In this article, we lay out the challenges and research opportunities associated with business-to-business (B2B) buying. These challenges and opportunities reflect four aspects of B2B buying that the Institute for the Study of Business Markets (ISBM: www.isbm.org) has identified through a Delphi-like process: (1) the changing landscape of B2B buying, (2) the increasing sophistication of sellers, (3) the impact of technological changes, and (4) the increasing importance and growth of emerging markets. For each of these four areas, we identify the relevant background, key issues, and pertinent research agendas.

Retailers routinely allow consumers to negotiate a discount off the posted price for big-ticket items such as home appliances and automobiles, and on online platforms such as Amazon and eBay. The profitability of such a strategy, relative to selling only at posted prices, depends on consumers’ willingness to initiate a negotiation and ability to negotiate a discount. In this article, the authors incorporate consumers’ decision of whether to negotiate into a demand model. The decision to negotiate hinges on how the expected discount from negotiation compares with the magnitude of a nonpecuniary cost that the consumer incurs by initiating the negotiation. The current study shows how this cost can be nonparametrically identified, separately from consumers’ ability to get a discount and marginal utility of income. The application of this model to individual-level data on refrigerator transactions reveals that, conditional on negotiating, consumers get, on average, 41% of the available surplus and incur an average cost of $28 to initiate a negotiation. The magnitude of these nonpecuniary costs’ not only affects retailer profits but also has implications for pricing strategy and consumer surplus. Ignoring these costs results in biased estimates of consumers’ willingness to pay, translating to annual losses of $1.6 million in the current study setting.

No abstract

No abstract

The objective of this paper is to understand what drives consumers to buy extended warranties and pay high premia for them. We primarily focus on the role of risk preferences and disentangle and study their relative importance. Empirical and behavioral research on insurance is at odds with whether diminishing returns (curvature of the utility function), or loss aversion and non-linear probability weighting lead to the observed consumer behavior. This is primarily due to the inability of standard choice data to separate curvature of the utility function, loss aversion and non-linear probability weights, and the need to rely on strong parametric assumptions. We design two conjoint studies (consistent with simultaneous and sequential decision making) with choices over washing machines (with and without extended warranty) where failure probabilities and repair costs are given to subjects. Using stated choice data from the survey, consumer preferences, degree of curvature, loss aversion and probability weights can be non-parametrically identied. We nd that loss aversion is signicantly more important than curvature and probability weights in explaining extended warranty choices. These ndings are robust to dierent specications of the utility function and risk preferences. Importantly, failure to decompose risk averse behavior into that arising from curvature, loss aversion and probability weighting leads to lower washer and warranty prices, and under predicts the rate of change of warranty prices with varying repair costs. We test theory on complementary good pricing and nd that estimates from the sequential choice survey rationalize the high premium consumers pay for extended warranties. Finally, forcing dierent retailers to sell washers and extended warranties increases (decreases) the washer (warranty) price, and makes consumers worse-o. A 5% discount on the washer price makes consumers indierent to the proposed policy intervention.