Electronic Markets Spann at LMU München

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Study with flashcards and summaries for the course Electronic Markets Spann at the LMU München

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Non-linear Pricing: 

Basic Idea, Requirements

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Price discrimination: Goal and Conditions for the implementation of differentiated prices

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Consumer Choice (formal conditions)

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Consumer surplus (CS)

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Willingness-to-pay (WTP)

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Randomized Field Experiment

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Within-Subject Analysis

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Between-Subject Analysis

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Requirements for Quasi-Experiments

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Why a quasi-
experiment?

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

A/B Testing Potential pitfalls

Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

A/B Testing Advantages

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Exemplary flashcards for Electronic Markets Spann at the LMU München on StudySmarter:

Electronic Markets Spann

Non-linear Pricing: 

Basic Idea, Requirements

Idea

 Incentives for higher consumption through lower usage dependent prices (economies of scale)
 Decreasing marginal utility with higher consumption (1st Law by Gossen)
 Skimming of consumer surplus through (high) usage independent prices

Requirements:

• No transferability
• No stock-piling or resale
• Service usage easily measurable and chargeable
• Cost structure: high fixed costs and low variable costs

Electronic Markets Spann

Price discrimination: Goal and Conditions for the implementation of differentiated prices

• Limit arbitrage and storage
• Legal restrictions

Electronic Markets Spann

Consumer Choice (formal conditions)

 “Individual Rationality” (brief: IR-Constraint): IR (CS ≥ 0)
 “Incentive Compatibility” (brief: IC-Constraint): IC (CSA= max (CSA, CSB,…)

Electronic Markets Spann

Consumer surplus (CS)

 Difference between willingness-to-pay and price

Electronic Markets Spann

Willingness-to-pay (WTP)

 Indicates the maximum amount a consumer is willing to pay for a product
 Knowledge about the willingness-to-pay is important for adequate pricing
 Assumption: the higher the preference for a product, the higher the willingness-to-pay

Electronic Markets Spann

Randomized Field Experiment

 Treatment Group and Control Group 1 do not differ with respect to all observable characteristics (p>.1)
 Treatment group: +2.67 friends, Control group 1: +1.21 friends, Control group 2: +.48 friends. ANOVA: all pairs of
group comparisons different, p<.05
 Experiments are gold standard for causal inference because experimental design ensures that correlation between
treatment and outcome is causal (Shadish et al., 2002)

Electronic Markets Spann

Within-Subject Analysis

Within-Subject Analysis mitigates concerns with respect to time-invariant omitted variables (e.g. demographics and
characteristics)

Electronic Markets Spann

Between-Subject Analysis

 Propensity Score Matching (Probit Model)

Electronic Markets Spann

Requirements for Quasi-Experiments

 Identification strategy = the manner in which a researcher uses observational data to approximate a real experiment
 Choose an identification strategy that approximates random assignment
 Look for sources of exogenous variation: a shock to the system, to which some individuals are
exposed to (treated) and others not (control)
 Variation can happen at many levels: country, city, firm, individual, website visit, etc.

Electronic Markets Spann

Why a quasi-
experiment?

 (Field) experiments not always feasible, appropriate, or sometimes too costly
 Quasi-Experiment as alternative using observational data
 Objective of a quasi-experiment: answer a research question about a causal relationship, and
provide evidence suggesting the mechanism behind the relationship

Electronic Markets Spann

A/B Testing Potential pitfalls

 Organization of data scientists within the firm – conflicts between different business units over
allocation of resources and cost could arise
Potential pitfalls
 Determining which short-term metrics are the best predictors of long-term outcomes is difficult
 Beware of low-quality data – validate experiments, e.g. run „A/A tests“
 Pre-commit on the duration of the experiment; do not stop after first time p>.05.

Electronic Markets Spann

A/B Testing Advantages

 Access large customer samples
 Evaluate many ideas quickly, with great precision, and at a negligible cost per incremental
experiment
 Most progress achieved by implementing hundreds or thousands of minor improvements
 Guide investment decisions

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