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Pricing market research: a normative framework

Author: Xiang, Yi ; Sarvary, MiklosINSEAD Area: Marketing Series: Working Paper ; 2006/30/MKT Publisher: Fontainebleau : INSEAD, 2006.Language: EnglishDescription: 29 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: The pricing of market research exhibits complex patterns with large variations in both price levels and selling formats. Previous research shows that these patterns may result from competitive externalities on either the buyer or the seller side (Sarvary and Parker 1997, Iyer and Soberman 2000). Our goal is to understand the interaction of these externalities to provide normative guidelines for the pricing of market research. We define market research as information sold for decision making. Our game-theoretic model consists of two market research firms selling research reports (imperfect information) to two competing clients, and allows for different research quality levels as well as varying degrees of client competition. We find that previous results on how information quality affects price competition between information sellers are strongly mitigated by the degree of competition on the buyer side. Our results indicate that stronger client competition tends to make market research reports substitutes, leading to stronger seller competition and lower prices. Beyond price levels, client competition also affects equilibrium selling contracts. In particular, research firms tend to choose exclusive selling contracts (sell to one buyer only) when client competition is strong, but sell to multiple buyers when client competition is weaker. Finally, we also find that the quality of information has a very different impact on market research firms' profits, depending on the degree of client competition.
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The pricing of market research exhibits complex patterns with large variations in both price levels and selling formats. Previous research shows that these patterns may result from competitive externalities on either the buyer or the seller side (Sarvary and Parker 1997, Iyer and Soberman 2000). Our goal is to understand the interaction of these externalities to provide normative guidelines for the pricing of market research.
We define market research as information sold for decision making. Our game-theoretic model consists of two market research firms selling research reports (imperfect information) to two competing clients, and allows for different research quality levels as well as varying degrees of client competition.
We find that previous results on how information quality affects price competition between information sellers are strongly mitigated by the degree of competition on the buyer side. Our results indicate that stronger client competition tends to make market research reports substitutes, leading to stronger seller competition and lower prices. Beyond price levels, client competition also affects equilibrium selling contracts. In particular, research firms tend to choose exclusive selling contracts (sell to one buyer only) when client competition is strong, but sell to multiple buyers when client competition is weaker. Finally, we also find that the quality of information has a very different impact on market research firms' profits, depending on the degree of client competition.

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