Below is a selection of some of Jiwoong Shin’s published articles.
The Role of Messenger in Advertising Content: Bayesian Persuasion Perspective
(with Chi-Ying Wang), Marketing Science, forthcoming
We propose a model of advertising content that focuses on messenger selection, where advertising can generate product-match signals for consumers. We consider advertising as a problem of Bayesian persuasion with costly information processing, where the type of communication messenger is costless to observe and determines the information structure consumers will face, thereby affecting their attention decisions. Messengers are classified as high-type or low-type based on their likelihood of generating positive signals about product match. Our findings highlight that the optimal choice of messengers depends on their signal elasticities and the firm’s decision on whether to induce consumer attention. In particular, we find that when it is crucial to raise prices and high-type messengers overshadow the product match value by providing generally positive signals, a low-type messenger can effectively capture consumer attention and persuade them to pay a higher premium. This holds true even if high-type messengers can better grab consumers’ attention by providing additional entertainment value or when some consumers are naive in belief updating. More…
Technical Appendix: The Role of Messenger in Advertising Content: Bayesian Persuasion Perspective
Predictive Analytics and Ship-then-shop Subscription
(with W. Jason Choi and Qihong Liu), Management Science, 70(2), 1012-1028, 2024
This paper studies an emerging subscription model called ship-then-shop. Leveraging its predictive analytics and artificial intelligence (AI) capability, the firm curates and ships a product to the consumer, after which the consumer shops (i.e., evaluate product fit and make a purchase decision). The consumer first pays the upfront ship-then-shop subscription fee prior to observing product fit and then pays the product price if she decides to purchase after realizing product fit. We analyze how the firm balances the subscription fee and product price to maximize its profit in the presence of consumers’ potential showrooming behaviors. In particular, we focus on how the firm’s prediction capability affects its pricing strategies. Our model generates rich insights regarding a firm’s prediction capability, search friction, and their interactions on the profitability of the ship-then-shop model. More…
A Model of Product Portfolio Design: Guiding Consumer Search through Brand Positioning
(with T. Tony Ke and Jungju Yu), Marketing Science, 42(6), 1101-1124, 2023
– This paper has previously been circulated under the title of “A Theory of Brand Positioning: Product-Portfolio View.”
Beyond real functional differences, brand positioning can have profound effects on the purchase decisions of consumers. We investigate a firm’s optimal product portfolio design on a Hotelling line that can affect consumers’ search decisions. Consumers form their perceptions of a brand from interactions with all products in the portfolio. We conceptualize the average location of the products as the brand position that represents the aggregate information about characteristics common to the product portfolio. Then, we propose a mechanism for why and how brand positioning induced by a firm’s product portfolio design can deliver credible information that guides consumer search. We show that niche positioning naturally conveys more information than mainstream positioning. A mainstream brand has incentives to opportunistically dilute its brand by offering a wide range of products. Even in a monopolistic market, a niche brand positioning may arise as an equilibrium because it serves as a commitment device that prevents brand dilution. More…
A Theory of Irrelevant Advertising: An Agency-Induced Targeting Inefficiency
(with Woocheol Shin), Management Science, 69(8), 4481-4497, 2023
The ad targeting technology has enabled a highly personalized delivery of online ads. Behind this development is the belief that better targeting will lead to more relevant ads. This paper challenges this lay belief by showing that irrelevant advertising can arise not necessarily from technological imperfection but also from the incentive problem embedded in the ad agency-advertisers relationship. We first demonstrate that the ad agency serving multiple advertisers may strategically allocate an ad impression to a lesser-matched, sometimes totally irrelevant, niche advertiser because future impressions can match better with the mainstream advertiser. We further find that, without a contractual obligation to serve both advertisers, the agency may not deliver completely irrelevant ads to consumers. However, another type of inefficiency can arise where the agency may not send any ad to potentially interested consumers who have a strictly positive match probability with advertisers. Finally, we show that irrelevant ads will not disappear simply because more impressions are available in the market. Our analysis suggests that as the number of impressions increases, the irrelevant ads can persist, but the probability of receiving irrelevant ads decreases. More…
• Technical Appendix: A Theory of Irrelevant Advertising
The Impact of Gig Economy on the Product Quality through the Labor Market: Evidence from Ride-sharing and Restaurant Quality
(with Minkyu Shin, Soheil Ghili, and Jaehwan Kim), Management Science, 69(5), 2620-2638, 2023
This paper seeks to demonstrate the impact of the gig economy on product quality in seemingly unrelated local industries through the labor market. Our empirical context is the quality of service for restaurants in the city of Austin and we examine how they were impacted by the \textit{exogenous} exit and re-entry of rideshare platforms Uber and Lyft into the city due to regulatory changes. We leverage these exogenous shocks, and combine them with sentiment-analyzed data from Yelp reviews that capture how customers assess the quality of service at each restaurant. We show that, compared to control cities, customers in Austin become more negative about service quality when Uber and Lyft are present in the city. Additionally, we use rich data on employee turnover and wages to demonstrate that, compared to the control cities, service staff turnover indeed increases in Austin when Uber and Lyft are present. We also conduct several additional studies and robustness checks that are all congruent with our hypothesis that Uber and Lyft lower the quality of service in Austin restaurants by raising the turnover of their staff. Together, these results suggest significant ramifications of the gig economy on the broader industries through the labor market. More…
Technical Appendix: The Impact of Gig Economy on the Product Quality through the Labor Market: Evidence from Ride-sharing and Restaurant Quality
Information Disclosure Policy and Its Implications: Ratcheting in Supply Chains
(with Brian Mittendorf and Dae-Hee Yoon), Journal of Marketing Research, 59(2), 290-305, 2022
pricing concerns. These deep discounts not only encourage mutually beneficial investments but also alleviate double-marginalization inefficiencies along the supply chain. In light of these results, the authors demonstrate that the mandatory information disclosure policy to reduce the ratchet effect decreases total channel efficiency compared to the case without information disclosure, precisely because mandatory disclosure interrupts the healthy tension among supply chain partners. Thus, the model presents a scenario where ratcheting concerns can create a degree of self-enforcing cooperation that results in socially beneficial responses in supply chains. More…
Targeted Advertising and Consumer Inference
(with Jungju Yu), Marketing Science, 40(5), 900-922, 2021
The mere fact that consumers are targeted by advertisements can affect their inference about the expected utility of a product. We build a micro-model where multiple firms compete through targeted advertising. Consumers make inferences from targeted advertising about their potential match values for the product category, as well as the advertising firm’s unobserved quality. We show that in equilibrium, upon being targeted by a firm, consumers make more positive inferences about the product category and the firm’s quality. With such improved beliefs, a targeted consumer is more likely to engage in a costly search throughout the category. We find that the increase in consumer search creates an advertising spillover beyond the level of the mere awareness effects of advertising and that firms’ equilibrium level of targeted advertising can be nonmonotonic in targeting accuracy. Additionally, we show that sometimes, it can be optimal for firms to relinquish customer data and instead engage in non-targeted advertising. The results provide insights into the trade-offs between advertising reach and targeting accuracy. More…
• Technical Appendix: Targeted Advertising and Consumer Inference
Inefficiencies in Digital Advertising Markets
(with Brett Gordon, Kinshuk Jerath, Zsolt Katona, Sridhar Narayanan and Ken Wilbur), Journal of Marketing, 85(1), 7-25, 2021
Digital advertising markets are growing and attracting increased scrutiny. This article explores four market inefficiencies that remain poorly understood: ad effect measurement, frictions between and within advertising channel members, ad blocking, and ad fraud. Although these topics are not unique to digital advertising, each manifests in unique ways in markets for digital ads. The authors identify relevant findings in the academic literature, recent developments in practice, and promising topics for future research. More…
- Commentary on this article by Jonathan Porter (former Assistant Director at the UK’s Competition and Markets Authority)
- Commentary on this article by Marc Pritchard (Chief Brand Officer, P&G)
A Model of Two-Sided Costly Communication for Building New Product Category Demand
(with Michelle (Yi) Lu), Marketing Science, 37(3), 382-402, 2018
When a firm introduces a radical innovation, consumers are unaware of the product’s uses and benefits. Moreover, consumers are unsure whether they even need the product. In this context, we model the marketing communication process as a two-sided process that involves both firms’ and consumers’ costly efforts to transmit and assimilate the novel product concept. Its success endogenously generates consumers’ need recognition and thereby market demand for a novel
product. We study a firm’s different information disclosure strategies for a radical innovation. We find that sharing an innovative idea, instead of extracting a higher rent by keeping the idea secret, can be optimal. A firm may benefit from the presence of competitors and their communication efforts. The innovator can share an innovation so that competitors can also profit and thus have incentives to create and expand the market. More…
Managing Buzz
(with A. Campbell and D. Mayzlin), RAND Journal of Economics, 48(1), 203-229, 2017
We model the incentives of individuals to engage in word of mouth (or buzz) about a product, and how a firm may strategically influence this process through its information release and advertising strategies. In the model individuals are privately motivated by a desire to signal their type to others. Individuals are either a high or a low type, and during social interactions it is valuable for any individual to increase another person’s posterior belief that she is a high type. We find that a firm will restrict access to information by low types at the information release stage. We also find that advertising may crowd out the incentives for consumers to engage in word of mouth, and that a firm can benefit from a credible commitment not to engage in advertising. Finally, we find that the ability by the firm to target advertising to well-connected consumers may be detrimental to the signaling value of word of mouth. Our model provides new insights into the tradeoff a firm may face between spreading information quickly versus maximizing the total spread of information about the product. more…
Incentive Problems in Online Advertising Pricing: Cost-Per-Click vs. Cost-Per-Action
(with Y. Hu and Z. Tang), Management Science, 62(7), 2022-2038, 2016
The multibillion-dollar online advertising industry continues to debate whether to use the CPC (cost per click) or CPA (cost per action) model as an industry standard. This article applies the economic framework of incentive contracts to study the trade-offs of these pricing models. In some conditions, the CPA model leads to higher publisher (or advertiser) payoffs than the CPC model. Whether publishers (or advertisers) prefer the CPA model over the CPC model depends on the advertisers’ risk aversion, uncertainty in the product market, and the presence of advertisers with low immediate sales ratios. The study findings indicate a conflict of interest between publishers and advertisers in their preferences for these two pricing models. This investigation further considers which pricing model offers greater social welfare. more…
• Technical Appendix: Incentive Problems in Online Advertising Pricing: Cost-Per-Click vs. Cost-Per-Action
Favoring the Winner or Loser in Repeated Contests
(with R. Ridlon), Marketing Science, Vol. 32, No. 5, 768-785, 2013
Should a firm favor a weaker or stronger employee in a contest? Despite a widespread emphasis on rewarding the best employees, managers continue to tolerate and even favor poor performers. Contest theory reveals that evenly matched contests are the most intense, which implies that a contest designer can maximize each player’s effort by artificially boosting the underdog’s chances. We apply this type of “handicapping” to a two-period repeated contest between employees, in which the only information available about their abilities is their performance in the first period. more…
Punish or Reward Current Customers?
(with K. Sudhir), Sloan Management Review, Vol. 55, No. 1, 59-64, 2013
Is it better to reward existing customers for loyalty — or spend your marketing dollars on attracting new ones? Here is a framework to help you decide. The answer depends on two factors: customers’ shopping flexibility and the degree to which some customers are much more valuable than others. When consumer preferences are highly fluid and the highest-value customers are much more valuable than others, companies should focus on rewarding their best existing customers. If either of those two characteristics is not in place, then companies should focus on offering their best prices to new customers. more…
Manufacturer Marketing Initiatives and Retailer Information Sharing
(with B. Mittendorf and D. Yoon), Quantitative Marketing and Economics, Vol. 11, No. 2, 263-287, 2013
This research examines a retailer’s incentive to share information with its supplier when the supplier can also undertake initiatives to increase retail demand. It is well known that a retailer is averse to sharing market information with a manufacturer due to concern for a manufacturer’s strategic use of such information. This research shows that despite such strategic exploitation of market information, a retailer may want to establish information sharing channels with its supplier. more…
When to “Fire” Customers: Customer Cost-Based Pricing
(with K. Sudhir and D. Yoon), Management Science, Vol. 58, No. 5, 932-947, 2012
The widespread adoption of activity-based costing enables firms to allocate common service costs to each customer, allowing for precise measurement of both the cost to serve a particular customer and the customer’s profitability. In this paper, we investigate how pricing strategies based on customer cost information affects a firm’s customer acquisition and retention dynamics, and ultimately its profit, using a two-period monopoly model with high- and low-cost customer segments. more…
• Technical Appendix: When To “Fire” Customers
A Reflection on Analytical Work in Marketing: Three Points of Consensus
(with R. Thomadsen, R. Zeithammer, G. Iyer, D. Mayzlin, Y. Orhun, A. Pazgal, D. Purohit, R. Rao, M. Riordan, M. Sun and M. Villas-Boas), Marketing Letters, Vol. 23, No. 2, 381-389, 2012
This article presents three points of consensus about game-theoretic work in marketing: First, equilibrium analysis is necessary for studying situations that have strategic interactions. In many cases, empirical examination of these strategic scenarios is difficult or impossible, at least without the guidance of an equilibrium model. Second, more general models are not necessarily “better,” because institutional details matter. Thus, the appropriate compromise between generality and specificity depends on the scope of the research question. Finally, there should be a two-way road between theory and empirics-theory is necessary to interpret empirical results, while empirical findings should guide theoretical modeling choices. more…
Uninformative Advertising as an Invitation to Search
(with D. Mayzlin), Marketing Science, Vol. 30, No. 4, 666-685, 2011
Winner, John D. C. Little Best Paper Award, 2011
What the firm should say in an advertising message, the choice of content, is a critical managerial decision. Here we focus on a particular aspect of the advertising content choice: an attribute-focused appeal versus an appeal with no direct information on product attributes. We make two assumptions that capture the reality of the advertising context. First, we assume that the bandwidth of advertising is limited: a firm can only communicate about a limited number of attributes. Second, we assume that consumers are active: they can choose to engage in costly search to obtain additional product-related information. more…
• Technical Appendix: Uninformative Advertising as an Invitation to Search
A Customer Management Dilemma: When is it Profitable to Reward One’s Own Customers?
(with K. Sudhir), Marketing Science, Vol. 29, No. 4, 671-689, 2010
Winner, John D. C. Little Best Paper Award, 2010
This study attempts to answer a basic customer management dilemma facing firms: when should the firm use behavior-based pricing (BBP) to discriminate between its own and competitors’ customers in a competitive market? If BBP is profitable, when should the firm offer a lower price to its own customers rather than to the competitor’s customers? This analysis considers two features of customer behavior up to now ignored in BBP literature: heterogeneity in customer value and changing preference (i.e., customer preferences are correlated but not fixed over time). more…
• Technical Appendix: A Customer Management Dilemma: When is it Profitable to Reward One’s Own Customers?
Switching Costs and Market Competitiveness: Deconstructing the Relationship
(with K. Sudhir), Journal of Marketing Research, Vol. 46, No. 4, 446-449, 2009
The conventional wisdom is that switching costs raise prices and make markets less competitive. Dube, Hitsch and Rossi (2009, hereafter DHR) demonstrate a U shaped relationship between switching costs and equilibrium average prices; i.e., prices fall at low levels of switching costs and then rise as switching costs become very high. DHR show this result using a numerical solution of an infinite period game modeling stochastic consumer preferences with a logit demand model. The authors replicate the U shaped relationship between switching costs and equilibrium average prices in a two period Hotelling model with changing preferences. This analytically tractable model complements the empirical realism of the DHR model by enabling one to understand which of the features of the DHR model are essential for the U-shaped relationship between switching cost and market competitiveness. more…
How Does Free Riding on Customer Service Affect Competition?
Marketing Science, Vol. 26, No. 4, 488-503, 2007
The free-riding problem occurs if the presales activities needed to sell a product can be conducted separately from the actual sale of the product. Intuitively, free riding should hurt the retailer that provides that service, but the author shows analytically that free riding benefits not only the free-riding retailer, but also the retailer that provides the service when customers are heterogeneous in terms of their opportunity costs for shopping. more…
The Role of Selling Costs in Signaling Price Image
Journal of Marketing Research, Vol. 32, 302-312, August 2005
This study attempts to answer a basic customer management dilemma facing firms: when should the firm use behavior-based pricing (BBP) to discriminate between its own and competitors’ customers in a competitive market? If BBP is profitable, when should the firm offer a lower price to its own customers rather than to the competitor’s customers? This analysis considers two features of customer behavior up to now ignored in BBP literature: heterogeneity in customer value and changing preference (i.e., customer preferences are correlated but not fixed over time). more…
Keeping Doors Open: The Effect of Unavailablility on Incentives to Keep Options Viable
(with D. Ariely) Management Science, Vol. 50, No. 5, 576-586, 2004
Many of the options available to decision makers, such as college majors and romantic partners, can become unavailable if sufficient effort is not invested in them (taking classes, sending flowers). The question asked in this work is whether a threat of disappearance changes the way people value such options. more…
Maximizing the Value of a Customer in Credit Cards: Credit Scoring, Revenue Scoring, or Both?
(with B. D. Kim), The Journal of Database Marketing, Vol. 6, No. 2, 164-173, 1998
Credit-scoring models have become standard in credit card issuing. The idea is to automate the process of issuing credit cards by developing a statistical model that predicts the default probability for each applicant. However, issuing cards only on the basis of credit-scoring models ignores the other side of the credit card business. If they do not default, customers are profit generators, and their profits contributions vary widely. Some customers have low default probabilities but rarely use their credit cards. They are not very profitable customers. Others have high default probabilities but frequently use their credit cards. They can be profitable customers. The objective of the paper is to criticize the current practice of credit card issuing and introduce the concept of revenue scoring. The authors’ method of card issuing is firmly based on the principle of maximizing the lifetime value of a customer. They have applied the proposed model to the data of 1,000 credit card customers. Compared to the model, which accounts only for default risks, it is shown that the proposed model significantly increases total profits. more…