is more privatized. Second, policymakers can halt privatization, diminishing the private incentive for further sequential mergers and thus leading to higher welfare. Furthermore, given that some mergers have already taken place, further mergers may actually improve welfare. These welfare-improving mergers may not be privately profitable, however, implying that there may be room for merger-friendly policies. Third, policymakers are better off partially privatizing the public firm unless the goods are perfect substitutes or independent. Our results are applicable to the Japanese life insurance industry and the partial privatization of Japan Posting Insurance.

Consumer confusion from price competition and excessive product attributes under the curse of dimensionality

The purpose of our study is to (i) investigate the effects of the number of products, product attributes, and prices on consumer confusion, (ii) conduct a numerical analysis to check the robustness of the results, and (iii) present an example of the cell phone market in Japan. Following an ideal point model and embedding the number of products and product attributes, we clarify how these factors affect consumer confusion and purchase probability. We show that as the number of product attributes increases, the choice probability of each product becomes equal, implying that consumer confusion occurs. This result is robust to the introduction of prices as strategic variables.