an analysis of the tradeoff between advertising and price discounting the authors examine an important influence on the price advertising tradeoff the ratio of price and advertising elasticities their theoretical analysis stresses the centrality of the elasticity r

tipping and concentration in markets with indirect network effects this paper develops a framework for measuring tipping the increase in a firm s market share dominance caused by indirect network effects our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects in practice this measure requires a model that can predict the counterfactual market concentration under different parameter values capturing the strength of indirect network effects we build such a model for the case of dynamic standards competition in a market characterized by the classic hardware software paradigm to demonstrate its applicability we calibrate it using demand estimates and other data from the 32 64 bit generation of video game consoles a canonical example of standards competition with indirect network effects in our example we find that indirect network effects can lead to a strong economically significant increase in market concentration we also find important roles for beliefs on both the demand side as consumers tend to pick the product they expect to win the standards war and on the supply side as firms engage in penetration pricing to invest in growing their networks

competitive non linear pricing and bundling we examine the impact of multiproduct nonlinear pricing on profit consumer surplus and welfare in a duopoly when consumers buy all their products from one firm the one stop shopping model nonlinear pricing leads to higher profit and welfare but often lower consumer surplus than linear pricing by contrast in a unit demand model where consumers may buy one product from one firm and another product from another firm bundling generally acts to reduce profit and welfare and to boost consumer surplus in a more general model where consumers may buy from more than one firm and where consumers have elastic demands for each product nonlinear pricing has ambiguous effects compared with linear pricing nonlinear pricing tends to raise profit but harm consumer surplus when i demand is elastic ii there is substantial product differentiation iii there is substantial heterogeneity in consumer demand iv consumers face substantial shopping costs when visiting more than one firm and v a consumer s brand preference for one product is strongly correlated with her brand preference for another product nonlinear pricing is more likely to lead to welfare gains when i ii iv and v hold but iii does not

repayment concentration and consumer motivation to get out of debt many indebted consumers carry multiple credit cards with significant balances and do not generate enough income to pay off these balances in full at the end of each repayment period in managing their debt over time these consumers must decide how to allocate repayments across their debt accounts this research examines how different monthly repayment allocations varying from entirely concentrated into one debt account i e a concentrated strategy to equally dispersed across all debt accounts i e a dispersed strategy influence consumers motivation to repay their debts evidence from a field study of indebted consumers with multiple debt accounts and from three experiments shows that concentrated vs dispersed repayment strategies tend to boost consumers motivation to become debt free leading them to repay their debts more aggressively importantly this motivating effect is most pronounced when the repayments are concentrated into consumers smallest accounts because consumers tend to infer overall progress in debt repayment from the greatest proportional balance reduction proportion of starting balance repaid within any one account these findings advance our understanding of how consumers repay their debts and help pinpoint the psychological process by which debt repayment strategies affect consumers motivation to get out of debt

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

early marketing matters a time varying parameter approach to persistence modeling are persistent marketing effects most likely to appear right after the introduction of a product the authors give an affirmative answer to this question by developing a model that explicitly reports how persistent and transient marketing effects evolve over time the proposed model provides managers with a valuable tool to evaluate their allocation of marketing expenditures over time an application of the model to many pharmaceutical products estimated through exact initial kalman filtering indicates that both persistent and transient effects occur predominantly immediately after a brand s introduction subsequently the size of the effects declines the authors theoretically and empirically compare their methodology with methodology based on unit root testing and demonstrate that the need for unit root tests creates difficulties in applying conventional persistence modeling the authors recommend that marketing models should either accommodate persistent effects that change over time or be applied to mature brands or limited time windows only

effects of brand preference product attributes and marketing mix variables in technology product markets we develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand s performance to account for the potential correlation in the preferences of models offered by a particular brand we use a nested logit model with the brand e g sony at the upper level and its various models e g mavica fd dsc etc at the lower level of the nest relative model preferences are captured via their attributes and prices we allow for heterogeneity across consumers in their preferences for these attributes and in their price sensitivities in addition to heterogeneity in consumers intrinsic brand preferences together with the nested logit assumption this allows for a flexible substitution pattern across models at the aggregate level the attractiveness of a brand s product line changes over time with entry and exit of new models and with changes in attribute and price levels to allow for time varying intrinsic brand preferences we use a state space model based on the kalman filter which captures the influence of marketing actions such as brand level advertising on the dynamics of intrinsic brand preferences hence the proposed model accounts for the effects of brand preferences model attributes and marketing mix variables on consumer choice first we carry out a simulation study to ensure that our estimation procedure is able to recover the true parameters generating the data then we estimate our model parameters on data for the u s digital camera market overall we find that the effect of dynamics in the intrinsic brand preference is greater than the corresponding effect of the dynamics in the brand s product line attractiveness assuming plausible profit margins we evaluate the effect of increasing the advertising expenditures for the largest and the smallest brands in this category and find that these brands can increase their profitability by increasing their advertising expenditures we also analyze the impact of modifying a camera model s attributes on its profits such an analysis could potentially be used to evaluate if product development efforts would be profitable

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

bundling as an entry barrier in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to credibly defend both products without having to price low in each the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist although price discrimination provides a reason to bundle the gains are small compared with the gains from the entry deterrent effect i introduction in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to defend both products without having to price low in each while it is still possible to compete by offering a rival bundle a monopolist can significantly lower the potential profits of a one product entrant without having to engage in limit pricing prior to entry we also show that bundling continues to be an effective pricing tool even if entry deterrence fails or if there is already an existing one product rival a company with a monopoly in product a and a duopoly in product b makes higher profits by selling an a b bundle than by selling a and b independently leveraging market power from a into b and accepting some one product competition against the bundle is better than using the monopoly power in good a all by itself since bundling mitigates the impact of competition on the incumbent an entrant can expect the bundling strategy to persist even without any commitment the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist see stigler 1968 adams and yellen

the impact of economic contractions on the effectiveness of r d and advertising evidence from u s companies spanning three decades the critical role of research and development r d and advertising in the marketing strategy of the firm is well established this paper conceptually and empirically examines why and how much the effectiveness of these two marketing instruments differs between times of economic expansions versus periods of economic contractions and whether these results depend on the cyclicality of the industry in question we consider a key marketing metric market share and a key financial metric firm profit our empirical setting is 1 175 u s firms across a time period spanning over three decades we find that r d and advertising contribute to firm performance but that their effectiveness is not constant across the business cycle increasing advertising share in contractions has a stronger effect on profit and market share than increasing advertising share in expansions likewise investments in r d in contractions lead to higher gains in market share and profit than r d investments in expansions albeit only in subsequent years if in contractions the firm faces tight budget constraints and has to choose between either maintaining r d or advertising our simulation results show that maintaining r d is associated with better company performance we find that advertising effectiveness in general and in contractions in particular is systematically moderated by the degree of cyclicality of the industry in which the firm operates in relatively stable industries advertising effects are small or even nonsignificant and they do not go beyond the year the firm advertises however in highly cyclical industries advertising effects are long lasting its total effect being 50 larger market share and 200 larger profits than in industries of average cyclicality the effect of industry cyclicality on advertising effectiveness is especially pronounced in contractions collectively these findings provide valuable and actionable insights into how firms should respond to contractions in order to grow profits and market share

the category demand effects of price promotions although price promotions have increased in both commercial use and quantity of academic research over the last decade most of the attention has been focused on their effects on brand choice and brand sales by contrast little is known about the conditions under which price promotions expand short run and long run category demand even though the benefits of category expansion can be substantial to manufacturers and retailers alike this paper studies the category demand effects of consumer price promotions across 560 consumer product categories over a 4 year period the data describe national sales in dutch supermarkets and cover virtually the entire marketing mix i e prices promotions advertising distribution and new product activity we focus on the estimation of main effects i e the dynamic category expansive impact of price promotions as well as the moderating effects of marketing intensity and competition both conduct and structure on short and long run promotional effectiveness the research design uses modern multivariate time series analysis to disentangle short run and long run effects first we conduct a series of unit root tests to determine whether or not category demand is stationary or evolving over time the results are incorporated in the specification of vector autoregressive models with exogenous variables varx models the impulse response functions derived from these varx models provide estimates of the short and long term effects of price promotions on category demand these estimates in turn are used as dependent variables in a series of second stage regressions that assess the explanatory power of marketing intensity and competition several model validation tests support the robustness of the empirical findings we present our results in the form of empirical generalizations on the main effects of price promotions on category demand in the short and the long run and through statistical tests on how these effects change with marketing intensity and competition the findings generate an overall picture of the power and limitations of consumer price promotions in expanding category demand as follows category demand is found to be predominantly stationary either around a fixed mean or a deterministic trend although the total net short term effects of price promotions are generally strong with an average elasticity of 2 21 and a more conservative median elasticity of 1 75 they rarely exhibit persistent effects instead the effects dissipate over a time period lasting approximately 10 weeks on average and their long term impact is essentially zero by contrast the successful introduction of new products into a category is more frequently associated with a permanent category demand increase several moderating effects on price promotion effectiveness exist more frequent promotions increase their effectiveness but only in the short run the use of nonprice advertising reduces the category demand effects of price promotions both in the short run and in the long run competitive structure matters as well the less oligopolistic the category the smaller the short run effectiveness of price promotions at the same time we find that the dominant form of competitive reaction either in price promotion or in advertising is no reaction short run category demand effectiveness of price promotions is lower in categories experiencing major new product introductions finally both the short and long run price promotion effectiveness is higher in perishable product categories the paper discusses several managerial implications of these empirical findings and suggests various avenues for future research overall we conclude that the power of price promotions lies primarily in the preservation of the status quo in the category

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

search evolution and money abstract this paper describes a search theoretic model that can be used to determine which objects serve as media of exchange or money existing versions of the model are generalized to allow arbitrary distributions of agents who specialize in different consumption production activities i characterize the way the numbers of consumers and producers of the various goods help determine which goods serve as money the distribution is then endogenized so that agents can choose their type this generates a unique equilibrium outcome ideas from evolutionary dynamics are employed as a way to interpret the model and to compute equilibria

retail competition and the dynamics of demand for tied goods we present a demand system for tied goods incorporating dynamics arising from the tied nature of the products and the stockpiling induced by storability and durability we accommodate competition across tied good systems and competing downstream retail formats by endogenizing the retail format at which consumers choose to stockpile inventory this facilitates measurement of long run retail substitution effects and yields estimates of complementarities within and substitution across competing systems of tied goods we present an empirical application to an archetypal tied goods category razors and blades we discuss the implications of measured effects for manufacturer pricing when selling the tied products through an oligopolistic downstream retail channel and assess the extent to which retail substitution reduces channel conflict

an empirical analysis of digital music bundling strategies we use panel data on digital song and album sales coupled with a quasi random price experiment to determine own and cross price elasticities for songs and albums we then develop a structural model of consumer demand to estimate welfare under various policy relevant counterfactual scenarios this approach represents an early application of the big data management paradigm within the media industries and provides managers with detailed guidance on optimal pricing and marketing strategies for digital music our results show that tiered pricing coupled with reduced album pricing increases revenue to the labels by 18 relative to uniform pricing policies traditionally preferred by digital marketplaces while also increasing consumer surplus by 23 thus optimal tiered pricing can yield a pareto improvement over the prior status quo additionally our results indicate that even without tiered pricing unbundling albums outperforms album only pricing policies that dominated the era of physical cd cassette sales this paper was accepted by alok gupta special issue on business analytics

tying and freebies in two sided markets abstract in two sided markets where platforms are constrained to set non negative prices tying can be deployed by platforms as a tool to introduce implicit subsidies for a monopoly this raises participation and benefits consumers on both sides in a duopoly tying on one side makes a platform more or less competitive on the other side depending on externalities tying may not be ex ante optimal while the competing platform may benefit from it the impact on consumers surplus depends on whether competition is softened or intensified on the profitable side moreover tying increases total welfare if network effects are strong

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

the persistence of marketing effects on sales are marketing efforts able to affect long term trends in sales or other performance measures answering this question is essential for the creation of marketing strategies that deliver a sustainable competitive advantage this paper introduces persistence modeling to derive long term marketing effectiveness from time series observations on sales and marketing expenditures first we use unit root tests to determine whether sales are stable or evolving trending over time if they are evolving we examine how strong this evolution is univariate persistence and to what extent it can be related to marketing activity multivariate persistence an empirical example on sales and media spending for a chain of home improvement stores reveals that some but not all advertising has strong trend setting effects on sales we argue that traditional modeling approaches would not pick up these effects and therefore seriously underestimate the long term effectiveness of advertising the paper concludes with an agenda for future empirical research on long run marketing effectiveness

intertemporal price discrimination with complementary products e books and e readers this paper studies intertemporal price discrimination ipd with complementary products in the context of e readers and e books using individual level data 2008 2012 i estimate a dynamic demand

advertising and competition in the ethical pharmaceutical industry the case of antihypertensive drugs abstract this paper uses data on the majority of name brand antihypertensive drugs marketed in the united states during 1988 93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry this is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry we find strong evidence of an advertising effect in particular detailing efforts the salient means for product promotion in this industry systematically lower price sensitivity given the inverse relationship between elasticity of demand and price it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry our findings are thus consistent with hurwitz and caves who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect

mixed bundling in two sided markets in the presence of installed base effects we analyze mixed bundling in two sided markets where installed base effects are present and find that the pricing structure deviates from traditional bundling as well as the standard two sided markets literature we determine prices on both sides fall with bundling mixed bundling acts as a price discrimination tool segmenting the market more efficiently consequently as a by product of this price discrimination the two sides are better coordinated and social welfare is enhanced we show unambiguously that platform participations increase on both sides of the market after theoretically evaluating the impact mixed bundling has on prices and welfare we take the model predictions to data from the portable video game console market we find empirical support for all theoretical predictions this paper was accepted by j miguel villas boas marketing

coverage of retail stores and discrete choice models of demand estimating price elasticities and welfare effects consumers choice set of products within stores can be limited ackerberg and rysman 2005 address this problem by modeling unobserved consumer preferences over products and retail stores leading to augmented demand speci cations having carbonated soft drink product level data where we observe products store coverage we are able to estimate their logit nested logit and random coe cient logit speci cations of demand in a structural model of equilibrium allowing for store coverage turns out to have a very signi cant impact on the estimated structural parameters and on the predictive power of the model taking these estimated structural parameters we perform a counterfactual whereby stores carry all products in the market we nd systematic increases in price elasticities and welfare in our new equilibrium competition in markets is more curtailed than normally assumed in structural models of industries

the dynamic effects of bundling as a product strategy several key questions in bundling have not been empirically examined in marketing is mixed bundling more effective than pure bundling or pure components does correlation in consumer valuations make bundling more or less effective does bundling serve as a complement or substitute to network effects to address these questions we develop a consumer choice model from microfoundations to capture the essentials of our setting the handheld video game market we provide a framework to understand the dynamic long term effects of bundling on demand the primary explanation for the profitability of bundling relies on homogenization of consumer valuations for the bundle allowing the firm to extract more surplus we find that bundling can be effective through a novel and previously unexamined mechanism of dynamic consumer segmentation which operates independent of the homogenization effect and can in fact be stronger when the homogenization effect is weaker we also find that bundles are treated as separate products distinct from component products by consumers sales of both hardware and software components decrease in the absence of bundling and consumers who had previously purchased bundles might delay purchases resulting in lower revenues we also find that mixed bundling dominates pure bundling and pure components in terms of both hardware and software revenues investigating the link between bundling and indirect network effects we find that they act as substitute strategies with a lower relative effectiveness for bundling when network effects are stronger

price structure in two sided markets evidence from the magazine industry we present and estimate a model of competition in a two sided market the market for magazine readership and advertising using data on magazines in germany we find evidence that magazines have properties of two sided markets the results are consistent with the perception that prices for readers are subsidized and that magazines make all their money from advertisers consistent with advertisers valuing readers more than readers value advertisements our results imply that higher demand on the reader side increases ad rates but that higher demand on the advertising side decreases cover prices

demand for differentiated durable products the case of the u s computer printer market i introduction this paper aims to provide a theoretical and empirical description of consumer behavior in a dynamic market for differentiated durable goods the computer hardware industry serves as an example of the type of market we consider markets for computer systems and components as well as for many other high technology products exhibit some striking similarities that are of particular concern for an empirical economist as follows products are differentiated in multiple dimensions in addition to price products are durable yielding consumption services over multiple periods product quality rapidly improves over time empirical work on estimating differentiated product demand systems has been dominated by static discrete choice models with random utility see berry levinsohn and pakes 1995 goldberg 1995 and nevo 2001 among others however markets for durable goods exhibit several features at odds with their assumption of myopic consumer behavior first traditional static discrete choice models implicitly assume that consumers participate in the market every period choosing one of the available products or an outside option thus the fraction of consumers who do not buy any product in a given period could only be explained by the high value they assign to the outside alternative for durable goods however purchases are made infrequently and result in a consumer s exiting the market for a significant period of time hence the model needs to account for consumers outflow from the market arising from their purchase decisions second a static framework may give a misleading picture of the aggregate sales time pattern in a dynamic industry in many markets for durable products it is not uncommon to see rapidly improving product quality and falling prices given any reasonable set of consumer preferences over the product characteristics space static discrete choice models for such an industry will tend to predict an upward trend in aggregate sales this fails to account for a variety of patterns commonly seen in the data third the evolution of product quality leads to the possibility of intertemporal demand substitution by forgoing a current purchase the consumer retains the option to buy a potentially better product in the future hence the decision of when to buy may be just as important for consumers as the decision of what to buy this trade off cannot be accounted for in the static framework the purpose of this paper is to remedy these shortcomings of static discrete choice models in durable goods markets with particular attention paid to technological change and the dynamics of new products adoption the paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers expectations of future product quality and consumers outflow from the market that arises endogenously from their purchase decisions in this model the consumer faces a sequence of static discrete choice problems over a non stationary choice set we show that for a subclass of random utility models which include the multinomial logit and the mcfadden 1978 generalized extreme value gev model there exists a scalar valued sufficient statistic that determines the value of the option to postpone the purchase this allows us to model industry evolution over a vastly reduced state space and to formalize the consumer s decision of when to buy as an optimal stopping problem a solution to that problem defines the hazard rate of product adoptions while the nested discrete choice model determines the alternative specific purchase probabilities integrating individual decisions over the population distribution generates rich dynamics of aggregate and product level sales the paper proceeds to present monte carlo evidence that ignoring the time dimension of consumer choice will induce a downward bias in the estimates of consumer preferences over quality sometimes reversing the sign of the coefficients

competition between networks a study of the market for yellow pages this paper estimates the importance of network effects in the market for yellow pages i estimate three simultaneous equations consumer demand for usage of a directory advertiser demand for advertising and a publisher s first order condition derived from profit maximizing behaviour estimation shows that advertisers value consumer usage and that consumers value advertising implying a network effect i find that internalizing network effects would significantly increase surplus as an application i consider whether the market benefits from monopoly which takes advantage of network effects or oligopoly which reduces market power i find that a more competitive market is preferable copyright 2004 wiley blackwell

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

to bundle or not to bundle commodity bundling is studied in an environment where the dispersion of valuations unambiguously decreases when two or more goods are sold as a bundle only bundling is more likely to dominate separately selling the goods if marginal costs are low relative to the average valuation or if the distribution of valuations is very peaked around the mean

how dynamic consumer response competitor response company support and company inertia shape long term marketing effectiveness long term marketing effectiveness is a high priority research topic for managers and emerges from the complex interplay among dynamic reactions of several market players this paper introduces restricted policy simulations to distinguish four dynamic forces consumer response competitor response company inertia and company support a rich marketing dataset allows the analysis of price display feature advertising and product line extensions the first finding is that consumer response differs significantly from the net effectiveness of product line extensions price feature and advertising in particular net sales effects are up to five times stronger and longer lasting than consumer response second this difference is not due to competitor response but to company action for tactical actions price and feature it takes the form of inertia as promotions last for several weeks for strategic actions advertising and product line extensions support by other marketing instruments greatly enhances dynamic consumer response this company action negates the postpromotion dip in consumer response and enhances the long term sales benefits of product line extensions feature and advertising therefore managers are urged to evaluate company decision rules for inertia and support when assessing long term marketing effectiveness

competitive reactions to advertising and promotion attacks how do competitors react to each other s price promotion and advertising attacks what are the reasons for the observed reaction behavior we answer these questions by performing a large scale empirical study on the short run and long run reactions to promotion and advertising shocks in over 400 consumer product categories over a four year time span our results clearly show that the most predominant form of competitive response is passive in nature when a reaction does occur it is usually retaliatory in the same instrument i e promotion attacks are countered with promotions and advertising attacks are countered with advertising there are very few long run consequences of any type of reaction behavior by linking reaction behavior to both cross and own effectiveness we further demonstrate that passive behavior is often a sound strategy while firms that do opt to retaliate often use ineffective instruments resulting in spoiled arms accommodating behavior is observed in only a minority of cases and often results in a missed sales opportunity when promotional support is reduced the ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response not the vigilance of competitors

diagnostic checking of unobserved components time series models diagnostic checking of the specification of time series models is normally carried out using the innovations that is the one step ahead prediction errors in an unobserved components model other sets of residuals are available these auxiliary residuals are estimators of the disturbances associated with the unobserved components they can often yield information that is less apparent from the innovations but they suffer from the disadvantage that they are serially correlated even in a correctly specified model with known parameters this article shows how the properties of the auxiliary residuals may be obtained how they are related to each other and to the innovations and how they can be used to construct test statistics applications are presented showing how residuals can be used to detect and distinguish between outliers and structural change

the long term effects of price promotions on category incidence brand choice and purchase quantity abstract to what extent do price promotions have a long term effect on the components of brand sales namely category incidence brand choice and purchase quantity the authors answer this question by using persistence modeling on weekly sales data of a perishable and a storable product derived from a scanner panel their analysis reveals first that permanent promotion effects are virtually absent for each sales component next the authors develop and apply an impulse response approach to estimate the promotional adjustment period and the total dynamic effects of a price promotion specifically they calculate the long term equivalent of gupta s 1988 14 84 2 breakdown of promotional effects because of positive adjustment effects for incidence but negative adjustment effects for choice the authors find a reversal of the importance of category incidence and brand choice 66 11 23 for the storable product and 58 39 3 for the perishable product the authors discuss the implications of the findings an

two sided markets a progress report the paper provides a road map to the burgeoning literature on two sided markets and presents new results it identifies two sided markets with markets in which the structure and not only the level of prices charged by platforms matters the failure of the coase theorem is necessary but not sufficient for two sidedness the paper builds a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality and obtains new results on the mix of membership and usage charges when price setting or bargaining determine payments between end users

profitability of product bundling using copulas to model the stochastic dependence of values this article establishes new general conditions for the profitability of product bundling a multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two of its products are negatively dependent are independent or have sufficiently limited positive dependence the profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single product rival

performance regimes and marketing policy shifts even in mature markets managers are expected to improve their brands performance year after year when successful they can expect to continue executing on an established marketing strategy however when the results are disappointing a change or turnaround strategy may be called for to help performance get back on track in such cases performance diagnostics are needed to identify turnarounds and to quantify the role of marketing policy shifts in this process this paper proposes a framework for such a diagnosis and applies several methods to provide converging evidence for two main findings first contrary to prevailing beliefs the performance of brands in mature markets is not always stable instead brands systematically improve or deteriorate their performance outlook in clearly identifiable time windows that are relatively short compared to windows of stability second these shifts in performance regimes are associated with the brand s marketing actions and policy shifts as opposed to competitive marketing promotion oriented marketing policy shifts are particularly potent in improving a brand s performance outlook

vertical relationships between manufacturers and retailers inference with limited data in this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared demand estimates are used to compute price cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed the purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non nested competing models the models considered are 1 a simple linear pricing model 2 a vertically integrated model and 3 a variety of alternative strategic supply scenarios that allow for collusion non linear pricing and strategic behaviour with respect to private label products using data on yogurt sold in several stores in a large urban area of the u s the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain this is consistent with non linear pricing by the manufacturers or high bargaining power of the retailers

playing with money abstract experimental work in monetary economics is usually based on theory that incorporates an infinite horizon yet hard constraints on laboratory sessions lead to finite times when the game must with probability 1 end and then simple backward induction implies monetary equilibria cannot exist hence these experiments cannot evaluate subjects ability to settle on the use of money as a medium of exchange that ameliorates trading frictions as an equilibrium outcome to address this we present some finite horizon games where monetary exchange is an equilibrium outcome and report some experimental results using these games

dynamics of consumer demand for new durable goods most new consumer durable goods experience rapid prices declines and quality improvements suggesting the importance of modeling dynamics this paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes rational expectations and repeat purchases over time we estimate the model on the digital camcorder industry using panel data on prices sales and characteristics we find that the 1 year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1 month elasticity standard cost of living indices overstate welfare gain in later periods due to a changing composition of buyers

planning media schedules in the presence of dynamic advertising quality a key task of advertising media planners is to determine the best media schedule of advertising exposures for a certainbudget conceptually the planner could choose to do continuous advertising i e schedule ad exposures evenly overall weeks or follow a strategy of pulsing i e advertise in some weeks of the year and not at other times previous theoretical analyses have shown that continuous advertising is optimal for nearly all situations however pulsing schedules are very common in practice either the pract ice of pulsing is inappropriate or extant models have not adequately conceptualized the effects of advertising spending over time this paper offers a model that shows pulsing strategies can generate greater total awareness than the continuous advertising when the effectiveness of advertisement i e adquality varies overtime specifically ad quality declines because of advertising wearout during periods of continuous advertising and it restores due to forgetting effects during periods of no advertising such dynamics make it worth while for advertisers to stop advertising when ad quality becomes very low and wait for ad quality to restore beforestarting the next burst again as is common in practice based on the extensive behavioral research on advertising repetition and advertising wearout we extend the classical nerlove and arrow 1962 model by incorporating the notions of repetition wearout copy wearout and ad quality restoration repetition wearout is a result of excessive frequency beca use ad viewers perceive that there is nothing new to be gained from processing the ad they withdraw their attention or they become unmotivated to react to advertising information copy wearout refers to the decline inad quality due to passage of time independent of the level of frequency ad quality restoration is the enhancement of ad quality during media hiatus as a consequence of viewers forgetting the details of the advertised messages thus making ads appear like new when reintroduced later the proposed model has the property that when wearout effects are present a strategy of pulsing is superior to continuous advertising even when the advertising response function is concave this is illustrated by a numerical example that compares the total awareness generated by a single concentrated pulse of varying duration blitz schedules and continuous advertising the even schedule this property can be explained by the tension between the pressure to spend the fixed media budget quickly to avoid copy wearout and the opposing pressure to spread out the media spending over time to mitigate repetition wearout the proposed model is empirically tested by using brand level data from two advertising awareness tracking studies that also include the actual spen ding schedules the first data set is for a major cereal brand while the other is for a brand of milk chocolate such advertising tracking studies are now a common and popular means for evaluating advertising effectiveness in many markets e g millward brown narketmind in the empirical tests the model parameters are estimated by using the kalman filter procedure which is eminently suited for dynamic models because it attends to the intertemporal dependencies in awareness build up and decay via the use of conditional densities the estimated parameters are statistically significant have the expected signs and are meaningful from both theoretical and managerial viewpoints the proposed model fits both the data sets rather well and better than several well known advertising models namely the vidale wolfe brandaid litmus and trackermodels but not decisively better than the nerlove arrow model however unlike the nerlove arrow model the proposed model yields different total awareness for different strategies of spending the same fixed budget thus allowing media planners to discriminate among several media schedules given the empirical support for the model the paper presents an implementable approach for utilizing it to evaluate large numbers of alternative media schedules and determine the best set of media schedules for consideration in media planning this approach is based on an algorithm that combines a genetic algorithm with the kalman filter procedure the paper presents the results of applying this approach in the case studies of the cereal and milk chocolate brands the form of the best advertising spending strategies in each case was a pulsing strategy and there were many schedules that were an improvement over the media schedule actually used in each campaign

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not

modelling the effects of promotion expenditures on sales of pharmaceuticals the successful innovation of pharmaceuticals requires a substantial amount of marketing support despite concerns about the effects of these marketing efforts this study considers prior findings that indicate that higher marketing expenditures for a brand reduce its price elasticity of demand which may lead to higher prices in the context of the dutch pharmaceutical market the authors find that parameters are heterogeneous across brands and that marketing effects differ across product life cycle stages they propose a separate analysis of established and new brands for established brands marketing efforts neither have a positive effect on sales nor do they affect the price elasticity for new brands several proposed models might capture their diffusion pattern the diffusion of innovation models provide the best results marketing accelerates the rate of diffusion and leads to a higher baseline level of sales

a dynamic equilibrium model of search bargaining and money abstract this paper considers dynamic equilibria in a model with random matching strategic bargaining and money equilibrium in the bargaining game is characterized in terms of a simple differential equation when we embed this characterization into the monetary economy the model can generate outcomes such as limit cycles that never arise if one imposes a myopic nash bargaining solution as has been done in the past journal of economic literature classification numbers c78 d83 e31

real convergence in europe how robust are econometric inferences the paper examines the convergence properties of productivity in fifteen european countries over the period 1960 1997 european productivity is estimated using modified translog production systems with a completely general intertemporal structure to capture the notion that trade may have an influence on aggregate convergence imports are included in the production function stationarity tests are used to test for convergence around a common long run trend including unit root tests the kpss and bayesian tests as well as testing based on fractional differencing parameter estimation for long memory models it is found that convergence inferences are sensitive to the type of test employed

macroeconomic fluctuations and bargaining abstract i study the limit rule for bilateral bargaining when agents recognize that the aggregate economy and thus the match surplus follows a finite state poisson process the rule derived in this paper is of special importance for decentralized exchange economies with bargaining two simple applications are presented to illustrate this fact the first example is a model of wage bargaining and trade externalities i show that in such situations sophisticated bargaining tends to increase the volatility of the wage bill the second example is based on the kiyotaki wright model of money i explain how equilibrium prices depend in a fundamental way on the dynamic bargaining solution

a note on sunspot equilibria in search models of fiat money abstract search models can generate an endogenous role for fiat money in the sense that there exist equilibria where intrisically useless unbacked paper currency is valued due to its function as a medium of exchange in this note i ask if there exist sunspot equilibria in these models where the value or acceptability of money fluctuates along with extrinsic random events even though the fundamentals of the economy are deterministic and time invariant the answer is yes journal of economic literature classification numbers c70 e40