Essay I. This essay discusses marketing strategies for a manufacturer of a composite product (i.e., a product sold in two parts to two different types of consumers, which has greater value when used jointly by both consumers). It is assumed that expected sales of one product increase a different type of consumer's willingness to pay for the other product. This is described as a “cross-market network externality”. Using a parsimonious model, I characterize solutions for a monopolist and for variations on Bertrand-Nash competition with differentiated products.; Essay II. An extensive literature has focused on price competition and the Internet; however, little attention has been given to the Internet's impact on service competition. A consumer “free rides” when the customer uses services at one retailer (e.g., test drives a car or examines clothing), but purchases the merchandise at another retailer (for example, an online store). This essay examines the impact of free riding and E-commerce on the provision of retail services.; Essay III. We define Business-to-Business (“B2B”) service firms as: advertising agencies, audit firms, investment banks, corporate law firms, and management consulting firms. These firms all share certain common characteristics: (i) their primary “asset” consists of the talent and reputation of their professional employees, (ii) compensation for their professional staff is a major cost of doing business, (iii) the services provided by the firms (unlike products) cannot be inventoried, and (iv) their services are marketed not to consumers, but to other institutions. A theoretical model is presented in this essay which explores vertical and horizontal differentiation in service industries. It is predicted that: B2B service firms will vertically differentiate in product quality; lesser (low) quality firms will horizontally differentiate in location (serving a local market), while superior (high) quality firms will horizontally agglomerate (serving clients nationally from a central location). In traditional consumer markets, we often find that larger purchasers are less quality conscious. In B2B service markets, however, we predict that large purchasers will purchase from high quality firms, and small purchasers will purchase from low quality firms. Lastly, as a corollary to this analysis, we predict that high quality firms will have different cost curves compared to low quality firms. This model is tested using approximately 100,000 transactions from the Public Finance investment banking industry from 1986–1999.
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