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Salience and Online Sales: The Role of Brand Image Concerns

On 4th December 2017 (1-2pm) Markus Dertwinkel-Kalt,  post-doctoral researcher at the University of Cologne, working on Behavioral Economics and Industrial Organization, will give a presentation about “Salience and Online Sales: The Role of Brand Image Concerns” in Q4.245. Afterwards, Mr. Dertwinkel-Kalt will be available for questions and discussions. His presentation is part of wiwi.uni-paderborn.de/dep1/me/research/discussing-research/seam/.

Abstract:

We provide a novel intuition for the observation that many brand manufacturers have restricted their retailers' ability to resell brand products online. Our approach builds on models of salience according to which price disparities across distribution channels guide a consumer's attention toward prices and lower her appreciation for quality. As a consequence, if vertical restraints cannot be imposed, a quality or a participation distortion might arise in equilibrium. The quality distortion occurs if the manufacturer either provides an inefficiently low quality under price salience or an inefficiently high quality in order to prevent price salience. The participation distortion arises as offline sales might be entirely abandoned in order to prevent prices from becoming salient. Both distortions are ruled out if vertical restraints are imposed. As opposed to the current EU-legislation that considers a range of vertical restraints as hardcore restrictions of competition per se, we show that these constraints might be socially desirable if salience effects are taken into account.

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