Wednesday, February 28, 2024

Vitual Assistants in Retailing

 Swedish online retailer, Klarna, partnered with OpenAI to create a chat bot powered by the latest AI. The claimed results seem impressive:

  • It handled two-thirds of Klarna’s customer service chats
  • This is the equivalent work of 700 full-time agents
  • Customer satisfaction was on par with human agents
  • Repeat inquiries fell by 25%
  • Customers' errands were resolved in less than 2 mins compared to 11 mins previously

However, this may be embellished boasting as the company may be stirring up good press over an expected IPO.

Hat tip: Marginal Revolution

Friday, February 23, 2024

The Life Cycle of Products

Most product's life cycle is much shorter than I had imagined. In "The Life Cycle of Products: Evidence and Implications," Argente, Lee, and Moreira analyze 100 billion unique observations at the UPC by store by week level. Among other findings, they can trace product life cycles by type of product.

Brands can span individual UPCs (A) and last longer. Novel product introductions (B) last longer. Products sell well at introduction (C) fade faster. And more durable products (D) fade faster.

Thursday, February 22, 2024

The Market for Private-Label Products

There is a nice podcast on "Store-Brand Products" over at the "Economics of Everyday Things." It touches on many managerial economic concepts. There are multiple factors going into the store brands on the shelves.

1. Brand names may have excess capacity.

...some store brand products are actually made by the same companies that produce the name brand versions of those products. Take, for instance, Costco. Some of the Kirkland brand of coffee blends are made by Starbucks. Kirkland batteries? Duracell. And Kirkland diapers? Those come from Kimberly-Clark, the company that makes Huggies.

2. Brand names may be too expensive.

Bringing a store brand product to market usually starts like this: a national retailer like Albertsons has category managers who are in charge of specific kinds of goods. They might see that a certain name-brand tomato sauce is selling in big numbers, but it’s a little expensive — which means there’s an opportunity for a more affordably priced store-brand version.

3.  Private label manufacturers often explicitly reverse engineer the existing product.

Retailers ask Winland Foods to reverse engineer name-brand products and create a new version.

BERINGAUSE: We have a large R&D facility in Chicago with a large group of food scientists. And we may have customers bring us something that they want us to develop. They may say we’d like an emulation or something better than a certain pasta sauce that is out there.

4. Private label manufacturers have little bargaining power

Marketing professor Kusum Ailawadi says that private label manufacturers don’t have much bargaining power when it comes to negotiating with retailers.

AILAWADI: Because nobody knows who the supplier is — the consumer doesn’t. So the supplier doesn’t have much leverage. 

Which undergrad majors lead to under-employement?

WSJ: under-employment (lower is better)--and getting an internship helps.

Will China Generative AI catch up to US?

 NY Times thinks China's regulations make it unlikely:

When OpenAI released ChatGPT in November 2022, many Chinese firms were being hamstrung by a regulatory crackdown from Beijing that discouraged experimentation without government approval. Chinese tech companies were also burdened by censorship rules designed to manage public opinion and mute major opposition to the Chinese Communist Party.
Chinese companies with the resources to build a generative A.I. model faced a dilemma. If they created a chatbot that said the wrong thing, its makers would pay the price. And no one could be sure what might tumble out of a chatbot’s digital mouth.
Chinese tech giants were also grappling with new regulations that dictate how A.I. models could be trained. The rules limit the data sets that could be used to train A.I. models and the applications that were acceptable, and also set requirements for registering A.I. models with the government.

Tuesday, February 20, 2024

Deterrence in Merger Review: Likely Impacts of Recent U.S. Policy Changes

Luke M. Froeb Vanderbilt University - Owen Graduate School of Management 

 Steven Tschantz Vanderbilt University - Department of Mathematics 

 Gregory J. Werden Independent; George Mason University - Mercatus Center 

 Date Written: January 30, 2024 

We model deterrence in a multistage merger review process, potentially ending in a court proceeding. Potential merging parties sequentially decide whether to begin the process, and whether to proceed to the next stage, in the face of uncertainty about what the enforcement agency or court will do. The model is designed to explore the complex impacts of policy changes in a costly regulatory process subject to uncertainty, and in particular to elucidate the likely impact of policy changes by the two U.S. enforcement agencies. The model shows why those policy changes can be expected to succeed in deterring bad mergers but at the cost of deterring a greater number of good mergers. 

 Keywords: mergers, deterrence, antitrust, regulation 

 JEL Classification: K22, L10, L40, L50 

Froeb, Luke M. and Tschantz, Steven T. and Werden, Gregory J., Deterrence in Merger Review: Likely Impacts of Recent U.S. Policy Changes (January 30, 2024). 

Available at SSRN: or

Is ESG investing illegal?

For fund managers, it may violate their fiduciary responsibility (to maximize returns) to their shareholders.   Apparently, the legal risk is too big for JP Morgan, State Street, and BlackRock:  
Asset managers have been walking a fine legal line. GOP Attorneys General in 2022 warned that they might be violating their fiduciary obligations and antitrust laws. House Judiciary Committee Chairman Jim Jordan in December subpoenaed BlackRock and State Street Global Advisors for documents and communications related to their involvement in “collusive” agreements.
The climate alliance’s new rules would compound the legal and political jeopardy. In its withdrawal announcement, State Street said its rules “are not consistent with our independent approach to proxy voting and portfolio company engagement.” BlackRock said the rules “would raise legal considerations.”

Peter Theil's (successful Venture Capitalist) Harvard Talk, "The Diversity Myth"

 Wide ranging, mostly libertarian critique of political and economic trends in the US that touches on Chapter 1 (Incentive Alignment), Chapter 2 (Wealth Creation), and Chapter 3 (Benefit-Cost Analysis).  

  • Proponents of "diversity" don't define the term, which gives Diversity Workers remarkable freedom to claim that whatever they are doing furthers the goal.  
    • In-class question: how would you align the incentives of Diversity Workers with the goal of diversity?
  • Positive correlation between wealth creation and inequality in the past few decades:  Theil offers his take, but does not addresses the idea that incentive alignment creates inequality, as it rewards prescient, lucky, more productive, or harder workers.
    • In-class question: does incentive alignment cause inequality? 
  • Justification by President Obama that his increased income taxes would cause people to work harder to make up for the lost income ("income effect") rather than substituting to more leisure/less work ("substitution effect").  
    • In-class question: do higher income taxes lead to more or less work?  
    • [Comment: politically, to get a policy implemented, you have to ignore any tradeoffs that might go along with it.  Economists are trained to point these out, called "unintended consequences" or "hidden costs."]
    • In-class question: how would you align the incentives of venture capitalists with the goal of innovation?  HINT:  low probability of a big payoff.
  • Guilty Pleasure: comparison of Senator Elizabeth Warren to a fundamentalist Protestant preacher in her lack of forgiveness or redemption. 

Sunday, February 18, 2024

Don't define the problem as the lack of your solution (gun control)

The latest example comes from NPR's coverage of the shooting at the Kansas City Super bowl Parade.
That the characterization of this incident as being reflective of “weak gun laws” is ridiculous. ...Every single thing that happened here was already illegal. It is illegal for juveniles to possess handguns. It is illegal for them to carry those handguns. It is illegal for them to shoot at each other in a public place. ...
... its coverage of gun-related crime, ... is invariably marked out by a fanatical obsession with gun-control and a total lack of interest in anything else.

Don't define the problem as the lack of your solution because it locks you into a particular solution, without the careful analysis that benefit-cost analysis requires.