the optimality of consumer stockpiling strategies the ability of consumers to make rational sequential purchase quantity decisions under imperfect knowledge about future prices in a product category is explored normatively a consumer should make such decisions by defining a series of reservation prices which define how many buying periods supply should be held given an observed price an experiment is reported in which consumers make sequential purchase quantity decisions under variations in the shape of the distribution of prices and its trend over time results suggest a number of systematic deviations from optimality when facing stationary uniform and bimodal price distributions for example subjects tend to systematically overbuy when small purchases are called for and underbuy when large purchases are called for likewise when facing ascending or descending series behavior is the opposite of that predicted by the normative analysis there is an increasing tendency to defer purchases given increasing prices and accelerate purchases given descending prices an explanation for the findings in terms of a prospect theory type loss function in expenditures is offered

decomposing promotional effects with a dynamic structural model of flexible consumption abstract in this article the authors offer a methodology to decompose the effects of price promotions into brand switching stockpiling and change in consumption by explicitly allowing for consumer heterogeneity in brand preferences and consumption needs they develop a dynamic structural model of a household that decides when what and how much to buy as well as how much to consume to maximize its expected utility over an infinite horizon by making certain simplifying assumptions the authors reduce the dimensionality of the problem they estimate the proposed model using household purchase data in the canned tuna and paper towels categories the results from the model offer insights into the decomposition of promotional effects into its components this could help managers make inferences about which brand s sales are more responsive to stockpiling or increase in consumption expansion and how temporary price cuts affect future sales contrary to previous literature the authors find that brand swi

a joint examination of quality choice and satisfaction the impact of circumstantial variables using data from an online hotel reservation site the authors jointly examine consumers quality choice decision at the time of purchase and subsequent satisfaction with the hotel stay they identify three circumstantial variables at the time of purchase that are likely to influence both the choice decisions and the postpurchase satisfaction the time gap between purchase and consumption distance between purchase and consumption and time of purchase business nonbusiness hours the authors incorporate these three circumstantial variables into a formal two stage economic model and find that consumers who travel farther and make reservations during business hours are more likely to select higher quality hotels but are less satisfied consumers who book earlier are more likely to select higher quality hotels and are more satisfied the findings suggest that incorporating circumstantial variables into formal choice models is useful in helping managers understand and predict consumer choices and satisfactio

the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns

on the use of econometric models for policy simulation in marketing abstract in this article the author discusses the properties of useful econometric models for marketing phenomena with particular attention on models for policy simulations the author addresses model diagnostics parameter stability exogeneity and the lucas critique he also presents the results of a search through the 1998 2003 issues of the journal of marketing research finally the author offers practical guidelines

an empirical analysis of consumer purchase decisions under bucket based price discrimination bucket based price discrimination is a unique price format that involves monthly subscription fees and instantaneous quotas the number of rental products that can be checked out we propose an empirical model in which consumers make dynamic purchase decisions under consumption uncertainty accounting for the constraints imposed by the instantaneous quota applying the model to an online dvd rental data set we find that 1 consumers incur a large disutility 8 from stockout i e unmet consumption needs 2 such a disutility drives consumers overpurchase of the service quota as a way to avoid potential stockout situations and 3 the dynamics of overpurchase are driven by the interplay between trends in consumption needs and the magnitude of consumers plan switching costs we run counterfactual exercises to better understand how the instantaneous quota and stockout risk affect consumers consumption rates purchase decisions and firm profitability we find that the instantaneous quota induces a greater stockout compared with a monthly quota we further demonstrate that the company should recognize the drivers of the dynamics in overpurchase to balance short and long term profitability for example by offering targeted discounts to customers with excess overpurchase

temporal aggregation and estimation of inventory functions abstract in this paper we extend the analysis of the effects of aggregation on the estimated speed of adjustment in inventory models into two directions first we try to find out if lovell s 1993 conclusions regarding the effects of aggregation on the speed of adjustment hold a when real firm data rather than experimental data are used b when the model is modified or when models other than the flexible accelerator are used secondly we examine whether temporal aggregation also leads to underestimation when disaggregated nonseasonally adjusted data are used the evidence we provide gives strong support to mundlak s and zellner s conjectures cited in christiano and eichenbaum 1987 that temporal aggregation leads to downward bias in the estimated speed of adjustment

to know and to care how awareness and valuation of the future jointly shape consumer spending reducing spending in the present requires the combination of being both motivated to provide for one s future self valuing the future and actively considering long term implications of one s choices awareness of the future feeling more connected to the future self thinking that the important psychological properties that define your current self are preserved in the person you will be in the future helps motivate consumers to make far sighted choices by changing their valuation of future outcomes e g discount factors however this change only reduces spending when opportunity costs are considered correspondingly cues that highlight opportunity costs reduce spending primarily when people discount the future less or are more connected to their future selves implications for the efficacy of behavioral interventions and for research on time discounting are discussed

a multi sector inventory model abstract two competing paradigms for firm level inventory behavior are production smoothing and s s empirical evidence that aggregate production varies more than sales and inventory investment is positively correlated with sales appears to contradict the buffer stock production smoothing motivation work by blinder and maccini suggests that an s s model better explains these stylized facts i simulate a multi sector model with sequential interaction of heterogeneous agents representing manufacturing wholesale and retail agents who use either smoothing or s s inventory decision rules the results demonstrate that the stylized facts can be explained by a model of this type

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

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

macroeconomic implications of s s versus accelerator finished goods inventory strategies abstract large scale disaggregated simulation techniques involving 315 firms in 21 different industries holding 6 615 different stockpiles of purchased materials inputs are used to evaluate the implications for the stability of the economy of alternative strategies for managing inventories the simulations reveal that an s s form of production scheduling results in a somewhat less stable economy than is obtained with accelerator type inventory management

optimal inventory policies when ordering prices are random we consider a single item inventory model with deterministic demands at the beginning of each period a random ordering price is received according to a known distribution function a decision must be made as to how much if any of the item to order in each period so as to minimize total expected costs while satisfying all demands we show that in each period a sequence of critical price levels determines the optimal ordering strategy so that it is optimal to satisfy the demands of the next n periods if and only if the random price falls between the nth and the n 1st levels we derive recursive expressions that describe the critical price numbers and demonstrate the relationship of these expressions to minimal expected cost we study finite horizon as well as infinite horizon models and show that the critical number strategy is also average cost optimal

a generalized quantity discount pricing model to increase supplier s profits in this paper the joint problem of ordering and offering price discount by a supplier to his sole major buyer is analyzed the objective is to induce the buyer to alter his order schedule and size so that the supplier can benefit from lower set up ordering and inventory holding costs we generalize the quantity discount pricing model of monahan monahan j p 1984 a quantity discount pricing model to increase vendor profits management sci 30 6 720 726 to 1 explicitly incorporate constraints imposed on the amount of discount that can be offered and 2 relax the implicit assumption of a lot for lot or order for order policy adopted by the supplier an algorithm is developed to solve the supplier s joint ordering and price discount problem

simulating the inventory cycle abstract simulations of the inventory cycle utilizing a model based on 84 interacting firms in 21 industries reveals that the ratio of the variance of sales to the variance of output is an unreliable indicator of how seriously firms attempt to smooth production or whether such efforts in the aggregate even out economic fluctuations it is also shown that the two slow estimates of the speed of adjustment reported in many econometric studies of united states data may result in part from aggregation bias rather than from limitations of the flexible accelerator model itself

a hybrid algorithm for simultaneous scheduling of production and distribution in multi echelon structures this paper presents a dynamic programming algorithm for simultaneous determination of production batch sizes in an assembly network and distribution batch sizes in a conjoined distribution arborescent network the objective is to minimize average cost per period over an infinite horizon costs consist of processing costs at each node and linear holding costs for inventory final product demand rates may vary among the retail nodes but at each retail node the demand rate is assumed to be known constant and continuous all demand must be met backorders are not permitted the model can be used for a single product or for several products that are temporarily combined for distribution or for scheduling production in a system where several end products are produced from the same intermediate product as in some biochemical manufacturing processes

long term and penalty contracts in a two stage supply chain with stochastic demand abstract recent applications of game theoretic analysis to supply chain efficiency have focused on constructs between a buyer the retailer or manufacturer and a seller the supplier in successive stages of a supply chain if demand for the final product is stochastic then the supplier has an incentive to keep its capacity relatively low to avoid creating unneeded capacity the manufacturer on the other hand prefers the supplier s capacity to be high to ensure that the final demand is satisfied the manufacturer therefore constructs a contract to induce the supplier to increase its production capacity most research examines contracting when final demand is realized after the manufacturer places its order to the supplier however if final demand is realized before the manufacturer places its order to the supplier these types of contracts can be ineffective this paper examines two contracts under the latter timing scenario long term contracts in which the business relationship is repeated and penalty contracts in which the supplier is penalized for too little capacity results indicate long term contracts increase the profit potential of the supply chain furthermore the penalty contracts can ensure that the supplier chooses a capacity level such that the full profit potential is achieved

demand for nondurable goods a shortcut to estimating long run price elasticities when consumers stockpile static demand models overestimate long term price responses this article presents a dynamic model of demand with consumer inventories and proposes a shortcut to estimate the long run price elasticities without having to solve the dynamic program using french data on food purchases i find elasticities consistent with those that result from the full blown estimations found in the literature

marketing models and the lucas critique the lucas critique has been largely ignored in the marketing literature we present a number of conditions under which the critique is most likely to also apply in marketing settings next we provide some perspectives on how to diagnose and accommodate the lucas critique and identify various avenues for future research

s s inventory policies in general equilibrium we study the aggregate implications of s s inventory policies in a dynamic general equilibrium model with aggregate uncertainty firms in the model s retail sector face idiosyncratic demand risk and s s inventory policies are optimal because of fixed order costs the distribution of inventory holdings affects the aggregate outcome in two ways variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers we find that both mechanisms must operate to reconcile observations that orders are more volatile than and inventory investment is positively correlated with sales while remaining consistent with other salient business cycle characteristics the model exhibits strong amplification for some shocks and persistence to a limited extent

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

production stability in a supply chain environment abstract there is evidence that the growth rate of gdp in the united states stabilized in 1984 and improvements in production management are frequently cited as a source this paper defines the quality of production as the scale of the firm s production shock and assumes that the firm can exercise control over the scale of the shock the firm is assumed to operate in a supply chain environment and the question of interest is what if any influence the adoption of more reliable production techniques by a single firm has for aggregate volatility the results indicate that the adoption of more reliable production techniques by a single firm typically have minor effects on aggregate volatility because the benefit dies out rapidly as the product moves downstream the exceptions are those cases in which the firm adopting the improved technology lies near the end of the chain there is also some benefit when deliveries of materials to the initial firm in the production chain stabilize

is 75 of the sales promotion bump due to brand switching no only 33 is abstract several researchers have decomposed sales promotion elasticities based on household scanner panel data a key result is that the majority of the sales promotion elasticity approximately 74 on average is attributed to secondary demand effects brand switching and the remainder is attributed to primary demand effects timing acceleration and quantity increases the authors demonstrate that this result does not imply that if a brand gains 100 units in sales during a promotion the other brands in the category lose 74 units the authors offer a complementary decomposition measure based on unit sales the measure shows the ratio of the current cross brand unit sales loss to the current own brand unit sales gain during promotion the authors report empirical results for this measure they also derive analytical expressions that transform the elasticity decomposition into a decomposition of unit sales effects these expressions show the nature of the difference between the two decompositions to ga

the impact of heterogeneity in purchase timing and price responsiveness on estimates of sticker shock effects the notion that individuals have an internal reference price against which they compare observed prices is well supported by several psychological theories empirically several papers in the marketing literature employing scanner panel data have modeled the impact of reference prices on brand choice via the sticker shock formulation in which consumers evaluate choice alternatives using differences between shelf prices and reference prices most of the studies reported thus far have not accounted for heterogeneity in price response among consumers and have typically imputed reference prices from the shelf prices of brands that a consumer is supposed to have observed on previous purchases in the category since category marketing activity can differentially affect the purchase timing of households we argue that this measure of reference price may follow certain systematic patterns across consumers and when combined with unaccounted for price response heterogeneity may result in a spurious sticker shock effect specifically we show that estimates of sticker shock are biased upward if households that are price sensitive in the brand choice decision are also more responsive to category promotion activity in their purchase timing decision we discuss some general conditions under which the bias occurs and conduct a simulation experiment to confirm our specific hypotheses our simulation results show that changes in purchase timing are a critical determinant of the bias in the sticker shock effect we also show that unaccounted for price response heterogeneity can in itself result in a biased sticker shock parameter however this requires very large differences in price sensitivities across consumers far greater than what is normally observed we develop a hierarchical bayes version of the nested logit model which models heterogeneity via individual level parameters in a continuous random effects framework we estimate the model on scanner panel data from the yogurt and ketchup categories we find in both categories that the 95 probability interval of the posterior distribution of the mean sticker shock coefficient contains the value zero therefore at least for the data used in this study there is no evidence for the sticker shock effect at the aggregate level in contrast the corresponding coefficient from a standard model which ignores this heterogeneity is highly significant and supports the existence of a possibly spurious sticker shock effect consistent with our explanation of the underlying cause of the bias households that are more price sensitive in the choice decision are also found to be more responsive to category promotion activity in their decision to purchase in the category the results highlight the measurement problems associated with imputing reference prices from past prices since the frequency duration and price level of a retailer s promotional program depend on its size and prevalence accurate estimates of the sticker shock effect are essential for formulating optimal promotion strategies an adequate accounting of consumer heterogeneity is critical to this effort

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

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

a bargaining model with asymmetric information for a single supplier single buyer problem abstract banerjee s joint economic lot size jels model represents one approach to minimizing the joint total relevant cost of a buyer and a supplier by using a joint optimal order and production policy the implementation of a jointly optimal policy requires coordination and cooperation should the buyer have the market power to implement his own optimal policy as that one to be used in the exchange process no incentive exists for him to choose a joint optimal policy a joint policy can therefore only be the result of a bargaining process between the parties involved the supplier may make some sort of concession such as a price discount or a side payment in order to influence the buyer s order policy a critical assumption made throughout in supply chain literature is that the supplier has complete knowledge about the buyer s cost structure clearly this assumption will seldom be fulfilled in practice the research presented in this paper provides a bargaining model with asymmetric information about the buyer s cost structure assuming that the buyer has the power to impose its individual optimal policy

research note a dynamic programming approach to customer relationship pricing the practice of offering discounts to prospective customers represents a rudimentary form of using transaction history measures to customize the marketing mix furthermore the proliferation of powerful customer relationship management crm systems is providing the data and the communications channels necessary to extend this type of pricing strategy into true dynamic marketing policies that adjust pricing as customer relationships evolve in this paper we describe a dynamic programming based approach to creating optimal relationship pricing policies the methodology has two main components the first component is a latent class logit model that is used to model customer buying behavior the second component is a dynamic optimization procedure that computes profit maximizing price paths the methodology is illustrated using subscriber data provided by a large metropolitan newspaper the empirical results provide support for the common managerial practice of offering discounts to new customers however in contrast to current practice the results suggest the use of a series of decreasing discounts based on the length of customer tenure rather than a single steep discount for first time purchasers the dynamic programming dp methodology also represents an important approach to calculating customer value cv specifically the dp framework allows the calculation of cv to be an explicit function of marketing policies and customer status as such this method for calculating cv accounts for the value of managerial flexibility and improves upon existing methods that do not model revenue and attrition rates as functions of marketing variables

determining profit maximizing production shipping policies in a one to one direct shipping stochastic demand environment abstract in this paper we consider the problem of producing and transporting a unique product directly from an origin e g a production plant to a destination e g its retail outlet where demands are stochastic and follow a known probability distribution we first derive the expected profit per unit produced and shipped as a function of the production rate and shipment size for a general demand distribution then an iterative procedure is designed to obtain the optimal production shipping policies by exploiting the concavity of the expected profit function on the production rate for the uniform demand distribution case monte carlo experiments and sensitivity analyses are also performed to validate the model and give further insights into the effect of changes in parameter values on the optimal policies and the expected profit function this research extends the classic newsboy model by combining the production and logistical decisions into an integrated framework and provides optimal production shipping policies for profit oriented organizations that own both the production and retail entities and face demand uncertainties

investigating heterogeneity in brand preferences in logit models for panel data in analyzing panel data the issue of heterogeneity across households is an important consideration if heterogeneity is present but is ignored in the analysis it will result in biased and inconsi

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

measuring the impact of promotions on brand switching when consumers are forward looking abstract logit choice models have been used extensively to study promotion response this article examines whether brand switching elasticities derived from these models are overestimated as a result of rational consumer adjustment of purchase timing to coincide with promotion schedules and whether a dynamic structural model can address this bias using simulated data the authors first show that if the structural model is correct brand switching elasticities are overestimated by stand alone logit models a nested logit model improves the estimates but not completely second the authors estimate the models on real data the results indicate that the structural model fits better and produces sensible coefficient estimates the authors then observe the same pattern in switching elasticities as they do in the simulation third the authors predict sales assuming a 50 increase in promotion frequency the reduced form models predict much higher sales levels than does the dynamic structural model the autho

individual team incentives and managing competitive balance in sports leagues an empirical analysis of major league baseball abstract major league baseball and other professional sports leagues have long been concerned with competitive imbalances caused by differences in local revenues the fear is that in the absence of salary caps or other regulatory mechanisms smaller market teams will be unable to remain competitive this research uses a structural dynamic programming model to analyze ownership s payroll investment decisions this model estimates the relationship between optimal payrolls and local market populations and the influence of long term customer equity dynamics on payroll investments in addition the author analyzes the impact of a recent policy intervention that implemented revenue transfers from high local revenue markets to low local revenue markets the statistical results indicate that market population has a significant impact on the value of a team s payroll investments for example optimal payrolls double as the population increases from 2 5 million to 7 5 million furthermore rather than improving com

the impact of cost uncertainty on the location of a distribution center abstract the location of a distribution center dc is a key consideration for the design of supply chain networks when deciding on it firms usually allow for transportation costs but not supplier prices we consider simultaneously the location of a dc and the choice of suppliers offering different possibly random prices for a single product a buying firm attempts to minimize the sum of the price charged by a chosen supplier and inbound and outbound transportation costs no costs are incurred for switching suppliers we first derive a closed form optimal location for the case of a demand populated unit line between two suppliers offering deterministic prices we then let one of the two suppliers offer a random price if the price follows a symmetric and unimodal distribution the optimal location is closer to the supplier with a lower mean price we also show the dominance of high variability the buyer can decrease the total cost more for higher price variability for any location the dominance result holds for normal uniform and gamma distributions we propose an extended model with more than two suppliers on a plane and show that the dominance result still holds from numerical examples for a line and a plane we observe that an optimal location gets closer to the center of gravity of demands as the variability of any supplier s price increases

the speed of adjustment and production smoothing bayesian estimation abstract the models used for empirical studies of inventory behavior typically include the lagged stock of inventories as a result of the partial adjustment assumption and also exhibit serial correlation in the residuals some researchers suggested that the very low speed of adjustment of the actual inventories to their desired levels and also the lack of empirical support for the production smoothing hypothesis may be the results of applying inappropriate estimation methods to the data recently a bayesian estimator that applies to models containing both lagged dependent variables and autocorrelated disturbances was developed in this paper we examine the empirical evidence on the speed of adjustment of inventories to their desired levels and the degree to which firms smooth production by applying this new estimation method to monthly industry data the results show that the low speeds of adjustment reported in the literature as well as the low degree or lack of production smoothing also reported in the literature may indeed be artifacts of the estimation procedures used

an integrated inventory model for a single vendor and multiple buyers with ordering cost reduction abstract forming strategic alliances and utilizing modern information technologies have been the two most important ways for firms to gain such competitive advantages as lower logistics costs and secure customers loyalty in this paper we consider an integrated inventory system where a single vendor purchases and processes raw materials in order to deliver finished items to multiple buyers the vendor and all buyers are willing to invest in reducing the ordering cost e g establishing an electronic data interchange based inventory control system in order to decrease their joint total cost the amount of investment determines the planned ordering cost and hence affects their replenishment decisions one major managerial implication from this ordering cost reduction is that the efforts to streamline and speedup transactions via the application of information technologies may result in a higher degree of coordination and automation among allied trading parties an analytical model is developed to derive the optimal investment amount and replenishment decisions for both vendor and buyers the exponential ordering cost function is then applied to our general model and a numerical analysis is performed to provide interesting insights of the model numerical results show that the vendor and all the buyers can benefit directly from substantial cost savings by this ordering cost reduction investment

specifying price judgments with range frequency theory in models of brand choice abstract to construct a price judgment consumers compare a focal price with one or more reference prices however reference price operationalizations in the brand choice literature use single point summary measures that cannot account for several distributional effects to account for effects beyond the first moment of the reference price distribution the authors specify price judgments in models of brand choice in accordance with range frequency theory the findings indicate that range frequency price judgments provide a more complete specification of reference price effects and become more important with an increase in the second and third moments of a reference price distribution the data also indicate that range effects are stronger for coupon users and frequency effects are stronger for consumers exposed to a trend of prices the results have several implications for choice modeling pricing theory and pricing strategy

diversification under supply uncertainty supply chain management is becoming an increasingly important issue especially when in most industries the cost of materials purchased comprises 40 60 of the total sales revenue despite the benefits cited for single sourcing in the popular literature there is enough evidence of industries having two three sources for most parts in this paper we address the operational issue of quantity allocation between two uncertain suppliers and its effects on the inventory policies of the buyer based on the type of delivery contract a buyer has with the suppliers we suggest three models for the supply process model i is a one delivery contract with all of the order quantity delivered either in the current period with probability or in the next period with probability 1 model ii is also a one delivery contract with a random fraction of the order quantity delivered in the current period the portion of the order quantity not delivered is cancelled model iii is similar to model ii with the remaining quantity delivered in the next period we derive the optimal ordering policies that minimize the total ordering holding and penalty costs with backlogging we show that the optimal ordering policy in period n for each of these models is as follows for x a n order nothing for vi n x a n use only one supplier and for x vi n order from both suppliers for the limiting case in the single period version of model i we derive conditions under which one would continue ordering from one or the other or both suppliers for model ii we give sufficient conditions for not using the second more expensive supplier when the demand and yield distributions have some special form for the single period version of models ii and iii with equal marginal ordering costs we show that the optimal order quantities follow a ratio rule when demand is exponential and yields are either normal or gamma distributed

the temporal and spatial dimensions of price search insights from matching household survey and purchase data abstract price promotions are pervasive in grocery markets a household can respond to price promotions by effectively cherry picking through 1 spatial price search across stores and 2 temporal price search across time however extant research has analyzed these two dimensions of price search only separately and therefore underestimates both the consumer response to price promotions and the impact of promotions on retail profit in this article the authors introduce an integrated analysis of spatial and temporal price search they seek answers to three questions first what are the predictors of household decisions to perform either spatial or temporal price search second how effective are the temporal spatial and spatiotemporal price search strategies in obtaining lower prices and third what is the impact of alternative price search strategies on retailer profit the authors use a unique data collection approach that combines household surveys with observed purchase data to address these que

price protection in the personal computer industry price protection is a commonly used practice between manufacturers and retailers in the personal computer pc industry motivated by drastic declines of product values during the product life cycle it is a form of rebate given by the manufacturer to the retailer for units unsold at the retailer when the price drops during the product life cycle it is a controversial policy in the pc industry because it is not clear how such a policy benefits the supply chain and its participants we show that price protection is an instrument for channel coordination for products with long manufacturing lead times so the retailer has a single buying opportunity a properly chosen price protection credit coordinates the channel for products with shorter manufacturing lead times so the retailer has two buying opportunities price protection alone cannot guarantee channel coordination when wholesale prices are exoge nous however when the price protection credit is set endogenously together with the wholesale prices channel coordination is restored in the two buying opportunity setting with fixed wholesale prices we show that price protection has two primary impacts 1 shifting sales forward in time and 2 increasing total sales finally we present a simple numerical example that suggests given the current economics of the pc industry that price protection under fixed wholesale prices may benefit the total chain and the retailer but hurt the manufacturer

the effect of promotion on consumption buying more and consuming it faster the authors empirically demonstrate the existence of flexible consumption rates in packaged goods products how this phenomenon can be modeled and its importance in assessing the effectiveness of

the variability of aggregate demand with s s inventory policies this paper develops a general theory of the aggregate implications of s s inventory policies it is shown that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales overall the s s theory contradicts the widely held notion that retail inventories act as a buffer protecting manufacturers from fluctuating sales in 1951 arrow harris and marschak 3 introduced the s s form of inventory policy the policies are designed for retailers of finished goods who face economies of scale when placing orders with their suppliers to pursue an s s inventory policy the retailer establishes a lower stock point s and an upper stock point s no order is placed until inventories fall to s or below whereupon they are restored to the maximum of s a general proof of the optimality of these s s inventory policies was provided by scarf 13 at the microeconomic level the model has been extensively investigated formulae are available to compute optimal policies e g ehrhardt 6 and these policies are xidely used in industry e g schwartz ed 14 in addition the model has been extended to increasingly complex demand environments e g karlin and fabens 11 in contrast little is known about the macroeconomic implications of s s policies several recent papers have begun to correct this deficiency akerlof has suggested that pursuit of constant threshold money holding policies of the s s variety might be responsible for the observed low short run income elasticity of the demand for money akerlof 1 and akerlof and milbourne 2 in the operations research literature ehrhardt schultz and wagner 7 analyzed the demand environment of a wholesaler supplying several retailers they required that the distinct retailers have independent sales ruling out the analysis of common factors in sales finally simulation results of blinder 4 suggested a role for the s s model in understanding retail sector inventories however the theoretical difficulties with the model remained unresolved blinder commented if firms have a technology that makes the s s rule optimal aggregation across firms is inherently difficult indeed it is precisely this difficulty which has prevented the s s model from being used in empirical work to date blinder 4 p 459 in this paper we present a general theory of the aggregate implications of s s policies our central finding is that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales this result holds even in the presence of common factors in retail sales in addition a close connection

controlling for supplier switching in the presence of real options and asymmetric information abstract applying a real option approach this paper examines how asymmetric information alters key variables of a firm s supplier switching process such as the timing of contracting hurried versus delayed contracting transfer payments set up switching and abandonment decisions in a symmetric information setting delayed contracting is unambiguously beneficial abandoning the once established relation with the entrant supplier is never an issue in contrast under asymmetric information hurried contracting with potentially abandoning the relation can be beneficial consistent with adverse selection models we find that under delayed contracting in equilibrium the firm switches less frequently to the entrant supplier switching inertia surprisingly we also find that under hurried contracting the firm switches more frequently to the entrant supplier switching acceleration and may abandon the relation finally we study how these key variables of the supplier switching process change when also the incumbent supplier has private information two sided asymmetric information case

an empirical investigation of the dynamic effect of marlboro s permanent pricing shift the strategy philip morris adopted in 1993 featured a one time permanent publicly announced price cut an event referred to as marlboro friday little is known about the impact of permanent and publicly announced price cuts on consumer brand switching behaviors for an addictive product in the context of marlboro friday we investigate 1 how consumers brand choices are affected by a permanent price cut 2 whether differential and dynamic effects of permanent price cuts occur for different types of consumers and 3 the implications of publicly announced permanent price cuts on consumer brand switching behavior in the long run we develop a dynamic structural brand choice model that allows for consumer forward looking behavior learning and addiction and investigate how consumers adjusted their brand choice behaviors before and after this permanent price cut using unique consumer panel data pertaining to cigarette purchases before and after the event we provide behavioral explanations of whether and how the drastic and permanent price cut represented an effective step to encourage brand switching for an addictive product and a necessary step for philip morris to combat the growing market share of generic brands

dynamic s s economies in this paper the authors provide a framework to study the aggregate dynamic behavior of an economy where individual units follow s s policies and are subject to aggregate and idiosyncratic shocks they characterize structural and stochastic heterogeneities that ensure convergence of the economy s aggregate to that of its stochastic frictionless counterpart determine the speed at which convergence takes place and describe the transitional dynamics of this economy they study the evolution of the economy s aggregate and the evolution of the difference between this aggregate and that of the difference between this aggregate and that of an economy without microeconomic friction where the latter pertains to a situation where individual units adjust with no delay to all shocks copyright 1991 by the econometric society

invited commentary structural modeling in marketing some future possibilities the growing interest in using structural modeling to test theories of consumer and firm behavior stems from the increased availability of market data at the individual level both longitudinal and crosssectional for a variety of products the emergence of online consumer panels where data on behavioral intentions can be collected and the availability of retail transactional data from online stores can be expected to only accelerate the trend hence the recent review article by chintagunta et al 2006 is a timely contribution to the structural modeling along with other recent contributions by wittink 2005 franses 2005a b van heerde et al 2005 and bronnenberg et al 2005 chintagunta et al 2006 and the other authors mentioned discuss the state of the art in the development and application of structural models in marketing they discuss the advantages and disadvantages of using structural modeling to test marketplace theories and the cautions to be observed in the valida

a retail store sku promotions optimization model for category multi period profit maximization consumer promotions are an important element of competitive dynamics in retail markets and make a significant difference in the retailer s profits but no study has so far included all the elements that are required to meet retail business objectives we extend the existing literatures by considering all the basic requirements for a promotional decision support system dss reliance on operational store level data only the ability to predict sales as a function of prices and the inclusion of other promotional variables affecting the category the new model delivers an optimizing promotional schedule at stock keeping unit sku level which maximizes multi period category level profit under the constraints of business rules typically applied in practice we first develop a high dimensional distributed lag demand model which integrates both cross sku competitive promotion information and cross period promotional influences we estimate the model by proposing a two stage sign constrained regularization approach to ensure realistic promotional parameters based on the demand model we then build a nonlinear integer programming model to maximize the retailer s category profits over a planning horizon under constraints that model important business rules the output of the model provides optimized prices display and feature advertising planning together with sales and profit forecasts empirical tests over a number of stores and categories using supermarket data suggest that our model generates accurate sales forecasts and increases category profits by approximately 17 and that including cross item and cross period effects is also valuable

modeling multiple sources of heterogeneity in multinomial logit models methodological and managerial issues we offer a framework to specify and estimate various sources of heterogeneity in multinomial logit brand choice models we let each brand specific intercept and each parameter of the explanatory variable vector vary randomly across households in addition we distinguish loyal households from the rest our results suggest that incorporating multiple sources of heterogeneity improves the model fit and suggests higher impact of marketing mix elements on brand choice we highlight the importance of incorporating multiple sources of heterogeneity the model we implement yields valuable managerial insights

non cooperative strategies for production and shipment lot sizing in one vendor multi buyer system abstract this paper considers a decentralized dynamic production distribution control a discrete deterministic model in which a vendor produces a product and supplies it to the buyer is considered several papers on vendor buyer integrated production inventory management assume that policies are set by a central decision maker to optimize total system performance although vendor and buyer may agree to minimize the total cost at least one of them has a private incentive to deviate from the agreement in the competitive situation the objective is to determine schedules which minimize the individual average total cost of production shipment and stockholding we assume that the division of shipment costs is centrally coordinated or negotiated initially it leads to a class of non cooperative constrained games indexed by two parameters connected with partitions of shipment costs non cooperative strategies are considered as feasible strategies in a restricted non cooperative game some properties of equilibrium strategies are investigated as acceptable equilibrium strategies of subgames in the game

coordinated supply chain management abstract historically the three fundamental stages of the supply chain procurement production and distribution have been managed independently buffered by large inventories increasing competitive pressures and market globalization are forcing firms to develop supply chains that can quickly respond to customer needs to remain competitive these firms must reduce operating costs while continuously improving customer service with recent advances in communications and information technology as well as a rapidly growing array of logistics options firms have an opportunity to reduce operating costs by coordinating the planning of these stages in this paper we review the literature addressing coordinated planning between two or more stages of the supply chain placing particular emphasis on models that would lend themselves to a total supply chain model finally we suggest directions for future research

multi item inventory systems with joint ordering and transportation decisions abstract in many practical situations joint determination of ordering and transportation decisions for a family of items may lead to a considerable cost saving in this paper we consider a multi item inventory system with a freight rate schedule that is a function of the volume shipped and the capacity of a standard container orders for the family of items are all triggered by a coordinated periodic r s policy economies of scale exist because of the reduced freight rates when ordering a full container load instead of a less than container load a full container load can be achieved by enlarging the initial order quantities a heuristic is proposed to decide whether an initial order should be enlarged or not the heuristic is based on a comparison of the expected saved shipping cost the expected saved ordering cost and the expected extra holding cost caused by an enlargement some numerical examples show that the heuristic works quite satisfactorily

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

informing transforming and persuading disentangling the multiple effects of advertising on brand choice decisions prior behavioral research has suggested that advertising can influence a consumer s quality evaluation through informative and transformative effects the informative effect acts directly to inform a consumer of product attributes and hence shapes her evaluations of brand quality the transformative effect affects the consumer s evaluation of brand quality by enhancing her assessment of her subsequent consumption experience in addition advertising may influence a consumer s utility directly even without providing any explicit information this is the persuasive effect in this paper we propose a framework that formally models the processes through which all three effects of advertisements impact consumers brand evaluations and their subsequent brand choice decisions in particular we model source credibility confirmatory bias and bounded rationality on the part of consumers by appropriately modifying the standard bayesian learning approach our model conforms closely to prior behavioral literature and the experimental findings therein in our empirical analysis we get significant estimates of both informative and transformative effects across brands we find interesting temporal patterns across the effects for instance the importance of transformative effects seem to grow over time while that of informative effects diminishes finally we conduct policy experiments to examine the impact of increased ad intensity on advertising effects as well as the role played by consumption ambiguity

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

estimating the impact of consumer expectations of coupons on purchase behavior a dynamic structural model we examine the basic premise that consumers may anticipate future promotions and adjust their purchase behavior accordingly we develop a structural model of households who make purchase decisions to minimize their expenditure over a finite period the model allows for future expectations of promotions to enter the purchase decision households with adequate inventory of the product may face a trade off of buying in the current period with a coupon or defer the purchase until next period given their expectations of future promotions thus we provide a framework for examining the impact of consumer expectations on choice behavior the target audiences for our paper are a empirical researchers who intend to make structural models part of their applied research agenda and b managers who value and seek to understand the impact of consumers coupon expectations on current purchase behavior our research objective is to provide an empirical framework to examine whether and to what extent consumers anticipate future coupon promotions and adjust purchase behavior the central premise of our approach is that a rational consumer minimizes the present discounted value of the cost of a purchase where cost in a single period consists of purchase price inventory holding cost gains from coupons and potential stockout cost we aim to test whether our hypotheses regarding the various elements of the cost structure are supported and that whether consumers take into account future discounted cost when making current purchase decisions the research methodology we adopt is relatively new in econometrics and known as the estimable stochastic structural dynamic programming method the methodology amounts to incorporating a maximum likelihood routine embedded in a dynamic programming problem the dynamic programming problem is solved several times within a maximum likelihood iteration for each value of the state space elements and for each value of the parameters in the parameter set the state space in our model consists of purchase and nonpurchase alternatives in each time period coupon availability and no coupon availability in each time period level of inventory in each time period for each household and consumption rate of each household we use scanner panel data on purchases in the disposable diaper product category and promotions we estimate the inventory holding and stockout costs brand specific value of coupons and consumers expectations of future coupons the key insights and lessons learned can be summarized as follows 1 our results are consistent with the notion that consumers hold beliefs about future coupons and that such beliefs affect the purchase decision we find that the dynamic optimization model performs significantly better than a single period optimization model and a naive benchmark model 2 we find a high and significant stockout cost consistent with the essential nature of the product category our estimate of the holding cost yields a reasonable annualized percentage value when converted to the cost of capital we find that consumer valuation of coupons differ markedly across brands 3 our empirical evidence supports the notion that consumers hold beliefs about future coupon availability we also find that the expectations about future coupons estimated endogenously differ depending upon whether or not a coupon was available in the current period thus the proposed model structure yields rich managerial insights and facilitates several what if scenarios a possible limitation of our model and estimable structural models in general is the computational cost while it is possible to conceptually extend the state space to accommodate variations across households and add a richer parameter structure each addition multiplies the size of the state space and the computation time for this reason we have kept the state space as tight as possible and refrained from additions that would otherwise enable us to incorporate heterogeneity in consumer decisions for example we assumed that consumers are similar other than reflected by their purchase behavior we built a category purchase incidence model rather than a brand choice model we refrained from including unobserved heterogeneity in the parameters we chose to opt out of modeling autocorrelation and other time dependent error term patterns in the likelihood function thus we have made an effort to build a structural model that reasonably reflects consumer purchase behavior without requiring expensive computation currently there are developments in econometrics to approximate the computation of the valuation functions without sacrificing much accuracy when these methods are well developed we expect that structural models will become more commonplace in marketing

side payment contracts in two person nonzero sum supply chain games review discussion and applications this paper investigates supply chain coordination with side payment contracts we first summarize specific side payment contracts and present our review on the literature that developed general side payment schemes to coordinate supply chains following our review we discuss two criteria that a proper side payment contract must satisfy and accordingly introduce a decision dependent transfer payment function and a constant transfer term we present the condition that the transfer function must satisfy and use nash arbitration scheme and shapley value to compute the constant transfer term and derive its closed form solution next we provide a five step procedure for the development of side payment contract and apply it to four supply chain games cournot and bertrand games a two retailer supply chain game with substitutable products and a one supplier one retailer supply chain more specifically for the cournot game we construct a linear transfer function and a constant side payment to coordinate two producers for the bertrand game we build a nonlinear transfer function which is equivalent to a revenue sharing contract and show that the constant term is zero and two firms in the game equally share the system wide profit for a supply chain with substitutable products we present a side payment contract to coordinate two retailers for a two echelon supply chain we develop a proper side payment scheme that can coordinate the supply chain and also help reduce the impact of forward buying on supply chain performance

decomposing the sales promotion bump with store data sales promotions generate substantial short term sales increases to determine whether the sales promotion bump is truly beneficial from a managerial perspective we propose a system of store level regression models that decomposes the sales promotion bump into three parts cross brand effects secondary demand cross period effects primary demand borrowed from other time periods and category expansion effects remaining primary demand across four store level scanner datasets we find that each of these three parts contribute about one third on average one extension we propose is the separation of the category expansion effect into cross store and market expansion effects another one is to split the cross item effect total across all other items into cannibalization and between brand effects we also allow for a flexible decomposition by allowing all effects to depend on the feature display support condition and on the magnitude of the price discount the latter dependence is achieved by local polynomial regression we find that feature supported price discounts are strongly associated with cross period effects while display only supported price discounts have especially strong category expansion effects while the role of the category expansion effect tends to increase with higher price discounts the roles of cross brand and cross period effects both tend to decrease

the joint economic lot size problem a review abstract this article reviews lot size models which focus on coordinated inventory replenishment decisions between buyer and vendor and their impact on the performance of the supply chain these so called joint economic lot size jels models determine order production and shipment quantities from the perspective of the supply chain with the objective of minimizing total system costs this paper first describes the problem studied introduces the methodology of the review and presents a descriptive analysis of the selected papers subsequently papers are categorized and analyzed with respect to their contribution to the coordination of different echelons in the supply chain finally the review highlights gaps in the existing literature and suggests interesting areas for future research

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

a simultaneous approach to the whether what and how much to buy questions consumer s purchase decisions of whether to buy what to buy and how much to buy are examined simultaneously based on a consumer utility maximization problem an unobservable threshold price about which a consumer pivots from nonpurchase to purchase can be deduced with any model specification the interrelationships between purchase decisions can be explicitly derived the model is applied to coffee purchasing data in addition by suppressing the nonpurchase options the model is compared with an alternative approach appearing in the marketing literature

practice prize winner a nested logit model of product and transaction type choice for planning automakers pricing and promotions we develop a consumer response model to evaluate and plan pricing and promotions in durable good markets we discuss its implementation in the u s automotive industry which spends about 45 billion each year in price promotions the approach is based on a random effects multinomial nested logit model of product e g a vehicle model such as hyundai tucson and transaction type choice transaction types include combinations of acquisition types e g purchase versus lease and pricing instruments cash rebates reduced apr financing lease payment discounts we estimate the model using hierarchical bayes methods to capture response heterogeneity at the local market level we find key characteristics unique to durable good markets first consumers are heterogeneous in both their brand and transaction type preferences second consumers differ in their overall price sensitivity as well as in their relative sensitivity to alternative pricing instruments e g cash discounts reduced monthly payments third the most effective pricing programs tend to be those in which automakers offer consumers a menu of options to choose from e g a choice among a cash discount reduced interest rate financing or a lease payment discount we illustrate the model through an empirical application to a sample of data drawn from j d power transaction records in the entry suv segment and discuss examples of actual implementations

measuring imputed cost in the semiconductor equipment supply chain we consider the order fulfillment process of a supplier producing a customized capital good such as production equipment commercial aircraft medical devices or defense systems as is common in these industries prior to receiving a firm purchase order from the customer the supplier receives a series of shared forecasts which are called soft orders facing a stochastic internal manufacturing lead time the supplier must decide at what time to begin the fulfillment of the order this decision requires a trade off between starting too early leading to potential holding or cancellation costs and starting too late leading to potential delay costs we collect detailed data of shared forecasts actual purchase orders production lead times and delivery dates for a supplier buyer dyad in the semiconductor equipment supply chain under the assumption that the supplier acts rationally optimally balancing the cancellation holding and delay costs we are able to estimate the corresponding imputed cost parameters based on the observed data our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost in other words the supplier is very conservative when commencing the order fulfillment which undermines the effectiveness of the overall forecast sharing mechanism

coordinated decisions for substitutable products in a common retailer supply chain abstract this paper studies coordination mechanisms in a supply chain which consists of two suppliers with capacity uncertainties selling differential yet substitutable products through a common retailer who faces price sensitive random demand of these two products we develop in a noncompetitive setting three coordination models revenue sharing return policy and combination of revenue sharing and return policy and contrast them with a basic and uncoordinated model we are able to establish the ordinal relationship among the retailer s ordering and pricing decisions and analytically compare the performances between certain models when two suppliers are identical we find that the retailer s ordering and pricing decisions in the model with return policy in the case of identical suppliers are independent of demand or supply uncertainty our numerical results reveal that the performances of coordination models in the case of nonidentical suppliers resemble those in the case of identical suppliers we find that the retailer will place a larger order quantity in models where her average cost per unit sold is smaller we also find that product substitutability and uncertainties have different effects on chain performances

investigating purchase incidence brand choice and purchase quantity decisions of households we develop a comprehensive utility maximizing framework to study the impact of marketing variables on the category purchase brand choice and purchase quantity decisions of households for frequently purchased packaged goods the model allows for dependence among the three decisions while ensuring that these decisions provide in combination the greatest possible utility to the household by accounting for variations in reservation prices and intrinsic brand preferences across households the modeling framework explicitly captures the effects of unobserved heterogeneity on all three purchase decisions the principal empirical finding from analyzing the a c nielsen data for the yogurt product category is that the substantive implications for the effects of marketing variables are sensitive to whether these effects are determined conditional or unconditional on a product category purchase our results show that reservation prices and intrinsic brand preferences vary across households and not accounting for these variations in the estimation could lead to biased estimates for the coefficients of the marketing variables a comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals that our proposed model performs better using both a formal statistical test as well as the criterion of predictive validity in a holdout sample of panelists further the purchase quantity model compares favorably with two alternative models of quantity choice in the validation sample

endogeneity and individual consumer choice abstract in many markets there is likely to be correlation both across periods in terms of the choices of one consumer and across consumers in terms of their choices in each period the former is caused by consumer heterogeneity and the latter may be the result of demand common shocks across consumers furthermore if firms partially observe these common shocks their market decisions may end up being endogenous and correlated with the common shocks because researchers cannot typically fully observe consumer heterogeneity and the common shocks the estimation method must account for the endogeneity of firms decisions in this article the authors present a test for endogeneity under unobserved consumer heterogeneity and common shocks which is based on a quasi likelihood estimation method to estimate the model parameters consistently when endogenous firm behavior unobserved heterogeneity and common shocks are present the test examines the differences in general method of moments coefficient estima

patents as options some estimates of the value of holding european patent stocks in many countries holders of patents must pay an annual renewal fee in order to keep their patents in force this paper uses data on the proportion of patents renewed and the renewal fees faced by post world war ii cohorts of patents in france the united kingdom and germany in conjunction with a model of patent holders renewal decisions to estimate the returns earned from holding patents in these countries since patents are often applied for at a nearly stage in the innovation process the model allows agents to be uncertain about the sequence of returns that will be earned if the patent is kept inforce formally then the paper presents and solves a discrete choice optimal stochastic control model derives the implications of the model on aggregate behaviour and then estimates the parameters of the model from aggregate data the estimates enable a detailed description of the evolution of the distribution of returns earned from holding patents over their life spans and calculations of both the annual returns earned from holding the patents still in force or the patent stocks in the alternative countries and the distribution of the discounted value of returns earned from holding the patents in a cohort this abstract was borrowed from another version of this item

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

an integrated vendor buyer inventory model with order processing cost reduction and permissible delay in payments trade credit plays an important role in financing for many businesses and industries for the buyers purchased inventory can be considered to be financed in whole or in part with permissible delay in payments during the purchasing process on the other hand both the vendor and buyer take part in order processing cost reduction by applying information technologies such as edi electronic data interchange the order processing cost can also be reduced by adding certain capital investments and this will affect the lot size decisions this article develops an integrated inventory model to determine the optimal inventory policy under conditions of order processing cost reduction and permissible delay in payments and shows that the total annual variable cost function possesses some kinds of convexities a solution procedure is provided to determine the optimal order policy finally a numerical example is presented to illustrate the solution procedure

supply chain coordination perspectives empirical studies and research directions supply chains sc are generally complex and are characterized by numerous activities spread over multiple functions and organizations which pose interesting challenges for effective sc coordination to meet these challenges sc members must work towards a unified system and coordinate with each other a systematic literature review is presented in this paper to throw light on the importance of sc coordination the objectives of this paper are to report and review various perspectives on sc coordination issues understand and appreciate various mechanisms available for coordination and identify the gaps existing in the literature a framework is suggested indicating scope for further research

volatility of sales expectation errors and inventory investment firm level evidence abstract this paper tests whether demand uncertainty which is measured by the volatility of sales affects inventory investment based on the accelerator buffer stock inventory model using a panel of dutch listed firms in the period 1984 1996 we find that the estimated coefficient of the speed parameter of adjusting inventories increases vastly when the volatility of sales is used as the proxy for unexpected sales in the stock adjustment equation dutch firms on average overstate future sales leading firms to accumulate inventories partially due to the concern of avoiding stock out in case of highly unexpected demand

the price consideration model of brand choice the workhorse brand choice models in marketing are the multinomial logit mnl and nested multinomial logit nmnl these models place strong restrictions on how brand share and purchase incidence price elasticities are related in this paper we propose a new model of brand choice the price consideration pc model that allows more flexibility in this relationship in the pc model consumers do not observe prices in each period every week a consumer decides whether to consider a category only then does he she look at prices and decide whether and what to buy using scanner data we show the pc model fits much better than mnl or nmnl simulations reveal the reason the pc model provides a vastly superior fit to inter purchase spells

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

the integrated management of logistic chains in the white goods industry a field research in italy after having devoted many e orts and investments in improving their internal capacity to produce the right product at the right price at the right time companies are now starting to discover that much of the value they deliver to their customers depends not only on their own performance but also on the performance of all the other companies that belong to the same logistic chain thus the integrated management of logistic chains has gained a large attention in the latest years as one of the most e ective tools to achieve an overall improvement in the economic as well as in the logistic value that is embodied in each product this paper presents some results of a eld research focused on logistic chain management carried on by means of direct interviews on a sample of italian companies shops and nal customers belonging to the white goods industry questions highlight the main cost and logistic e ects that arise among di erent tiers of the chain when they interact here we illustrate the used methodology moreover we discuss some of the empirical results achieved with the aim of assessing the improvement potential that a tighter integration could achieve in particular it is shown that wide space for improving companies pro tability is available both by reducing costs and by increasing sales 2001 elsevier science b v all rights reserved

invited commentary dynamic structural consumer models and current marketing issues structural models integrate behavioral and psychological decision theory into economics models and are more aligned with the true underlying economic primitives of the consumers this allows researchers to investigate more behavior driven and process oriented customer decision processes such as learning of product attributes formation of a consideration sets stockpiling and flexible consumption that cannot be easily handled by traditional marketing models chintagunta et al 2006 gives an excellent review on the development and applications of structural models in marketing for modeling both consumer demand and firm competition recent interests in consumer research have diversified from frequently purchased packaged goods to services high tech internet and information industries consumers are observed to be more sophisticated long term oriented risk averse and rational when making purchase and consumption decisions in these product categories structural models are better choices to capture the nature of the sophisticated decision process under the new marketing environment and engineering given the thorough review of chintagunta et al 2006 i will focus only on the dynamic structural demand models that have the components of information processing rational expectation and or endogenous decisions to trade off current and future utilities and i discuss some current marketing issues that can be most appropriately addressed by these models

promotion effect on endogenous consumption over the years researchers have found that promotion makes consumers switch brands and purchase earlier or more however it is unclear how promotion affects consumption especially for product categories that are perceived to be versatile and substitutable in this paper we propose a dynamic structural model with endogenous consumption under promotion uncertainty to analyze the promotion effect on consumption this model recognizes consumers as rational decision makers who form promotion expectations and plan their purchase and consumption decisions in light of promotion schedule applying the proposed model to packaged tuna and yogurt we find that endogenous consumption responds to promotion as a result of forward looking and stockpiling behavior this is the first empirical paper that recognizes consumption as an endogenous decision variable and proposes a structural model to offer behavioral explanations on whether how and why promotion encourages consumption for product categories with flexible consumption