a market discovery algorithm to estimate a general class of nonparametric choice models we propose an approach for estimating customer preferences for a set of substitutable products using only sales transactions and product availability data the underlying demand framework combines a general nonparametric discrete choice model with a bernoulli process of arrivals over time the choice model is defined by a discrete probability mass function pmf on a set of possible preference rankings of alternatives and it is compatible with any random utility model an arriving customer is assumed to purchase the available option that ranks highest in her preference list the problem we address is how to jointly estimate the arrival rate and the pmf of the rank based choice model under a maximum likelihood criterion since the potential number of customer types is factorial we propose a market discovery algorithm that starts with a parsimonious set of types and enlarge it by automatically generating new types that increase the likelihood value numerical experiments confirm the potential of our proposal for a realistic data set in the hospitality industry our approach improves the root mean square errors between predicted and observed purchases computed under independent demand model estimates by 67 to 93 this paper was accepted by serguei netessine operations management

demand seasonality in retail inventory management abstract we investigate the value of accounting for demand seasonality in inventory control our problem is motivated by discussions with retailers who admitted to not taking perceived seasonality patterns into account in their replenishment systems we consider a single location single item periodic review lost sales inventory problem with seasonal demand in a retail environment customer demand has seasonality with a known season length the lead time is shorter than the review period and orders are placed as multiples of a fixed batch size the cost structure comprises of a fixed cost per order a cost per batch and a unit variable cost to model retail handling costs we consider four different settings which differ in the degree of demand seasonality that is incorporated in the model with or without within review period variations and with or without across review periods variations in each case we calculate the policy which minimizes the long run average cost and compute the optimality gaps of the policies which ignore part or all demand seasonality we find that not accounting for demand seasonality can lead to substantial optimality gaps yet incorporating only some form of demand seasonality does not always lead to cost savings we apply the problem to a real life setting using point of sales data from a european retailer we show that a simple distinction between weekday and weekend sales can lead to major cost reductions without greatly increasing the complexity of the retailer s automatic store ordering system our analysis provides valuable insights on the tradeoff between the complexity of the automatic store ordering system and the benefits of incorporating demand seasonality

technology adoption under seed access constraints and the economic impacts of improved pigeonpea varieties in tanzania dry land legumes well adapted to drought prone areas have largely been neglected in the past despite the good opportunities they offer for income growth and food and nutritional security for the poor this study evaluated the adoption and impact of two farmer and market preferred and disease resistant pigeonpea varieties that were developed and promoted in semi arid tanzania the new varieties were resistant to fusarium wilt a fungal disease devastating the crop however farmers wanting to adopt new varieties did not adopt due to seed access constraints and under developed seed delivery systems adoption of new varieties is therefore analyzed using an augmented double hurdle model that allows estimating variety adoption conditional on seed access thresholds accounting for the additional information on sample separation the study identifies the crucial role of seed access local supply extension education participatory decision making capital and household assets in determining adoption the social economic benefits of the technology and policies for improved seed access were further analyzed using the extended economic surplus method dream model even under restrictive assumptions overall discounted benefits were found to be quite attractive indicating the need for additional efforts to scale up the success story analysis of changes in research benefits from relaxing the seed access constraint showed that net gains would increase by up to 30 if farmer access to improved seeds can be assured smallholder farmers are the major beneficiaries along with consumers and rural net buyers who gain from productivity induced lower market prices

discount rates and credit markets theory and evidence from rural india three models of credit markets 1 the permanent income model 2 upward sloping credit supply to individual borrowers and 3 constrained credit due to imperfect enforcement are tested using credit market data and an experimental study of individuals discount rates in south india the permanent income model is rejected by both the discount rate and the credit market data the discount rate data are consistent with either of the other two models while the credit market data are consistent with a combination of these two models other explanations are found to be insufficient to explain the results of this study

estimation of consumer demand with stock out based substitution an application to vending machine products the occurrence of temporary stock outs at retail is common in frequently purchased product categories available empirical evidence suggests that when faced with stock outs consumers are often willing to buy substitute items an important implication of this consumer behavior is that observed sales of an item no longer provide a good measure of its core demand rate sales of items that stock out are right censored while sales of other items are inflated because of substitutions knowledge of the true demand rates and substitution rates is important for the retailer for a variety of category management decisions such as the ideal assortment to carry how much to stock of each item and how often to replenish the stock the estimated substitution rates can also be used to infer patterns of competition between items in the category in this paper we propose methods to estimate demand rates and substitution rates in such contexts we develop a model of customer arrivals and choice between goods that explicitly allows for possible product substitution and lost sales when a customer faces a stock out the model is developed in the context of retail vending an industry that accounts for a sizable part of the retail sales of many consumer products we consider the information set available from two kinds of inventory tracking systems in the best case scenario of a perpetual inventory system in which times of stock out occurrence and cumulative sales of all goods up to these times are observed we derive maximum likelihood estimates mles of the demand parameters and show that they are especially simple and intuitive however state of the art inventory systems in retail vend ing provide only periodic data i e data in which times of stock out occurrence are unobserved or missing for these data we show how the expectation maximization em algorithm can be employed to obtain the mles of the demand parameters by treating the stock out times as missing data we show an application of the model to daily sales and stocking data pooled across multiple beverage vending machines in a midwestern u s city the vending machines in the application carry identical assortments of six brands since the number of parameters to be estimated is too large given the available data we discuss possible restrictions of the consumer choice model to accomplish the estimation our results indicate that demand rates estimated naively by using observed sales rates are biased even for items that have very few occurrences of stock outs we also find significant differences among the substitution rates of the six brands the methods proposed in our paper can be modified to apply to many nonvending retail settings in which consumer choices are observed not their preferences and choices are constrained because of unavailability of items in the choice set one such context is in store grocery retailing where similar issues of information availability arise in this context an important issue that would need to be dealt with is changes in the retail environment caused by retail promotions

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

the impact of soil conservation and output diversification on farm income in central american hillside farming this article analyzes the determinants of farm income among hillside farmers participating in natural resource management projects in el salvador and honduras the farm income function was evaluated using a system of equations in which income is determined simultaneously by the farmer s decision to adopt soil conservation technologies and by the level of diversification number of agricultural activities on the farm the database used comes from surveys administered to 678 beneficiaries of these projects during 2002 the econometric results suggest that all the variables related directly to land use i e output diversification soil conservation practices and structures and the adoption of forestry systems have a positive and statistically significant association with farm income also farmers who own land enjoy higher farm incomes than those who do not the results indicate that when investing in natural resource management projects governments and multilateral development agencies should pay close attention to output diversification land tenure and human capital formation as effective instruments in increasing farm income

asymmetric cost pass through empirical evidence on the role of market power search and menu costs abstract we estimate cost pass through rates based on data for store level retail prices and wholesale costs for up to 90 different brands of milk sold in 327 retail stores across germany the abundance of the data allows us to identify heterogeneity in pass through across retailers and relate it to underlying explanatory factors such as retailer market power measures of consumer search and menu costs results from a threshold error correction process clearly provide empirical support for the rockets and feathers phenomenon prices increase more quickly than they decrease in contrast to much of the existing literature which explains the rockets and feathers phenomenon as a result of retailers exercising market power we find the opposite result the degree of asymmetry in prices is negatively related to market power decreases with the lerner index our measure of cross product search costs does not account for observable differences in asymmetric cost pass through rates between products the rockets and feathers observation is better explained by product specific differences in menu costs mistake costs and costs associated with stock outs which can lead to a loss of consumer goodwill

estimating a stockkeeping unit level brand choice model that combines household panel data and store data abstract the marketing literature has addressed the issues of heterogeneity and endogeneity when estimating a choice model with household level panel data when using these data at the stockkeeping unit or the universal product code level choices for each item in each of the time periods under consideration cannot be observed without such information it is difficult to control for item and time period specific unmeasured characteristics because there is no information on alternatives during those periods in which they are not purchased by any of the panelists in general when a product category has many alternatives each with fairly small shares the household sample may not contain sufficient choices for each alternative thus negatively affecting the ability to control for endogeneity with household data in contrast because aggregate store level data for those stores in which the panel makes purchases are the aggregation of purchases by all households visiting the stores the data contain the

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

structural estimation of the effect of out of stocks we develop a structural demand model that endogenously captures the effect of out of stocks on customer choice by simulating a time varying set of available alternatives our estimation method uses store level data on sales and partial information on product availability our model allows for flexible substitution patterns which are based on utility maximization principles and can accommodate categorical and continuous product characteristics the methodology can be applied to data from multiple markets and in categories with a relatively large number of alternatives slow moving products and frequent out of stocks unlike many existing approaches in addition we illustrate how the model can be used to assist the decisions of a store manager in two ways first we show how to quantify the lost sales induced by out of stock products second we provide insights on the financial consequences of out of stocks and suggest price promotion policies that can be used to help mitigate their negative economic impact which run counter to simple commonly used heuristics

estimating disaggregate models using aggregate data through augmentation of individual choice abstract in this article the authors propose a bayesian method for estimating disaggregate choice models using aggregate data compared with existing methods the advantage of the proposed method is that it allows for the analysis of microlevel consumer dynamic behavior such as the impact of purchase history on current brand choice when only aggregate level data are available the essence of this approach is to simulate latent choice data that are consistent with the observed aggregate data when the augmented choice data are made available in each iteration of the markov chain monte carlo algorithm the dynamics of consumer buying behavior can be explicitly modeled the authors first demonstrate the validity of the method with a series of simulations and then apply the method to an actual store level data set of consumer purchases of refrigerated orange juice the authors find a significant amount of dynamics in consumer buying behavior the proposed method is useful for managers to understand better

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

research note structural demand estimation with varying product availability this paper develops a model that extends the traditional aggregate discrete choice based demand model e g berry et al 1995 to account for varying levels of product availability in cases where not all products are available at every consumer shopping trip the observed market share is a convolution of two factors consumer preferences and the availability of the product in stores failing to account for the varying degree of availability would produce incorrect estimates of the demand parameters the proposed model uses information on aggregate availability to simulate the potential assortments that consumers may face in a given shopping trip the model parameters are estimated by simulating potential product assortment vectors by drawing multivariate bernoulli vectors consistent with the observed aggregate level of availability the model is applied to the uk chocolate confectionery market focusing on the convenience store channel we compare the parameter estimates to those obtained from not accounting for varying availability and analyze some of the substantive implications

competitive price discrimination strategies in a vertical channel using aggregate retail data we explore opportunities for targeted pricing for a retailer that only tracks weekly store level aggregate sales and marketing mix information we show that it is possible using these data to recover essential features of the underlying distribution of consumer willingness to pay knowledge of this distribution may enable the retailer to generate additional profits from targeting by using choice information at the checkout counter in estimating demand we incorporate a supply side model of the distribution channel that captures important features of competitive price setting behavior of firms this latter aspect helps us control for the potential endogeneity generated by unmeasured product characteristics in aggregate data the channel controls for competitive aspects both between manufacturers and between manufacturers and a retailer despite this competition we find that targeted pricing need not generate the prisoner s dilemma in our data this contrasts with the findings of theoretical models due to the flexibility of the empirical model of demand the demand system we estimate captures richer forms of product differentiation both vertical and horizontal as well as a more flexible distribution of consumer heterogeneity

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

welfare impacts of maize pigeonpea intensification in tanzania this article examines the driving forces behind farmers decisions to adopt improved pigeonpea and maize and estimates the causal impact of technology adoption on household welfare using data obtained from a random cross section sample of 613 small scale farmers in tanzania we use seemingly unrelated and recursive bivariate probit regressions to test the endogeneity and joint decision making of pigeonpea maize production a double hurdle model is used to analyze the determinants of the intensity of technology adoption conditional on overcoming seed access constraints to address the impact of adoption on welfare the article employs both propensity score matching and switching regression techniques results from bivariate probit models show that unobservable factors cause both decisions to be correlated but the finding does not support the conjecture that both decisions are made jointly overall the analysis of the determinants of adoption identifies inadequate local supply of seed access to information human capital and access to private productive asset as key constraints for pigeonpea technology adoption the causal impact estimation from both the propensity score matching and switching regression suggests that maize pigeonpea adoption has a positive and significant impact on income and consumption expenditure among sample households

investment in soil conservation in northern ethiopia the role of land tenure security and public programs abstract a double hurdle statistical analysis of 250 farms in the tigray region of ethiopia reveals different causal factors for soil conservation adoption versus intensity of use farmers reasons for adopting soil conservation measures vary sharply between stone terraces and soil bunds long term investments in stone terraces were associated with secure land tenure labour availability proximity to the farmstead and learning opportunities via the existence of local food for work ffw projects by contrast short term investments in soil bunds were strongly linked to insecure land tenure and the absence of local food for work projects public conservation campaigns on private plots reduced adoption of both stone terraces and soil bunds whereas capacity factors largely influenced the adoption decision expected returns carried more influence for the intensity of stone terrace adoption measured as metres of terrace per hectare more stone terracing was built where fertile but erodible silty soils in higher rainfall areas offered valuable yield benefits intensity of terracing was also greater in remote villages where limited off farm employment opportunities reduced construction costs these results highlight the importance of the right kind of public interventions direct public involvement in constructing soil conservation structures on private lands appears to undermine incentives for private conservation investments when done on public lands however public conservation activities may encourage private soil conservation by example secure land tenure rights clearly reinforce private incentives to make long term investments in soil conservation

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

strategies to increase agricultural productivity and reduce land degradation evidence from uganda this paper estimates a structural econometric model of household decisions regarding income strategies participation in programs and organisations crop choices land management and labour use and their implications for agricultural production and soil erosion based upon a survey of over 450 households and their farm plots in uganda many factors have context specific impacts and involve trade offs between increasing production and reducing land degradation government agricultural extension and training programs contribute to higher value of crop production in the lowlands but to soil erosion in the highlands by contrast non governmental organization ngo programs focusing on agriculture and environment help to reduce erosion but have less favourable impacts on production in the lowlands education increases household incomes but also reduces crop production in the lowlands poverty has mixed impacts on agricultural production depending on the nature of poverty smaller farms obtain higher crop production per hectare while households with fewer livestock have lower crop production population pressure contributes to agricultural intensification but also to erosion in the densely populated highlands several household income strategies contribute to increased value of crop production without significant impacts on soil erosion we find little evidence of impact of access to markets roads and credit land tenure or title on agricultural intensification and crop production and land degradation in general the results imply that the strategies to increase agricultural production and reduce land degradation must be location specific and that there are few win win opportunities to simultaneously increase production and reduce land degradation

determinants of farmers indigenous soil and water conservation investments in semi arid india abstract this paper investigates the determinants of farmers indigenous soil and water conservation investments in the semi arid tropics of india a simple theoretical model is used to develop hypotheses about the determinants of investment under alternative factor market conditions and these are tested using data on conservation investment from three villages we find that conservation investment is significantly lower on leased land in two of the study villages and lower on plots that are subject to sales restrictions in one village suggesting the potential for land market reforms to increase conservation investment in one village households with more adult males more farm servants and less land invest more in conservation as predicted by the model of imperfect labor markets and households with more debt and off farm income invest more consistent with the model of imperfect credit markets evidence that conservation investment is affected by factor market imperfections is weaker in the other villages where investments are much larger suggesting transaction costs as the source of the differences between villages other factors that have a significant effect on investment include the farmer s education and caste characteristics of the plot size slope irrigation status and quality ranking and the presence of existing land investments the results suggest the importance of accounting for differences across communities and households in factor market and agroclimatic conditions in designing programs to promote investments in soil and water conservation

choice set heterogeneity and the role of advertising an analysis with micro and macro data abstract the authors show how to use microlevel survey data from a tracking study on brand awareness in conjunction with data on sales and advertising expenditures to improve the specification estimation and interpretation of aggregate discrete choice models of demand in a departure from the commonly made full information assumption they incorporate limited information in the form of choice sets to reflect that consumers may not be aware of all available brands at purchase time they find that both the estimated brand constants and the price coefficient are biased downward when consumer heterogeneity in choice sets is ignored these biased estimates can lead firms to make costly price setting mistakes in addition the tracking data enable the authors to identify separately two processes by which advertising influences market shares they find that advertising has a direct effect on brand awareness inclusion in choice set in addition to its effect on consumer preferences increase in utility this

precautionary saving credit constraints and irreversible investment theory and evidence from serniarid india this article investigates the extent to which poor households are discouraged from making a non divisible but profitable investment using data on irrigation wells in india we estimate the parameters of a structural model of irreversible investment results show that poor farmers fail to undertake a profitable investment that they could in principle self finance because the nondivisibility of the investment puts it out of their reach irreversibility constitutes an additional disincentive to invest simulations show that the availability of credit can dramatically increase investment in irrigation and that interest rate subsidization has little impact

the value of purchase history data in target marketing an important aspect of marketing practice is the targeting of consumer segments for differential promotional activity the premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information the increased availability of individual consumer panel data open the possibility of direct targeting of individual households the goal of this paper is to assess the information content of various information sets available for direct marketing purposes information on the consumer is obtained from the current and past purchase history as well as demographic characteristics we consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment short of this complete purchase history we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes we develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics we couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets the couponing problem allows us to place a monetary value on the information sets our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories even rather short purchase histories can produce a net gain in revenue from target couponing which is 2 5 times the gain from blanket couponing the most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons surprisingly even the information contained in observing one purchase occasion boasts net couponing revenue by 50 more than that which would be gained by the blanket strategy this result coupled with increased competitive pressures will force targeted marketing strategies to become much more prevalent in the future than they are today