Essays on imperfect rationality

Essay 1: Quantity-discount-dependent consumer preferences and competitive non-linear pricing strategies. Non-linear pricing is a common strategy for packaged-goods producers selling different sizes of their products. My study tries to answer the following question: In the highly competitive packaged-goods market, how do firms optimally deter mine their non-linear pricing schemes? Through empirical investigations, I reveal the impact of quantity discounts on consumer utility and demonstrate how such "quantity-discount effects" determine firms' optimal non-linear pricing strategies in a competitive market environment.; Consumers tend to view a quantity discount they receive from buying a larger package-size over a smaller one as an extra gain. This impact of quantity discounts on consumer preferences is commonly observed but has never been examined in marketing literature. I develop a household-level multinomial logit model that explicitly accounts for this impact. The estimation results demonstrate that demonstrate that consumer utility from buying an alternative increases significantly with the "perceived gains" derived from quantity discounts.; Quantity-discount effects have important strategic implications. With quantity discount effects, the cross elasticity of demand between different package-sizes of the same brand is larger than between different brands. As a result, a firm is able to shift consumer demand between different sizes of its product without losing demand to its competitors. In particular, increasing the quantity discount shifts demand from the smaller size to the larger, and decreasing the quantity discount shifts demand from the larger to the smaller. A firm can then use non-linear pricing as an effective competitive strategy when it needs to manage demand between different product sizes to achieve the best competitive performance (for example, the firm may have incentive to induce consumers to buy a particular size). The ability to implement non-linear pricing thus makes a unique competitive advantage for firms selling different package-sizes of its product, thanks to quantity-discount effects. Correspondingly, quantity-discount effects motivate a firm to launch multiple product sizes to obtain this advantage.; In addition to the demand side, I also model the supply side of the competitive market and estimate the cost coefficients. Then I solve for firms' optimal nonlinear pricing strategies under different competitive situations.; Essay 2: Celebrity endorsement advertising and product adoption through social networks. Celebrity endorsement has become a prevalent form of advertising: It is reported that 20% of all TV commercials features a famous person. Nonetheless, little is known about firms' strategic usage of celebrity endorsement: Does celebrity endorsement affect a firm's product quality and price decisions, and how? Do firms always prefer super-star celebrity endorsers to less well known ones? In this paper, I examine firms' celebrity endorsement strategies by accounting for the impact of social network effects.; I focus on two social network effects: information diffusion and demand intercorrelation. The information diffusion effect means that product awareness can be diffused through social networks; information diffusion intensifies when consumption of the product is more visible, or more public. The demand intercorrelation effect means that socially connected consumers, affected by common environmental factors, tend to have intercorrelated functional evaluations of products and intercorrelated demand; demand intercorrelation intensifies when functional evaluations of the product depend less on the users' personal traits, or are less idiosyncratic.; I examine celebrity endorsement advertising in the long-term and in the short-term. Long-term celebrity endorsement means that a firm uses celebrity figures to communicate its brand image during a long-term contract period.; Essay 3: Conflict and info...