Academic SeminarRational Inattention as an Empirical Framework: Application to the Welfare Effects of New-Product Introduction
- 2019-12-05 ~ 2019-12-05
- Building no.9, 7th #9701
- School of Management Engineering
We would like to invite you to participate in Management Engineering (ME) Seminar.
1. When: December 5th (Thursday), 16:00 ~ 17:30
2. Where: Building no.9, 7th #9701
3. Speaker: Prof. Joonwhi Joo (University of Texas at Dallas)
4. Topic: Rational Inattention as an Empirical Framework: Application to the Welfare Effects of New-Product Introduction
5. Research field: Marketing
* Lecture will be delivered in English.
Consumer-welfare, as explicated by the conventional economic models of consumer-choice,
increases whenever more alternatives are added to consumers’ choice set. However, whether
consumer-welfare is enhanced or reduced with more choice alternatives is an empirical question,
which must take into account not only the expanded choice set but also the incomplete
information under which consumer-choice occurs. To answer the question properly, this paper
develops a novel empirical framework of discrete-choice based on the Rational Inattention (RI)
theory by Mat˘ejka and McKay (2015); Fosgerau et al. (2019). The resulting consumer-welfare evaluation framework is general in that it allows consumer-welfare to either improve or reduce by adding alternatives to the choice set. This empirical framework is applied to a case of newproduct
introduction, namely, Tide Pods’ entry into the market in 2012, to assess its effects on consumer-welfare. The empirical study finds that the average net welfare gain from Tide Pods’ entry is negative because the pricing is too high relative to the benefit they provide to consumers. A counterfactual pricing experiment suggests that 7%-8% price cut of Tide Pods will make consumers just as well-off as prior to Tide Pods’ entry.