theoretical and empirical advantages of truncated count data estimators for analysis of deer hunting in california truncated poisson and truncated negative binomial count data models as well as standard count data models ols nonlinear normal and truncated nonlinear normal mle were used to estimate demand for deer hunting in california the truncated count data estimators and their properties are reviewed a large sample n 2223 allowed random segmenting of the data into specification estimation and out of sample prediction portions statistics of interest are therefore unbiased by the specification search and the prediction results allow comparison of the statistical models robustness the new estimators are found to be more appropriate for estimating and predicting demand and social benefits than the alternative estimators based on a variety of criteria

managing advertising and promotion for long run profitability in recent years manufacturers have become increasingly disposed toward the use of sales promotions often at the cost of advertising yet the long term implications of these changes for brand profitability remain unclear in this paper we seek to offer insights into this important issue we consider the questions of i whether it is more desirable to ad vertise or promote ii whether it is better to use frequent shallow promotions or infrequent deep promotions and iii how changes in regular prices affect sales relative to increases in price promotions additional insights regarding brand equity the relative magnitude of short and long term effects and the decomposition of advertising and promotion elasticities across choice and quantity decisions are obtained to address these points we develop a heteroscedastic varying parameter joint probit choice and regression quantity model our approach allows consumers responses to short term marketing activities to change in response to changes in marketing actions over the long term we also accommodate the possibility of competitive reactions to policy changes of a brand the model is estimated for a consumer packaged good category by using over eight years of panel data the resulting parameters enable us to assess the effects of changes in advertising and promotion policies on sales and profits our results show that in the long term advertising has a positive effect on brand equity while promotions have a negative effect furthermore we find price promotion elasticities to be larger than regular price elasticities in the short term but smaller than regular price elasticities when long term effects are considered consistent with previous research we also find that most of the effect of a price cut is manifested in consumers brand choice decisions in the short term but when long term effects are again considered this result no longer holds last we estimate that the long term effects of promotions on sales are negative overall and about two fifths the magnitude of the positive short term effects finally making reasonable cost and margin assumptions we conduct simulations to assess the relative profit impact of long term changes in pricing advertising or promotion policies our results show regular price decreases to have a generally negative effect on the long term profits of brands advertising to be profitable for two of the brands and increases in price promotions to be uniformly unprofitable

long run effects of promotion depth on new versus established customers three field studies we use the results of three large scale field experiments to investigate how the depth of a current price promotion affects future purchasing of first time and established customers while most previous studies have focused on packaged goods sold in grocery stores we consider durable goods sold through a direct mail catalog the findings reveal different effects for first time and established customers deeper price discounts in the current period increased future purchases by first time customers a positive long run effect but reduced future purchases by established customers a negative long run effect overall the results show evidence of several long run effects forward buying selection customer learning and increased deal sensitivity short run metrics that ignore these effects overstate the overall change in demand for established customers the implication is that if prices are set based on short run elasticity then they will be too low among first time customers the short run metrics underestimate the total increase in demand if prices are set based on short run elasticity then they will be too high

promotion signal proxy for a price cut evidence suggests that some consumers react to promotion signals without considering relative price information we adopt petty and cacioppo s elaboration likelihood model elm to explain this behavior in terms of the elm s peripheral route to persuasion in which the promotion signal is taken as a cue for a price cut experimental results show that low need for cognition individuals react to the simple presence of a promotion signal whether or not the price of the promoted brand is reduced but that high need for cognition individuals react to a promotion signal only when it is accompanied by a substantive price reduction

are sale signs less effective when more products have them we analyze data from a variety of sources including historical data from a women s clothing catalog a field study in that catalog survey responses to catalog stimuli and grocery store data for frozen juice toothpaste and tuna the analysis yields three conclusions first sale signs are less effective at increasing demand when more items have them second total category sales are maximized when some but not all products have sale signs third placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the future but the effect is smaller when more products have sale signs by ruling out alternative hypotheses the findings suggest that moderation of the sale sign effect is in part due to reduced credibility when they are used on more products the credibility argument is motivated in part by a recent paper that presented an equilibrium model predicting that customers who lack knowledge of market prices rely on point of purchase sale signs to help evaluate posted prices anderson and simester 1998 the model predicts that sale signs increase demand but that the increase is smaller when more products have them this moderating effect regulates how many sale signs stores use and makes customer reliance on these cues an equilibrium strategy to evaluate whether the number of sale signs moderates their effectiveness we compare demand for items with sale signs when varying the number of sale signs on other products for this comparison we use two datasets describing demand for products in a women s clothing catalog the first dataset describes customer orders for the same set of items across three sequential issues of the catalog the second dataset is a field test conducted by mailing different versions of the catalog to randomly selected customer samples reassuringly although the datasets do not share the same limitations the findings are consistent and indicate that sale signs are less effective when more products have them in addition to the credibility explanation there are at least two alternative explanations for this result first using a sale sign to make a product more attractive may lead to substitution of demand from other sale items within a store and so demand may vary even if there is no change in the credibility of the sale signs to discriminate between the substitution and credibility explanations we evaluate whether total category demand is maximized when some but not all products in the category have sale signs the credibility explanation implies that adding another sale sign will eventually decrease total category sales when many items already have sale signs in contrast if adding a sale sign to an item leads solely to substitution from other products within or outside the category we will not observe a decrease in total category demand we test the total category sales prediction using grocery store scan data describing total category demand for frozen juice toothpaste and canned tuna the findings reveal that in all three categories there is a significant reduction in aggregate demand a second alternative explanation is that sale signs focus customer attention on products with these cues distinguishing between the attention and credibility explanations is a difficult task they both imply that sale signs deliver less information when there are too many sale signs the credibility argument predicts that this occurs because the signs are noticed but not believed the attention explanation predicts that the signs are less likely to be noticed when attention is diluted by a large number of sale signs to discriminate between the credibility explanation and this attention effect we use survey measures to evaluate a third hypothesis this hypothesis predicts both that placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the next period and that this effect is smaller when more items have them in an attempt to control for the attention effect we focus subjects attention on a set of focal items under these conditions it is unlikely that subjects overlook sale signs on these items more important the likelihood of overlooking sale signs on the focal items is unlikely to depend on how many other items also have sale signs the results confirm both that the presence of a sale sign reduced subjects expectations that an item would be available at a lower price in the future and that this effect is smaller when more items have sale signs

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

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

a structural equations approach to modeling consumptive recreation demand abstract in this analysis we develop a two equation structural model of a count travel cost model of recreational angling demand and angling success by modeling the two equations jointly we avoid the difficulties associated with the usual approach which estimates the demand for recreational fishing sites assuming the existence of an exogenous measure of fishing quality our analysis explicitly develops the joint log likelihood function that combines the two processes we estimate our model using full information maximum likelihood methods

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

measuring angling quality in count data models of recreational fishing a non nested test of three approaches this paper develops a methodology for investigating different specifications of angling quality in recreational demand models the methodology is used to compare three alternative specifications of the relationship between angling demand and site quality the site quality alternatives include chemical concentrations biological stress indices based on the chemicals and catch per unit effort the three alternatives are differentiated using a likelihood ratio non nested testing procedure

estimating social welfare using count data models an application to long run recreation demand under conditions of endogenous stratification and truncation this paper develops a negative binomial model of recreation demand that corrects for both truncation and endogenous stratification this approach recovers the demand associated with the general population not just the users of the site this model demonstrates the importance of the joint nature of the population s latent demand for trips and the consumer surplus associated with those trips the empirical results provide an estimate of the willingness to pay by washington state residents for hiking opportunities in the cascade mountain range these results are used to forecast total trips and willingness to pay over the next forty years copyright 1995 by mit press

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

empirical generalizations from reference price research considerable theoretical justification for consumers use of psychological reference points exists from the research literature from a managerial perspective one of the most important applications of this concept is reference price an internal standard against which observed prices are compared in this paper we propose three empirical generalizations that are well supported in the marketing literature first there is ample evidence that consumers use reference prices in making brand choices second the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process third consistent with other research on loss aversion consumers have been found to be more sensitive to losses i e observed prices higher than reference prices than gains we also propose topics for further research on reference prices

a retailer promotion policy model considering promotion signal sensitivity recent research suggests that the signal e g sign or marker with a point of purchase promotion will stimulate a significant sales increase regardless of whether or not that signal is accompanied by a price cut this paper develops a model of retailer profitability that incorporates this promotion signal sensitivity in a field test the profitability of the promotion policy prescribed by this model is compared to the profitability of two other promotion policy setting paradigms a model based policy that does not consider promotion signal sensitivity and one prescribed by industry experts the test results support the proposed model its policy generates 11 more category profit per unit than the model based policy and 12 more than the industry experts implications for retailers and future research are discussed

how to compute optimal catalog mailing decisions we develop estimate and test a response model of order timing and order volume decisions of catalog customers and derive a bayes rule for optimal mailing strategies the model integrates the when and how much components of the response incorporates the mailing decision of the firm and uses a bayesian framework to determine the optimal mailing rule for each catalog customer the bayes rule we propose for optimal mailing strategy allows for a broad set of objectives to be realized across the time horizon such as profit maximization customer retention and utility maximization with or without risk aversion we find that optimizing the objective function over multiple periods as opposed to a single period leads to higher expected profits and expected utility our results indicate that the cataloguer is well advised to send fewer catalogs than its current practice in order to maximize expected profits and utility

an assessment of the empirical magnitude of option values for environment goods this paper provides an empirical assessment of the magnitude of option values relative to expected surplus using a model presented by larson and flacco 1992 option values and option prices are computed for both simulated data sets and actual estimates of recreation demands results indicate that option values engendered by price and income uncertainty are generally quite a small percent of expected surplus

estimating the effects of consumer incentive programs on domestic automobile sales we investigate the effects of consumer sales promotion on automobile sales the largest dollar volume durable goods category in retailing between 1985 and 1987 the domestic automakers offered major year end promotions on automobiles using low rate financing and cash rebates to stimulate sales this article uses time series techniques to evaluate the sales patterns for general motors ford and chrysler between 1983 and 1987 explicitly estimating the effects of the incentive programs the analysis indicates that the 1985 and 1986 promotional campaigns were quite successful but that the 1987 campaign was largely ineffective the 1986 and 1987 promotions were also followed by large post promotion drops in sales the analysis contains two notable findings that are in contrast with the considerable body of empirical evidence about the effects of promotion on nondurable goods

beating irrationality does delegating to it alleviate the sunk cost effect we investigate the impact of delegating decision making to information technology it on an important human decision bias the sunk cost effect to address our research question we use a unique data set containing actual market transaction data for approximately 7 000 pay per bid auctions in contrast with the laboratory experiments of previous related studies our research presents the unique advantage of investigating the effects of it enabled automated bidding agents on the occurrence of a decision bias in real market transactions we identify normatively irrational decision scenarios and analyze consumer behavior in these situations our findings show that participants with a higher behavioral investment are more likely to violate the assumption of normative economic rationality because of the sunk cost effect more importantly we observe that the delegation of auction participation i e actual bidding to it significantly reduces the occurrence of the sunk cost effect in subsequent decisions made by the same individual we can attribute this reduction to the comparably lower behavioral investments incurred by auction participants who delegate their bidding to it in particular by mitigating different contributors of behavioral investments delegating to it reduces the likelihood of the occurrence of the sunk cost effect by more than 50 this paper was accepted by sandra slaughter information systems

valuing water quality as a function of water quality measures employing a unique and rich data set of water quality attributes in conjunction with detailed household characteristics and trip information we develop a mixed logit model of recreational lake usage and undertake thorough model specification and fitting procedures to identify the best set of explanatory variables and their functional form for the estimated model our empirical analysis shows that individuals are responsive to the full set of water quality measures used by biologists to identify the impaired status of lakes thus changes in these quality measures are not simply a scientific exercise but they also translate into changes in the recreational usage patterns and well being of individual households willingness to pay wtp estimates are reported based on improvements in these physical measures

modeling hunting demand in the presence of a bag limit with tests of alternative specifications abstract bag limits complicate the measurement of consumer surplus from hunting because the point at which hunters cease taking trips is not necessarily the point at which they are unwilling to pay for additional hunting trips we develop and apply an econometric model which accounts for bag limits to data of deer hunting in california and we employ several alternative models that do not account for the bag limit we conduct non nested testing of the models and estimate welfare measures at existing conditions and after a quality improvement confidence intervals are provided for the welfare measurements

endogeneity in marketing decision models there are many critical concerns including the accounting for endogeneity when one is properly estimating response functions however it is sometimes certainly not always better to leave some variables exogenous when building mathematical models intended to help decision makers the exogenous variables allow the decision maker to better adapt the mathematical model to different situations and to incorporate myriad variables and constraints outside of the model

mortgage lending to minorities where s the bias this paper examines mortgage lending and concludes that studies based on data created by the boston fed should be reevaluated a detailed examination of these data indicates that irregularities in these data when combined with the most commonly used research methodology appear to have biased previous research toward a finding of discrimination against minority applicants when the most severe data irregularities are eliminated evidence to support a hypothesis of discrimination disappears the currently fashionable flexible underwriting standards of mortgage lenders may have the unintended consequences of increasing defaults for the beneficiaries of these policies

an alternative explanation for lower repeat rates after promotion purchases several authors have observed that average repeat rates are lower after a promotion purchase one interpretation of this result is that a media coupon or cents off promotion undermines the consumer

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

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

dynamics of retail advertising evidence from a field experiment we use a controlled field experiment to investigate the dynamic effects of retail advertising the experimental design overcomes limitations hindering previous investigations of this issue our study uncovers dynamic advertising effects that have not been considered in previous literature we find that current advertising does affect future sales but surprisingly the effect is not always positive for the firm s best customers the long run outcome may be negative this finding reflects two competing effects brand switching and intertemporal substitution we also find evidence of cross channel substitution with the firm s best customers switching demand to the ordering channel that corresponds to the advertising jel l2 l81 m3 a firm s current advertising is generally associated with an increase in its sales but this effect is generally short lived

setting quality expectations when entering a market what should the promise be this paper examines optimal advertised quality actual quality and price for a firm entering a market it develops a two period model where advertised quality influences expectations and hence trial and the gap between actual quality and expectations determines satisfaction which in turn impacts second period sales in such situations a company makes a choice between advertising high quality and getting trial but little repeat and advertising low quality and getting low trial but high repeat results are derived by numerical methods as well as analytically for a special case of the model the model suggests it is optimal to overstate quality when i customers rely relatively less on advertising to form quality expectations and ii customers intrinsic satisfaction with a product is high these results are consistent with deceptive advertising cases at the ftc which showed more deception for unknown firms and for firms whose customers were more satisfied they are also consistent with the decisions made by future managers mbas except that the respondents would advertise higher versus lower quality when advertising was effective

the fast decay process in outdoor recreational activities and the use of alternative count data models despite a number of significant advances in count data modeling during the last two decades and the growing popularity of these models in recreation demand analysis standard count data models are inadequate to address the fast decay process of the dependent variable and the associated long tail this article demonstrates how one and two parameter alternative count data models can be used to properly model the fast decay process and the associated long tail commonly observed in recreation demand analysis econometric results from an illustrative application suggest satisfactory performance of four of the eight alternative count data models proposed in this article

modeling indivisible demand disaggregate demand in the marketplace exists on a grid determined by the package sizes offered by manufacturers and retailers although consumers may want to purchase a continuous valued amount of a product realized purchases are constrained by available packages this constraint might not be problematic for high volume demand but it is potentially troubling when demand is small despite the prevalence of packaging constraints on choice economic models of choice have been slow to deal with their effects on parameter estimates and policy implications in this paper we propose a general framework for dealing with indivisible demand in economic models of choice and we show how to estimate model parameters using bayesian methods analyses of simulated data and a scanner panel data set of yogurt purchases indicate that ignoring packaging constraints can bias parameter estimates and measures of model fit which results in the inaccurate measures of metrics such as price elasticity and compensating value we also show that a portion of nonpurchase in the data e g 2 27 for yoplait original reflects the restriction of indivisibility not the lack of preference the importance of demand indivisibility is also highlighted by the counterfactual study where the removal of the smallest package size i e 4 oz mainly results in nonpurchase in the yogurt category instead of switching to larger package sizes

introductory price as a signal of cost in a model of repeat business a two period game between firms and consumers is considered firms are privately informed about their individual costs and consumers must pay a search cost in order to learn a firm s current price consumers thus have incentive to use introductory price as a signal of cost and hence second period price recent refinements of the sequential equilibrium concept are employed and the resulting equilibria involve low introductory prices introductory sales