Essays on Organizational Buying and Consumer Search

• Main Author: Mojir, Navid
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01-01-2017
• Subjects: Advertising; Brand loyalty; Business to business commerce; Competition; Decision making; Hedge funds; Innovations; JOBS Act-2012; Management; Marketing; Medical equipment; Product development; Profits; Purchasing
• ISBN: 9780355027693; 0355027690

My dissertation aims to contribute to our understanding of business-to-business markets and also consumer search. The first and third chapters explore contracting and advertising in B2B settings, while the second chapter develops a novel model of consumer search. Chapter 1 develops a model of organizational buying. B2B markets are typically characterized by organizational buying involving a buying center with multiple stakeholders (e.g., buyers, users) who have different preferences and costs. A common feature of pricing in B2B markets is the "share of wallet" contract, designed to induce and reward customer loyalty by offering discounts when a customer contracts and commits to buy more than a threshold share in the category from the supplier. This paper develops the first dynamic structural model of organizational buying for B2B markets and the first empirical analysis of share of wallet based loyalty inducing pricing contracts. We use the model to describe a new mechanism underlying the dynamics of innovation adoption in B2B markets relative to mechanisms used for B2C markets. We estimate the model using unique panel data on medical device usage and share of wallet price contracts at the hospital level to obtain insights on organizational innovation adoption and diffusion in a B2B market. Our estimates show that there are two segments of hospitals: a high buyer power and a low buyer power segment; innovations diffuse faster in teaching hospitals and when surgery shares are concentrated among a few surgeons, who therefore have greater power to use their preferred product. Counterfactuals using the user-buyer interaction explain why partial exclusion dominates full exclusion with share of wallet contracts. Further, contrary to conventional wisdom that share of wallet contracts are generally hurtful to innovations from smaller suppliers, we find a wedge in the likelihood of success of innovation adoption as a function of the size of innovation. Specifically, SOW contracts can hurt smaller suppliers with incremental innovations, but help firms with larger innovations. The findings have implications for marketers and regulators. Chapter 2 focuses on consumer search. In response to price dispersion across stores and price promotions over time, consumers search across both stores (spatial) and time (temporal), in many retail settings. Yet there is no search model in extant research that jointly endogenizes search in both dimensions. We develop a model of spatiotemporal search that nests a finite horizon model of spatial search across stores within an infinite horizon model of inter-temporal search. The model is estimated using an iterative procedure that formulates it as a mathematical program with equilibrium constraints (MPEC) embedded within an E-M algorithm to allow estimation of latent class heterogeneity. The empirical analysis uses data on household store visits and purchases in the milk category. In contrast to extant research, we find that omitting the temporal dimension underestimates price elasticity. We attribute this difference to the relative frequency of household stock outs and purchase frequency in the milk category. Further, contrary to the conventional wisdom that promotions increase store switching and reduces store loyalty, we find that in the presence of search frictions, price promotions can be a store loyalty-enhancing tool. Chapter 3 explores advertising in markets for hedge fund investments and recent changes in hedge fund advertising regulations. The ban on advertising in the hedge fund industry, going back to the Securities Act of 1933, was recently lifted as part of the Jumpstart Our Business Startups Act (i.e. the JOBS Act) of 2012. While opponents of the JOBS Act argue that poor-performing hedge funds would take advantage of it by targeting less-sophisticated investors, its proponents argue that in a market largely considered as a B2B market – with most of the investors being large sophisticated institutions – allowing advertising would reduce search cost for investors and improve the allocation of funds in the market as a whole. To assess these arguments, we combine data on hedge funds from multiple sources, including Lipper TASS database, Form ADV from SEC, and the Wall Street Journal. Taking advantage of the fact that the JOBS Act affects only US-based investors, we use a difference-indifference strategy to explore the effects of the JOBS Act. We find that: i) Hedge funds in fact do respond to the lift of the advertising ban by reducing their use of "traditional" publicity measures. ii) The JOBS Act has resulted in an increase in fund flows to hedge funds, with media mentions having a mediating effect. iii) The lift of the advertising ban has resulted in investors paying more attention to more salient but misleading predictors of performance (i.e. performance-chasing).