the economic organization of legislatures and how it affects congressional voting congress confronts two major organizational problems that affect the behavior of legislators party leaders and groups doing business with congressional committees the costly nature of monitoring and the absence of explicit mechanisms for upholding agreements the problem of monitoring implies that party leaders will have a difficult time influencing decisions made in decision making arenas where the actions of legislators are less visible as in congressional committees while legislators can evade leadership monitoring of their actions within committees once an issue leaves a committee the costs of monitoring decline and leadership influence increases the absence of mechanisms for assuring that legislators keep their bargains means that groups will place an emphasis on dealing with reliable legislators those who can be counted upon to uphold their end of a bargain thus party leaders are more effective in influencing floor voting because of their better ability to monitor legislator behavior however obligations to important interest groups will be more immune to leadership influence because of the incentives for committee members to adhere to their bargains

optimizing multinomial logit profit functions the multinomial logit model is a standard approach for determining the probability of purchase in product line problems when the purchase probabilities are multiplied by product contribution margins the resulting profit function is generally nonconcave because of this standard nonlinear search procedures may terminate at a local optimum which is far from the global optimum we present a simple procedure designed to alleviate this problem the key idea of this procedure is to find a path of prices from the global optimum of a related but concave logit profit function to the global optimum of the true but nonconcave logit profit function

reputational capital opportunism and self policing in legislatures this paper examines the question of whether reputational capital can deter opportunistic behavior among legislators preparing to exit the house of representatives i create a measure of reputational trustworthiness based upon pooled samples of constituency opinion derived from the national election studies surveys i then examine the extent to which such reputational good will among constituents deters lame duck foreign travel by exiting house incumbents within the context of a quasi experimental research design the analysis suggests that legislators may be self policed by their reputations for honesty and trustworthiness to the point of discouraging unethical activity urveys i then examine the extent to which such s derived from the national election studies

comparative dynamics in a health investment model the method of comparative dynamics fully exploits the inter temporal structure of optimal control models i derive comparative dynamic results in a simplified demand for health model the effect of a change in the depreciation rate on the optimal paths for health capital and investment in health is studied by use of a phase diagram

optimal pricing and composition of multiple bundles a two step approach abstract this paper analyzes the problem facing a firm that must determine the optimal composition and pricing of multiple bundles it supplies to a single market segment it is assumed the firm s competitors does not react in the short run to its decisions and that their bundles prices and characteristics are known it is further assumed that potential consumers of bundles are rational and maximize a random utility function the problem is modeled as a mixed integer non linear program though such programs are normally hard to solve using traditional methods the difficulties are circumvented here by taking advantage of the problem s mathematical structure to develop a novel two phase solution approach two aspects of the solution are particularly worthy of note 1 we demonstrate that the optimal price of a bundle marketed by a firm depends on the composition of all the firm s bundles and not on their prices and on the composition and price of all the competitors bundles in the market and 2 that if the consumer choice behavior is described by a logit model then the firm s bundles should be very similar to each other

designing products and services for consumer welfare theoretical and empirical issues in this paper we examine the theoretical and empirical issues that arise for a public sector decision maker who wishes to use the target population s preferences as an input for designing new products and services the marketing literature suggests using essentially the same approach as that for the private sector problem with one exception instead of maximizing profits share or volume the sum of benefits to society is maximized however the social welfare literature has suggested several other measures of welfare and shows that no single welfare function dominates all others therefore to choose an appropriate welfare function to maximize the decision maker must first examine the theoretical and empirical similarities between the alternatives for six prominent welfare functions we examine the theoretical differences in terms of the notion of fairness promoted and the kind of preference data required empirically we examine the similarities in social rankings and first choices induced by these welfare functions under various preference configurations we also examine their sensitivity to measurement error and preference normalization

a model of product line design and introduction sequence with reservation utility abstract cannibalization is a major concern for a firm when designing a product line in addition external options from outside the firm s product line may also play a significant role in this paper we investigate the impact of external options represented by reservation utility on product line design and introduction sequence we find that a heterogeneous reservation utility defines the relative attractiveness of segments and corresponding product line b reservation utility makes it more favorable to introduce products sequentially rather than simultaneously c aggregating segments is an effective way to mitigate cannibalization when it becomes too difficult to manage with different values of reservation utility across multiple segments and d introducing products in a non monotone order of quality can improve profit from simultaneous introduction when the value of reservation utility of a middle segment is particularly high

optimal admission and scholarship decisions choosing customized marketing offers to attract a desirable mix of customers each year in the postsecondary education industry schools offer admission to nearly 3 million new students and scholarships totaling nearly 100 billion this is a large understudied targeted marketing and price discrimination problem this problem falls into a broader class of configuration utility problems cups which typically require an approach tailored to exploit the particular setting this paper provides such an approach for the admission and scholarship decisions problem the approach accounts for the key distinguishing feature of this industry schools value the average features of the matriculating students such as percent female percent from different regions of the world average test scores and average grade point average thus as in any cup the value of one object i e student cannot be separated from the composition of all of the objects other students in the enrolling class this goal of achieving a class with a desirable set of average characteristics greatly complicates the optimization problem and does not allow the application of standard approaches we develop a new approach that solves this more complex optimization problem using an empirical system to estimate each student s choice and the focal school s utility function we test the approach in a field study of an mba scholarship process and implement adjusted scholarship decisions using a holdout sample we provide evidence that the methodology can lead to improvements over current management decisions finally by comparing our solution to what management would do on its own we provide insight into how to improve management decisions in this setting

constrained assortment optimization for the nested logit model we study assortment optimization problems where customer choices are governed by the nested logit model and there are constraints on the set of products offered in each nest under the nested logit model the products are organized in nests each product in each nest has a fixed revenue associated with it the goal is to find a feasible set of products i e a feasible assortment to maximize the expected revenue per customer we consider cardinality and space constraints on the offered assortment which limit the number of products and the total space consumption of the products offered in each nest respectively we show that the optimal assortment under cardinality constraints can be obtained efficiently by solving a linear program the assortment optimization problem under space constraints is np hard we show how to obtain an assortment with a performance guarantee of 2 under space constraints this assortment also provides a performance guarantee of 1 1 when the space requirement of each produc

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

a cross functional approach to evaluating multiple line extensions for assembled products assembled product manufacturers often introduce line extensions that share components with existing products or among themselves resulting in cost interactions among products because of shared costs and revenue interactions because of cannibalization we present a cross functional approach to evaluating multiple line extensions that simultaneously considers revenue implications of component sharing at the product level and cost implications at the component level we develop a source of volume model and a measurement procedure to decompose the life cycle sales volume from a line extension into sales from cannibalization competitive draw and demand expansion we develop an activity based costing procedure for estimating the life cycle costs of line extensions that share components we develop an optimization model that uses these revenue and cost estimates to identify a subset of line extensions that maximizes incremental profits we implement our approach at a quartz wristwatch manufacturer results suggest that our approach would have improved profits for the firm by over 5 while actually launching fewer line extensions we also find that the drivers of cannibalization are counterintuitive in simulation studies our approach outperforms three managerial heuristics we demonstrate that this approach is most valuable when cannibalization dominates competitive draw as a source of volume and discuss its relative merits under low and high parts sharing

brand names and barriers to entry in political markets the most obvious implication of this discussion is that barriers to entry in politics will raise the costs of governments transferring wealth more generally it will raise the cost of public provision of goods and services in the case of transfers the inefficiency created by barriers depends on whether one values government transfers the total transfer the transfer to the beneficiaries plus the politician s commission is maximized by the politician who can create support the most efficiently for other governmental services which are viewed as efficiency creating e g national defense these barriers reduce the amount of a valuable output we desire to purchase this result also supplies a possible efficiency explanation for the limitation on the number of terms imposed on the presidency and many governorships brand names are not really the barriers information costs are what cause brand name to be used and are the more fundamental barrier to entry what we are arguing is that private and not public organizations can in certain respects better overcome these information costs

searching for symptoms of political shirking congressional foreign travel despite the hypothesized propensity for shirking to marklegislative institutions the evidence is rather equivocal moreover most of the research has focused exclusively onlegislator voting thereby constraining whatevergeneralizations might emerge the purpose of this paper is tocontribute to the debate over the question of politicalshirking by extending the range of phenomena examined toinclude congressional foreign travel our analysis providesevidence that opportunism is a problem in congress we findthat last period problems have arisen in the area of foreigntravel and that increased scrutiny to the problem on the partof congress only shifted consumption patterns i e legislators began taking foreign junkets near but not at theend of their legislative careers not all foreign travelshould be construed as worthless junketing since there isstrong evidence that some foreign travel is related tomembers responsibilities on congressional committees

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

pricing market coverage and capacity can green and brown products co exist abstract environmental strains are causing consumers to trade up to greener alternatives and many brown products are losing market coverage to premium priced green rivals in order to tackle this threat many companies currently offering only brown products are contemplating the launch of a green product to complement their product portfolio this paper provides strategic insights into and tactical ramifications of expanding a brown product line with a new green product our analysis explicitly incorporates a segmented consumer market where individual consumers may value the same product differently the economies of scale and the learning effects associated with new green products and capacity constraints for the current production system it is shown that a single pricing scheme for the new green product limits a firm s ability to appropriate the value different customers will relinquish in a segmented market and or to avoid cannibalization a two level pricing structure can diminish and even completely avoid the salience of cannibalization however when resources are scarce a firm can never protect his products from the threat of cannibalization by just revising the pricing structure which can spell the end of his brown product s presence in the market or preclude the firm from launching the green product at this point the degree of cannibalization is higher for the brown product when the green product offers a sufficiently differentiated proposition to green segment consumers

analysis of an industrial component commonality problem we discuss a case study of an industrial production marketing coordination problem involving component commonality for the product line considered the strategic goal of the company is to move from the current low volume market to a high volume market the marketing department believes that this can be achieved by substantially lowering the end products prices however this requires a product redesign to lower production costs in order to maintain profit margins the redesign decision involves grouping end products into families all products within one family use the same version of some components this paper fits in the stream of recent literature on component commonality where the focus has shifted from inventory cost savings to production and development cost savings further we consider both costs and revenues leading to a profit maximization approach the price elasticity of demand determines the relationship between the price level and number of units sold consequently we integrate information from different functional areas such as production marketing and accounting we formulate the problem as a net present value investment decision we propose a mixed integer nonlinear optimization model to find the optimal commonality decision the recommendation based on our analysis has been implemented in the company in addition the application allows us to experimentally validate some claims made in the literature and obtain managerial insights into the trade offs

a general attraction model and sales based linear program for network revenue management under customer choice this paper addresses two concerns with the state of the art in network revenue management with dependent demands the first concern is that the basic attraction model bam of which the multinomial logit mnl model is a special case tends to overestimate demand recapture in practice the second concern is that the choice based deterministic linear program currently in use to derive heuristics for the stochastic network revenue management problem has an exponential number of variables we introduce a generalized attraction model gam that allows for partial demand dependencies ranging from the bam to the independent demand model idm we also provide an axiomatic justification for the gam and a method to estimate its parameters as a choice model the gam is of practical interest because of its flexibility to adjust product specific recapture our second contribution is a new formulation called the sales based linear program sblp that works for the gam this formulation avoids the exponential number of variables in the earlier choice based network rm revenue management approaches and is essentially the same size as the well known lp formulation for the idm the sblp should be of interest to revenue managers because it makes choice based network rm problems tractable to solve in addition the sblp formulation yields new insights into the assortment problem that arises when capacities are infinite together these contributions move forward the state of the art for network revenue management under customer choice and competition

final voting in legislatures in representative democracies such as the united states legislatures provide the transmission mechanism through which pressure from private interests becomes public policy considerable attention has been given in the literature to explanations of the relevant forces that appear to be driving the legislative process for example much research has focused on the relative impact of economic vs ideological influences on congressional voting behavior in this approach the way that legislators vote on proposed legislation is modeled as a function of the preferences of various economic and ideological interests groups including the legislator s own preferences for wealth and ideology james kau and paul rubin 1979 joseph kalt and mark zupan 1984 sam peltzman 1985 missing from this approach is the idea that when legislatures are the transmission mechanism they are costly and imperfect organizations for generating political influence gary becker 1983 as such rules and institutions will emerge that are related to problems of internal control within the organization of a legislature in this paper we focus on the role of floor voting from the standpoint of legislator organization and control we seek to expand the interpretation of the meaning of floor voting activity by examining the timing sequence and outcomes of such votes specifically we look at final floor voting in the u s congress the patterns described in the analysis below suggest that a broader analytical perspective on the economic function of floor voting is required the findings also suggest that to identify more precisely the forces that are driving legislator voting behavior it is important to recognize the role of legislative transactional costs and institutional constraints in section i the conceptual framework for the empirical results is discussed in more detail the purpose is not to develop a fullblown theory of legislative organization rather it is to focus the reader s attention on several hypotheses about the function of final floor voting as a device for controlling legislator behavior within the legislature empirical results including an explanation of the timing and sequence of final votes on bills are reported in section ii the data for these tests are drawn from legislative activities in the u s house of representatives during the 96th and 98th congresses some concluding remarks are offered in section iii

capture and ideology in the economic theory of politics the economic theory of regulation long ago put public interest theories of politics to rest these theories have correctly been viewed as normative wishings rather than explanations of real world phenomena they have been replaced by models of political behavior that are consistent with the rest of microeconomics anthony downs 1957 james buchanan and gordon tullock 1965 george stigler 1971 sam peltzman 1976 recently however debate has arisen over whether some version of a public interest theory of regulation will have to be readmitted to our thinking about actions and results in the political arena what is at issue is the empirical importance of the altruistic publicly interested goals of rational actors in determining legislative and regulatory outcomes james kau and paul rubin 1979 kalt 1981 peltzman 1982 this study assesses the nature and significance of publicly interested objectives in a particular instance of economic policymaking u s senate voting on coal strip mining regulations the existence of such objectives is of course no contradiction of the economic view of human behavior kenneth arrow 1972 gary becker 1974 and may well be rooted in genetic biological history becker 1976 jack hirshleifer 1978 generally however individuals altruistic publicly interested goals have been given little attention this reflects the judgment that such goals are so empirically unimportant as to allow the use of occam s razor in positive models or well founded apprehensions that these goals are unusually difficult to identify measure and analyze notwithstanding the latter problem we find that approaches which confine themselves to a view of political actors as narrowly egocentric maximizers explain and predict legislative outcomes poorly the tracking and dissecting of the determinants of voting on coal strip mining policy suggest that the economic theory of politics has been prematurely closed to a broader conception of political behavior

joint inventory and pricing decisions for an assortment we seek optimal inventory levels and prices of multiple products in a given assortment in a newsvendor model single period stochastic demand under price based substitution but not stockout based substitution we address a demand model involving multiplicative uncertainty motivated by market share models often used in marketing the pricing problem that arises is known not to be well behaved in the sense that in its deterministic version the objective function is not jointly quasi concave in prices however we find that the objective function is still reasonably well behaved in the sense that there is a unique solution to the first order conditions and this solution is optimal for our problem

optimal pricing of correlated product options under the paired combinatorial logit model in this paper we study price optimization with price demand relationships captured by the paired combinatorial logit pcl model which overcomes restrictions of the well studied multinomial logit mnl and nested logit nl models the pcl model allows for choice correlation and like the nl model includes the mnl model as a special case compared to the nl models the pcl model does not restrict the sequence of the choice structure and allows for different covariances among all pairs of choices this additional flexibility in structure enables a more accurate representation of some choice settings and broadens its empirical applications hence it is of both theoretical and practical interests to extend the normative studies on the mnl and nl models to the pcl model and examine the pricing problem under this model due to cross nesting of choice alternatives the pricing problem under the pcl model poses a greater challenge than the mnl and nl models however using the concept of p matrix we are abl

price competition under mixed multinomial logit demand functions in this paper we postulate a general class of price competition models with mixed multinomial logit demand functions under affine cost functions in these models the market is partitioned into a finite set of market segments we characterize the equilibrium behavior of this class of models in the case where each product in the market is sold by a separate independent firm we identify a simple and very broadly satisfied condition under which a pure nash equilibrium exists and the set of nash equilibria coincides with the solutions of the system of first order condition equations a property of essential importance to empirical studies this condition specifies that in every market segment each firm captures less than 50 of the potential customer population when pricing at a specific level that under the condition is an upper bound for a rational price choice for the firm irrespective of the competitors prices we show that under a somewhat stronger but still broadly satisfied version of the abov

a simulation based approach to price optimisation of the mixed bundling problem with capacity constraints abstract in this paper we analyse a service provider s mixed bundling problem for services such as sporting events or holiday packages pursuing the objective of maximising total revenue the service provider has to determine static prices for each single product at the beginning of the selling period additionally an optimal package price has to be chosen for the bundle that comprises one unit of each single product because of capacity constraints the availability of products can change over time such that consumers are forced to switch from their preferred subset of products to an alternative following dynamic substitution we propose two mixed integer linear programmes based on reservation prices that appropriately model the consumer choice process to address the bundling problem it becomes evident that the determination of the optimal prices is computationally expensive even for small problem classes therefore we develop metaheuristics using variable neighbourhoods to evaluate their performance we propose the following new approach our extensive computational study is performed using especially generated scenarios for which the optimal product prices are known for this purpose we present a set of conditions for the generation of reservation prices that guarantee the optimality of the predefined prices based on our computational results managerial insights are derived

profit maximizing perceptual positions an integrated theory for the selection of product features and price an important component of marketing strategy is to position a product in perceptual space but to realize a perceptual position we must model the link from physical characteristics to perceptual dimensions and we must use this model to maximize profit this paper integrates psychological theories on how consumers process information with economic models and psychometric measurement and it develops a theory for selecting physical features and price to achieve a profit maximizing perceptual position the theory begins with a lancaster like transformation from goods space to characteristics space and investigates the implications of a mapping to a third space perceptual space we show that all products efficient in perceptual space must be efficient in characteristics space but not conversely but consumers vary in their preference and the way they perceive products thus we introduce distributional components to the theory and derive both geometric and analytic methods to incorporate this consumer heterogeneity next we investigate costs and derive a perceptual expansion path along which a profit maximizing position must exist conjoint analysis and quantal choice models provide the measurements to implement the theory the theory is illustrated with a hypothetical example from the analgesics market and some of the potential psychometric measurements are illustrated with an empirical application in the communications market

the choice theory approach to market research this paper surveys economic choice theory stressing developments that permit use of data from psychometric and conjoint experiments to produce market demand forecasts alternatives to the widely used multinomial logit model are summarized and a new method for estimating multinomial probits is described an integration of choice models with attitudinal scaling and perceptual mapping within a latent variable system is described estimation of such systems under either random effects or fixed effects descriptions of heterogeneity across individuals is discussed issues in the use of choice models to describe responses from conjoint experiments are presented new regression diagnostic tests for the consistency of multinomial logit representations are discussed

price scarcity rent and a modified r per cent rule for non renewable resources since hotelling s seminal paper on the optimal depletion of exhaustible resources much has been published yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion we show that hotelling s fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the r per cent rule provided the objective function is concave predictions of non monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non concave objective function we identify the sources of these non concavities jel classification q30 d90 c60 prix rente de rarete et une regle modifiee du r pourcent pour les ressources non renouvelables malgre la volumineuse litterature specialisee qui a fleuri depuis qu hotelling a ecrit son memoire fondateur sur l epuisement optimal des ressources renouvelables une grande confusion regne toujours quand il faut etablir si la rente de rarete et le prix augmentent ou chutent a proportion que la ressource s epuise quand les couts tendent a croitre avec l epuisement ce memoire montre que les resultats fondamentaux obtenus par hotelling quant aux sentiers de croissance de la rente de rarete et du prix tiennent toujours et que le sentier de croissance de la rente de rarete converge vers la regle du r pourcent pourvu que la fonction objective soit concave les predictions de sentiers de croissance non monotone ou de declin de la rente de rarete presentees dans la litterature specialisee sont attribuables a des postulats implicites qui engendrent une fonction objective non concave les auteurs identifient les sources de ces non concavites

revenue management model for on demand it services abstract this paper presents a model for applying revenue management to on demand it services the multinomial logit model is used to describe customer choice over multiple classes with different service level agreements slas a nonlinear programming model is provided to determine the optimal price or service level for each class through a numerical analysis we examine the impacts of system capacity and customer waiting incentives on the service provider s profit and pricing strategies

research note consumer addressability and customized pricing the increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer this ability is labeled as consumer addressability consumer addressability through sophisticated databases is particularly important for direct marketing firms catalog retailers such as l l bean and land s end credit card issuing banks and firms in the long distance telephone market we examine the strategic implications of consumer addressability on competition between database direct marketing firms we address questions such as in a competitive environment how should firms invest in addressability will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms will greater addressability always be beneficial for firms we model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation the market comprises consumers located on a linear attribute space and firms located at the ends of the line we represent the degree of addressability or the reach of a firm s database as the proportion of consumers at each point in the market who are in the firm s database consequently the firm can offer these consumers customized prices consumer addressability creates two effects that govern the competition between firms a surplus extraction effect because a firm might address a consumer who is not reached by its competitor and a competitive effect that is created by the set of consumers who can be addressed by both firms the key results of the paper pertain to when the addressability decision is endogenous when the extent of market differentiation or consumer heterogeneity in preferences for a product brand attribute as well as the incremental cost of addressability are sufficiently large firms make symmetric investments in equilibrium given high costs firms choose sufficiently low levels of addressability low addressability and high levels of market differentiation both help reduce price competition which facilitates symmetric choice of addressability by the firms in equilibrium however when market differentiation and the cost of incremental addressability become small firms face the prospect of destructive competition as a result they strategically differentiate in their choice of addressability to mitigate this competition interestingly even in the extreme case when incremental addressability is costless not every firm chooses full addressability in equilibrium this has useful implications for direct marketing given that the advances in information technology should improve the ability of firms to address their consumers it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline the analysis also shows an interesting effect of market differentiation in addressable markets equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high finally we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices

a constructive approach to estimating pure characteristics demand models with pricing discrete choice demand models are important and fundamental tools for understanding consumers choice behavior and for analyzing firms operations and pricing strategies in these models products are often described as a vector of observed characteristics a consumer chooses the product that maximizes her utility assumed to be a function of the observed product characteristics and the consumer s preference over these product characteristics one central task in the demand estimation literature is to infer based on observed data consumers preferences on product characteristics we consider such an estimation problem for pure characteristics models a class of random coefficients demand models without the idiosyncratic logit error term in a consumer s utility function the absence of the logit error term and the use of numerical integration to approximate the integral in aggregate market shares lead to a nonsmooth formulation of approximated market share equations as a result solving the approximated

on the optimal product line selection problem with price discrimination product line design decisions are determinant for a firm s market success and simultaneously very costly to implement and change to evaluate the profitability of a design a number of mathematical programming approaches have been proposed in the last three decades typically nonlinear integer optimization problems that can only be tackled heuristically for real world instances recently chen and hausman 2000 efficiently exploited the fractional programming properties of a stylized model for product line and price selection with the objective to maximize contribution given homogeneous customer behavior by an aggregate multinomial logit choice model we extend the approach of chen and hausman chen k d w h hausman 2000 technical note mathematical properties of the optimal product line selection problem using choice based conjoint analysis management sci 46 2 327 332 to determine an optimal product line under a personalized or group pricing strategy in markets with multiple heterogeneous consumers such that total profit including fixed costs is maximized personalized group pricing is a growing discrimination strategy that more and more businesses are realizing is not only very profitable but also often implementable in the era of e business our problem formulation allows to incorporate commonly applied attraction choice models including the multinomial logit the bradley terry luce and approximately the first choice model though the problem is generally nonlinear we show that the fractional substructure resulting from attraction choice models can still be exploited to globally solve real world instances in reasonable time

the menu setting problem and subsidized prices drug formulary illustration the menu setting problem msp determines the goods and services an institution offers and the prices charged it appears widely in health care from choosing the services an insurance arrangement offers to selecting the health plans an employer proffers the challenge arises because purchases are subsidized and consumers or their physician agents may make cost ineffective choices the intuitively comprehensible msp model readily solved by computer using actual data helps structure thinking and support decision making about such problems the analysis uses drug formularies lists of approved drugs in a plan or institution to illustrate the framework

product line selection and pricing under a share of surplus choice model abstract product line selection and pricing decisions are critical to the profitability of many firms particularly in today s competitive business environment in which providers of goods and services are offering a broad array of products to satisfy customer needs we address the problem of selecting a set of products to offer and their prices when customers select among the offered products according to a share of surplus choice model a customer s surplus is defined as the difference between his utility willingness to pay and the price of the product under the share of surplus model the fraction of a customer segment that selects a product is defined as the ratio of the segment s surplus from this particular product to the segment s total surplus across all offered products with positive surplus for that segment we develop a heuristic procedure for this non concave mixed integer optimization problem the procedure utilizes simulated annealing to handle the binary product selection variables and a steepest ascent style procedure that relies on certain structural properties of the objective function to handle the non concave continuous portion of the problem involving the prices we also develop a variant of our procedure to handle uncertainty in customer utilities in computational studies our basic procedures perform extremely well producing solutions whose objective values are within about 5 of those obtained via enumerative methods our procedure to handle uncertain utilities also performs well producing solutions with expected profit values that are roughly 10 higher than the corresponding expected profits from solutions obtained under the assumption of deterministic utilities

vrp revisited the impact of behavioural costs in balancing standardisation and variety abstract the objective of this paper is to bring a new element to the academic and industrial debate concerning the optimum level of variety in component design in mass production companies many authors have explored the trade off between functional and variety costs and this could be considered as a well acknowledged management issue at least from an engineering perspective nevertheless while defining the theoretically optimal level of component variety there are other elements more related to operators attitude or to operative conditions which may intervene and prevent effective exploitation of the existing variety these elements have been given scant attention in literature while they may play a relevant role in real organisations in this paper we will present a case study and an analytic model for these behavioural costs in manufacturing environments so as to show how the theoretically optimal amount of variety changes if one takes into account these aspects researchers and practitioners might leverage on this contribution in order to rejuvenate the variety reduction paradigm and to increase their awareness in designing and managing mass production manufacturing processes

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

a critical review and an extension of the political shirking literature after substituting actual and real changes for proposed and nominal changes in budgetary and employment levels it is clear that the size and scope of the federal leviathon had not been reduced over 1982 83 it is also clear that the agencies which witnessed real budget cuts over this period were of minor importance in terms of the total u s budget future research on why only small agencies receive real budget cuts will provide us with a better understanding of the budgetary process

assortment optimization under variants of the nested logit model we study a class of assortment optimization problems where customers choose among the offered products according to the nested logit model there is a fixed revenue associated with each product the objective is to find an assortment of products to offer so as to maximize the expected revenue per customer we show that the problem is polynomially solvable when the nest dissimilarity parameters of the choice model are less than one and the customers always make a purchase within the selected nest relaxing either of these assumptions renders the problem np hard to deal with the np hard cases we develop parsimonious collections of candidate assortments with worst case performance guarantees we also formulate a convex program whose optimal objective value is an upper bound on the optimal expected revenue thus we can compare the expected revenue provided by an assortment with the upper bound on the optimal expected revenue to get a feel for the optimality gap of the assortment by using this approach our computational experiments test the performance of the parsimonious collections of candidate assortments that we develop

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

optimal product line pricing in the presence of budget constrained consumers abstract the product line pricing problem is generally defined as a seller s task to determine the optimal prices for each product in a product line while accounting for both demand side and supply side restrictions in this paper we contribute to the existing literature by incorporating consumers budget considerations into the seller s optimisation problem despite playing an important role in many applications such as the pricing of tickets for sporting or theatre seasons budget constraints have not been considered in the academic literature in the context of product line pricing to date by building on the assumptions and the model formulation recently proposed in a previous study by burkart w r et al 2012 product line pricing for services with capacity constraints and dynamic substitution european journal of operational research 219 2 347 359 for standard product line pricing we propose a number of new mixed integer linear formulations assuming budget constrained consumers the formulations differ in terms of how consumers handle their individual budget limitations to solve the underlying problems we propose a customised branch and bound procedure that relies on various novel problem specific bound arguments explicitly exploiting the consumers budget limitations experimental tests show that the branch and bound procedure clearly outperforms ibm ilog cplex which is unable to solve problems for even medium sized instances furthermore based on a number of scenarios we derive managerial insights regarding e g the overall impact of considering budget constraints on the seller s revenue as well as the impact of correctly anticipating the type of consumer purchase behaviour

attendance rates political shirking and the effect of post elective office employment attendance rates political shirking and the effect of post elective office employment i introduction political shirking the degree to which a politican s actions deviate from the wishes of his constituents can take many different dimensions economists e g amacher and boyes 1978 davis and porter 1989 dougan and munger 1989 kalt and zupan 1984 lott 1987d nelson and siberberg 1987 and peltzman 1984 have debated whether shirking exists in how a politician votes when he does vote this divergence is measured through some particular special interest voting ratings e g american conservative union americans for democratic action etc however shirking can obviously take as many forms as there are outputs that a politician produces besides how he votes he also produces services for his constituents involving everything from being personally available to listen to the constituents grievances to ensuring effective handling of case work by his staff see for example fiorina 1977 fenno 1978 and cain et al 1987 1 one dimension that has not been sufficiently examined is the extent to which politicians shirk by failing to vote on pending legislation 2 no attention has been given to which mechanisms will make this particular type of shirking relatively more costly most economists agree that opportunitic behavior by politicians is limited by the threat of reelection e g amacher and boyes 1978 barro 1973 kalt and zupan 1984 nelson 1976 and telser 1976 3 by implication the level of shirking should be the greatest when a politician decides to leave office however this opportunistic behavior might be reduced to the extent that political parties or constituencies impose costs for shirking through affecting politicisns post elective office career or the careers of their children thus a politicians last term in elective office may not represent his last period in any meaningful sense the next section outlines the differing views on how politicians act when they no longer face the threat of reelection section iii describes some empirical evidence on what mechanisms may prevent this last period problem the final section discusses the impliactions of these results ii the last period whether economists view politicians as ideologues e g kau and rubin 1979 and kalt and zupan 1984 or as simply attempting to maximize political support e g barro 1973 ferejohn 1986 nelson 1976 and peltzman 1984 the threat of reelection is seen as preventing shirking as kalt and zupan 1984 298 phrase it it appears that the proximity of the next election inhibits ideological shirking even those who do not view the last period as affecting how a politician votes argue that it will affect how often he votes lott 1987a 1987b has argued that if voters can determine and elect politicians that have ideological preferences corresponding exactly to the wishes of constituents politicians voting patterns should continue to reflect those values even when the cost of shirking in terms of forgone future votes is low the penalty to ideologues of not votingfor their constituency in the last period when they no longer face reelection is the forgone utility from not doing what they personally value assuming that politicians also desire leisure politicians should continue to vote for what they believe in but they should vote less frequently since they no longer receive the additional return of larger future support mechanisms to overcome this last period problem have been suggested by becker and stigler 1974 9 10 they argue that opportunistic behavior can be controlled if officeholders face the loss of a pension or equivalently a posted bond in the event of opportunistic behavior in their last term however the actual pension system does not effectively eliminate the last period for politicians since retirement payments are not based on cheating in the last period

a qualitative characterization of the competitive nonrenewable resource extracting firm abstract using variational differential equations a systematic qualitative analysis is carried out for the competitive nonrenewable resource extracting firm the parameters of interest are the output price variable input price discount rate lease length initial resource stock and various tax rates the effects of changes in these parameters on the entire optimal time paths of the current shadow value of the stock the resource stock and the extraction rate are characterized in the perturbed phase plane

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

short run pricing strategies to increase corporate average fuel economy short run pricing strategies to increase corporate average fuel economy i introduction in 1974 the average fuel efficiency of new automobiles sold in the united states reached a low of 14 2 miles per gallon mpg close on the heels of the arab opec oil embargo of 1973 74 and the ensuing petroleum price shocks congress passed the 1975 energy policy and conservation act the act required each manufacturer to meet sales weighted corporate average fuel economy cafe standards beginning with 18 mpg in 1978 and gradually increasing each year to 27 5 mpg in 1985 figure 1 the expressed purpose of the cafe standards was to stimulate the development of technology to improve fuel efficiency the possibility of raising the relative prices of the least energy efficient models as a strategy to meet the standards was considered but only as a last resort 1 although there continues to be intense debate as to whether fuel price increases or the cafe regulations drove the fuel economy improvements of the 1970s and 80s several studies agree that improvements in automotive engineering and design rather than pricing strategies played an overwhelmingly dominant role 2 no empirical evidence supports the effectiveness of using pricing strategies to increase the overall level of automotive fuel economy every year since 1985 automobile manufacturers have successfully petitioned the national highway traffic safety administration which determines the level of the cafe standard to reduce the target from 27 5 to 26 mpg in 1986 88 and 26 5 mpg in 1989 in each case at least one manufacturer argued that it would be unable to meet the original target with its planned product offerings and would have to resort to other strategies that would result in unacceptable economic costs this paper explores a method of estimating the costs of achieving fuel economy goals when pricing strategies are used to alter the distribution of sales the method employs the closed form equation for consumers surplus derived from the multinational logit model of discrete choice discussed by mcfadden 1973 and assumes that manufacturers must bear the full cost of meeting the fuel economy target the estimated cost represents an upper bound on the losses firms would incur by setting prices to minimize loss of profit using econometric estimates of the sensitivity of vehicle choice to vehicle price together with market shares and fuel efficiencies for 1986 i estimate the costs of short term improvements in average fuel economy using pricing strategies for general motors ford and chrysler minor adjustments of up to 1 mpg cost 1 2 percent of the price of a 10 000 car for improvements of 2 mpg or more however pricing strategies become a costly way to improve fuel economy the technique also estimates the market shares for each car line that correspond to the pricing solution it thereby identifies which car lines would be most affected the technique produces precise price changes and market shares for each car line readers should not place too much weight on the apparent precision but should consider the estimates as an approximation the usefulness of which lies in measuring the difficulty of meeting fuel economy targets via pricing strategies alone one can compare the size of these estimates to the fines for failing to meet the standards 50 per mpg per car or to typical manufacturer rebates to stimulate sales often 100 to 2 000 per car ii a formulation of the pricing problem faced with the cafe requirements a firm can respond with engineering and design improvements or by raising the prices of less efficient models and lowering the prices of those that exceed the standard technological improvements generally require a lead time of three to five years very large fluctuations in fuel prices have occurred in far shorter perids figure 1 creating the risk that a manufacturer s product offering could be out of step with the market

stocking retail assortments under dynamic consumer substitution we analyze a single period stochastic inventory model newsboy like model in which a sequence of heterogeneous customers dynamically substitute among product variants within a retail assortment when inventory is depleted the customer choice decisions are based on a natural and classical utility maximization criterion faced with such substitution behavior the retailer must choose initial inventory levels for the assortment to maximize expected profits using a sample path analysis we analyze structural properties of the expected profit function we show that under very general assumptions on the demand process total sales of each product are concave in their own inventory levels and possess the so calleddecreasing differences property meaning that the marginal value of an additional unit of the given product is decreasing in the inventory levels of all other products for a continuous relaxation of the problem we then show via counterexamples that the expected profit function is in general not even quasiconcave thus global optimization may be difficult however we propose and analyze a stochastic gradient algorithm for the problem and prove that it converges to a stationary point of the expected profit function under mild conditions finally we apply the algorithm to a set of numerical examples and compare the resulting inventory decisions to those of some simpler naive heuristics the examples show that substitution effects can have a significant impact on an assortment s gross profits the examples also illustrate some systematic distortions in inventory decisions if substitution effects are ignored in particular under substitution one should stock relatively more of popular variants and relatively less of unpopular variants than a traditional newsboy analysis indicates

the last period problem in politics do congressional representatives not subject to a reelection constraint alter their voting behavior this study of roll call voting behavior in the u s house of representatives empirically documents the existence of an important simultaneity bias in the heretofore much investigated relationship between legislator ideological shirking and the security with which a legislator holds office the results indicate that while greater security allows a policymaker more leeway for ideological consumption increases in ideological on the job consumption also diminish a policymaker s security in office

optimal pricing for a multinomial logit choice model with network effects we consider a seller s problem of determining revenue maximizing prices for an assortment of products that exhibit network effects customers make purchase decisions according to a multinomial logit choice model modified to incorporate network effects so that the utility each individual customer gains from purchasing a particular product depends on the market s total consumption of that product in the setting of homogeneous products we show that if the network effect is comparatively weak then the optimal pricing decision of the seller is to set identical prices for all products however if the network effect is strong then the optimal pricing decision is to set the price of one product low and to set the prices of all other products to a single high value this boosts the sales of the single low price product in comparison to the sales of all other products we also obtain comparative statics results that describe how optimal prices and sales levels vary with a parameter that determines the strengt

heuristics for pricing and positioning a product line using conjoint and cost data designing and pricing a product line is the very essence of every business in recent years quantitative methods to assist managers in this task have been gaining in popularity conjoint analysis is already widely used to measure preferences for different product profiles and build market simulation models in the last few years several papers have been published that suggest how to optimally choose a product line based on such data we formalize this problem as a mathematical program where the objective of the firm is either profit or total welfare unlike alternative published approaches we introduce fixed and variable costs for each product profile the number of products to be introduced is endogenously determined on the basis of their desirability fixed and variable costs and in the case of profits their cannibalization effect on other products while the problem is difficult np complete we show that the maximum welfare problem is equivalent to the uncapacitated plant location problem which can be solved very efficiently using the greedy interchange heuristic based on past published experience with this problem and on simulations we perform we show that optimal or near optimal solutions are obtained in seconds for large problems we develop a new greedy heuristic for the profit problem and its application to simulated problems shows that it too runs quickly and with better performance than various alternatives and previously published heuristics we also show how the methodology can be applied taking existing products of both the firm and the competition into account

testing competitive market structures an accurate understanding of the structure of competition is important in the formulation of many marketing strategies for example in new product launch product reformulation or positioning decisions the strategist wants to know which of his competitors will be most affected and hence most likely to respond many marketing science models have been proposed to identify market structure in this paper we examine the managerial problem and propose a criterion by which to judge an identified market structure basically our criterion is a quantification of the intuitive managerial criterion that a submarket is a useful conceptualization if it identifies which products are most likely to be affected by our marketing strategies we formalize this criterion within the structure of classical hypothesis testing so that a marketing scientist can use statistical statements to evaluate a market structure identified by 1 behavioral hypotheses 2 managerial intuition or 3 market structure identification algorithms mathematically our criterion is based on probabilities of switching to products in the situation where an individual s most preferred product is not available submarkets are said to exist when consumers are statistically more likely to buy again in that submarket than would be predicted based on an aggregate constant ratio model for example product attributes e g brand form size use situations e g coffee in the morning versus coffee at dinner and user characteristics e g heavy versus light users are specified as hypotheses for testing alternate competitive structures measurement and estimation procedures are described and a convergent approach is illustrated an application of the methodology to the coffee market is presented and managerial implications of six other applications are described briefly

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

pricing and product line strategy in a supply chain with risk averse players abstract we study the pricing and product line strategy of a risk averse manufacturer who sells her products through a risk averse retailer we identify the conditions under which the manufacturer extends her product line or replaces the old product with a new product and find that i a higher retailer s risk aversion decreases the retail price but increases the unit wholesale price ii the manufacturer extends the product line if the price caps for both products are sufficiently high both her risk aversion and product substitutability are sufficiently low iii the manufacturer discontinues the old product if the relative price cap of the new product to the old product is sufficiently high her risk aversion is medium and product substitutability are sufficiently high further we find that i the decentralization of supply chain may increase product line length if the retailer s risk aversion and product substitutability are sufficiently high otherwise it may decrease product line length ii the endogenization of quality design increases the motivation to introduce a new product and iii the manufacturer extends or replaces the product line if quality cost is not too high

optimal product line pricing the influence of elasticities and cross elasticities the authors focus on the determination of optimal prices for products in a product line most firms offer more than a single brand and ultimately are concerned with the overall results of the enti

competition based dynamic pricing in online retailing a methodology validated with field experiments a retailer following a competition based dynamic pricing strategy tracks competitors price changes and then must answer the following questions i should we respond ii if so to whom iii how much of a response iv and on which products the answers require unbiased measures of price elasticity as well as accurate estimates of competitor significance and the extent to which consumers compare prices across retailers there are two key challenges to quantify these factors empirically first the endogeneity associated with almost any type of observational data where prices are correlated with demand shocks observable to pricing managers but not to researchers and second the absence of competitor sales information which prevents efficient estimation of a full consumer choice model we address the first issue by conducting a field experiment with randomized prices we resolve the second issue by exploiting the retailer s own and competitors stockouts as a source of variation to the consumer cho

towards a positive theory of political rhetoric why do politicians lie this paper presents a model in which politicians can increase the probability of election by making exaggerated claims about the benefits of their own platform referred to as positive campaigning and by exaggerating the undesirable characteristics of their rival i e negative campaigning such lies may be detected at some point in the future and thus result in a costly loss in reputation thus the politician must tradeoff immediate benefits against potential future costs of course this problem is similar to any commercial endeavor a car maker for example is tempted to claim that his car is better and the competition s is worse than it is but it is shown that the lack of transferable property rights to political office makes lying more likely in political markets it is also shown that there is a natural tendency for politicians to engage in more negative campaigning

morphological analysis of energy services paving the way to quality differentiation in the power sector abstract the activation of the still predominantly passive demand side is necessary to further guarantee a stable power system in the short term and ensure capacity adequacy in the long run a system with a high share of generators with nearly no marginal costs requires new services that facilitate transmitting the right economic signals to the system stakeholders to this end we refine the notion of energy services and propose a framework to systematically design quality differentiated energy services for consumers this approach facilitates a value based economic assessment of energy services that deviates from the marginal cost paradigm we further illustrate pricing options for these new energy service products and outline infrastructural needs and additional use case specific product properties moreover we discuss how the morphological approach can be formalised using a mathematical programming formulation and introduce a complexity measure that facilitates assessing potential adoption obstacles for end consumers additionally we illustrate the practical applicability of these findings by using a prototypical implementation of a decision support system to foster differentiated energy services we recommend a more lenient regulatory regime lowering the barriers for new market entrants

product development decisions a review of the literature this paper is a review of research in product development which we define as the transformation of a market opportunity into a product available for sale our review is broad encompassing work in the academic fields of marketing operations management and engineering design the value of this breadth is in conveying the shape of the entire research landscape we focus on product development projects within a single firm we also devote our attention to the development of physical goods although much of the work we describe applies to products of all kinds we look inside the black box of product development at the fundamentaldecisions that are made by intention or default in doing so we adopt the perspective of product development as a deliberate business process involving hundreds of decisions many of which can be usefully supported by knowledge and tools we contrast this approach to prior reviews of the literature which tend to examine the importance of environmental and contextual variables such as market growth rate the competitive environment or the level of top management support

the effect of the discount rate on depletion of exhaustible resources this paper argues that despite its widespread acceptance in the literature the basic proposition that a reduction an increase in the discount rate leads to greater conservation faster depletion of an exhaustible resource is not generally valid it shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock in fact it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed

prescribing product upgrades prices and production levels over time in a stochastic environment abstract competitive pressures cause the price of high technology products to erode over time the purpose of this paper is to describe a decision support tool to maximize profit by prescribing three related decisions product upgrading pricing and production levels a stochastic dynamic programming dp model prescribes when to upgrade a product and what new technologies to incorporate to maintain product competitiveness and profit margins it deals with the two major sources of risk demand and the lead time required to complete an upgrade the objective of the dp model is to maximize expected profit over a given planning horizon decision variables prescribe which alternative upgrades to implement and when pricing and production levels benchmarking computational tests are described along with an example demonstrating model application managers can use this dp model to coordinate decisions related to product upgrading pricing and operations management to better meet business objectives

political shirking opponent quality and electoral support several recent papers in the public choice literaturesuggest that legislators shirk or vote in a mannercontrary to constituent interest this paper exploresthe relationship between senatorial shirking andelectoral consequences i model political shirking opponent quality and election outcomes assimultaneous and find significant evidence of arelationship between shirking over the senatorial termand electoral outcomes however i find that voterspunish recent shirking much more than they punishearly term shirking and that senators apparently actconsistently with this relationship

willingness to pay estimation with choice based conjoint analysis addressing extreme response behavior with individually adapted designs the increasing consideration of behavioral aspects in operations management models has prompted greater use of choice based conjoint cbc studies in operations research such studies can elicit consumers willingness to pay wtp a core input for many optimization models however optimization models can yield valid results only if consumers wtp is estimated accurately a simulation study and two field studies show that extreme response behavior in cbc studies such that consumers always or never choose the no purchase option harms the validity of wtp estimates reporting the share of consumers who always and never select the no purchase option allows for detecting extreme response behavior this study suggests an individually adapted design that avoids extreme response behavior and thus significantly improves wtp estimation accuracy

practice prize winner pricing digital content product lines a model and application for the national academies press we examine the problem of how a content provider specifically the national academies press nap can optimally price the different forms of its product print and pdf that it sells online whereas products in the traditional product line generally tend to be substitutes the different content product forms could range from being substitutes to being complements across customers thus the content provider can possibly sell bundles of the product forms leading to additional revenue we first discuss nap s decision context and describe the model we proposed for developing nap s optimal pricing policies for its different forms we describe the choice experiment we conducted on the publisher s website that maximally uses the online interface to collect relevant data needed to estimate our model we show how nap embraced the results from the model for developing a new business model and how it used the insights derived from the study to set pricing policies and monitor sales performance as a function of pricing finally we perform validation of the model and the implemented policies using dynamic modeling of sales data from nap s website the paper illustrates how e commerce technologies can lead to the development of optimal policies using marketing models

the taxation of nonreplenishable natural resources revisited abstract the theory of nonreplenishable resource extraction has been extended to allow for extraction costs which increase as deposits are increasingly depleted in these cases profit maximization may result in the cessation of extraction before reserves are totally exhausted the effect of various taxation policies on optimal extraction patterns in these models are derived with a few exceptions the results are that the imposition of a tax will cause operators to extract at faster rates over shorter periods of time and to reduce the total amount of ore extracted the analysis allows for an output price which increases over time

a nonparametric approach to multiproduct pricing developed by general motors gm the auto choice advisor website http www autochoiceadvisor com recommends vehicles to consumers based on their requirements and budget constraints through the website gm has access to large quantities of data that reflect consumer preferences motivated by the availability of such data we formulate a nonparametric approach to multiproduct pricing we consider a class of models of consumer purchasing behavior each of which relates observed data on a consumers requirements and budget constraint to subsequent purchasing tendencies to price products we aim at optimizing prices with respect to a sample of consumer data we offer a bound on the sample size required for the resulting prices to be near optimal with respect to the true distribution of consumers the bound exhibits a dependence of o n log n on the number n of products being priced showing thatin terms of sample complexitythe approach is scalable to large numbers of products with regards to computational complexity we establish that computing optimal prices with respect to a sample of consumer data is np complete in the strong sense however when prices are constrained by a price ladderan ordering of prices defined prior to price determinationthe problem becomes one of maximizing a supermodular function with real valued variables it is not yet known whether this problem is np hard we provide a heuristic for our price ladder constrained problem together with encouraging computational results finally we apply our approach to a data set from the auto choice advisor website our analysis provides insights into the current pricing policy at gm and suggests enhancements that may lead to a more effective pricing strategy

personalized pricing and quality differentiation we develop an analytical framework to investigate the competitive implications of personalized pricing pp whereby firms charge different prices to different consumers based on their willingness to pay we embed pp in a model of vertical product differentiation and show how it affects firms choices over quality we show that firms optimal pricing strategies with pp may be nonmonotonic in consumer valuations when the pp firm has high quality both firms raise their qualities relative to the uniform pricing case conversely when the pp firm has low quality both firms lower their qualities although many firms are trying to implement such pricing policies we find that a higher quality firm can actually be worse off with pp while it is optimal for the firm adopting pp to increase product differentiation the non pp firm seeks to reduce differentiation by moving in closer in the quality space while pp results in a wider market coverage it also leads to aggravated price competition between firms because this entails a change in equilibrium qualities the nature of the cost function determines whether firms gain or lose by implementing such pp policies despite the threat of first degree price discrimination we find that pp with competing firms can lead to an overall increase in consumer welfare

designing a family of development intensive products faced with fragmented markets saturated and demanding customers and global competition firms increasingly must design and offer a line of innovative quality differentiated products to target customers with differing willingness to pay wtp in this context designing a special class of products that we term development intensive products dips for which the fixed costs of development far outweigh the unit variable costspresents some unique managerial challenges examples of such development intensive offerings abound in a number of industries including the pharmaceutical information and entertainment sectors of the economy our contributions in this paper are threefold a to show that managerial insights from the traditional approach to product line design developed for unit variable cost intensive products do not carry over to dips b to present new mechanisms and managerial guidelines for designing a family of products for which development costs cannot be ignored and c to illustrate the insights with an extended industry example we find that the design approach based on degrading or subtracting value from a high end product to obtain a subsumed low end edition shown in the literature to be an effective approach for designing unit cost intensive products can be inappropriate for dips this limitation of value subtraction has implications for the number of variants and the sequence in which they are developed as an alternative to a subsumed product design strategy we propose and examine the overlapped product design approach in which a low end product is not completely subsumed within its high end counterpart but differentiated on additional vertical quality dimensions our results both explain the recent challenges of firms with subsumed low end products and guide them in designing a product line to successfully address emerging low end market segments

technical note pricing under the nested attraction model with a multistage choice structure we develop a solution approach to the centralized pricing problem of a nested attraction model with a multistage tree structure we identify conditions under which the optimal solution can be uniquely determined and we characterize the optimal solution as a fixed point of a single variable in the special case of a multistage nested logit model we show the impact of asymmetry in price sensitivity and adjustment index also known as the dissimilarity index and we derive a closed form solution when the tree structure is symmetric many existing results in the literature regarding the single or two stage nested attraction model are shown to be special cases of the results we have derived we show that the equal markup property which holds for the single stage logit model with symmetric price sensitivity in general does not hold for products that do not share the same immediate parent node in the nested choice structure even when price sensitivities are the same for all products

the demand for local telephone service a fully discrete model of residential calling patterns and service choices we present an empirical model of households choices among local telephone service options for example between flat rate and measured service and the interrelation of these choices with the number and average duration of local calls households make at each time of day to each geographical zone using a nested logit model with estimation performed on a randomly selected subset of the households calling patterns we calculate elasticities of demand for each local service option number of calls average duration and revenues with respect to the fixed monthly charges and the usage charges for calling under each option we find moderate price elasticities of number of calls with respect to usage charges for households subscribing to measured service nevertheless raising usage charges has a negligible effect on revenues since a sufficient number of households either originally subscribe to flat rate service or convert to flat rate service in response to higher usage charges we find a high elasticity of demandfor each service option with respect to itsfixed monthlyfee this indicates high substitutability among service options the shift among service options induces new calling patterns which wefind to be a small but not negligible indirect effect e most telephone operating companies offer residential customers several options for local service there are two general categories of service flat rate service under which a household can for a fixed monthly charge make an unlimited number of calls within a specified geographical area and measured service for which the household pays a lower fixed monthly fee but can make only a specified number or dollar value of calls at no extra charge after which charges are incurred for additional calls various flat rate services differ in the size of the geographical area in which calling is at no extra charge with higher monthly fees for larger areas measured services differ with respect to the threshold number or dollar value of calls beyond which the customer is charged

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

the d level nested logit model assortment and price optimization problems we consider assortment and price optimization problems under the d level nested logit model in the assortment optimization problem the goal is to find the revenue maximizing assortment of products to offer when the prices of the products are fixed using a novel formulation of the d level nested logit model as a tree of depth d we provide an efficient algorithm to find the optimal assortment for a d level nested logit model with n products the algorithm runs in o d n log n time in the price optimization problem the goal is to find the revenue maximizing prices for the products when the assortment of offered products is fixed although the expected revenue is not concave in the product prices we develop an iterative algorithm that generates a sequence of prices converging to a stationary point numerical experiments show that our method converges faster than gradient based methods by many orders of magnitude in addition to providing solutions for the assortment and price optimization problems