entry into pharmaceutical submarkets a bayesian panel probit analysis summary we study entry into pharmaceutical submarkets by using a dynamic panel probit model we develop a bayesian version of wooldridge s approach to dealing with unobserved heterogeneity we distinguish between greenfield entry entry with first product and undifferentiated entry which may take the form of introducing further products we extend the standard reduced form model to consider company size in the submarket and across all submarkets we find that greenfield and undifferentiated entries have different determinants that global and submarket size measures have different effects and that sunk costs often have positive effects on entry due to a commitment mechanism copyright 2012 john wiley sons ltd

testing the taxmimicking versus expenditure spill over hypotheses using english data spatial interaction among local governments in tax setting and public spending decisions is receiving increasing attention in the applied public economics literature spatial interaction models rely on the presence of an externality from local budget making in traditional public finance models external effects originate either from interjurisdictional resource flows due to tax competition for a mobile base or from local public expenditure spill overs into neighbouring jurisdictions however the recent political agency yardstick competition literature has stressed the role of informational externalities between neighbouring jurisdictions and predicted tax mimicry at the local level the actual relevance of the above hypotheses clearly needs to be assessed empirically in this paper an attempt is made at discriminating between alternative sources of local fiscal interaction by using data on the english municipal authorities budgets while both public spending levels and local property tax rates ex

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

commitment robust equilibria and endogenous timing abstract this paper investigates which equilibria of a game are still viable when players have the opportunity to commit themselves to that end we study a model of endogenous timing in which players face the trade off between committing early and moving late it is shown that mixed resp pure equilibria of the original game are subgame perfect resp persistent in the timing game only when no player has an incentive to move first consequently mixed equilibria are viable only if no player has an incentive to move first one needs strong evolutionary solution concepts to draw that conclusion for pure equilibria journal of economic literature classification number c72

a dynamic oligopoly structural model for the prescription drug market after patent expiration this article incorporates consumer learning and heterogeneity into a dynamic oligopoly model for the prescription drug market in the model both firms and patients need to learn the generic qualities via patients experiences generic firms entry decisions are endogenous but their entry timings depend on a random approval process i apply the model to examine the impact of shortening the expected generic approval time although this policy experiment brings generics to the market sooner it increases a potential entrant s likelihood of entering a crowded market and hence could reduce the total number of generic entrants and consumer welfare

generic drug industry dynamics both the economics literature and the business press suggest that a typical pattern for a new industry or what jovanovic and macdonald 1994 call an invention i s to have an initial phase in which a small number of firms each earn significant profits followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits often accompanied by a shakeout whereby only a few large firms remain especially if subsequent innovations increase the optimal scale although this pattern seems to characterize many industries the length of time during which early movers retain their profits how prices adjust during the entry process and the

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

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

empirical entry games with complementarities an application to the shopping center industry abstract the author proposes a strategic model of entry that allows for positive and negative spillovers among firms the model is applied to a novel data set containing information about the store configurations of all u s regional shopping centers and is used to quantify the magnitude of interstore spillovers the author addresses the estimation difficulties that arise due to the presence of multiple equilibria by formulating the entry game as a mathematical problem with equilibrium constraints mpec although this study constitutes the first attempt to use this direct optimization approach to address a specific empirical problem the method can be used in a wide range of structural estimation problems the empirical results support the agglomeration and clustering theories that predict that firms may have incentives to colocate despite potential business stealing effects the author shows that the firms negative and positive strategic effects help predict both how many firms can operate profitably i

a framework for dynamic oligopoly in concentrated industries in this article we introduce a new computationally tractable framework for ericson and pakes style dynamic oligopoly models that overcomes the computational complexity involved in computing markov perfect equilibrium mpe first we define a new equilibrium concept that we call moment based markov equilibrium mme in which firms keep track of their own state the detailed state of dominant firms and few moments of the distribution of fringe firms states second we provide guidelines to use mme in applied work and illustrate with an application how it can endogenize the market structure in a dynamic industry model even with hundreds of firms third we develop a series of results that provide support for using mme as an approximation we present numerical experiments showing that mme approximates mpe for important classes of models then we introduce novel unilateral deviation error bounds that can be used to test the accuracy of mme as an approximation in large scale settings overall our new framework opens the door to study new issues in industry dynamics

conditional choice probability estimation of dynamic discrete choice models with unobserved heterogeneity we adapt the expectation maximization algorithm to incorporate unobserved heterogeneity into conditional choice probability ccp estimators of dynamic discrete choice problems the unobserved heterogeneity can be time invariant or follow a markov chain by developing a class of problems where the difference in future value terms depends on a few conditional choice probabilities we extend the class of dynamic optimization problems where ccp estimators provide a computationally cheap alternative to full solution methods monte carlo results confirm that our algorithms perform quite well both in terms of computational time and in the precision of the parameter estimates

invited paper learning models an assessment of progress challenges and new developments learning models extend the traditional discrete choice framework by postulating that consumers have incomplete information about product attributes and that they learn about these attributes over time in this survey we describe the literature on learning models that has developed over the past 20 years using the model of erdem and keane as a unifying framework erdem t keane m 1996 decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets marketing sci 15 1 1 20 we describe how subsequent work has extended their modeling framework and applied learning models to a wide range of different products and markets we argue that learning models have contributed greatly to our understanding of consumer behavior in particular in enhancing our understanding of brand loyalty and long run advertising effects we also discuss the limitations of existing learning models and potential extensions one key challenge is to disentangle learning as a source of

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

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

a dynamic analysis of the market for wide bodied commercial aircraft this paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing industry performance and optimal industry policy a novel feature of the model with respect to the previous literature is that entry exit prices and quantities are endogenously determined in markov perfect equilibrium mpe we find that many unusual aspects of the aircraft data such as high concentration and persistent pricing below static marginal cost are explained by this model we also find that the unconstrained mpe is quite efficient from a social perspective providing only 10 less welfare on average than a social planner would obtain finally we provide simulation evidence that an anti trust policy in the form of a concentration restriction would be welfare reducing

an empirical model of optimal dynamic product launch and exit under demand uncertainty this paper considers the decision problem of a firm that is uncertain about the demand and hence profitability of a new product we develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales based on the current information the decision maker decides whether to scrap the product central to this decision problem are sequential information gathering and the option value of scrapping the product at any point in time the model predicts the optimal demand for information e g in the form of test marketing and it predicts how the launch or exit policy depends on the firm s demand uncertainty furthermore it predicts what fraction of newly developed products should be launched on average and what fraction of these products will fail i e exit the model is solved using numerical dynamic programming techniques we present an application of the model to the case of the u s ready to eat breakfast cereal industry simulations show that the value of reducing uncertainty can be large and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched even if their point estimate of profits is negative alternative simpler decision rules are shown to lead to large profit losses compared to our method finally we find that the high observed exit rate in the u s ready to eat cereal industry is optimal and to be expected based on our model

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

planning marketing mix strategies in the presence of interaction effects companies spend millions of dollars on advertising to boost a brand s image and simultaneously spend millions of dollars on promotion that many believe calls attention to price and erodes brand equity we believe this paradoxical situation exists because both advertising and promotion are necessary to compete effectively in dynamic markets consequently brand managers need to account for interactions between marketing activities and interactions among competing brands by recognizing interaction effects between activities managers can consider interactivity trade offs in planning the marketing mix strategies on the other hand by recognizing interactions with competitors managers can incorporate strategic foresight in their planning which requires them to look forward and reason backward in making optimal decisions looking forward means that each brand manager anticipates how other competing brands are likely to make future decisions and then by reasoning backward deduces one s own optimal decisions in response to the best decisions to be made by all other brands the joint consideration of interaction effects and strategic foresight in planning marketing mix strategies is a challenging and unsolved marketing problem which motivates this paper this paper investigates the problem of planning marketing mix in dynamic competitive markets we extend the lanchester model by incorporating interaction effects constructing the marketing mix algorithm that yields marketing mix plans with strategic foresight and developing the continuous discrete estimation method to calibrate dynamic models of oligopoly using market data both the marketing mix algorithm and the estimation method are general so they can be applied to any other alternative model specifications for dynamic oligopoly markets thus this dual methodology augments the decision making toolkit of managers empowering them to tackle realistic marketing problems in dynamic oligopoly markets we illustrate the application of this dual methodology by studying the dynamic lanchester competition across five brands in the detergents market where each brand uses advertising and promotion to influence its own market share and the shares of competing brands empirically we find that advertising and promotion not only affect the brand shares own and competitors but also exert interaction effects i e each activity amplifies or attenuates the effectiveness of the other activity normatively we find that large brands underadvertise and overspend on promotion while small brands underadvertise and underpromote finally comparative statics reveal managerial insights into how a specific brand should respond optimally to the changes in a competing brand s situation more generally we find evidence that competitive responsiveness is asymmetric

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

strategic entry before demand takes off in developing industries firms have to decide whether and when to enter the market depending on the state of demand existing firms in the industry and the firm s capabilities this paper investigates a model of increasing demand in which firms decide when to enter the market anticipating the strategic behavior of other potential entrants and the effects of entry on future potential entrants this paper shows that the ability of early entry to deter future competitors entry leads firms to enter the market at a rate faster than demand is expanding if there is the potential for many firms to enter the market firms may be less likely to enter because of future competitor entry to correct any market opportunities if firms enter the market depending on their fixed capabilities rather than depending on the firm s circumstances at each moment in time firms end up entering the market at a faster rate in the early periods

interactions in local governments spending decisions evidence from portugal costa h goncalves veiga l and portela m interactions in local governments spending decisions evidence from portugal regional studies this paper aims to analyse the degree of interaction between portuguese municipalities expenditure levels by estimating a dynamic panel model based on jurisdictional reaction functions the analysis is performed for all 278 portuguese mainland municipalities from 1986 to 2006 using alternative ways to measure neighbourhood results indicate that local governments spending decisions are significantly and positively influenced by the actions of neighbouring municipalities attempts to identify the sources of interaction allow it to be concluded that they are due to spillovers that require coordination in expenditure items and to mimicking behaviour possibly to attract households and firms

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

wearout effects of different advertising themes a dynamic bayesian model of the advertising sales relationship models of advertising response implicitly assume that the entire advertising budget is spent on disseminating one message in practice managers use different themes of advertising for example price advertisements versus product advertisements and within each theme they employ different versions of an advertisement in this study we evaluate the dynamic effects of different themes of advertising that have been employed in a campaign we develop a model that jointly considers the effects of wearout as well as that of forgetting in the context of an advertising campaign that employs five different advertising themes we quantify the differential wearout effects across the different themes of advertising and examine the interaction effects between the different themes using a bayesian dynamic linear model dlm such a response model can help managers decide on the optimal allocation of resources across the portfolio of ads as well as better manage their scheduling we develop a model to show how our response model parameters can be used to improve the effectiveness of advertising budget allocation across different themes we find that a reallocation of resources across different themes according to our model results in a significant improvement in demand

exit voice and mimicking behavior evidence from swiss cantons previous empirical literature hasshown that in order to overcome agencyproblems voters make inter jurisdictionalcomparisons of fiscal performance whenmaking electoral decisions incumbents therefore anticipate voters feedback by copying fiscal policy decisionsfrom neighbors this paper argues thatfiscal autonomy exit as well as directlegislation voice enrich politicalcompetition reducing thus the influence of electoral competition onfiscal decisions consequently policymimicking does not matter in circumstancesof direct legislation and fiscal autonomywhere the impact of voters on the politicalagenda is particularly strong based onpanel data between 1980 and 1998 we findencouraging evidence supporting ourtheoretical arguments

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

firm expansion size spillovers and market dominance in retail chain dynamics we develop and estimate a dynamic game of strategic firm expansion and contraction decisions to study the role of firm size in future profitability and market dominance modeling firm size is important because retail chain dynamics are more richly driven by expansion and contraction than de novo entry or permanent exit additionally anticipated size spillovers may influence the strategies of forward looking firms making it difficult to analyze the effects of size without explicitly accounting for these in the expectations and hence decisions of firms expansion may also be profitable for some firms while detrimental for others thus we explicitly model and allow for heterogeneity in the dynamic link between firm size and profits as well as potential for persistent brand effects through firm specific unobservable factors as a methodological contribution we surmount the hurdle of estimating the model by extending a two step procedure that circumvents solving the game the first stage combines semipar