estimating price elasticities with theory based priors the authors show how price elasticity estimates can be improved in demand systems that involve multiple brands and stores they treat these demand models in a hierarchical bayesian framework unlik

customized advertising via a common media distributor we show that when a single media content distributor such as a television cable company or an internet provider delivers advertising messages on behalf of multiple competing brands it can sometimes utilize customized advertising to implement monopoly pricing even though such monopolistic pricing can be implemented with varying degrees of customization of commercials product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible consumers would obviously prefer aggressive price competition in product markets however given that collusion on prices is facilitated anyway when the distributor acts as a common agent the welfare of consumers is enhanced when commercials are better aligned with their preferences

comment cross brand pass through fact or artifact cross brand pass through implies that a retailer responds to wholesale promotional support from a target brand by changing the retail prices of competitive brands besanko et al 2005 model a target brand s retail price as a function of its own and other brands wholesale prices using 780 observations 15 price zones 52 weeks and take the many significant coefficients for other brands wholesale prices that they find as evidence of cross brand pass through because price zones do not react independently to wholesale prices when they set a brand s retail price besanko et al s 2005 estimation overstates the number of independent observations by a factor of 15 when we correct for this overstatement of independent observations we find that the number of stable significant coefficients for other brands wholesale prices is lower than one would expect by chance we conclude that there is no evidence of cross brand pass through in the 11 categories analyzed by besanko et al 2005

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

retailers strategies and food price dynamics evidence from dairy scanner data abstract we investigate the relationship between retailers strategies and dairy price dynamics using high frequency italian scanner data for different dairy products we compute a weekly drift free price index specific for product category chain and type of store exploiting the unbalanced panel data structure to control for unobservable strategies by chain time and type of store we test if unobservables are statistically significant in influencing the price dynamics of each of the products covered by our analysis in general chain and type of store specific unobservables play a significant role moreover we identify the role of some observable strategic variables in controlling or in stimulating price inflation rates we obtain mixed results on the relationship between private label pl market shares and price trend while we find price promotions to be more effective if applied to national brands nbs rather than pls we conclude with some implications for the potential role of public policies in controlling food inflation

a theory of exit in duopoly we develop a duopoly model in which exit occurs because of the existence of fixed costs or opportunity costs each firm enters the market knowing its own cost but not that of its opponent as times goes on each firm becomes increasingly pessimistic about the cost of its remaining rival the time of exit is the only strategic variable so that our model is a war of attrition in contrast to the classic war of attrition however we assume that with positive probability each firm s costs may be low enough that staying in forever is a dominant strategy thus our model unlike the classic one has a unique equilibrium

practice prize paper category optimizer a dynamic assortment new product introduction mix optimization and demand planning system the purpose of this paper is to describe the implementation of a category management tool known as category optimizer at foster s wine estates americas for one of its brands the beringer california collection foster s was facing a common management problem harnessing its portfolio of beringer california collection wines to increase profitability improve its competitive position and defend against a disruptive new entrant in the u s wine market called yellow tail category optimizer combines the parsimony of an internal market structure with the advances that have been made in assortment planning in operations research assortment and stock keeping unit level modeling mixed logits and the marketing literature on the perceptions of variety of assortment to develop and estimate a model on readily available store scanner data the model subsequently uses these results to inform strategic and tactical decision making this approach led to recommendations that initially seemed counterintuitive the normal response would be for foster s to consider lowering prices to maintain share and volume a strategy not inconsistent with many of the recommendations of past models however considering the additional degrees of freedom that a product range offered for defense we demonstrated that a combination of price increases together with the introduction of a volume flanker product in a new channel would improve profits increase revenue and protect and enhance market share these were successfully implemented in early 2008 earning rich dividends for the company increasing profitability by 70 revenue by 3 and earnings before interest and taxes by 8 5 and having a positive impact on its brand ranking in fact in 2008 it debuted as sixth among the international wine brands it also managed to play an important role in deposing yellow tail the market share leader from its dominant position we conclude the paper by providing examples of other companies where this approach has also been successfully implemented and by discussing some avenues for future research

the top 1 percent in international and historical perspective world top incomes database at http topincomes parisschoolofeconomics eu and has represented a challenge to the economics profession stories based on the and has represented a challenge to the economics profession stories based on the supply and demand for skills are not enough to explain the extreme top tail of supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution nor is it enough to look only at earned incomes different the earnings distribution nor is it enough to look only at earned incomes different approaches are necessary to explain what has happened in the united states over approaches are necessary to explain what has happened in the united states over the past century and also to explain the differing experience in other high income the past century and also to explain the differing experience in other high income countries over recent decades we begin with the international comparison in the countries over recent decades we begin with the international comparison in the fi rst section and then turn to the causes and implications of the evolution of top fi rst section and then turn to the causes and implications of the evolution of top income shares income shares

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

competition and collusion in the american automobile industry the 1955 price war movements in total quantity and in quality adjusted price suggest a supply side shock in the american automobile market in 1955 this paper tests the hypothesis that the shock was a transitory change in industry conduct a price war the key ingredients of the test are alternative equilibrium models of oligopoly under product differentiation in nonnested cox tests of hypotheses a collusive solution is sustained in 1954 and in 1956 while a competitive solution holds in 1955 the result does not appear to be an artifact since it is robust in tests against alternative specifications copyright 1987 by blackwell publishing ltd

winners and losers in a major price war abstract although retail price wars have received much business press and some research attention it is unclear how they affect consumer purchase behavior this article studies an unprecedented price war in dutch grocery retailing that started in fall 2003 initiated by the market leader to halt its sliding market share the authors investigate the short and long term effects of the price war on store visits on spending and on the sensitivity of these decisions to weekly prices and price image they use a unique data set with consumer hand scan and perceptual data for a national panel of 1821 households covering two years before and two years after the price war started although the price war initially entailed more shopping around and increased spending spending per visit ultimately dropped because consumers redistributed their purchases across stores the price war made consumers more sensitive to weekly prices and price image which helped both the chain that showed an improvement in price image

economies of scope in price setting a moment inequalities estimation abstract using weekly data on prices costs and units sold by a supermarket chain a moment inequalities approach is used to estimate a discrete choice dynamic model of a multiproduct firm facing menu costs this empirical methodology allows to estimate two types of fixed costs of price adjustment costs that are independent of the number of items that change prices and costs that are incurred at each item s price change i find that both types of menu costs exist and are substantial the total cost of changing prices is estimated to be bounded between 0 3 and 1 3 of revenues and between 17 and 65 of net margins the first type of fixed cost accounts for between 23 and 99 of this expense pointing to substantial economies of scope in price setting

differences in dynamic brand competition across markets an empirical analysis we investigate differences in the dynamics of marketing decisions across geographic markets empirically we begin with a linear quadratic game involving forward looking firms competing on prices and advertising based on the corresponding markov perfect equilibrium we propose estimable econometric equations for demand and marketing policy our model allows us to measure empirically the strategic response of competitors along with economic measures such as firm profitability we use a rich dataset that combines sales marketing mix factor cost and advertising cost data for eighteen geographic markets in the frozen entree category we find that larger markets tend to be less price sensitive and more profitable than smaller markets we also find evidence of positive carryover of own advertising on own demand in terms of consumer substitution patterns we find that the role of advertising in our data seems to be more category building complementary than share stealing competitive the complementary role is stronger in larger markets on the supply side we find that firms make smaller adjustments to own advertising as goodwill goes up consistent with cross advertising effects on demand firms make smaller larger adjustments to advertising in response to competitive goodwill in the less competitive larger in the more competitive smaller markets finally we find that consumer welfare decreases increases in larger smaller markets when firms move to a zero advertising regime

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

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

endogeneity and heterogeneity in a probit demand model estimation using aggregate data two issues that have become increasingly important while estimating the parameters of aggregate demand functions to study firm behavior are theendogeneity of marketing activities typically price andheterogeneity across consumers in the market under consideration ignoring these issues in the estimation of the demand function parameters can lead to biased and inconsistent estimates for the effects of marketing activities endogeneity and heterogeneity have achieved prominence in large measure because of the increasing popularity of logit models to characterize demand functions usingaggregate data the logit model accounts for purchase incidence and brand choice by including a no purchase alternative in the consumer s choice set this allows for category sales to change as a function of the marketing activities of brands in the category there are three issues with using the logit model with the no purchase option to characterize demand when studying competitive interactions among firms 1 the marketing literature dealing with brand choice behavior at the consumer level has found that the iia restriction is not appropriate as each brand in the choice set is more similar to some brands than it is to others 2 studies have found that the purchase incidence decision is distinct from the brand choice decision hence it may not be appropriate to model the no purchase decision as just another alternative in the choice set with the iia restriction holding across all brands and the no purchase option 3 even if the distinction between the purchase incidence and brand choice decisions is accounted for via for example a nested logit specification accounting for the purchase incidence decision with aggregate data requires assumptions for computing the share of the no purchase alternative which is otherwise unobserved in this paper we propose a probit model as an alternative to the logit model to specify the aggregate demand functions of firms competing in oligopoly markets the probit model avoids the iia property that affects the logit model at the individual consumer level furthermore the probit model can naturally account for the distinction between the purchase incidence and brand choice decisions due to the general covariance structure assumed for the utilities of the alternatives we demonstrate how the parameters of the proposed model can be estimated using aggregate time series data from a product market in the estimation we account for the endogeneity of marketing variables as well as for heterogeneity across consumers our results indicate that both endogeneity as well as heterogeneity need to be accounted for even after allowing for a non iia specification at the individual consumer level specific to our data we also find that ignoring endogeneity has a bigger impact on the estimated price elasticities than ignoring the effects of heterogeneity a comparison of the elasticities obtained from the probit model with those from the corresponding logit specification indicates that therange of elasticities obtained from the probit model across brands is larger than that obtained from the logit the results have implications for issues such as firm level pricing in addition to specifying a probit model and providing comparisons with the logit model the paper also addresses the third issue raised above we propose a simple alternative to the purchase incidence brand choice specification by decomposing the demand for a brand into a category demand equation and a conditional brand choice share equation we provide a comparison of results from this specification to those from the specification that includes the no purchase alternative and find that estimated elasticities are sensitive to the specification used we also estimate the demand function parameters using a traditional specification such as the double logarithmic model here we find that the estimated elasticities could be signed in such a manner as to be not useful for firm level pricing decisions one of the key limitations of the proposed model is that while it accounts for the purchase incidence and brand choice decisions of households it does not account for differences across consumers in their purchase quantities the model and analysis are best suited for product categories in which consumers typically make single unit purchases another limitation is more practical in nature while recent advances have been made in computing probit probabilities it could nevertheless be a challenge to do so when the number of alternatives is large

the pay of corporate executives and financial professionals as evidence of rents in top 1 percent incomes incomes and wages has now raged for at least two decades in this paper we will make four arguments first the increase in the incomes and we will make four arguments first the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and or redistribution of economic rents and as driven largely by the creation and or redistribution of economic rents and not simply as the outcome of well functioning competitive markets rewarding not simply as the outcome of well functioning competitive markets rewarding skills or productivity based on marginal differences this rise in rents accruing skills or productivity based on marginal differences this rise in rents accruing to the top 1 percent could be the result of increased to the top 1 percent could be the result of increased opportunities for rentfor rent

a comparison of sales response predictions from demand models applied to store level versus panel data in order to generate sales promotion response predictions marketing analysts estimate demand models using either disaggregated consumer level or aggregated store level scanner data comparison of predictions from these demand models is complicated by the fact that models may accommodate different forms of consumer heterogeneity depending on the level of data aggregation this study shows via simulation that demand models with various heterogeneity specifications do not produce more accurate sales response predictions than a homogeneous demand model applied to store level data with one major exception a random coefficients model designed to capture within store heterogeneity using store level data produced significantly more accurate sales response predictions as well as better fit compared to other model specifications an empirical application to the paper towel product category adds additional insights this article has supplementary material online

a structural equations analysis of the impact of price promotions on store performance guided by past research conventional wisdom in the retailing area and microeconomic theory the authors develop a series of hypotheses about the effects of loss leaders in store price specials

is economic growth good for the poor tracking low incomes using general means in this paper we propose the use of an alternative methodology to track low incomes based on atkinson s 1970 family of equally distributed equivalent income functions which are called general means here we provide a new characterization of general means that justifies their use in this context our method of evaluating the effects of growth on poor incomes is based on a comparison of growth rates for two standards of living the ordinary mean and a bottom sensitive general mean the motivating question is to what extent is growth in the ordinary mean accompanied by growth in the general mean a key indicator in this approach is the growth elasticity of the general mean or the percentage change in the general mean over the percentage change in the usual mean our empirical analysis estimates this growth elasticity for a data set containing 144 household surveys from 20 countries over the last quarter century among other results we find that the growth elasticity of bottom sensitive general means is positive but significantly smaller than one this suggests that the incomes of the poor do not grow one for one with increases in average income

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

financial development and growth in sub saharan africa do legal origin and cfa membership matter this article examines whether relations between legal origin financial development and economic growth that hold worldwide hold in british and french legal origin sub saharan africa ssa as well we also test for the differential impacts on financial development and on growth of communaute financiere africaine cfa currency union membership within french legal origin ssa our panel regressions and descriptive measures agree with the findings of british legal origin advantage with respect to financial development in addition financial development contributes positively to economic growth in british legal origin ssa as it does worldwide within french legal origin ssa we find that currency union constraints tend to hinder financial development in cfa countries beyond the negative impacts of french legal origin moreover contributions to the growth of various indicators of financial development in french legal origin ssa are negative or insignificant irrespective of cfa membership

sh a r p shelf allocation for retailers profit shelf space is the retailer s scarcest resource space management tools are thus badly needed for that purpose commercial computer packages and optimal allocation models have been developed building on the work of corstjens and doyle we elaborate a general theoretical shelf space allocation model which focuses on the demand interdependencies prevailing across and within product groups rules of thumb are compared to the derived optimal allocation the sh a r p model is introduced as a simplified yet realistic variant and validated against data collected in a dutch supermarket chain subsequently the feasibility of its implementation has been experimented in various belgian chains case studies demonstrate the profit potential of sh a r p

estimation under profit driven loss functions consider the problem of estimating a price sensitivity parameter in a demand model depending on the context in which the estimate will be used traditional squared error loss may be inappropriate we consider the situation in which the estimate will be used by a manufacturer to set the price effectively the manufacturer s goal of profit maximization induces a loss function that turns out to be asymmetric estimators that perform well with respect to such loss functions are obtained a real example is considered in which compared to traditional estimation under squared error loss this approach leads to smaller price sensitivity estimates suggesting higher optimal prices

price induced patterns of competition this research focuses on how price changes influence the observed pattern of brand competition the paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition a price tier model is proposed to operationalize the theory and to allow predictive testing the price tier model is estimated on 28 brands across four product categories the results show a specific asymmetric pattern of price competition higher price higher quality brands steal share from other brands in the same price quality tier as well as from brands in the tier below however lower price lower quality brands take sales from their own tier and the tier below brands but do not steal significant share from the tiers above the results are consistent with a bimodal preference distribution with the regular price indifference point being located toward the lower quality end of the preference distribution for the categories analyzed

estimating demand heterogeneity using aggregated data an application to the frozen pizza category this paper combines different aggregate level data sets to identify new product demand in consumer packaged goods cpg categories our approach augments market level time series data with widely available summaries of household purchase behavior i e brand penetration and purchase set size data we show that this augmentation is helpful in the estimation of consumer heterogeneity for instance observing a brand with relatively large shares and low penetration typically indicates that preferences are dispersed with relatively few customers liking the brand a lot whereas the combination of share and penetration is informative about heterogeneity with realistic sample sizes in isolation neither variable may lead to precise estimates of heterogeneity in addition other widely available data e g category penetration is helpful in estimating the size of the total market using a large monte carlo study the paper demonstrates the benefits of the proposed approach in estimating model parameters price elasticities and brand switching empirically the approach is used to evaluate the launch of a new national brand digiorno in the frozen pizza category the new brand is inferred to be very successful at expanding the category while avoiding cannibalization of existing company share using only standard information i e market shares to estimate the demand model leads in our data to poor estimates of the degree of consumer taste variation and of switching to a new brand

the effects of openness trade orientation and human capital on total factor productivity abstract we study the effects of openness trade orientation and human capital on total factor productivity for a pooled sample of developed and developing countries total factor productivity emerges from a parsimonious specification of the aggregate production function potential determinants of total factor productivity include measures of openness trade orientation and human capital higher openness benefits total factor productivity outward oriented countries experience higher total factor productivity over and above the positive effect of openness human capital generally contributes positively to total factor productivity in poor countries however human capital interacts with openness to achieve a positive effect

a hierarchical bayes error correction model to explain dynamic effects of price changes abstract the authors put forth a sales response model to explain the differences in immediate and dynamic effects of promotional prices and regular prices on sales the model consists of a vector autoregression that is rewritten in error correction format which allows the authors to disentangle the immediate effects from the dynamic effects in a second level of the model the immediate price elasticities the cumulative promotional price elasticity and the long term regular price elasticity are correlated with various brand specific and category specific characteristics the model is applied to seven years of data on weekly sales of 100 different brands in 25 product categories the authors find many significant moderating effects on the elasticity of price promotions brands in categories that are characterized by high price differentiation and that constitute a lower share of budget are less sensitive to price discounts deep price discounts increase the immediate price sensitivity of customers the

robust optimization of the 0 1 knapsack problem balancing risk and return in assortment optimization abstract retailers face the important but challenging task of optimizing their product assortments the challenge is to find for every category in every store the assortment that maximizes expected category profit adding to the complexity of this 0 1 knapsack problem retailers should also consider the risk associated with every assortment while every product in the assortment offers an expected return there is also uncertainty around its expected demand and profit contribution therefore retailers face the difficult task of designing a portfolio of products that balances risk and return in this paper we develop a robust approach to optimize retail assortments that offers this balance since the dimensionality of this robust 0 1 knapsack problem in practice often precludes full enumeration we propose a novel efficient and real time heuristic that solves this problem the heuristic constructs an approximation of the risk return efficient frontier of assortments we find that the robust solutions offer the retailer a considerable reduction in risk variance yet only imply a small reduction in expected return the constructed approximations contain assortments that are optimal solutions to the robust assortment optimization problem moreover they represent insightful visualizations of the solution space allowing for interactivity what risk premium should the retailer pay in real time matter of seconds

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

determinants of store level price elasticity using weekly scanner data representing 18 product categories the authors estimated store specific price elasticities for a chain of 83 supermarkets they related these price sensitivities to a com

commercial use of upc scanner data industry and academic perspectives the authors report the findings from an exploratory investigation of the use of upc scanner data in the consumer packaged goods industry in the u s the study examines the practitioner community s view of the use of scanner data and compares these views with academic research forty one executives from ten data suppliers packaged goods manufacturers and consulting firms participated in wide ranging in person interviews conducted by the authors the interviews sought to uncover key questions practitioners would like to answer with scanner data how scanner data is applied to these questions and the industry s perspective regarding the success that the use of scanner data has had in each area the authors then compare and contrast practitioners views regarding the resolution of each issue with academic research this produces a 2 2 classification of each question as resolved or unresolved from the perspectives of industry and academia along the diagonal of the 2 2 issues viewed as unresolved by both groups are important topics for future research issues deemed resolved by both groups are correspondingly of lower priority in the off diagonal cells industry and academics disagree these topics should be given priority for discussion information exchange and possible further research practitioners reported that scanner data analysis has had the most success and been most widely adopted for decision making in consumer promotions i e coupons trade promotions and pricing for example logit and regression models applied to scanner data have revealed very low average consumer response to coupons which has directly led to reduced couponing activity managers also reported high levels of comfort with and impact from analyses of trade promotions and price elasticities while industry views most of the issues in these areas to be resolved academic research raises concerns about a number of practices in common commercial use these include price threshold analysis and trade promotion evaluation using baseline and incremental sales in product strategy advertising and distribution management practitioners reported that the use of scanner data has had more limited development success and impact in the case of new product decisions scanner data use has been slow to develop due to the inherent limitations of historicaldata for these decisions and a heavy reliance on traditional primary research methods in advertising scanner data is widely analyzed with models but confusion among practitioners is very high due to controversies about methods e g what level of data aggregation is best and conflicting results in distribution and retail management scanner data use has tremendous potential but a mixed track record to date thus practitioners view the use of scanner data as unresolved for most issues in product strategy advertising and distribution this view is largely though not entirely consistent with academic research which has only begun to address many of the key questions raised by practitioners in light of the large number of unresolved issues and mixed record of scanner data use to date the authors offer aseries of specific recommendations for immediate and long term research priorities that are likely to have the greatest impact on commercial utilization of upc scanner data topics of immediate priority include price thresholds and gaps baseline and incremental sales base price elasticity competitive reactions measurement of advertising effects management of brand equity rationalization of product assortments and category management long term priorities include a greater emphasis on profitability versus sales or market share developing prescriptive models versus descriptive models and the need for industry standards

does africa grow differently abstract this paper extends the analysis of african economic growth in two directions first by challenging the assumption that growth effects of particular explanatory variables are the same in africa as elsewhere and second by measuring indirect contributions to growth of initial conditions as they influence explanatory variables in a basic growth regression robust regression analysis shows that for africa being closed to trade is more costly to growth natural resource abundance is more detrimental to institutional development and several factors that reduce population growth and enhance institutional quality outside africa fail to show such beneficial effects within africa

dealing temporary price cuts by seller as a buyer discrimination mechanism this paper is concerned with temporary price cuts deals sales and specials as a mechanism for the seller to price discriminate between buyers with different intensities of demand we analyze why a seller offers such price cuts which buyers take advantage of them and what the parameters are that determine the amount and frequency of the discount offered in the remainder of this section we briefly review the literature on price deals 1 in section ii simple models of buyer and seller behavior are developed and we show why and how a seller adopts a dealing strategy section iii summarizes the key implications of the model and indicates how the price discrimination hypothesis could be tested in practice section iv suggests possible extensions of the model finally section v gives our conclusions in the marketing literature the issue of who is deal prone has been extensively researched an explanation for temporary price cuts usually called deals sales or specials is provided we hypothesize that they are a mechanism that discriminates between more intense and less intense demanders we further hypothesize a positive relationship between demand elasticity and holding costs buyers with more intense demand with high holding costs are those who will be buying the product at its regular price the low holdingcost buyers take advantage of deals by forward buying the model is applicable to three relationships 1 manufacturer reseller where the reseller may be a wholesaler or a retailer 2 resellerreseller for example wholesaler retailer and 3 retailer consumer we are grateful to michael mussa and albert madansky for their comments we also benefited from comments made by the marketing faculty of the wharton school at a seminar where an earlier version of this paper was presented neil beckwith in particular is acknowledged 1 for a more detailed review of deals and similar pricecutting mechanisms e g mail in rebates cents off labels coupons etc see narsimhan 1982 chan 2 journal of business 1985 vol 58 no 3 1985 by the university of chicago all rights reserved 0021 9398185 5803 0004 01 50

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries

price wars caused by switching costs in many markets consumers have switching costs for example learning costs or transaction costs of changing between functionally equivalent brands of a product or of using any brand for the first time we analyse a four period complete information model of a market with switching costs in which new entry occurs after the second period the new entry results in equilibrium in a price war that is the new entrants prices are higher in the post entry period than in the entry period and the incumbent s price falls in either the pre entry period or the entry period and subsequently rises we can interpret the incumbent s lowering its price in the pre entry period as limit pricing behaviour we distinguish between two types of price war that can occur and show how the type or mixture of types that arises depends on the size of switching costs

modeling global spillover of new product takeoff abstract this article examines the global spillover of foreign product introductions and takeoffs on a focal country s time to takeoff using a novel data set of penetration data for eight high tech products across 55 countries it shows how foreign clout the susceptibility to foreign influences and intercountry distances affect global spillover patterns the authors find that foreign takeoffs but not foreign introductions accelerate a focal country s time to takeoff the larger the country the higher its economic wealth and the more it exports the more clout it has in the global spillover process in contrast the poorer the country the more tourists it receives and the higher its population density the more susceptible it is to global spillover effects cross country spillover effects are stronger the closer the countries are to one another both geographically and economically but not necessarily in terms of culture the model the authors develop also quantifies the spillover between each co

structural workshop paper discrete choice models of consumer demand in marketing marketing researchers have used models of consumer demand to forecast future sales to describe and test theories of behavior and to measure the response to marketing interventions the basic framework typically starts from microfoundations of expected utility theory to obtain an econometric system that describes consumers choices over available options and to thus characterize product demand the basic framework has been augmented significantly to account for quantity choices to accommodate purchases of several products on a single purchase occasion multiple discreteness and multicategory purchases and to allow for asymmetric switching between brands across different price tiers these extensions have enabled researchers to bring the analysis to bear on several related marketing phenomena of interest this paper has three main objectives the first objective is to articulate the main goals of demand analysis forecasting measurement and testing and to highlight several considerations associated with these goals our second objective is to describe the main building blocks of individual level demand models we discuss approaches built on direct and indirect utility specifications of demand systems and we review extensions that have appeared in the marketing literature the third objective is to explore a few emerging directions in demand analysis including considering demand side dynamics combining purchase data with primary information and using semiparametric and nonparametric approaches we hope researchers new to this literature will take away a broader perspective on these models and see the potential for new directions in future research

the long run determinants of inequality what can we learn from top income data this paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century we focus on three groups of income earners the rich p99 100

menu costs and dynamic duopoly examining a state dependent pricing model in the presence of menu costs and dynamic duopolistic interactions this paper claims that the assumption regarding market structure is crucial for identifying the menu costs for price changes prices in a dynamic duopolistic market can be more rigid than those in more competitive markets such as a monopolistic competition market therefore the estimates of menu costs under monopolistic competition are potentially biased upward due to the price rigidity from strategic interactions between dynamic duopolistic firms by developing and estimating a dynamic discrete choice model with duopoly to correct for this potential bias this paper provides empirical evidence that dynamic strategic interactions as well as menu costs play an important role in explaining the observed degree of price rigidity in weekly retail prices

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

a bayesian model to forecast new product performance in domestic and international markets this paper attempts to shed light on the following research questions when a firm introduces a new product or service how can it effectively use the different information sources available to generate reliable new product performance forecasts how can the firm account for varying information availability at different stages of the new product launch and generate forecasts at each stage we address these questions in the context of the sequential launches of motion pictures in international markets players in the motion picture industry require forecasts at different stages of the movie launch process to aid decision making and the information sets available to generate such forecasts vary at different stages despite the importance of such forecasts the industry struggles to understand and predict sales of new movies in domestic and overseas markets we develop a bayesian modeling framework that predicts first week viewership for new movies in both domestic and several international markets we focus on the first week because industry players involved in international markets studios distributors and exhibitors are most interested in these predictions we draw on existing literature on forecasting performance of new movies to formulate our model specifically we model the number of viewers of a movie in a given week using a poisson count data model the number of screens distribution strategy movie attributes such as genre and presence absence of stars are among the factors modeled to influence viewership we employ a hierarchical bayes formulation of the poisson model that allows the determinants of viewership to vary across countries we adopt the bayesian approach for two reasons first it provides a convenient framework to model varying assumptions of information availability specifically it allows us to make forecasts by combining different sources of information such as domestic and international market specific data second this methodology provides us with the entire distribution of the new movie s performance forecast such a predictive distribution is more informative than a point estimate and provides a measure of the uncertainty in the forecasts we propose a bayesian prediction procedure that provides viewership forecasts at different stages of the new movie release process the methodology provides forecasts under a number of information availability scenarios thus forecasts can be obtained with just information from a historical database containing data on previous new product launches in several international markets as more information becomes available the forecasting methodology allows us to combine historical information with data on the performance of the new product in the domestic market and thereby to make forecasts with less uncertainty and greater accuracy our results indicate that for all the countries in the data set the number of screens on which a movie is released is the most important influence on viewership furthermore we find that local distribution improves movie sales internationally in contrast to the domestic market we also find evidence of similar genre preferences in geographically disparate countries we find that the proposed model provides accurate forecasts at the movie country level further the model outperforms all the extant models in the marketing literature that could potentially be used for making these forecasts a comparison of root mean square and mean absolute errors for movies in a hold out sample shows that the model that combines information available from the different sources generates the lowest errors a bayesian predictive model selection criterion corroborates the superior performance of this model we demonstrate that the bayesian model can be combined with industry rules of thumb to generate cumulative box office forecasts in summary this research demonstrates a bayesian modeling framework that allows the use of different information sources to make new product forecasts in domestic and international markets our results underscore the theme that each movie is unique as is each country and viewership results from an interaction of the product and the market hence the motion picture industry should use both product specific and market specific information to make new movie performance forecasts

strategic pricing models and interpretation of price war data abstract price wars cartel breakdowns and other seemingly disequilibrium pricing phenomena are examined questions of interest include when do breakdowns occur how long do they last what determines their severity and are they characterized by increased cross sectional price dispersion and or temporal price volatility the first half of the paper explains how the choice of punishment strategy the specification of the stochastic shocks to the system and the assumptions regarding observability determine the pricing dynamics implicit in several theoretical price war models theories are classified into imperfect monitoring models in which players actions cannot be observed learning models in which structural parameters are unknown to the players and cyclical models in which observability is perfect but business cycles affect the difficulty of colluding the second half in contrast examines data on prices actually set by firms in industries which are subject to periodic wars when the models are confronted with the data we can see how well oligopoly theory explains the behavior of the firms in these industries the object of the exercise is not to pick a winner instead the role of industry characteristics in determining pricing dynamics is assessed and the reasons why simple models may fail to explain complex pricing patterns are examined finally directions for future research are suggested by the empirical regularities which are uncovered

nonresponse and delayed response to competitive moves the roles of competitor dependence and action irreversibility competitive moves that are unchallenged or to which response is delayed are important weapons in a strategist s arsenal so variables that discourage or delay response are of great interest using

does financial development lead economic growth a vector auto regression appraisal using a vector autoregression var approach several hypotheses are re examined suggested by the literature concerning the relationship between financial development and economic growth investment and productivity the models use quarterly time series data from ten oecd countries and china innovation accounting or variance decomposition and impulse response function analysis is applied to examine interrelationships between variables in the var system and therefore differs from the more usual granger causality approach in particular it examines the relationship between financial development proxied by total credit at best weak support is found for the hypothesis that financial development leads economic growth

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

a unified approach to identifying estimating and testing demand structures with aggregate scanner data a one to one map between a specific demand structure and a restricted cross elasticity matrix is developed and tested using a random utility model the resulting demand structure can be used to evaluate a firm s ability to differentiate its products and can help determine if demand is characterized by factors that are easy to change similar brands are assumed to share common attributes that are stochastically evaluated by the consumer resulting in a random utility model with correlated errors the map results in more precise cross elasticity estimates and can be used to both identify and test possible structures

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

new empirical generalizations on the determinants of price elasticity abstract the importance of pricing decisions for firms has fueled an extensive stream of research on price elasticities in an influential meta analytical study tellis 1988 summarized price elasticity research findings until 1986 however empirical generalizations on price elasticity require modifications because of 1 changes in market characteristics i e characteristics of brands product categories and economic conditions and 2 changes in the research methodology used to assess price elasticities therefore the authors present a meta analysis of price elasticity with new empirical generalizations on its determinants across a set of 1851 price elasticities based on 81 studies the average price elasticity is 2 62 a salient finding is that over the past four decades sales elasticities have significantly increased in magnitude whereas share and choice elasticities have remained fairly constant the authors find that accommodating price endogeneity has a strong magnitude increasing impa

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

growth is really good for the really rich this paper analyzes the relationship between mean income and the income of the rich our methodology closely follows that of dollar and kraay 2002 but instead of looking at the bottom of the distribution we analyze the top we use panel data from the world top incomes database which collects top income data from several countries using tax returns as the raw source we define the rich as earners in the top 10 percent 1 percent 0 1 percent and 0 01 percent of the income distribution we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population however we also find that the income of earners in the top percentile of the distribution and above grows in an even larger proportion than average income that is economic growth is really good for the really rich we also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions our results are robust to different sample specifications

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

law endowments and property rights while scholars have hypothesized about the sources of variation in property rights for over 2500 years it is only very recently that researchers have begun to test these theories empirically this paper reviews both the theory and empirical evidence supporting and refuting the law and endowment views of property rights the law view holds that historically determined differences in national legal traditions continue to shape cross country differences in property rights the endowment view argues that during european colonization differences in climate crops the indigenous population and the disease environment influenced long run property rights

uniform pricing in us retail chains we show that most u s food drugstore and mass merchandise chains charge nearly uniform prices across stores despite wide variation in consumer demographics and competition demand estimates reveal substantial within chain variation in price elasticities and suggest that the median chain sacrifices 16 million of annual profit relative to a benchmark of optimal prices in contrast differences in average prices between chains are broadly consistent with the optimal benchmark we discuss a range of explanations for nearly uniform pricing highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants relative to our optimal benchmark uniform pricing may significantly increase the prices paid by poorer households relative to the rich dampen the response of prices to local economic shocks alter the analysis of mergers in antitrust and shift the incidence of intranational trade costs

supermarket competition the case of every day low pricing every day low pricing edlp strategy has proved to be a successful innovation resulting in higher profits to supermarkets adopting it in competition with promotional pricing promo conventional wisdom attributes this success either to lower costs or to edlp better serving time constrained consumers while discouraging cherry pickers who seek promotions however it is unclear that such cost savings are being fully realized since edlp stores also engage in price promotions also continued existence of promo stores means that costs are not the only factor and they compete effectively without relying just on the cherry pickers furthermore experimental evidence suggests that a supermarket cannot obtain higher profits by merely setting constant low prices leading to the question exactly what makes edlp successful this question is of particular relevance to both academics and practitioners who have been intrigued by the success of this retailing strategy more generally the retailing issues addressed in this paper the economic analysis of competition and the empirical findings should be of interest to the broader community of researchers and managers we investigate the factors contributing to edlp s success by analyzing the competition between supermarkets through a game theoretic analysis of a market consisting of both time constrained consumers and cherry pickers key features of our model are consumers shop and purchase a basket of goods based on price announcements by stores and rational expectations of unannounced prices stores carry more than one good and compete through prices service convenience and appropriate communication strategies and no exogenous cost asymmetries we derive the conditions under which retailers choosing different strategies edlp and promo is a perfect nash equilibrium our analysis shows that the edlp store s offering of constant every day low prices is an equilibrium outcome endogenously determined successful implementation of the edlp strategy involves communication of relative basket prices implying that merely setting constant low prices is not viable we further demonstrate that while time constrained consumers find every day low prices at edlp attractive and cherry pickers the promotions at promo clientele effects are in fact more complicated specifically in equilibrium the promo store offers a higher service level as desired by time constrained consumers and the edlp store a lower service level in keeping with the needs of cherry pickers this choice of service by the two stores results in a cleaner segmentation of the market the higher relative basket price and service at the promo store results in a larger base of time constrained consumers to shop at the promo store and a larger base of cherry pickers to shop at the edlp store even though some cherry pickers continue to visit the promo store to avail of the price specials in this way our results contradict the conventional wisdom on edlp strategy as being mainly geared towards time constrained consumers finally industry profits are higher in an edlp promo equilibrium than when stores adopt identical strategies our analysis and results also offer a more complete characterization of the edlp and promo strategies indeed we show that edlp and promo strategies are positioning strategies rather than merely pricing strategies with different elements price promotions service and communications while the edlp store uses basket prices to attract both segments the promo store uses service and price specials to compete in the time constrained and cherry picking segment respectively given these different approaches of the two stores the communication strategies of the edlp and the promo stores emphasize these differences as well in this way we show as suggested by corstjens and corstjens 1994 that positioning in a retail context involves developing multidimensional strategies appealing to all segments while each element of the strategy may focus on a different consumer segment this is in contrast to the traditional view of segmentation in which different products in a product line for example are designed to appeal to different segments we complete the analysis by examining the data from the trade press and a survey conducted in a major metropolitan area these data while limited in scope support our theoretical results

a choice model for packaged goods dealing with discrete quantities and quantity discounts utility maximizing solutions to economic models of choice for goods with either discrete quantities or non linear prices cannot always be obtained using standard first order conditions such as kuhn tucker and roy s identity when quantities are discrete there is no guarantee that derivatives of the utility function are equal to derivatives of the budget constraint moreover when prices are nonlinear as in the case of quantity discounts first order conditions can be associated with the minimum rather than the maximum value of utility in these cases the utility function must be directly evaluated to determine its maximum this evaluation can be computationally challenging when there exist many offerings and when stochastic elements are introduced into the utility function in this paper we provide an economic model of demand for substitute brands that is flexible parsimonious and easy to implement the methodology is demonstrated with a scanner panel data set of light beer purchases the model is used to explore the effects of price promotions on primary and secondary demand and the utility of product assortment

smooth quantile based modeling of brand sales price and promotional effects from retail scanner panels semiparametric quantile regression is employed to flexibly estimate sales response for frequently purchased consumer goods using retail store level data we compare the performance of models with and without monotonic smoothing for fit and prediction accuracy we find that a flexible models with monotonicity constraints imposed on price effects dominate both in sample and out of sample comparisons while being robust even at the boundaries of the price distribution when data is sparse b quantile based confidence intervals are much more accurate compared to least squares based intervals c specifications reflecting that managers may not have exact knowledge about future competitive pricing perform extremely well

optimizing retail assortments retailers face the problem of finding the assortment that maximizes category profit this is a challenging task because the number of potential assortments is very large when there are many stock keeping units skus to choose from moreover sku sales can be cannibalized by other skus in the assortment and the more similar skus are the more this happens this paper develops an implementable and scalable assortment optimization method that allows for theory based substitution patterns and optimizes real life large scale assortments at the store level we achieve this by adopting an attribute based approach to capture preferences substitution patterns and cross marketing mix effects to solve the optimization problem we propose new very large neighborhood search heuristics we apply our methodology to store level scanner data on liquid laundry detergent the optimal assortments are expected to enhance retailer profit considerably 37 3 and this profit increases even more to 43 7 when sku prices are optimized simultaneously

an empirical analysis of price discrimination mechanisms and retailer profitability abstract retailers typically engage in some form of price discrimination to increase profitability in this article the authors compare the impact on retailer profitability of two price discrimination mechanisms quantity discounts based on package size second degree price discrimination and store level pricing or micromarketing third degree price discrimination whereas the latter has been well addressed in the marketing literature there is limited empirical research on the use of quantity discounts for price discrimination using store level sales data the authors estimate a structural demand model accounting for parameter heterogeneity and price endogeneity they combine the parameter estimates with a model of retailer pricing to conduct optimal pricing and profitability simulations under several scenarios ranging from constraining the retailer not to engage in any form of price discrimination to the least restrictive scenario of setting nonlinear price schedules specific to each store the pr

a decision support framework for evaluating revenue performance in sequential purchase contexts abstract this paper studies the product ordering problem in sequential purchase contexts where sellers aim to maximize their revenue faced with budget constrained buyers we propose a multi layered decision support framework that combines empirical data with simulation optimization and econometric methods to address this problem our framework allows sellers to i compare revenue performances of limited information sequencing strategies ii quantify benchmark revenue levels that can be achieved via the optimal sequence based on detailed buyer information iii determine the costs of limited information and strategic buyers to the seller and iv identify the moderators of sequencing strategy performance we illustrate our framework through two applications in a business to business used car auction setting contrary to previous studies reporting practitioners tendency to sequence items from the lowest value to the highest our results suggest that the best performing limited information sequencing strategy depends on buyers bidding behavior we also find that the revenue difference between the optimal sequence and a limited information sequencing strategy can be substantial our results show that a significant portion of this revenue difference is associated with the seller s limited information on buyers budgets and product valuations our applications also provide various sensitivity analyses and develop new propositions on the moderators of the relationship between the seller s revenue and sequencing strategies

accommodating heterogeneity and nonlinearity in price effects for predicting brand sales and profits abstract we propose a hierarchical bayesian semiparametric approach to account simultaneously for heterogeneity and functional flexibility in store sales models to estimate own and cross price response flexibly a bayesian version of p splines is used heterogeneity across stores is accommodated by embedding the semiparametric model into a hierarchical bayesian framework that yields store specific own and cross price response curves more specifically we propose multiplicative store specific random effects that scale the nonlinear price curves while their overall shape is preserved estimation is fully bayesian and based on novel mcmc techniques in an empirical study we demonstrate a higher predictive performance of our new flexible heterogeneous model over competing models that capture heterogeneity or functional flexibility only or neither of them for nearly all brands analyzed in particular allowing for heterogeneity in addition to functional flexibility can improve the predictive performance of a store sales model considerably while incorporating heterogeneity alone only moderately improved or even decreased predictive validity taking into account model uncertainty we show that the proposed model leads to higher expected profits as well as to materially different pricing recommendations

price wars triggered by entry abstract to attract customers who incur set up or switching costs new firms offer below market prices when entering a market the incumbent responds with discounts resulting in a price war once new entrants have locked in their customers the price warfare stops and all firms raise their prices during the price war the incumbent s price is not as low as the entrants after the price war the market price is lower and output is greater than the pre entry price and output entrants attract new buyers to the market and depending on the size distribution of set up costs we show that some of the incumbent s customers switch to entrants the model is shown to square with the price and output sequences observed in a price war that was the subject of a recent and prominent antitrust case in the cigarette market

the islamic interest free banking system some empirical evidence 1988 the islamic interest free banking system some empirical evidence applied economics vol 20 no 3 pp 417 425

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

monotonic regression based on bayesian p splines an application to estimating price response functions from store level scanner data generalized additive models have become a widely used instrument for flexible regression analysis in many practical situations however it is desirable to restrict the flexibility of nonparametric estimation in order to accommodate a presumed monotonic relationship between a covariate and the response variable for example consumers usually will buy less of a brand if its price increases and therefore one expects a brand s unit sales to be a decreasing function in own price we follow a bayesian approach using penalized b splines and incorporate the assumption of monotonicity in a natural way by an appropriate specification of the respective prior distributions we illustrate the methodology in an empirical application modeling demand for a brand of orange juice and show that imposing monotonicity constraints for own and cross item price effects improves the predictive validity of the estimated sales response function considerably

creating micro marketing pricing strategies using supermarket scanner data micro marketing refers to the customization of marketing mix variables to the store level this paper shows how prices can be profitably customized at the store level rather than adopting a uniform pricing policy across all stores historically there has been a trend by retailers to consolidate independent stores into large national and regional chains this move toward consolidation has been driven by the economies of scale associated with these larger operations however some of these large chains have lost the adaptability of independent neighborhood stores micro marketing represents an interest on the part of managers to combine the advantages of these large operations with the flexibility of independent neighborhood stores a basis for these customized pricing strategies is the result of differences in interbrand competition across stores these changes in interbrand competition are measured using weekly store level scanner data at the product level obviously this presents a huge estimation problem since we wish to measure substitution between each product at a store level for a chain with 100 stores and 10 products in a category we would need to estimate over 100 000 parameters to reliably estimate these individual store differences we phrase our problem in a hierarchical bayesian framework essentially each store level parameter can be thought of as a combination of chain level and random store specific effects the improvement in estimating this model comes from exploiting the common chain level component in addition we relate these store specific changes to demographic and competitive characteristics of the store s trading area which helps explain why these differences are present these estimated differences in price response are in turn used to set store level prices to simplify and focus the problem we limit our attention to everyday price changes i e the prices of products that are not advertised there are many marketing variables that can be adjusted at a storelevel e g promotions and product assortments the reason we concentrate upon everyday pricing is driven by its importance in the marketing mix that most profits are earned on products sold at their everyday price and the amenability of everyday prices to store level customizations a limitation of this approach is that it yields only a partial solution to the retailer s global optimization problem a challenge for the retailer in implementing micro marketing pricing strategies is to retain a consistent image while altering prices that adapt to neighborhood differences in demand our approach is to search for price changes that leave image unchanged we argue that a sufficient condition for holding the input to store image constant from everyday pricing is to hold average price and revenues at their current levels we implement this condition by introducing constraints into the profit maximization problem future research into store choice may yield more efficient conditions a benefit of holding the retailer s image constant is that it does not require costly new information about competitors and promotional activity instead retailers are able to derive these store level customizations based largely upon scanner data this is very advantageous since this information is already being collected and is readily available our results indicate that micro marketing pricing strategies would be profitable and could increase gross profit margins by 4 percent to 10 percent when these gross profit gains are considered after administrative and operating costs are taken into account they could increase operating profit margins by 33 percent to 83 percent these gains come from encouraging consumers through everyday price changes to switch to more profitable bundles of products and not through overall price changes at the chain level these results show that the information contained in the retailer s store level scanner data is an under utilized resource by exploiting this information using newer and more powerful computational techniques managers can better appreciate its value the implication is that profits could be increased and gains can be made by using this information as the basis for micro marketing

stocking retail assortments under dynamic consumer substitution we analyze a single period stochastic inventory model newsboy like model in which a sequence of heterogeneous customers dynamically substitute among product variants within a retail assortment when inventory is depleted the customer choice decisions are based on a natural and classical utility maximization criterion faced with such substitution behavior the retailer must choose initial inventory levels for the assortment to maximize expected profits using a sample path analysis we analyze structural properties of the expected profit function we show that under very general assumptions on the demand process total sales of each product are concave in their own inventory levels and possess the so calleddecreasing differences property meaning that the marginal value of an additional unit of the given product is decreasing in the inventory levels of all other products for a continuous relaxation of the problem we then show via counterexamples that the expected profit function is in general not even quasiconcave thus global optimization may be difficult however we propose and analyze a stochastic gradient algorithm for the problem and prove that it converges to a stationary point of the expected profit function under mild conditions finally we apply the algorithm to a set of numerical examples and compare the resulting inventory decisions to those of some simpler naive heuristics the examples show that substitution effects can have a significant impact on an assortment s gross profits the examples also illustrate some systematic distortions in inventory decisions if substitution effects are ignored in particular under substitution one should stock relatively more of popular variants and relatively less of unpopular variants than a traditional newsboy analysis indicates

price and monetary convergence in currency unions the franc and rand zones abstract theory suggests that a currency union will impose significant macroeconomic disciplines on its members the law of one price for example should lead to convergence of price levels at least for what may be regarded as tradeable goods likewise arbitrage would imply convergence of interest rates this paper looks at the two main surviving currency unions the franc and rand zones in africa to see whether and to what extent these generally accepted propositions find confirmation in the data each of the african currency unions has a dominant or core member france in the case of the franc zone and the republic of south africa rsa in the case of the rand zone our focus is on the small members in the periphery and for them there is the additional presumption that inflation and interest rates will be imported from the core despite some rather wide short run divergences and although convergence is slow we find that in the long run consumer price inflation is largely determined in the core the limited evidence available suggests that uncontrolled interest rates also converge to core country levels jel f31

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

response to competitive entry a rationale for delayed defensive reaction empirical studies examining responses to new product entries come to the puzzling conclusion that in general an incumbent reacts to a new entrant after a significant delay even easy to implement price cuts are observed after significant lag following entry these findings seem to contradict the existing literature that either implicitly assumes or strongly advocates immediate defensive responses to limit competitive encroachment when a competing firm enters the market consumers may be uncertain about the entering firm s product quality the incumbent firm through rigorous tests may fully know the entrant s quality suppose the incumbent aggressively lowers price this may cause the consumers to wonder if indeed the entrant s quality is high in other words an incumbent s reaction may cause the consumers to make inferences about the entrant s quality such strategic implications of the incumbent s reactions have to be carefully analyzed before determining the optimal response by the incumbent in this paper we propose a conceptual framework for understanding differences in the magnitude and timing of incumbents responses to competitive entries we consider a model in which a monopolist incumbent firm faces competitive entry the incumbent firm knows the true quality of the entrant with certainty although consumers are aware of the incumbent s product quality through their prior experience they are initially uncertain of the entrant s product quality in such a situation a high quality entrant has the incentive to signal her true quality through her strategic price choice however the uncertainty about the entrant s quality is favorable to the incumbent in the sense that consumers believe with a high probability that the entrant s quality is low as a result the strategic incentives facing the incumbent and the entrant oppose each other while the entrant wants to signal her high quality the incumbent wants to prevent her from doing so we demonstrate that one way the incumbent can prevent the quality signaling is to select a higher than his optimal competitive duopoly price in other words the incumbent can prevent or jam the entrant s quality signaling by choosing a price higher than his optimal competitive price when consumers are fully informed about the entrant s true quality though the signal jamming price is lower than the monopoly price the price is substantially higher than the competitive price this marginal reduction in the incumbent s price from the pre entry monopolistic price represents a muted or lack of response by the incumbent to the competitive entry however once the entrant s quality gets revealed in subsequent periods through consumer usage and word of mouth the entrant has no incentive to engage in quality signaling and the incumbent has no incentive to jam it therefore the market reverts to the complete information competitive prices and the incumbent lowers his price considerably this temporal pattern of muted price reduction in the first period followed by a sharp price reduction in the second period corresponds to a delayed defensive reaction in our model although the empirical studies suggest that the delayed reaction may arise due to factors such as managerial inertia or indecision we demonstrate that such a behavior is indeed an optimal strategy for a profit maximizing firm thus our model reconciles empirical results with the equilibrium outcome of a strategic analytical framework furthermore in an experimental setting we test the predictive power of our framework and establish that consumers indeed form conjectures about the entrant s quality based on the incumbent s reactions in the first experimental study we find strong support for the notion that the incumbent s price reaction may indicate entrant s quality in a follow up study we observe that whenever the incumbent lowers prices respondents judge the quality of the entrant to be higher as compared to the case when prices are the same or increased the managerial implication of this paper is that well established incumbent firms should be cautious in the implementation of their defensive responses to product introductions of uncertain quality by competitors of particular concern are situations where the reactions are easily observable by consumers a strong reaction may suggest that the incumbent takes the competitive threat seriously leading consumers to believe in the quality of the competitor s product

vancouver s gasoline price wars an empirical exercise in uncovering supergame strategies this paper uses a unique data set to determine which dynamic model of tacit collusion best describes behaviour in a particular industry the area investigated is a region of the vancouver british columbia retail gasoline market players are service station managers who compete daily firms choose price in each period using strategies that depend on prices chosen in the previous period periodically unanticipated demand shocks precipitate price wars when shocks occur the firms in the market must determine the new demand conditions and adjust their strategies from an econometric point of view slopes of intertemporal reaction functions are latent variables the resulting system of equations with time varying parameters is estimated via the kalman filter different repeated game oligopoly models correspond to different transition matrices for the latent variables the models can thus be assessed in terms of their power to explain firm behaviour in this market

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

reality check combining choice experiments with market data to estimate the importance of product attributes discrete choice models estimated using hypothetical choices made in a survey setting i e choice experiments are widely used to estimate the importance of product attributes in order to make product design and marketing mix decisions choice experiments allow the researcher to estimate preferences for product features that do not yet exist in the market however parameters estimated from experimental data often show marked inconsistencies with those inferred from the market reducing their usefulness in forecasting and decision making we propose an approach for combining choice based conjoint data with individual level purchase data to produce estimates that are more consistent with the market unlike prior approaches for calibrating conjoint models so that they correctly predict aggregate market shares for a baseline market the proposed approach is designed to produce parameters that are more consistent with those that can be inferred from individual level market data the proposed method relies on a new general framework for combining two or more sources of individual level choice data to estimate a hierarchical discrete choice model past approaches to combining choice data assume that the population mean for the parameters is the same across both data sets and require that data sets are sampled from the same population in contrast we incorporate in the model individual characteristic variables and assert only that the mapping between individuals characteristics and their preferences is the same across the data sets this allows the model to be applied even if the sample of individuals observed in each data set is not representative of the population as a whole so long as appropriate product use variables are collected that can explain the systematic deviations between them the framework also explicitly incorporates a model for the individual characteristics which allows us to use bayesian missing data techniques to handle the situation where each data set contains different demographic variables this makes the method useful in practice for a wide range of existing market and conjoint data sets we apply the method to a set of conjoint and market data for minivan choice and find that the proposed method predicts holdout market choices better than a model estimated from conjoint data alone or a model that does not include demographic variables

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

income and democracy existing studies establish a strong cross country correlation between income and democracy but do not control for factors that simultaneously affect both variables we show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari ous measures of democracy we present instrumental variables estimates that also show no causal effect of income on democracy the cross country corre lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years this pattern is con sistent with the idea that societies embarked on divergent political economic development paths at certain critical junctures jel d7 e 1

multiple discreteness and product differentiation demand for carbonated soft drinks for several of the largest supermarket product categories such as carbonated soft drinks canned soups ready to eat cereals and cookies consumers regularly purchase assortments of products within the category consumers often purchase multiple products and multiple units of each alternative selected on a given trip this multiple discreteness violates the single unit purchase assumption of multinomial logit and probit models the misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables in studying product strategy these models would lead to misleading managerial conclusions we use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem recognizing the separation between the time of purchase and the time of consumption we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip we apply the model to a panel of household purchases for carbonated soft drinks