asymmetric promotion effects and brand positioning several studies have shown that promotions of national brands yield more effect than those of store brands e g allenby and rossi 1991 blattberg and wisniewski 1989 however the evolution of price quality data available from consumer reports over the last 15 years seems to reveal a reduction of the quality gap between store brands and national brands while price differences remain substantial simultaneously the share of private label brands has increased progressive grocer 1994 in this context we study whether we can maintain a view of the world where national brands may easily attract consumers from store brands through promotions whereas store brands are relatively ineffective in attracting consumers from national brands by such means we analyze consumer reactions to price discounts in a parsimonious preference model featuring loss aversion and reference dependence along dimensions of price and quality hardie johnson and fader 1993 tversky and kahneman 1991 the key result of our analysis is that given any two brands there is an asymmetric promotion effect in favor of the higher quality higher price brands if and only if the quality gap between the brands is sufficiently large in comparison with the price gap thus the direction of promotion asymmetry is not unconditional it depends uniquely on the value of the ratio of quality and price differences compared to a category specific criterion which we call if the ratio of quality and price differences is larger than this criterion the usual asymmetry prevails if such is not the case the lower quality lower price brands promote more effectively more precisely our model predicts that cross promotion effects depend on two components of brand positioning in the price quality quadrant first we define a variable termed positioning advantage that indicates whether relative to the standards achieved by another brand a given brand is underpriced positive advantage or overpriced negative advantage promotion effectiveness is increasing in this variable second cross promotion effects between two brands depend on their distance in the price quality quadrant this variable impacts promotion effectiveness negatively and symmetrically for any pair of brands positioning advantage and brand distance are orthogonal components of brand positioning irrespective of the degree of correlation between available price and quality levels in the market empirically we investigate the role of brand positioning in explaining cross promotion effects using panel data from the chilled orange juice and peanut butter categories we compute the independent positioning variables positioning advantage and brand distance from readily available data on price and quality positioning after obtaining our estimates of we next measure promotion effectiveness by estimating choice share changes in response to a price discount using a choice model that does not contain any information about quality price ratios finally we test the relation between the two positioning variables and the promotion effectiveness measures the data reveal that in the orange juice category lower quality lower price brands generally promote more effectively than higher quality higher price brands in the peanut butter data the opposite asymmetry holds in both cases inter brand promotion patterns are well explained by the positioning variables an attractive feature of our model is that in addition to the direction of promotion asymmetries it also explains the extent of those asymmetries a further interesting aspect of this approach is that we go beyond a categorization of brands into price tiers for instance lower tier brands in our data may promote more effectively than one national brand but less effectively than another consistent with our theoretical predictions the data presented here seem to confirm that such cases occur because the lower tier brand offers a favorable trade off of price and quality differences compared with one national brand and a less favorable trade off compared with the other the content of this paper is potentially relevant for brand managers or retailers concerned with predicting the impact of their promotions the paper is of particular interest to marketing scientists who study the performance of store brands versus national brands and may also appeal to those who wish to explore the marketing implications of behavioral decision theory finally our investigation does not reject blattberg and wisniewski s 1989 finding shared by allenby and rossi 1991 and hardie johnson and fader 1993 that national brands have a principle advantage in promotion effectiveness rather it formalizes when this principle advantage is overruled by positioning disadvantages of such brands

wars and state capacity the article builds a simple model to investigate how different types of armed conflict shape fiscal capacity the state s ability to raise revenue from taxes it starts from the simple observation

a model of how discounting high priced brands affects the sales of low priced brands drawing on a consumer preference distribution structure postulated in analytical modeling research the author develops a separate effects model that separates the total discount effect of a compet

the connection between public transfers and private interfamily transfers abstract this paper investigates the anti poverty effectiveness of public transfers taking private transfer responses into account widespread altruistically motivated private transfers would neutralize the distributional impact of public transfers but exchange motivated transfers can reinforce the effects of public transfers on the distribution of economic well being the common technique for gauging anti poverty effectiveness subtracting public transfers from other income and measuring the poverty rate counterfactual yields results that are close to a more complex procedure that takes private transfer responses into account and some of the empirical findings suggest an exchange rather than altruistic motive for private transfers indicating that the effects of public transfers can be magnified by private behavior this is an exact reversal of the prediction that public transfers merely supplant private ones

mental accounting and changes in price the frame dependence of reference dependence mental accounting principles for multiple events were replicated and then extended to pricing situations that were designed to moderate these principles if reference dependence is proportional i e if consumers evaluate events in terms of proportional deviations from reference states rather than raw deviations prices were stated with or without popular percentage based pricing frames such as 33 off mental accounting principles generally prevailed in the absence of percentage based frames however percentage based frames altered two principles and increased tendencies toward the others the findings demonstrate that mental accounting principles price perception and reference dependence are sensitive to the ways in which deviations from reference states are framed

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

how well do children insure parents against low retirement income an analysis using survey data from urban china abstract as population aging becomes more pronounced in the developing world the uneven implementation of social safety nets raises important questions as to how well traditional family based mechanisms insure elderly incomes when pension systems fail using a unique dataset from a recent household survey conducted in urban china we find evidence that private transfers respond to low household income of retired workers when income falls below the poverty line this finding is consistent with an altruistic motive for transfers at low levels of household income at the same time however the transfer response to elderly pre transfer income is not sufficient to fully cover shortfalls that arise with severe pension arrears and low retirement income

what shapes player performance in soccer empirical findings from a panel analysis in this article we investigate the pay performance relationship of soccer players using individual data from eight seasons of the german soccer league bundesliga we find a nonlinear pay performance relationship indicating that salary does indeed affect individual performance the results further show that player performance is affected not only by absolute income level but also by relative income position an additional analysis of the performance impact of team effects provides evidence of a direct impact of team mate attributes on individual player performance

asymmetric and neighborhood cross price effects some empirical generalizations this paper provides some empirical generalizations regarding how the relative prices of competing brands affect the cross price effects among them particular focus is on the asymmetric price effect and the neighborhood price effect the asymmetric price effect states that a price promotion by a higher priced brand affects the market share of a lower priced brand more so than the reverse the neighborhood price effect states that brands that are closer to each other in price have larger cross price effects than brands that are priced farther apart the main objective of this paper is to test if these two effects are generalizable across product categories and to assess which of these two effects is stronger while the neighborhood price effect has not been rigorously tested in past research the asymmetric price effect has been validated by several researchers however these tests of asymmetric price effect have predominantly used elasticity as the measure of cross price effect the cross price elasticity measures the percentage change in market share or sales of a brand for 1 change in price of a competing brand we show that asymmetries in cross price elasticities tend to favor the higher priced brand simply because of scaling effects due to considering percentage changes furthermore several researchers have used logit models to infer asymmetric patterns we also show that inferring asymmetries from conventional logit models is incorrect to account for potential scaling effects we consider the absolute cross price effect defined as the change in market share percentage points of a target brand when a competing brand s price changes by one percent of the product category price the advantage of this measure is that it is dimensionless hence comparable across categories and it avoids scaling effects we show that in the logit model with arbitrary heterogeneity in brand preferences and price sensitivities the absolute cross price effect is symmetric we develop an econometric model for simultaneously estimating the asymmetric and neighborhood price effects and assess their relative strengths we also estimate two alternate models that address the following questions i if i were managing the ith highest priced brand which brand do i impact the most by discounting and which brand hurts me the most through price discounts ii who hurts whom in national brand vs store brand competition based on a meta analysis of 1 060 cross price effects on 280 brands from 19 different grocery product categories we provide the following empirical generalizations 1 the asymmetric price effect holds with cross price elasticities but tends to disappear with absolute cross price effects 2 the neighborhood price effect holds with both cross price elasticities and absolute cross price effects and is significantly stronger than the asymmetric price effect on both measures of cross price effects 3 a brand is affected the most by discounts of its immediately higher priced brand followed closely by discounts of its immediately lower priced brand 4 national brands impact store brands more so than the reverse when the cross effect is measured in elasticities but the asymmetric effect does not hold with absolute effects store brands hurt and are in turn hurt the most by the lower priced national brands that are adjacent in price to the store brands 5 cross price effects are greater when there are fewer competing brands in the product category and among brands in nonfood household products than among brands in food products the implications of these findings are discussed

the effect of social capital on group loan repayment evidence from field experiments an important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending this research presents evidence from field experiments in south africa and armenia in which subjects participate in trust and microfinance games we present evidence that personal trust between group members and social homogeneity are more important to group loan repayment than general societal trust or acquaintanceship between members we also find some evidence of reciprocity those who have been helped by other group members in the past are more likely to contribute in the future during the past decade exploring the role that social capital plays in economic behaviour has emerged as one of the most fascinating and fertile areas of economic research although precise definitions of social capital are notoriously difficult to pin down one of the early pioneers of the concept coleman 1988 defines social capital as social structure that facilitates certain actions of actors within the structure in his definition coleman specifically highlights the roles of mutual obligation expectations and trustworthiness social norms social sanctions and the transmission of information important studies in both developed and developing countries have analysed the impact of social capital in economic relationships putnam s celebrated work making democracy work civic traditions in modern italy 1993 and bowling alone america s declining social capital 1995 brought attention to the role that social capital plays in the development of the modern state udry s ground breaking 1994 work in nigeria illustrated how the social capital existing in traditional societies may allow for more efficient credit contracts than in developed economies with weaker social

could ralph nader s entrance and exit have helped al gore the impact of decoy dynamics on consumer choice abstract people are frequently faced with making a new choice decision after a preferred option becomes unavailable prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options the authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo in a series of experiments they observe that when an option turns out to be unselectable following a choice problem in which it was selectable the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start they also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria they conclude with a discussion of the theoretical and managerial implications of the research

asymmetric decoy effects on lower quality versus higher quality brands meta analytic and experimental evidence prior research demonstrates that adding decoys to choice sets can increase choice shares of brands similar to decoys while reducing shares of brands dissimilar to decoys such effects have been dubbed attraction effects and violate the principles of independence of irrelevant alternatives ha and regularity we report a meta analysis that in addition to revealing heretofore unsupported range effects demonstrates an effect of brand quality decoys reduce shares of lower quality competitors more than they reduce shares of higher quality competitors moreover whereas iia is violated throughout regularity is violated only when higher quality brands are targeted decoys increase shares of higher quality brands but typically do not increase shares of lower quality brands to assess the generalizability of the meta analytic pattern we tested decoy effects on two distinct populations in a large experiment the more traditional population replicated the meta analytic pattern standard asymmetry while the more nontraditional population reversed it these findings suggest that while the standard asymmetry is replicable it may not generalize to all market segments

bequest and wealth accumulation are some pieces of the puzzle missing the lively debate between laurence j kotlikoff and franco modigliani presented in the spring 1988 issue of this journal concerns an old question what is the main motivation for saving and therefore for the accumulation of wealth more specifically what are the respective contributions to aggregate wealth of 1 saving for retirement also known as hump saving 2 precautionary savings and unintended bequests due to uncertainty about the length of life and 3 planned bequests of course other wealth holding motives are possible but let us follow kotlikoff and modigliani in setting them aside for now if modigliani s life cycle hypothesis is to be viewed as a close to approximation of reality then the bulk of existing wealth should have resulted from some combination of hump and precautionary saving our comment on this dispute attempts to advance two issues first the controversy involves an enormous gap between empirical estimates of the share of inherited wealth in total accumulation even though the estimates are often based on the same data we hope to clarify why the estimates vary so widely second the kotlikoff modigliani dispute is presented as an american issue with little extension abroad we will present some results from other countries that bear on the controversy some of the estimates from kotlikofi s paper originated in a 1981 paper he wrote with lawrence summers which is why we sometimes refer to his position as the kotlikoff summers argument in this comment the problem of conceptualizing the contribution of bequest to aggregate savings can be summarized with a thought experiment assume all bequests were confiscated

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

incorporating reference price effects into a theory of consumer choice although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior little formal theoretical work had been undertaken to date this paper incorporates reference price effects into the traditional economic theory of consumer choice and examines the effects of reference price formation on the results of the traditional theory its marketing implications and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior several implications of the theoretical model are empirically tested using weekly retail egg sales data from southern california this analysis indicates that reference price formation does have significant effects on consumer behavior furthermore these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

on modeling the advertising operations interface under asymmetric competition abstract using a market share attraction structure of advertising competition and following a supermodular game approach this article demonstrates for an asymmetric oligopoly the directional impact of changes in model parameters on the marketing controlled variables of all rivals advertising budgets and the operations controlled variables of all rivals ordered quantities importantly the various changes are examined analytically empirically and numerically in both non dominated and dominated asymmetric oligopolies in this regard the results indicate that firms in a dominated oligopoly one firm of market share larger than or equal to 50 behave differently compared to firms in a non dominated oligopoly each firm of market share less than 50 in response to changes in model parameters furthermore changes in model parameters are investigated in terms of their relative influential impact on a variety of equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters exert much more influence on the equilibrium measures than the operations parameters additionally a change in the mode of competition from non cooperation oligopoly to cooperation joint ownership dictates that strong asymmetric firms of favorable marketing and operations parameters continue advertising but at lower levels and weak asymmetric firms of less favorable parameters cease advertising altogether

motivations to remit evidence from botswana in this article a theory of motivations to send remittances is described and tested with data from botswana altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in botswana a refinement of the model stipulates a modified altruism or enlightened self interest in this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit the household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains the household strategy is similar to an insurance policy where migration is to places where market potential is high the risks incurred might be high the example is given of migration during a drought in botswana migrant remittances were greater in households with more cattle or households with more to lose drought alone was not statistically related to remittances increases in remittances were related to increased levels of education it is suggested that repayment was the motive for parents investment in migrants education migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to it is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare it is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants

social security in a moral economy an empirical analysis for java private transfer payments are modeled as outcomes of a constrained social choice pro blem facing donors the approach is applied to a large household leve l data set for java and hypotheses are tested concerning the performa nce of the moral economy as a social security system transfer be havior is found to be very different between rural and urban areas w hile transfer receipts and outlays are income inequality reducing in rural areas this is not the case in urban areas there is also evidence of transfers being targeted to disadvantaged households such as the sick elderly and for urban areas the unemployed copyright 1988 by mit press

the effect of local consideration sets on global choice between lower price and higher quality a set of alternatives under consideration is often divided into subsets or local sets by some external e g product display format at the store or internal e g a decision rule factor we propose that the manner in which a global set of alternatives varying in price and quality is divided into local sets can have a systematic effect on consumer choice between a lower price alternative and a higher quality alternative three such effects are investigated 1 consumers who first choose from pairs of products a b b c a c and then choose from the set of all three products a b c are more likely to prefer the cheapest alternative than consumers who only choose from the complete set 2 the choice share of a low price low quality brand is greater when alternatives varying in price quality and features are displayed by brand i e each display presents different models of one brand as compared to a display by feature level i e each display presents comparable models of different brands and 3 consumers considering a pair of two option local sets each consisting of different brands and feature levels e g a feature enhanced model of a low quality brand vs a basic model of a high quality brand are more likely to select a feature enhanced model from the global set of four options than those who consider the same alternatives in other local set configurations or consider only the global set these predictions were supported in seven studies which also provided insights into the boundaries of the effects focusing on the paired comparison effect we discuss the theoretical and practical implications of the findings

optimal contracting with endogenous social norms research in sociology and ethics suggests that individuals adhere to social norms of behavior established by their peers within an agency framework we model endogenous social norms by assuming that each agent s cost of implementing an action depends on the social norm for that action defined to be the average level of that action chosen by the agent s peer group we show how endogenous social norms alter the effectiveness of monetary incentives determine whether it is optimal to group agents in a single or two separate organizations and may give rise to a costly adverse selection problem when agents sensitivities to social norms are unobservable

estimation of a composite food demand system for the united states this study develops statistical procedures for computing the parameters of a complete demand system a constrained maximum likelihood method has been applied and parametric restrictions derived from classical demand theory are introduced by a substitution approach the procedures are then applied to u s data for estimating a composite food demand system covering 12 food categories and one nonfood sector

contract preferences and performance for the loss averse supplier buyback vs revenue sharing prior theory claims that buyback and revenue sharing contracts achieve equivalent channel coordinating solutions when applied in a dyadic supplier retailer setting this suggests that a supplier should be indifferent between the two contracts however the sequence and magnitude of costs and revenues i e losses and gains vary significantly between the contracts suggesting the supplier s preference of contract type and associated contract parameter values may vary with the level of loss aversion we investigate this phenomenon through two studies the first is a preliminary study investigating whether human suppliers are indeed indifferent between these two contracts using a controlled laboratory experiment with human subjects taking on the role of the supplier having to choose between contracts we find that contract preferences change with the ratio of overage and underage costs for the channel i e the newsvendor critical ratio in particular a buyback contract is preferred for products wit

adding asymmetrically dominated alternatives violations of regularity and the similarity hypothesis an asymmetrically dominated alternative is dominated by one item in the set but not by another adding such an alternative to a choice set can increase the probability of choosing the item that dominates it this result points to the inadequacy of many current choice models and suggests product line strategies that might not otherwise be intuitively plausible

empirical generalizations from reference price research considerable theoretical justification for consumers use of psychological reference points exists from the research literature from a managerial perspective one of the most important applications of this concept is reference price an internal standard against which observed prices are compared in this paper we propose three empirical generalizations that are well supported in the marketing literature first there is ample evidence that consumers use reference prices in making brand choices second the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process third consistent with other research on loss aversion consumers have been found to be more sensitive to losses i e observed prices higher than reference prices than gains we also propose topics for further research on reference prices

tests of market outcomes with asymmetric valuations of gains and losses smaller gains fewer trades and less value abstract the pervasive finding that individuals value losses more than gains suggests that actual gains from trade and numbers of market exchanges may well be much smaller than would be the case if people s buying and selling prices were equivalent as normally assumed the results of two sets of costless market simulations using actual gain and loss valuations show that the actual gains from exchange and trade volumes are less than half of those expected with conventional assumptions and that completion of all pareto efficient exchanges fail by wide margins to shift entitlements to those willing to pay the most for them these findings suggest the valuation disparity has significant welfare implications and may be a major cause of market stickiness

motives for household private transfers in burkina faso abstract resource transfers among households have received considerable interest among economists in recent years two of the main reasons for the surge of interest in household transfers are the information on human nature conveyed by transfer behavior and the implication on income redistribution policy that private transfer might have empirical studies however provide mixed results on transfer behavior this is because previous inquiries were confronted with several estimation issues and have focused on data from developed countries where private transfers are already small this paper contributes to the literature on transfer behavior by using a multifaceted econometric approach to examine the motives of household transfers in burkina a low income country with a well documented tradition of gift exchanges the findings suggest that risk sharing is not central to transfers altruistic transfers are apparent for the middle income class but not at low income level the evidence implies that crowding out may be minimal at low income level suggesting that public transfers targeting poor households may be effective

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

new products the antidote to private label growth abstract as private labels pls continue to grow in power and market share product innovation has become one of the strongest weapons in the national brand nb manufacturer s arsenal in this article the author assesses when and to what extent new products change nbs market position to address this question more than 300 nb and pl introductions are analyzed using a multibreak model that quantifies the impact of product introductions on own share rival nb and pl share and category sales drawing on empirical generalizations the author finds that products introduced by leading nbs standard pls and premium pls are more likely to increase category sales than products introduced by follower nbs or economy pls new products introduced by leader and follower nbs more often boost own share thus new products help prevent the decline of nb shares with respect to competitive impact new products affect rival shares with the exception of those launched by economy pls still nbs tend to hurt rival nbs

price transmission and local market power empirical evidence from the austrian gasoline market we analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics speed and asymmetry of price transmission using data for a large number of indiv

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

the endowment effect in games abstract in a laboratory experiment we study whether the endowment effect exists in a social and strategic context we employ a within subjects design whereby participants are asked for their willingness to accept wta or willingness to pay wtp to play a series of 2 2 games in the second part of the experiment we study the endowment effect in lotteries with the same payoffs as the games in the first part our findings provide robust evidence for the endowment effect both in games and in lotteries with the size of the effect actually being larger in games than in lotteries we also find that the endowment effect can partly be attributed to optimism

motives for private transfers over the life cycle an analytical framework and evidence for peru abstract this paper tests for the motives for private income transfers we consider two motives altruism and exchange the question of private transfer motives is important because such motivation can influence the effects of public income transfers on the distribution of income using a household survey for peru we find that transfer amounts received increase with recipient pre transfer income which contradicts a key prediction of the strong form of the altruism hypothesis but is consistent with exchange we also find that capital market imperfections are likely to be an important cause of private transfers and that social security benefits crowd out the incidence of private transfers

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

altruism in networks we provide the first analysis of altruism in networks agents are embedded in a fixed network and care about the well being of their network neighbors depending on incomes they may provide financial support to their poorer friends we study the nash equilibria of the resulting game of transfers we show that equilibria maximize a concave potential function we establish existence uniqueness of equilibrium consumption and generic uniqueness of equilibrium transfers we characterize the geometry of the network of transfers and highlight the key role played by transfer intermediaries we then study comparative statics a positive income shock to an individual benefits all for small changes in incomes agents in a component of the network of transfers act as if they were organized in an income pooling community a decrease in income inequality or expansion of the altruism network may increase consumption inequality

do markets reveal preferences or shape them we contrast the proposition that markets reveal independently existing preferences with the alternative possibility that they may help to shape them using demand revealing experimental market institutions we separate the shaping effects of price cues from the effects of market discipline we find that individual valuations and prevailing prices are systematically affected by both exogenous manipulations of price expectations and endogenous but divergent price feedback these effects persist to varying degrees in spite of further market experience in some circumstances market experience may actually consolidate them we discuss possible explanations for these effects of uninformative price cues on revealed preferences

modelling the effectiveness of climate policies how important is loss aversion by consumers abstracts reliable decarbonisation policies can only be developed with a thorough understanding of how consumers choose between energy technologies current energy models assume optimal consumer decisions which may result in expectations of the effectiveness of climate policies that are far too optimistic prospect theory on the other hand aims to model real life choices based on empirical observations that losses have a relatively larger influence on decisions than gains relative to a reference point here we show for the first time how loss aversion can be included into a global energy model with high spatial resolution using heating technology uptake as a case study we simulate the future heating technology diffusion for 59 world regions covering the globe with and without the consideration of loss aversion we find that ignoring the implications of loss aversion overestimates the market uptake of renewables in individual countries as well as on the global level as a consequence loss aversion results in higher projected co2 emissions by households and the need for much stronger policy instruments for achieving decarbonisation targets in the case of residential heating a carbon tax of 200 tco2 is projected to reduce overall emission levels to a similar extent than a carbon tax of 100 tco2 without the consideration of loss aversion even for similar degrees of decarbonisation accounting for loss aversion implies substantial changes in the underlying technology composition technology choices become subject to a conservative shift towards low carbon technologies which are relatively less efficient but already more established in local markets

soccer and national culture estimating the impact of violence on 22 lads after a ball sports have been recently conceptualized as an effective tool for development questioning that argument recent evidence suggests that the practice of soccer reveals national cultures of violence prevailing in players countries of origin we model violent behaviour in the soccer pitch as a function of game specific controls as well as socioeconomic political cultural and conflict variables characterizing players home countries we construct a database for the latin american 2008 libertadores cup competition and find that across multiple specifications and estimating techniques only game specific variables determine sanctions to violent actions there are three compatible explanations for this result highly skilled soccer players may not be representative average citizens violent conflicts may not necessarily cause a violent culture affecting all corners of society and even when violent cultures are transmitted to individual players those values do not condition significantly their behaviour duri

optimal decisions for the loss averse newsvendor problem under cvar abstract most of the existing literature about the newsvendor problem mainly focused on choosing an optimal order quantity to maximize the expected profit of a risk neutral newsvendor however some studies pointed out that in practice managers decisions as to order quantities always deviate from the profit maximization order quantity which is referred to as decision bias in the newsvendor problem then many studies introduced other preferences rather than risk neutrality of the newsvendor to explain such a decision bias this paper thus introduces loss aversion to the research of the newsvendor decision bias we propose a new definition to the loss averse newsvendor problem legacy loss which is defined either as the loss for excess order or the shortage penalty for lost sales when sales time is due the optimal decisions of a loss averse newsvendor are obtained through the following three ways i minimizing the expected legacy loss ii minimizing cvar of legacy loss by combining the cvar measure in risk management iii minimizing the combination of expected legacy loss and cvar of legacy loss and are compared with other existing results besides we present some properties of the optimal decisions as well as relations among them some numerical examples are given to illustrate the obtained results

dual role of price and myopia in a marketing channel abstract in this paper we study a dynamic two player channel where the manufacturer controls the wholesale price and the investment in quality and the retailer chooses the retail price we consider that the retail price affects both the demand and the perceived quality of the brand and that its variations contribute to the building of an internal reference price one of the model s distinctive features is that it accounts for the two meanings of price i e its classical objective measure of the cost of acquiring a particular quantity of the product and its subjective roles as an assessment of the quality of the product and an evaluation of gains or losses deal vs sacrifice resulting from buying a cheap or an expensive product this dual computation is done with respect to the internal reference price our objective is to investigate the impact of retailer s myopia on the pricing strategies and payoffs of channel members in this context a myopic retailer is an agent that disregards the effects of its pricing strategy on the evolution of the perceived brand quality and the reference price

increasing returns and the evolution of violent crime the case of colombia abstract this paper presents an explanation of the recent escalation of violent crime in colombia the paper considers three implicit models that isolate different types of externalities among criminals in the first model criminals make crime more appealing to nearby residents by congesting the law enforcement system and hence lowering the probability of punishment in the second model the interaction of career criminals and local crooks speeds up the diffusion of criminal know how and criminal technology in the third model the daily contact of youth with criminal adults and criminal peers results in the erosion of morals and hence in a greater predisposition toward crime the paper shows that a myriad empirical evidence both statistical and anecdotal lends support to the previous models in general and to the congestion in law enforcement model in particular

biased valuations damage assessments and policy choices the choice of measure matters abstract damages from for example an oil spill can be measured by how much people are willing to pay to avoid them or by the minimum compensation they demand to accept them and decisions to clean up can be justified by the willingness to pay to do it or by the compensation necessary to forgo it contrary to the usual official and unofficial conventions that the choice of measure is of no matter the empirical evidence and intuitions of most people strongly suggest otherwise the appropriate choice of measure appears to turn not on legal entitlements but on the reference state people use to judge negative and positive changes a criteria that is likely to call into question most estimates of the damages of increased health risks and the value of environmental mitigation efforts

reference effects of price and promotion on brand choice behavior when consumers are exposed to pricing and promotional activity by frequently purchased packaged goods they may develop expectations that are used as points of reference in evaluating future activi

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

how responsive are private transfers to income evidence from a laissez faire economy abstract in recent years there has been burgeoning interest in how private transfers respond to household income or transfer derivatives much of it is fueled by the specter of crowding out the more responsive are private transfers the more likely they could be supplanted by expansions in public transfers weakening or destroying the latter s distributive impact yet there is also an emerging consensus that actual transfer derivatives are trivial at least for the united states suggesting that crowding out might loom larger in the minds of some economists than in the data but perhaps crowding out is a fait accompli in the united states accordingly we focus on the philippines which has a much smaller public sector we also pursue a novel theoretical angle which generates a sharp non linear relationship between private transfer receipts and income in the form of a spline our empirical work applies recently developed estimation techniques that treat the spline s threshold as an unknown parameter and they uncover transfer derivatives much larger than conventional methods reveal notably private transfers patterns are consistent with altruistic preferences effective risk sharing or both in accord with theoretical predictions however strong transfer derivatives prevail only among low income households our findings suggest that attempts to aid the poor could be thwarted by private responses which leak benefits to richer households in the form of lighter burdens of support for less fortunate kin so the problems that operative private transfers create for public redistribution policy first pointed out by becker and barro over 25 years ago do indeed matter empirically

quality perceptions and asymmetric switching between brands rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model when calibrated on scanner panel data the model yields an objective measure of brand quality which is related to the rate of rotation the model also leads to asymmetric responses to price promotions where switching up to high quality brands is more likely than switching down the model is capable of nesting the standard logit model and is similar to a nested logit model when there exists clusters of brands of like quality the model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained

two sided altruism and signaling abstract when donors and recipients care about each other two sided altruism asymmetry of information about the donor s income or about the donor s altruism leads naturally to a signaling game the desire to signal income or altruism puts upward pressure on transfers

parental altruism and inter vivos transfers theory and evidence this paper uses psid data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism specifically the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child s income results in the parents increasing their transfer to the child by one dollar this restriction on parental and child transfer income derivatives is derived for the standard altruism model augmented to include uncertainty and liquidity constraints these additional elements pin down the timing of inter vivos transfers the method used to estimate income transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism the findings strongly reject the altruism hypothesis redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents transfer to the child far less than the one dollar increas

asymmetric competition in choice and the leveraging of competitive disadvantages studies of grocery sales show that consumers of store brands switch to price discounted national brands more than consumers of national brands switch to discounted store brands such asymmetric price competition can be explained with numerous mechanisms proposed here and elsewhere we report a choice experiment that replicates asymmetric price competition favoring higher quality competitors and demonstrates asymmetric quality competition favoring lower quality competitors also demonstrated are multiple mechanisms contributing to competitive asymmetries where dominance involving the otherwise preferred brand is particularly potent e g when a higher quality competitor matches the price of an otherwise preferred lower quality brand the findings implicate modifications to 1 theories of decision making when extended to repeat choice 2 empirical models of secondary purchase data and 3 strategies for positioning and attacking brands whereas improving competitive disadvantages often attracts consumers from competitors more than does improving competitive advantages this benefit must be weighed against the differentiation sacrificed by improving competitive disadvantages improving competitive advantages in contrast increases differentiation

are the disabled less loss averse evidence from a natural policy experiment i introduction a large literature points to differences in cognitive bias among diverse populations according to lunn and lyons 2010 lower income less educated and older populations are more prone to decision making that deviates from economic rationality also see mather et al 2012 and tymula et al 2013 however as discussed by lunn and lyons 2010 little is known about the decision making biases of other vulnerable populations notably the physically disabled or implications thereof for their economic well being in this study we examine differences in cognitive bias and behavioral heuristics among nondisabled and physically disabled populations specifically using data from a unique israeli government natural policy experiment we assess loss aversion among nondisabled and disabled populations in the decision to purchase a home our empirical tests are motivated by previous findings in physiology and psychology showing that disabled persons often develop physical and mental mechanisms to help compensate for disabilities according to bishop 2005 disabled persons utilize such coping mechanisms to minimize gaps caused by their impairments as further suggested by devins et al 1983 yoshida 1993 livneh and antonak 1997 and bishop and feist price 2002 such strategies and mechanisms allow disabled persons increased control over their health and environment specifically nirje 1972 sands and wehmeyer 1996 and wehmeyer 1998 suggest that disabled populations seek compensatory mechanisms to enhance autonomy efficacy self reliance and self management among noteworthy examples cattaneo and vecchi 2011 summarize a long series of studies indicating the development of compensatory mechanisms among visually impaired persons results of those analyses indicate enhanced nonvisual perceptual sensorial and cortical level abilities among the visually disabled e g amedi et al 2003 crawford et al 2008 hamilton pascual leone and schlaug 2004 hull and mason 1995 muchnick et al 1991 roder rosier and neville 2001 niemeyer and starlinger 1981 in other recent work keysar hayakawa and an 2012 provide evidence of compensatory cognitive mechanisms among persons with language impairments results of experimental analysis indicate diminished decision biases and reduced loss aversion among non native language speakers the authors hypothesize that use of a foreign language reduces the opportunity for spontaneous response and results in a more consciously measured and considered mode of thinking 1 as with visually or language impaired persons the compensatory mechanisms acquired by physically disabled persons may extend beyond the psychophysiological domain to include cognitive adjustments indeed as discussed by stanovich and west 2000 lower levels of cognitive bias could compensate for physical disability and provide for improved coping prospects over the past decade the israeli government sought to privatize public housing via an offer to sell rental units to tenants at a discount from the market price the algorithms utilized by the government to determine the magnitudes of the price reductions varied over time furthermore the price reductions were not forecastable among targeted program participants tenants had the opportunity to either accept or decline government sales offers extended at each successive program iteration our research employs survival analysis to specify and empirically test whether physically nondisabled and disabled tenants exhibited different degrees of loss aversion behavior in their home purchase decisions 2 as first described by kahneman and tversky 1979 loss aversion pertains to household behavior when the aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount p 279 in experimental work tversky and kahneman 1992 find that under even odds for winning and losing the gain should be at least twice as large as the loss for a prospect to be acceptable whereas putler 1992 finds for example that consumers are two and a half times more responsive to price increases that are in excess of the reference price than they are to comparable price declines

chapter 11 pricing models in marketing publisher summary this chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing there has been an impressive growth in the array of topics investigated in the literature various trends in the development of pricing models are evident from the foregoing review first one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal this trend is clearly evident when one considers the area of dynamic pricing models another trend is an attempt to develop pricing models in which certain aspects of consumer behavior e g asymmetric response to price increases versus price decreases are incorporated this development is quite recent and does offer a large potential a third dominant direction is the use of game theoretic models for developing equilibrium pricing strategies

social norms and gift behavior theory and evidence from romania in many developing and transitional countries with limited public income redistribution inter household transfers in general and gifts in particular are sizable and very important we use unique romanian survey data that enables us to isolate pure gifts from other private transfers we explicitly focus on the importance of community wide social norms and find that they indeed play a major role for both the occurrence and the values of gifts more exactly our results suggest that the overall predominant gift motive among romanian households is a norm of reciprocity moreover this norm seems to be dominating for gifts to middle and high income households even though poor households receive to the same extent norms of both impure altruism and reciprocity tend to be important hence although the poor may not reciprocate gifts to the same extent as the rich they still receive since there is a social norm to give especially to the poor

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

looming losses in future time perception abstract it is proposed that a future time interval s perceived length will be affected by whether the interval ends with a gain or loss confirming this several experiments indicate that consumers perceive intervals ending with losses as shorter than equivalent intervals ending with gains the authors explore the mechanisms underlying these effects and they identify several parallels between the current effects and loss aversion the authors further show that these changes in time perception influence consumption decisions and they consider the implications of the findings for theories of time perception and intertemporal choice

the rotterdam demand model and its application in marketing this paper shows how the system wide approach to demand analysis can be utilized in marketing in the context of the rotterdam model we describe how the approach can be applied to narrowly defined groups of goods such as beer wine and spirits to estimate income and price elasticities of demand the paper also provides extensions to deal with advertising and introduces a new way of identifying market structure

theft gift giving and trustworthiness honesty is its own reward in rural paraguay in developing countries lacking legal enforcement villagers may use implicit contracts to minimize crime i construct a dynamic limited commitment model in which a thief cannot commit to forego stealing but is induced to steal less by the promise of future gifts combining survey data on production theft gifts and trust with experiments measuring trustworthiness i provide supporting evidence farmers living near more relatives or with plots that are difficult to steal from give fewer gifts and trust more and those living near more relatives also experience less theft giving increases when trust is lower and the threat of theft is greater

values of gains and losses reference states and choice of measure the available empirical evidence continues to suggest that people commonly value losses more and often much more than otherwise commensurate gains consequently current practice of using the wtp measure for all changes is often likely to lead to misleading assessments of welfare changes the reference dependence of preferences implies instead that while the wtp measure is appropriate for gains the value of both positive and negative changes in the domain of losses will usually be more accurately assessed with the wta measure