entry its deterrence and its accommodation a study of the u s photographic film industry this work set in the new empirical industrial organization framework bresnahan 1987 examines firm level demand based and cost based explanations for entry and accommodation strategies in the u s photographic film industry i first estimate preentry and postentry market structures then using the estimated demand cost and market conduct parameters i show how entry by fuji photo or lack thereof by others is a function of two market structures i also show how market structure and conduct and changes in them over the pre and postentry periods are in turn functions of entry its deterrence and it accommodation

competitive pricing by a price leader we examine the problem of pricing in a market where one brand acts as a price leader we develop a procedure to estimate a leader s price rule which is optimal given a sales target objective and allows for the inclusion of demand forecasts we illustrate our estimation procedure by calibrating this optimal price rule for both the leader and the follower using data on past sales and prices from the mid size sedan segment of the u s automobile market our results suggest that a leader follower system stackelberg seems more consistent with the pricing behavior in this market than a mutually independent pricing rule nash we also find that our optimal price rule explains this market data better than other pricing schemes that do not account for optimizing behavior on the part of the leader and the follower

do switching costs make markets less competitive abstract the conventional wisdom in economic theory holds that switching costs make markets less competitive this article challenges this claim the authors formulate an empirically realistic model of dynamic price competition that allows for differentiated products and imperfect lock in they calibrate this model with data from frequently purchased packaged goods markets these data are ideal in the sense that they have the necessary variation to identify switching costs separately from consumer heterogeneity equally important consumers exhibit inertia in their brand choices a form of psychological switching cost this makes the results applicable to the broad range of products that are distinctly identified i e branded rather than just to products for which there is a product adoption cost or explicit switching fee in the simulations prices are as much as 18 lower with than without switching costs more important equilibrium prices do not increase even in the presence of switching costs that

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

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

optimal category pricing with endogenous store traffic we propose a dynamic programming framework for retailers of frequently purchased consumer goods in which the prices affect both the profit per visit in the current period and the number of visitors i e store traffic in future periods we show that optimal category prices in the infinite horizon problem also maximize the closed form sum of a geometric series allowing us to derive meaningful analytical results modeling the linkage between category prices and future store traffic fundamentally changes optimal pricing policy optimal pricing must balance current profits against future traffic under general conditions optimal long run prices are uniformly lower across all categories than those that maximize current profits this result explains the empirical generalization that category demand in grocery stores is inelastic parameterizing profit per visit and store traffic reveals that as future traffic becomes more sensitive to price retailers should increasingly lower current prices and sacrifice current profits we also determine how the burden of drawing future traffic to the store should be distributed across categories this is the foundation for a new taxonomy of category roles

quantity discount dependent consumer preferences and competitive nonlinear pricing abstract producers of consumer packaged goods often offer several package sizes of the same product and charge a lower unit price for a larger size in this article the authors investigate the quantity discount effect or the phenomenon that consumers derive transaction utility from the unit price difference between a small and a large package size of the same product the authors propose a modeling framework composed of a demand side model and a supply side model the empirical results suggest that quantity discount induced gains or losses have a significant impact on consumer buying behavior the authors also find a substantial amount of structural heterogeneity that is some consumers perceive quantity discounts as gains whereas others perceive quantity discounts as losses conversely the supply side analysis suggests that manufacturers in the empirical application do not consider quantity discount effects when setting prices through a series of policy experiments the authors show that by accou

climate trade and water a grand coalition the paper argues first that the climate trade and water communities should leave aside their prejudices and it provides clear evidence that the three communities confront the same vested interests when trying to solve their common problem of free riding then it argues that such strong similarities speak in favour of sister world regimes in these three domains these sister regimes should first share the key principles of non discrimination national treatment and most favored nation embodied in the wto second by contrast the climate and water communities should review the other wto rules in order to adapt them to their specific demands when needed interestingly when doing so these two communities may provide much needed inspiration for improving some rules of the current trade regime finally the climate and water regimes may also adopt provisions on pricing that are not needed by the trade regime which deals mostly with well functioning markets

a model of stochastic variety seeking in this paper we propose and test a stochastic model of consumer choice that incorporates attribute based variety seeking our stochastic variety seeking model svs has nested within it a fixed variety seeking model a zero order model of choice and a first order pure variety model we compare the svs model to alternative models under stochastic variety seeking we examine the nature of the variety sought and provide a test of the satiation hypothesis unlike fixed variety seeking models our model allows variety seeking to vary in intensity and consistency over individuals as well as over purchase occasions we show that the model is equivalent to a random utility model with the features that the attributes of brands relative to those of the brand previously bought influence choice and the extent of variety seeking is random over choice occasions for a given individual the model permits a closed form solution to the conditional switching probabilities parameterized by variety seeking parameters and dependent on brand attributes we apply our model to individual choice data obtained from a field study specifically designed for the purpose at hand

what role for trade in a post 2012 global climate policy regime what role for trade in post 2012 this paper discusses the role that trade can potentially play in both negotiating and operating a post kyoto post 2012 global climate policy regime as an addition to the bargaining set for a global climate negotiation trade in principle widens the range of jointly beneficial potential outcomes and can in this sense be a potential facilitator of an agreed global climate regime the reverse is also true that in a linked climate trade finance global policy coordination structure that goes well beyond what was envisioned at bretton woods climate now added to the global policy bargaining set also offers the prospect of potentially stronger trade disciplines and even beyond wto disciplines being negotiated trade policy can as well be an instrument for the implementation of a global climate regime since trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents and that provides a potentially more efficient outcome and also helps meet distributional objectives in short trade added to the emerging post 2012 climate regime can both expand the bargaining set for both effectively linked negotiations and additionally provide an instrument for the implementation of an agreed outcome

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

rethinking climate change governance and its relationship to the world trading system international climate negotiations have thus far eschewed efforts to incorporate trade restrictions but they have also failed to achieve their objective of reducing global emissions because of this failure some countries are now inclined to act unilaterally and minilaterally in many cases by imposing trade restrictions against third parties such actions are likely to invite retaliation they could even ignite an escalating trade war the best way to avoid such conflicts is not to limit the use of trade restrictions but to make international climate negotiations effective ironically success in addressing climate change multilaterally may require incorporating trade restrictions in a new kind of climate agreement trade restrictions have been used successfully in other international agreements but in these agreements the primary purpose of the restrictions has been to encourage participation that is their primary purpose has been to enforce the agreement this is the role trade restrictions ought to play in a new climate treaty but for them to play this role the design of climate treaties must change if climate treaties are designed strategically the threat to restrict trade will suffice to enforce the agreement and if the threat to restrict trade is credible and the punishment associated with the restriction severe trade restrictions will not actually have to be used by incorporating trade restrictions in this way greenhouse gas emissions can be reduced without putting at risk the gains from multilateral cooperation in trade

speed of replacement modeling brand loyalty using last move data abstract the authors study brand loyalties for durable goods using automobile survey data that are peculiarly censored and track only elapsed times since transitions but not the transition times themselves this censoring problem is typical of commercially available durable goods survey data however little attention has been paid to such last move data in the statistics or marketing literature on the analysis of transition times the authors propose a multistate continuous time nonstationary markov model with a parsimonious brand loyalty structure and also propose an estimation approach to recover the parameters of the proposed model using the automobile survey data the proposed model fits observed brand choice outcomes even better than a model with a fully unrestricted and therefore highly parameterized transition structure the authors also obtain several substantive findings for example chrysler is significantly weaker than general motors and ford insofar as it has the lowest brand loyal

political economy aspects of climate change mitigation efforts regardless of the policies used to mitigate climate change a positive and relatively high price of carbon will have to be established with slow convergence across regions leading to huge rents up to capture way beyond those that have been fought over in the general agreement on tariffs and trade gatt based international trading system the paper explores the political economy feasibility and desirability implications of the two main alternatives a carbon tax and a cap and trade cat system having the same concerns cat systems in the eu and the us have accounted for different outcomes in each case likely leakages under foreseeable carbon prices are estimated to be small and not of an order of magnitude justifying the special allowances sought across a wide spectrum of industries the experience of the eu and us reviewed here suggests that mitigation is likely to continue to be carried out under a cat provided permits are distributed for free to the lobbies whose support is necessary to get adoption of mitigation policies this quota mechanism long used to allocate scarcity in the international trading system both nationally and internationally would end up with the most powerful receiving the quotas rents giving them the leverage and resources to maintain allocation schemes favourable to them

the dynamic effect of discounting on sales empirical analysis and normative pricing implications baseline sales measure what retail sales would be in the absence of a promotion abraham and lodish 1993 and models that measure baseline sales are widely used by managers to assess the profitability of promotions bucklin and gupta 1999 this issue estimates of baseline sales and promotional response are typically independent of past promotional activity even though there is evidence to suggest that increased discounting reduces off promotion sales and increases the percentage of purchases made on deal e g krishna 1994 as a result models that do not consider dynamic promotional effects can mislead managers to overpromote given the widespread use of static models to evaluate the efficacy of promotions it is particularly desirable to calibrate a dynamic brand sales model and use it to establish an optimal course of action accordingly we develop a descriptive dynamic brand sales model and use it to determine normative price promotion strategies our descriptive approach consists of estimating a varying parameter sales response model letting model parameters vary with past discounting activity accommodates the possibility that market response changes with firms discounting policies in the normative model we use the estimates obtained in the descriptive model to determine optimal retailer and manufacturer prices over time the results of the descriptive model indicate that promotions have positive contemporaneous effects on sales accompanied by negative future effects on baseline sales the results of the normative model suggest that the higher share brands in our data tend to overpromote while the lower share brands do not promote frequently enough we project that the use of our model could improve manufacturers profits by as much as 7 to 31 more generally the normative results indicate that i if deals become more effective in the current period i e if consumers are more price sensitive promotions should be used more frequently and ii as the negative dynamic effect of discounts on sales increases the optimal level of discounting should go down without our approach it would be difficult to make this trade off exact finally we demonstrate that these dynamic effects provide another perspective to the marketing literature regarding the existence of promotions

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

dynamic effects of financial intermediation over the business cycle ping wang this paper provides a empirical evidence that the financial intermediation disturbances can generate business cycles we examine three countries whose financial sectors are fully developed but quite distinct in their institutional and regulatory circumstances thus we can infer whether financial intermediation disturbances differ across dissimilar financial environments we find that the dynamic responses of output to financial intermediation shocks exhibit similar patterns in all cases studied however the various institutional and regulatory circumstances have generated different propagation mechanisms transmitting the financial disturbance to output in ways that lead the magnitudes of the responses to deviate across economies jel e32 e44 i introduction does the financial sector veil the real economy although some economists such as lucas 1988 argue that financial factors are over stressed there is a growing literature that theoretically cultivates the channels through which financial intermediation can influence economic fluctuations and long run growth rather than focus on the traditional monetary transmission mechanism this literature plants itself in the microfoundations of asymmetric information and contract theory the new financial intermediation literature stems from seminal works by diamond 1984 townsend 1983a 1983b and boyd and prescott 1986 that demonstrate that in the presence of private information and costly state verification it is optimal for borrowing and lending to be conducted under financial intermediary arrangements these ideas were then extended by williamson 1987 to show how disturbances in the financial intermediation sector can generate business cycle fluctuations essentially when investment projects become more risky or difficult to evaluate loan supply falls and business cycle movements emerge 1 moreover other financial intermediation impulses are likely to be important as well these include changes to the institutional framework or the regulatory environment and any other event that enhances or hinders the intermediaries capacity to allocate capital efficiently among competing alternative uses e g financial innovation yet despite the theoretical rhetoric on the importance of financial intermediation to output fluctuations the empirical relevance of financial intermediation remains an unsettled question this paper brings us one step closer to the solution by econometrically identifying structural financial intermediation disturbances and estimating their effect on output movements in three major industrialized countries germany the united kingdom and the united states we choose these three advanced economies not only because their financial sectors are fully developed but also because their distinct banking structures and regulatory environments are capable of generating and transmitting financial intermediation disturbances in different ways that is the depth of financial intermediation is relatively similar across countries therefore the cross country analysis allows us to focus on the ability of financial intermediation to generate short run cycles and to draw some suggestive insights regarding the role of regulatory and institutional factors across countries the existing empirical evidence linking financial factors to real economic activity has involved noticing statistical correlations between some financial variables and some real variables goldsmith 1969 using data from 1860 to 1963 showed that there is a positive relationship between economic development and the size of the financial sector kuznets 1971 in a cross section study of 57 developed and developing economies found that the share of banking insurance and real estate in gross domestic product rises as income increases mckinnon 1973 showed that the ratios of private credit to national income and a broad monetary aggregate to national income are positively related to per capita income

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

access to capital in rural thailand an estimated model of formal versus informal credit the aim of this paper is to understand the mechanism underlying access to credit the author focuses on two important aspects of rural credit markets in thailand first moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks and more recently micro lending institutions second potential borrowers presumably face sizable transaction costs obtaining external credit the author develops and estimates a model based on limited enforcement and transaction costs that provides a unified view of those facts the results show that the limited ability of banks to enforce contracts more than transaction costs is crucial in understanding the observed diversity of lenders

positioning and pricing in a variety seeking market we study competitive positioning and pricing strategies in markets where consumers seek variety variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion using a three stage hotelling type model we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium thereby explaining some otherwise counterintuitive findings in empirical research we find that firms charge higher prices in period 1 and lower prices in period 2 the lower price in period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching furthermore we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers finally we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus surplus increases for variety seeking consumers as well as regular consumers therefore the presence of variety seeking consumers benefits everyone in the market

monetary growth in a turnpike environment abstract a general equilibrium model of monetary growth in a turnpike economy is constructed it is shown that money lifts the economy up to a pareto superior growth path by eliminating the investment in projects with low returns the growth rate of the monetary economy is larger than that of the nonmonetary economy and mckinnon s complementarity hypothesis holds provided that the agents degree of relative risk aversion is not too large the main theorem states a sufficient condition for the existence of a monetary equilibrium with a constant rate of return on money

the dynamic spillovers of entry an application to the generic drug industry this paper examines whether experience from entry in one market can potentially enhance profitability at a future market opportunity for a related product we formulate and estimate a dynamic game of entry in which forward looking firms make decisions not just based on present benefits of past entry but also anticipating potential future benefits of current entry dynamic spillovers of entry are incorporated through a firm specific unobservable to the researcher cost that depends on past entry decisions the unobserved costs may also be serially persistent thus the model allows for firm specific unobserved heterogeneity that evolves based on firm actions the challenge of estimating a dynamic game with serially correlated unobserved state variables subject to endogenous feedback is overcome by embedding a particle filter based technique in a nested fixed point algorithm using an application to a stylized model of entry in the generic pharmaceutical industry we underscore the motivation for the model specification and the methodology developed our estimates imply positive spillover effects of entry moreover these spillovers suggest heterogeneity not just across firms but also within firms over time based on their history of entry decisions our results illustrate that entry may potentially provide firms with additional strategic advantage in later markets and that entry spillovers may be an important factor to consider in the equilibrium evolution of the generic drug industry the web appendix is available at https doi org 10 1287 mnsc 2016 2648 this paper was accepted by j miguel villas boas marketing

try it you will like it does consumer learning lead to competitive price promotions there is strong evidence that consumers learn from their brand consumption experiences and continuously update their brand purchase probabilities however in explaining why established competitive brands continuously compete through periodic price promotions most of the existing theories do not attribute this phenomenon to underlying consumer learning yet try it you will like it is often the stated rationale of the practicing marketing manager in offering consumers a price promotion on a brand this paper examines the connection between consumer learning and the offering of price promotions the consumer model specified is markovian in nature and encompasses in addition to consumer learning other empirical findings such as the increase in product class consumption in response to price reductions the consumer models used in the existing game theoretic approaches to this problem are shown to be mostly special cases of the proposed model it is demonstrated that for the commonly used price response functions the existence of consumer learning at a level of intensity consistent with that identified in empirical works makes it optimal for competing brands to periodically offer price promotions moreover it is shown that the competing brands should promote in different periods as opposed to head to head

ebay s crowded evenings competition neglect in market entry decisions do firms neglect competition when making entry decisions this paper addresses this question analyzing the time of day at which ebay sellers set their auctions to end consistent with competition neglect it is found that i a disproportionate share of auctions end during peak bidding hours ii such hours exhibit lower selling rates and prices and iii peak listing is more prevalent among sellers likely to have chosen ending time strategically suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness the results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

learning from experience simply there is substantial academic interest in modeling consumer experiential learning however approximately optimal solutions to forward looking experiential learning problems are complex limiting their behavioral plausibility and empirical feasibility we propose that consumers use cognitively simple heuristic strategies we explore one viable heuristic index strategies and demonstrate that they are intuitive tractable and plausible index strategies are much simpler for consumers to use but provide close to optimal utility they also avoid exponential growth in computational complexity enabling researchers to study learning models in more complex situations well defined index strategies depend on a structural property called indexability we prove the indexability of a canonical forward looking experiential learning model in which consumers learn brand quality while facing random utility shocks following an index strategy consumers develop an index for each brand separately and choose the brand with the highest index using synthetic data we demonstrate that an index strategy achieves nearly optimal utility at substantially lower computational costs using iri data for diapers we find that an index strategy performs as well as an approximately optimal solution and better than myopic learning we extend the analysis to incorporate risk aversion other cognitively simple heuristics heterogeneous foresight and an alternative specification of brands

technical note sequential multiproduct price competition in supply chain networks we analyze a general model in which at each echelon of the supply process an arbitrary number of firms compete offering one or multiple products to some or all of the firms at the next echelon with firms at the most downstream echelon selling to the end consumer at each echelon the offered products are differentiated and the firms belonging to this echelon engage in price competition the model assumes a general set of piecewise linear consumer demand functions for all products potentially brought to the consumer market where each product s demand volume may depend on the retail prices charged for all products consumers preferences over the various product retailer combinations are general and asymmetric similarly the cost rates incurred by the firms at the most upstream echelon are general as well we fully characterize the equilibrium behavior under linear price only contracts and we show how all equilibrium performance measures can be computed via a simple recursive scheme moreover we establish how changes in the model parameters in particular exogenous cost rates or intercept values in the demand functions impact the system wide equilibrium these comparative statics results allow for the quantification of cost pass through effects and the measurement and characterization of the firms brand value lastly we illustrate what qualitative impacts various changes in the structure of the supply chain network may bring forth

a dynamic analysis of market structure based on panel data internal market structure analysis infers brand positions in an attribute space from preference and choice data given a market in which consumers have heterogeneous tastes for attributes previous market structure models have adopted a static framework e g elrod 1988 chintagunta 1994 elrod and keane 1995 furthermore they assumed that consumer perceptions of brand attributes do not vary across consumers yet these approaches may render inaccurate representations of market structure if there is state dependence in consumer choice behavior this paper attempts to incorporate consumer choice dynamics into market structure models by specifying the source of choice dynamics explicitly in particular the process by which past purchases affect current choices is modeled in a framework which captures both consumer habit persistence and variety seeking behavior more specifically consumer preferences for brand attributes are modeled to depend on the attributes of brands bought on the previous purchase occasion furthermore the modeling approach adopted incorporates heterogeneity in both consumer preferences and perceptions of brand attributes the audience of this paper includes practitioners and academics interested in understanding consumer choice processes and inferring market structure from consumer choice data the proposed models are estimated on nielsen scanner panel data for margarine peanut butter yogurt and liquid detergent using simulated maximum likelihood techniques the empirical results suggest that accounting for choice dynamics improves both in sample and out of sample fit the results indicate that the average consumer is habit persistent in all the product categories studied this result is consistent with the findings of kannan and sanchez 1994 who conducted an aggregate analysis of consumer variety seeking behavior across product categories however the results obtained in this paper suggest that consumers are heterogeneous with respect to the processes by which past purchases affect current purchases these results provide strong evidence for habit persistence and variety seeking in brand attributes to be the behavioral source of consumer choice dynamics in food categories thus consumer tastes utility weights seem to be affected by the attributes of the brands consumed in the past given the empirical result that a large proportion of consumers are habit persistent this suggests that tastes are reinforced by the brand attributes consumed in the past the empirical results also show that not accounting for state dependence in market structure models for panel data may produce misleading results that is depending on consumer behavior patterns models that do not account for state dependence may distort the true nature of competition among brands more specifically the results confirm the expectation that if there is habit persistence that is if consumer tastes are reinforced by attributes of brands consumed in the past models that do not capture this choice dynamics will overestimate the distance between similar brands furthermore the policy experiments conducted suggest that 1 static models overestimate the short run impact of a price cut on the sales of the brand on promotion 2 price cuts hurt the sales of the more similar brands more and 3 free samples affect relatively less similar brands the most finally this paper studies variety seeking and habit persistence across brands over purchase occasions however variety seeking behavior may also involve the purchase of a portfolio of brands or items at a purchase occasion consumers may buy multiple items knowing that prior to the next trip they may want to consume different items simanson 1990 walsh 1995 this type of behavior can be modeled within the context of dynamic expected utility maximization with forward looking consumers the development and estimation of market structure models that include forward looking consumers who maximize expected utility over a planning horizon incorporating their future tastes and needs and shopping for an inventory of brands remain an important future research issue

who thinks about the competition managerial ability and strategic entry in us local telephone markets we examine us local telephone markets shortly after the telecommunications act of 1996 the data suggest that older experienced educated managers tend to enter markets with fewer competitors this motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers ability to correctly conjecture competitor behavior we find that manager characteristics are key determinants in managerial ability furthermore our estimate of ability predicts out of sample success counterfactuals provide insight into the industry s struggles despite substantial indirect subsidies it is only when the ability to correctly conjecture competitor behavior is high that firms enter empty markets

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

bounded rationality in pricing under state dependent demand do firms look ahead and if so how far the authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state dependent demand rather than assuming that firms are perfectl

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

logit demand estimation under competitive pricing behavior an equilibrium framework discrete choice models of demand have typically been estimated assuming that prices are exogenous since unobservable to the researcher product attributes such as coupon availability may impact consumer utility as well as price setting by firms we treat prices as endogenous specifically prices are assumed to be the equilibrium outcomes of nash competition among manufacturers and retailers to empirically validate the assumptions we estimate logit demand systems jointly with equilibrium pricing equations for two product categories using retail scanner data and cost data on factor prices in each category we find statistical evidence of price endogeneity we also find that the estimates of the price response parameter and the brand specific constants are generally biased downward when the endogeneity of prices is ignored our framework provides explicit estimates of the value created by a brand i e the difference between consumers willingness to pay for a brand and its cost of production we develop theoretical propositions about the relationship between value creation and competitive advantage for logit demand systems and use our empirical results to illustrate how firms use alternative value creation strategies to accomplish competitive advantage

a framework for investigating habits the hand of the past and heterogeneity in dynamic brand choice in this paper we develop a general class of dynamic brand choice models called lightning bolt lb models which are consistent with the theory of random utility maximization of consumer choice behavior the underlying random utility process is markov and the inter temporal evolution of the utility maximizing brand choice process is also markov the models permit parsimonious parameterizations of the random utility process in brand choices with the resulting switching probabilities being functionally related to explanatory variables the model allows for structural state dependence feedback habit persistence inertia and unobserved heterogeneity the theoretical development shows that several well known stochastic brand choice models can be deduced from random utility maximization theory from a managerial perspective the usefulness of the proposed model stems from its ability to separate out the effects of habits state dependence and heterogeneity strong state dependence effects imply incentives for inducing trial of a brand e g product sampling in contrast with state dependence a strong habit persistence effect may be indicative of buyer behavior where inducement of trial of a different brand may not be sufficient to maintain a sustained defection of the consumer from the habitually purchased brand to the trial brand failure to distinguish between these two effects has important implications for example a model that only accounts for state dependence effects would in the presence of only habit persistence incorrectly attribute it to state dependence based on this the manager could decide to embark on an expensive sampling program that might prove ineffective due to the absence of state dependence it is also important to distinguish between the effects of unobserved heterogeneity and state dependence in the absence of true state dependence failing to account for unobservable variations across households such as differences in price sensitivities results in the temporally persistent unobservable elements showing up as state dependence in the model hence a manager may incorrectly opt for sampling as the appropriate marketing action whereas a couponing or price promotion strategy should have been preferred we estimate the model parameters using the ac nielsen household scanner panel data set on catsup purchases further we investigate empirical techniques for overcoming the initial conditions problem that affects many dynamic models of brand choice through simulation analysis using the estimated parameters we show that the calculated profitability of a promotion must take into account the multi period impact due to state dependence further we demonstrate how ignoring heterogeneity can result in spurious state dependence thereby making marketing tactics such as product sampling appear far more attractive than they actually are specifically the model that accounts only for habit persistence and state dependence effects predicts a share increase of 2 4 points through sampling for one of the brands in the empirical analysis once the effects of unobserved heterogeneity are accounted for however this number drops precipitously to 0 3 while even this low number might fulfill the objectives of the brand manager it ensures that expectations are not eight times that number it is important to note that this paper is a first attempt at analyzing the three fundamental dimensions of dynamic brand choice behavior our formulation represents a reduced form approach as opposed to a structural approach other limitations of the model include our focus on time invariant choice sets extensions of the model to situations where choice sets vary over time are possible but are difficult another limitation is the dependence on multivariate extreme value distributions an alternative would be to use multivariate normal distributions i e a probit like structure which has certain useful properties a comparison of the two approaches would be useful empirical extensions of the model to allow for higher order processes and nested logit type model structures could also be fruitful explicitly incorporating variety seeking behavior in the model would further enrich the theoretical framework proposed in this paper

consumer learning brand loyalty and competition in several markets consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase this could then generate loyalty for the products tried first this paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products given what they learned in the first period the paper finds that if the distribution of valuations for each product is negatively positively skewed a firm benefits is hurt in the future from having a greater market share today the brand loyalty characteristic with negative skewness two effects are identified on one hand marginal forward looking consumers are less price sensitive than myopic consumers and this is a force toward higher prices on the other hand forward looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices for similar discount factors for consumers and firms the latter effect dominates the paper also characterizes the importance of consumer learning effects on the market outcome

financial structure and economic activity a recent development in economic science is the attempt to integrate monetary theory with the theory of general economic equilibrium this work takes as its starting point the idea that money cannot have value in standard general equilibrium models in these too much trade can be accomplished in centralized markets see robert clower 1969 1971 frank hahn 1973 or neil wallace 1980 thus to decentralize or break up the structure either exchange must be made costly or there must be restrictions on who can trade with whom and thus such choicetheoretic models offer the intriguing possibility that real and monetary phenomena can be understood as intimately related this paper continues in the relatively brief choice theoretic tradition motivated by real and monetary phenomena associated economic development and growth 1 to be noted first is simon kuznets seminal work on national income 1971 in a cross section study of fifty seven countries in 1958 kuznets shows that the share of the agricultural sector including forestry fishing and hunting in gross domestic product is inversely correlated with gross domestic product per capita the share of the industrial sector including transportation and communication is closely and positively associated with per capita product the share of the service sector tends to be positively but weakly associated with per capita product but the share of banking insurance and real estate shows a striking rise as one shifts from lowto higher income countries moreover the evidence suggests that the ratio of industrial prices to agricultural prices is perhaps lower the higher is per capita income though the evidence on relative prices for the service sector is inconsistent turning to long time series for thirteen developed and four less developed countries kuznets finds dramatic evidence for a decline of the agricultural sector and a rise in the industrial sector with per capita income at least in developed countries again results for the service sector are mixed but canada france and the united states are positive exceptions the share of a transport communication subsector rises quite consistently turning next to shares of sectors in the labor force kuznets finds both on a cross sectional and secular basis that all the above movements are at least mirrored and in many cases amplified in particular both components of the share of the service sector services and commerce rise substantially with gross domestic product per capita 2 to be noted second is the extensive work of raymond goldsmith on financial structure and financial intermediation for the united states goldsmith 1958 finds that the activity of intermediaries as measured by their share in national assets in tangible assets and in all claims has shown a substantial rise from 1860 to 1952 similarly goldsmith 1969 finds that the ratio of financial institutions assets to gross national product rises substantially from 1860 to 1963 in both developed and less developed countries including switzerland great britain the united states japan argentina and india related the number of households with savings accounts the number with life insurance policies and the number with stock ownership expressed as percents of the population are all low for less developed countries relative to developed countries and professor of economics carnegie mellon university graduate school of industrial administration schenley park pittsburgh pa 15213 this paper was motivated by a conversation with thomas sargent and has been aided by helpful comments from robert barro robert e lucas jr dan peled kenneth singleton and neil wallace financial support from the national science foundation the alfred p sloan foundation and the peterkin symposium on foundations of monetary policy and government finance at rice university and research assistance from pramerudee townsend are all gratefully acknowledged i alone assume full responsibility for any errors and for the views expressed here

price competition in markets with consumer variety seeking we investigate price competition between firms in markets characterized by consumer variety seeking while previous research has addressed the effect of consumer inertia on prices there exists no research on the effects of variety seeking on price competition our study fills this gap in the literature using a two period duopoly framework as in klemperer s analysis of inertial markets we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking specifically our variety seeking model implies tacit collusion between firms in both periods unlike the inertia model of klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period when consumers are assumed to have rational expectations about future prices the implied first period prices increase further which is consistent with what klemperer finds in an inertial market to summarize while our variety seeking analyses support two key results pertaining to second period prices and rational expectations previously derived for inertial markets by klemperer they depart from one key result pertaining to first period prices

a dynamic model of entry and exit in a growing industry the potential demand in a new industry evolves over time demand is initially low but advertising by the industry s early entrants can speed up demand growth however there is intrinsic uncertainty of the demand level in each period and uncertainty of the demand evolution path which can be affected by the underlying economic environment we construct a dynamic model that features the stochastically and endogenously expanding demand of a new industry and we investigate the optimal entry and exit behavior of firms as the industry evolves we find that firms incentive to enter early depends critically on the cost that early entrants have to pay in developing the market when the cost is high and the benefit spills over to potential entrants firms have an incentive to wait and the probability of entry can increase with the number of incumbents under certain circumstances firms entry strategy is also influenced by the transition of economic states firms are more likely to enter under a state that shows the prospect of demand taking off soon we also find that in the early stage of an industry higher demand uncertainty can induce faster entry

social loss aversion and optimal contest design when managers are designing a contest to motivate effort by salespeople service employees franchisees or product development teams a key question is what should the optimal proportion of winne

to b ta or not to b ta on the legality and desirability of border tax adjustments from a trade perspective this paper asks two questions concerning border tax adjustments for climate purposes when viewed from a trade perspective first under what conditions are btas possible in the wto world to address this issue the paper provides a detailed discussion of the relevant law and case law we also apply our main conclusions to what we consider to be paradigmatic cases of measures to address climate change where trade concerns are raised we conclude that the wto regime is no major obstacle to those aspiring to use btas although the allocation of the burden of proof could be a concern the second issue addressed is whether the economic literature on the desirability of btas adequately reflects concerns that have been raised in the trade policy community here we conclude that it has hardly addressed these concerns at all we also point to some aspects of btas that would need to be taken into account in a more complete analysis