Xinyao Kong

Firms often display product information on their front-of-package labels with some firms going as far as to make deceptive claims. We study the impact of the “Made in USA” claim—a disclosure not legally required on consumer-packaged goods and yet a claim highlighted by many firms, sometimes deceptively—on consumer demand. Leveraging the Federal Trade Commission’s investigation of four brands that resulted in removal of the claim from product packages, we study the impact such removal had on sales. We find a decline in demand following the removal of the “Made in USA” claim. Second, to ensure complete exogenous variation, we conduct a field experiment on eBay, on which we run more than 900 auctions, varying only whether a product contains this country-of-origin information. We find that, although products with the “Made in USA” claim have a slightly higher chance of drawing a zero valuation, such products obtain a 44% higher willingness-to-pay conditional on a positive valuation. However, this increased valuation is insufficient to economically justify firm relocation efforts. Auction transaction prices, on the other hand, are significantly and 28% higher with the claim, suggesting resellers and auctioneers have incentives to display the claim. The experiments alongside observational data allow us to rationalize firms’ incentives in making deceptive country-of-origin claims.

This paper studies heterogeneity in consumer myopia and its role in creating a gap in financing cost across consumers in consumer credit markets. Using a unique data set of the US automobile and auto loan market, I find that consumers in lower income quartile tend to pay more for auto financing. In particular, they are less likely to accelerate car purchases with an interest rate hike in sight, acting as more myopic agents. I build a structural model to test and quantify the extent to which this financing gap arises from myopia, as opposed to differences in price sensitivities and automobile preferences. I find that consumers are considerably more myopic than would be implied by real rate of interest, and socio-economically disadvantaged consumers are more myopic and more price sensitive. A decomposition analysis quantifies the amount myopia contributes to the predicted financing gap. Counterfactual analysis further shows that strategic dealers may exacerbate the financing gap by gaining market power from more myopic consumers.

Testing for and measuring habitual brand loyalty (HBL) is one of the classic questions in quantitative marketing. We propose a nonparametric test for HBL using a “dynamic potential outcomes” model that resolves the classic identification challenge of decoupling state dependence and unobserved heterogeneity. We then propose a semi-parametric test for forward-looking behavior to assess whether consumers rationally plan their HBL. Case studies of several large consumer packaged goods categories reveal a non-trivial extent of HBL in consumers’ brand choices. Semi-parametric evidence for forward-looking consumer behavior strongly rejects the myopic discrete-choice model in favor of the dynamic discrete-choice model with a freely-varying discount factor. However, consumers are found to be considerably more impatient than would be implied by the real rate of interest. Nevertheless, the long-run price elasticities from a dynamic discrete-choice model are found to be larger in magnitude than those from a model with myopic choices.