tailieunhanh - Marketing of Vice Goods: A Strategic Analysis of the Package Size Decision

To our knowledge, the topic of setting nonrefundable charges in direct marketing has not been investigated. Related topics of research include product warranties by manufacturers to protect buyers against quality defects in manufacturing (Padmanabhan and Rao, 1993; Menezes and Currim, 1992; Welling, 1989; Mann and Wissink, 1988, 1990) and money- back guaranties in retailing to enhance good product matching between products . | Marketing Science Vol. 31 No. 1 January-February 2012 pp. 36-51 ISSN 0732-2399 print I ISSN 1526-548X online http 2012 INFORMS Marketing of Vice Goods A Strategic Analysis of the Package Size Decision Sanjay Jain Mays Business School Texas A M University College Station Texas 77843 sjain@ Consumers are often unable to resist the temptation of overconsuming certain products such as cookies crackers soft drinks alcohol etc. To control their consumption some consumers buy small packages or abstain from purchasing the product altogether. Other consumers however still purchase large packages and overconsume. From a strategic perspective firms have the option of introducing small packages or only offering large packages. We use the literature on hyperbolic discounting to model consumers self-control problems and examine conditions under which firms will offer small packages to help consumers combat their self-control problem and how this offering in turn affects prices profits consumer and social welfare. Our results show that introducing small packages can increase firms profits only when a small fraction of consumers have overconsumption problems or when small packages can bring in new customers. Additionally we find that competition can sometimes reduce the incentives for firms to introduce small packages. This is particularly true when a large fraction of consumers is attracted to small packages. We also find that firms profits can sometimes decrease if they produce healthier alternatives of their goods. Our analysis of consumer welfare reveals that small packages enhance consumer and social welfare even though they sometimes increase the consumption of vice goods. Key words game theory hyperbolic discounting behavioral economics History Received December 7 2009 accepted April 18 2011 Eric Bradlow and then Preyas Desai served as the editor-in-chief and Miguel Villas-Boas served as associate editor for this article. Published

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