Title:
Essays on Price and Quality Tradeoffs
Essays on Price and Quality Tradeoffs
Author(s)
Hu, Zoey
Advisor(s)
Pattabhiramaiah, Adithya
Dong, Xiaojing
Dong, Xiaojing
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Abstract
Price and product quality are among the most important factors that influence consumers’ choices. This dissertation comprises two essays that examine the price and quality trade-off among consumers in two distinct settings.
The first essay develops a Bayesian dynamic decision model aimed at capturing consumers’ price-quality tradeoffs that can be mapped to their preferences. I combine real-time information shown to consumers and their search actions to develop an innovative framework for integrating the learning processes of both consumers and online platforms. Consumers often use search filters for navigating a large pool of alternatives online, routinely updating their beliefs about the availability of price and quality bundles along the way, and using such information to inform their subsequent search strategies. Online platforms are uniquely positioned to infer consumer preferences on the scale of price and quality owing to their ability to observe and control the information set shown to consumers at each stage of the consumer search journey.
I derive a closed-form solution using a utility form that customizes to the price-quality tradeoffs faced by consumers to aid a transparent interpretation of consumer search dynamics. Using both simulations and real-world data from a large travel website, I show that my model can afford online platforms with powerful prediction benefits that accrue from its enhanced capability to discover price-quality tradeoffs from search traces in real-time. The proposed approach contributes to the existing empirical search literature by incorporating the list of hotel options into a consumer search model that dynamically updates consumers’ understanding of the available options. The magnitude of performance benefits suggests that my model can be a potentially promising utility to help firms with contextual targeting, with overcoming cold-start problems, and with recommendation generation tasks in a world with increasingly strict consumer privacy regulations.
The second essay investigates the relationship between price and quality by focusing on the impact on households' nutrition outcomes following an important policy legislation passed by Congress in 2010: the Healthy, Hunger-Free Kids Act (HHFKA). The HHFKA instituted key reforms to the National School Lunch Program and School Breakfast Program, updating the nutritional guidelines for foods served in all public schools in the United States. Utilizing the Nielsen Homescan panel data, I document the potential spillovers of this policy on household food purchases. By comparing purchasing activities of a matched set of households with and without kids (who I argue are respectively likely and unlikely to have benefited from the treatment), I find out that the former group sizably reduces its calories purchased from grocery stores while keeping the nutritional composition of calories purchased materially unchanged even after the HHFKA went into effect, potentially leveraging school food programs that now provided a higher quality of food.
Moreover, the overall calorie reduction is driven primarily by changes in the behaviors of a specific sub-segment of households that, prior to policy implementation, purchased less food, and food of lower nutritional quality than did the median household. I also find patterns supporting the view that this sub-segment of households began substituting their at-home food consumption with school meals presumably owing to two key types of resource constraints — time and nutritional awareness. Additionally, I find that a different sub-segment of households that purchased more food but of lower nutritional quality than the median household now exhibited deterioration of its dietary health from grocery purchases, suggesting an unintended licensing effect of this legislation on some households’ food purchases. I discuss the key implications for marketing and public policy from my main findings from both essays.
Both essays reflect my empirical analysis training in the doctoral program, using distinct approaches, from Bayesian statistics and its application to a structural approach, to Econometrics and its application to causal analysis. The overarching theme is to gain insights into consumers’ decision-making process by leveraging rich consumer data and building reasonable models, in order to derive guidance for either business practice or policy making.
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Date Issued
2022-08-29
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Resource Type
Text
Resource Subtype
Dissertation