analysis of new product diffusion using a four segment trial repeat model a four segment trial repeat model is developed to model sales of a frequently purchased product in the early stage of the product s life cycle the model can be calibrated using aggregate data alone two versions of the model one emphasizing the competitive aspect of marketing communications and another emphasizing the informative aspect are estimated from data on 21 newly launched pharmaceutical products the model provides valuable diagnostics such as an early estimate of the long run market share of the new product a decomposition of total sales into trial sales due to marketing activities trial sales due to word of mouth and repeat sales the changing composition of the trial market and repeat market over time and the time when the trial market is expected to be saturated in addition the effectiveness of the entrant s marketing efforts word of mouth communication and buyers trial experience are analyzed with the model a cross sectional analysis based on the empirical estimation results of our model reveals interesting insights into product introduction strategies we find that 1 the effectiveness of the firms communication activities on trial is related mainly to product quality attributes and market growth whereas that of word of mouth is associated with product class characteristics and market competitiveness and 2 the effect of product trial on repeat purchases is related mainly to product quality attributes and various market characteristics such as size growth competitiveness and familiarity

early resolution of troubled financial institutions an examination of the accelerated resolution program abstract this paper expands the empirical research on the auctions of failed financial institutions by examining the thrift industry accelerated resolution program as an alternative to the standard auction procedures jointly managed by the office of thrift supervision and the resolution trust corporation the objective of this program was to intervene before insolvency and thereby to reduce the regulatory expenditures previous research has often found the existence of a wealth transfer to the winning bidders in both commercial bank and thrift auctions in contrast to this previous research no evidence is found in this study to conclude that a wealth transfer occurred in standard resolution trust corporation auctions furthermore while the accelerated resolution program yielded positive abnormal returns there is also no evidence of a wealth transfer

sealed bids sunk costs and the process of competition how do firms recover precontract costs for example suppose 10 firms compete in a sealed bid auction for the right to explore and develop an offshore oil field each spends 500 000 to estimate the value of the field and to prepare its bid suppose this investigation reveals that the tract is worth approximately 20 million if sunk costs do not matter competition dictates that the winner must bid 20 million but if the winner is to recover its prebid costs the maximum offer can be only 19 5 million furthermore long run industry equilibrium considerations suggest that the highest bid will be only 15 million 20 million minus the total bid preparation costs of 5 million if competition forces firms to charge marginal cost why do firms ever invest in resources which become sunk in some industries inframarginal rents can be used to recover these costs however the example above as well as many others involves an all or none deci

how to set price and quality in a supply chain of virtual products under bi criteria and risk consideration abstract virtual products are characterized by ample production capacity zero lead time and no holding costs we consider a two echelon supply chain of a virtual product consisting of a single manufacturer and a single retailer who face random demand demand depends on both price and quality of the product and its stochastic nature exposes the supply chain members to financial risk each party adopts profit criteria that reflect his or her attitude toward this risk including the use of bi criteria by formulating a model that follows a stackelberg game and using the stochastic dominance property we show that one can analytically obtain equilibrium by assuming certain common structures of the demand function and of the risk attitudes the contribution of this study is fourfold i analyzing multiplicative and additive demand forms and comparing the properties of the decisions under the two forms ii showing that under the multiplicative demand form the pricing strategies are not affected by the parties attitudes toward risk whereas the manufacturer s decision on quality investment is affected by his risk attitude iii showing that under the additive demand form the manufacturer s utility function and the demand uncertainty affect pricing and investment strategies and iv suggesting a method to construct the efficient set of decisions and the non dominated set of profit criterion values

pricing and lot sizing polices for perishable goods when the demand depends on selling price displayed stocks and expiration date abstract price is a major factor on the demand based on marketing and economic theory in addition the demand for perishable products also depends on its freshness moreover it is a well known fact that increasing stock display e g fresh fruits vegetables baked goods may encourage consumers to purchase more this paper first proposes an inventory model that stipulates the demand explicitly in a multivariate function of price freshness and displayed stocks it may be profitable to have a closeout sale at a markdown price and always keep on hand displayed stocks fresh and plentiful if the demand is freshness and stock dependent hence the traditional assumption of zero ending inventories is relaxed to a non zero ending inventory as a result the objective is to determine three decision variables i e unit price cycle time and ending inventory level in order to maximize the total profit then it is demonstrated that the total profit is strictly pseudo concave in those three decision variables which reduces the search for solutions to a unique local maximum finally numerical examples to illustrate the theoretical results and to highlight managerial insights are presented

competitive pricing by a price leader we examine the problem of pricing in a market where one brand acts as a price leader we develop a procedure to estimate a leader s price rule which is optimal given a sales target objective and allows for the inclusion of demand forecasts we illustrate our estimation procedure by calibrating this optimal price rule for both the leader and the follower using data on past sales and prices from the mid size sedan segment of the u s automobile market our results suggest that a leader follower system stackelberg seems more consistent with the pricing behavior in this market than a mutually independent pricing rule nash we also find that our optimal price rule explains this market data better than other pricing schemes that do not account for optimizing behavior on the part of the leader and the follower

optimal strategies for general price quality decision models of new products with learning production costs abstract the question of product quality permeates every level of business and is becoming crucial for the survival of modern manufacturing firms in automotive and high tech industries in this paper we deal with the optimal price and quality policies for the introduction of a new product on the supply side the firm wants to determine the unit price and quality level over time given that unit cost declines along a learning curve and increases if quality is made greater on the demand side dynamic demand is related to price and quality as well as to cumulative sales which represent diffusion and saturation effects we will model this problem in a general framework that includes several previous results as special cases by applying the maximum principle we will derive the optimal price and quality policies and discover the interactions between these two major strategic marketing instruments and the diffusion process several fundamental theoretical results will be established for the model under certain specified conditions higher prices do imply higher quality and under other conditions the optimal price declines over time while the product quality improves to illustrate these results the theoretical results are applied to two specific cases the first one is a simple nonseparable demand growth function in price and quality the other is a separable demand function of price and quality

mergers and acquisitions between risk averse parties abstract this paper evaluates mergers and acquisitions ma however it may yield a higher price for the consumer moreover we show that a decentralized supply chain can be more beneficial for the parties than a centralized supply chain formed by acquisition

current account imbalances and financial integration in the euro area abstract while the current account of the euro area as a whole has remained almost balanced in the past two decades several member countries have sizeable deficits or surpluses in this paper we interpret these imbalances as indicators of net capital flows among the euro area countries we distinguish between balances against the euro zone and the rest of the world and examine these for the eu 15 countries we find that for euro members the net flows follow differences in per capita incomes even before the introduction of the euro our results show further that with the introduction of the common currency the elasticity with respect to per capita incomes of net capital flows within the euro area has increased for the members of the euro zone this increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone we interpret this as evidence for increasing financial integration in the euro area there is also some evidence suggesting that the introduction of the euro has led to some financial diversion

analysis of protection and pricing strategies for digital products under uncertain demand abstract we analyze pricing and protection digital rights management strategies in a two echelon supply chain that consists of a manufacturer and a retailer of digital products the demand for the legal non pirated product which depends on both price and monetary investment in protection is assumed to be uncertain three different supply chain models are analyzed manufacturer stackelberg retailer stackelberg and vertical integration we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to find these strategies for any utility function of the manufacturer further results are obtained under assumptions of either a multiplicative or an additive demand model we study the players strategies under different profit criteria reflecting different attitudes toward risk specifically the expectation criterion and the target criterion and for each criterion we obtain the dependence between the pricing and the protection investment we show that there are situations in which the manufacturer can increase his profit by giving up his leadership to the retailer even if the power balance is in his favor

does the current account still matter do global current account imbalances still matter in a world of deep international financial markets where gross two way financial flows often dwarf the net flows measured in the current account contrary to a complete markets or consenting adults view of the world large current account imbalances while very possibly warranted by fundamentals and welcome can also signal elevated macroeconomic and financial stresses as was arguably the case in the mid 2000s furthermore the increasingly big valuation changes in countries net international investment positions while potentially important in risk allocation cannot be relied upon systematically to offset the changes in national wealth implied by the current account the same factors that dictate careful attention to global imbalances also imply however that data on gross international financial flows and positions are central to any assessment of financial stability risks the balance sheet mismatches of leveraged entities provide the most direct indicators of potential instability much more so than do global imbalances though the imbalances may well be a symptom that deeper financial threats are gathering

manufacturer allowances and retailer pass through rates in a competitive environment a commonly held belief has grocery and mass merchandise retailers gaining power relative to the upstream consumer package goods manufacturers one of the major justifications for this belief is that manufacturers are now giving retailers more side payments such as trade allowances slotting allowances etc however a number of researchers have shown that these concessions have not translated into increased profit for the retailer relative to the manufacturer this paper explores via an analytic model why one might see retailers getting concessions from the manufacturer without being able to translate them into high profits we do this by representing the interaction between the channel members as a one period profit maximizing game where manufacturers decide on how large a side payment i e a concession to give to each retailer and retailers decide on how much of this side payment to use to promote the manufacturer s product at the heart of our model is a demand function for each product offering i e a specific brand sold by a specific retailer this demand function is linear in own and other s prices but based on empirical evidence is assumed to be nonlinear in the effects of merchandising activities e g short term price discounts better shelf space advertising etc specifically merchandising effects are modeled with a square root function that also acknowledges most short term promotional effects result in brand or store switching versus increase category volume the model is composed of six parameters these are the inherent popularity of the brand at a particular outlet own price sensitivity cross but within the store price sensitivity customer s sensitivity to within store promotion activities customer s sensitivity to between store promotional activities and the degree to which promotional activities yield incremental product category sales we use our underlying demand formulation to find the equilibrium solution to the full information stackelberg leader game for different store and brand loyalty environments as captured by our six parameters these parameters are chosen based on empirical evidence to span possible market conditions that each channel member might have our findings and modeling efforts should be of interest to analytic channel modelers and scholars interested in the mass merchandising and grocery store industries for a theoretical point of view we build upon the case 4 model of lee and staelin 1997 to allow for promotional activities from a substantive point of view we show that manufacturers will freely give retailers side payments even though they know these retailers will pocket a substantial portion of this concession moreover we identify conditions within our model that lead to larger allowances lower pass through rates and lower retail profits outcomes that are compatible with recent industry trends in addition we highlight the difference in effect on profits prices etc of changes in consumers sensitivity to inter store differences in storewide merchandising activities one of the more counter intuitive results of these analyses is that it is in the manufacturer s best interest to help retailers increase their spatial monopoly by decreasing consumers tendency to cross store shop because of merchandising activities

modeling multiattribute utility risk and belief dynamics for new consumer durable brand choice this paper proposes a brand choice model to aid in the prelaunch management of a new consumer durable entry in an existing category the model contributes to theory by integrating the critical phenomena of multiattribute preference risk and dynamics in an individual level expected utility framework the integration is based on established theoretical constructs in utility bayesian decision analysis and discrete choice theory measurement and estimation procedures are presented an application is described and the managerial relevance of this work as a planning and forecasting tool is examined

price competition and compatibility in the presence of positive demand externalities in many cases the benefit to a consumer of a product increases with the number of other users of the same product these demand interdependencies are referred to in the literature as positive demand externalities or network externalities this paper examines the dynamic pricing behaviors of an incumbent and a later entrant with special attention to the impacts of demand externalities compatibility and competition on prices and profits defining market power as the ability to price above a competitor without losing market share we show how demand externalities and installed base combine to confer market power we model optimal pricing as a differential game with the optimal price trajectory established as nash open loop controls for a duopoly durable goods market with strong demand externalities the results show an increasing price trajectory can be optimal as expected a new entrant is better off if its products are compatible with those of the incumbent especially when demand externalities are strong and the installed base of the incumbent is large less intuitively the incumbent as well may be better off agreeing on common standards the comparison of monopoly and duopoly shows that under strong demand externalities and a small installed base the incumbent profits from compatible entry

industrial structure and capital flows this paper provides a new theory of international capital flows in a framework that integrates factor proportions based trade and financial capital flows a novel force emerges capital tends to flow toward countries that become more specialized in capital intensive industries this composition effect competes with the standard force that channels capital toward the location where it is scarcer if the composition effect dominates capital flows away from the country hit by a positive labor force productivity shock a flow reversal extended to a quantitative framework the model generates sizable current account imbalances between developing and developed countries broadly consistent with the data

interacting factor endowments and trade costs a multi country multi good approach to trade theory abstract we provide a synthetic analysis of the different ways in which countries participate in the world economy classic trade questions are reconsidered by generalizing a factor proportions model to multiple countries multiple goods or multi stage production and country specific trade costs each country s production specialization trade and welfare is determined by the interaction between its relative endowment and its trade costs we consider the effects of allowing one good to fragment into component and assembly production the volume of trade and welfare levels are higher with fragmentation for most countries although for many countries these variables fall with fragmentation

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

investigating the sensitivity of equilibrium profits to advertising dynamics and competitive effects the author investigates the validity of the flat maximum principle the insensitivity of a firm s profits to changes in its optimal advertising level in a duopolistic market in which advertising by the two firms has carryover effects two alternative competitive scenarios are examined i in which total industry sales are allowed to vary over time and ii where firms are engaged in market share rivalry for i the open loop nash equilibrium advertising strategies for the firms are derived assuming a specific sales response function and an infinite time horizon a numerical analysis of the sensitivity of firms profit functions to advertising expenditures is performed at different levels of the a discount rate b advertising elasticity and c advertising decay rate an empirical illustration from the pharmaceutical industry is provided special cases of the model formulation are examined analytically in order to highlight the intuition behind the flatness of the maximum and to study the sensitivity of results obtained to choice of equilibrium strategy closed loop vs open loop for the market share game closed loop policies are considered and the flat maximum principle is illustrated in the context of coke pepsi rivalry in the soft drinks market

taxpayer subsidies in failed thrift resolution the impact of firrea abstract we compare the wealth effects of acquisitions of failed thrifts before and after the passage of firrea in august 1989 in contrast to fslic assisted deals in the pre firrea period we find no evidence of significant acquirer gains in rtc assisted transactions in addition there is no significant correlation between acquirer gains and either the number of bidders or the amount of assistance provided by the rtc these results suggest the absence of any symmetric tax payer overpayments in rtc assisted transactions and indicate that regulatory and institutional changes instituted by firrea resulted in an improvement in the resolution process for failed thrifts

the rise of europe atlantic trade institutional change and economic growth the rise of western europe after 1500 is due largely to growth in countries with access to the atlantic ocean and with substantial trade with the new world africa and asia via the atlantic this trade and the associatedcolonialism affected europe not only directly but also indirectly by inducing institutional change where initial political institutions those established before 1500 placed significant checks on the monarchy the growth of atlantic trade strengthened merchant groups by constraining the power of the monarchy and helped merchants obtain changes in institutions to protect property rights these changes were central to subsequent economic growth

trade costs and current accounts are trade cost reductions a plausible explanation for growing global current account imbalances i advocate that changes in trade costs affect trade and production structures which is likely to affect national savings and investment explicitly adding trade costs a la markusen and venables into jin s framework this augmented model predicts that trade cost reductions affect the current account through changes in the industrial structure empirical evidence confirms that the interaction of trade costs and capital intensity drives current account balances i also provide evidence that the response of current accounts to changes in trade costs depends on the capital intensity of production and on the depth of regional agreements on trade and factor mobility aside from the direct effect generally emphasised in standard macro level analysis changes in production patterns could therefore be an additional channel of impact of regional integration on current accounts

arbitrating a dispute a decision analytic approach many collective decision making and bargaining situations can be described through the set of the feasible joint evaluations of all conceivable settlements attention should then be restricted to that subset pareto optimal frontier from which no joint gains are possible hence the focal issue becomes which element of the pareto optimal subset should be chosen as a solution to the dispute this paper proposes an arbitration procedure to address this issue the proposed approach decision analytic in its nature is inspired by lavalle s lavalle i h 1978 fundamentals of decision analysis holt rinehart and winston new york allocation function approach which is not specific on how to obtain an allocation function and by eliashberg and winkler s eliashberg j r l winkler 1981 risk sharing and group decision making management sci 27 november 1221 1235 work which does not accommodate probability differences within the group after the new approach is presented its implications are examined for some likely scenarios and examples are considered

vertical cooperative advertising and pricing decisions in a manufacturer retailer supply chain a game theoretic approach abstract manufacturers can increase the advertising expenditures of their retailers by bearing a fraction of the occurring costs within the framework of a vertical cooperative advertising program we expand the existing research which deals with advertising and pricing decisions in a manufacturer retailer supply chain contemporaneously by means of game theory four different relationships between the channel members are considered firstly three non cooperative games with either symmetrical distribution of power or asymmetrical distribution with one player being the leader in each case and one cooperative game where both players tend to maximize the total profit the latter is complemented by a bargaining model which proposes a fair split of profit on the basis of the players risk attitude and bargaining power our main findings are as follows a in contrast to previous analyses we do not limit the ratio between manufacturer s and retailer s margin which provides more general insights into the effects of the underlying distribution of power within the channel b the highest total profit is gained when both players cooperate this behavior puts also the customers in a better position as it produces the lowest retail price as well as the highest advertising expenditures compared to the other configurations

coordination via cost and revenue sharing in manufacturer retailer channels abstract the problem of establishing efficiency in a manufacturer retailer channel channel coordination is extensively discussed in the industrial economics the marketing and the operations research literature however studies considering consumer demand to be simultaneously affected by price and non price variables are scarce one subset of models investigates efficient contracts with non linear tariffs but requires mechanisms which are rarely observed in managerial practice the other subset analyses channel efficiency effects of alternative royalty payments but omits to design an efficient contract we contribute to this literature by investigating a contract of royalty payments that is sufficient for channel coordination based on the analysis of the underlying vertical externalities we show that channel coordination requires cost and revenue sharing via a revenue sharing rate and marketing effort participation rates on both manufacturer and retailer level some surprising findings are highlighted there exists a continuum of efficient contracts efficiency requires a retailer s participation of at least 50 in the manufacturer s cost of marketing effort moreover the elimination of double marginalisation is not necessary for channel coordination manufacturer and retailer can choose an efficient contract via bargaining over the wholesale price the main challenge for managers will be to create acceptance of new types of royalty payments based on a trustful manufacturer retailer relationship we also discuss the cases of the apple iphone market launch and of innovative restaurant franchising to further illustrate and underline the relevance of our results

optimal pricing and advertising in a durable good duopoly abstract this paper analyzes dynamic advertising and pricing policies in a durable good duopoly the proposed infinite horizon model while general enough to capture dynamic price and advertising interactions in a competitive setting also permits closed form solutions we use differential game theory to analyze two different demand specifications linear demand and isoelastic demand for symmetric and asymmetric competitors we find that the optimal price is constant and does not vary with cumulative sales while the optimal advertising is decreasing with cumulative sales comparative statics for the results are presented

regulatory learning in failed thrift auctions abstract we use a sample of failed thrift auctions to examine if regulators learn from early transactions and improve their performance in later transactions our findings suggest that experience at failure resolution does not by itself lead to improved regulatory performance evidence of regulatory learning is restricted to dealings with repeat acquirers in cases where an acquiring firm makes abnormal gains regulators are able to restructure the auction process and eliminate such gains in subsequent acquisitions made by the same acquirers

stochastic dynamic pricing and advertising in isoelastic oligopoly models abstract in this paper we analyze stochastic dynamic pricing and advertising differential games in special oligopoly markets with constant price and advertising elasticity we consider the sale of perishable as well as durable goods and include adoption effects in the demand based on a unique stochastic feedback nash equilibrium we derive closed form solution formulas of the value functions and the optimal feedback policies of all competing firms efficient simulation techniques are used to evaluate optimally controlled sales processes over time this way the evolution of optimal controls as well as the firms profit distributions are analyzed moreover we are able to compare feedback solutions of the stochastic model with its deterministic counterpart we show that the market power of the competing firms is exactly the same as in the deterministic version of the model further we discover two fundamental effects that determine the relation between both models first the volatility in demand results in a decline of expected profits compared to the deterministic model second we find that saturation effects in demand have an opposite character we show that the second effect can be strong enough to either exactly balance or even overcompensate the first one as a result we are able to identify cases in which feedback solutions of the deterministic model provide useful approximations of solutions of the stochastic model

dynamics of competing with quality and advertising based goodwill goodwill formation is a complex process and many factors influence the formation of goodwill of a firm the implications of advertising enabled goodwill formation are reported in several articles in the research literature in this paper we extend this stream of research by including quality in the goodwill formation process we adopt a dynamic model of competition utilizing a differential game approach and derive expressions for open loop markovian nash equilibrium investments in advertising and quality the insights gained from the analysis of our model and from the equilibrium solutions are presented in the form of research propositions

pricing strategies in a dynamic duopoly a differential game model we formulate a differential game model for dynamic pricing in a duopolistic market firms demand functions are derived from utility maximizing behavior of consumers with the demand for a brand given by the logit model preferences for brands are assumed to evolve over time in the market in a manner akin to learning models postulated in the marketing literature we derive the differential equations governing the equilibrium open loop price paths over time and show that in steady state the brand with the higher preference level charges the higher price the formulation is extended to include the effects of consumer heterogeneity and equilibrium steady state prices are compared with those obtained when heterogeneity is ignored a comparison of steady state dynamic prices with myopic prices is provided an empirical example is discussed to show how steady state model predictions may be obtained from actual longitudinal purchase data

channel coordination over time incentive equilibria and credibility abstract the paper studies a channel of distribution consisting of a manufacturer and a retailer in a dynamic game of pricing and advertising the carry over effects of channel member s advertising efforts are summarized in a stock of advertising goodwill each channel member has perfect information about the other channel member s price and advertising effort if each firm employs marketing strategies that are linear functions of the other member s actions and these strategies are jointly carried out a pareto optimal joint profit maximization outcome can be realized the paper also addresses the question of credibility of the incentive strategies

co op advertising models in manufacturer retailer supply chains a game theory approach abstract in the literature of cooperative co op advertising the focus of research is on a relationship in which a manufacturer is the leader and retailers are followers this relationship implies the dominance of the manufacturer over retailers recent market structure reviews have shown a shift of retailing power from manufacturers to retailers retailers have equal or even greater power than a manufacturer when it comes to retailing based on this new market phenomenon we intend to explore the role of vertical co op advertising efficiency with respect to transactions between a manufacturer and a retailer through brand name investments local advertising expenditures and sharing rules of advertising expenses three co op advertising models are discussed which are based on two noncooperative games and one cooperative game in a leader follower noncooperative game the manufacturer is assumed to be a leader who first specifies the brand name investment and the co op subsidization policy the retailer as a follower then decides on the local advertising level in a noncooperative simultaneous move game the manufacturer and the retailer are assumed to act simultaneously and independently in a cooperative game the system profit is maximized for every pareto efficient co op advertising scheme but not for any other schemes all pareto efficient co op advertising schemes are associated with a single local advertising level and a single brand name investment level but with variable sharing policies of advertising expenses the best pareto efficient advertising scheme is obtained taking members risk attitudes into account utilizing the nash bargaining model we discuss two situations that a both members are risk averse and b both members are risk neutral our results are consistent with the bargaining literature

optimal order quantity and selling price over a product life cycle with deterioration rate linked to expiration date it is evident that the lower the price the higher the demand therefore price is an important factor in a consumer s purchasing decision additionally for today s health conscious consumers product freshness is another important factor in purchasing decisions since product freshness declines over time today s health conscious consumers prefer a perishable product with a longer sell by date to a shorter one moreover a product s demand rate moving through its life cycle can be approximately represented by a trapezoid type pattern which includes constant demand increasing demand and decreasing demand as special cases in existing literature several researchers have developed inventory models for trapezoidal demand however they failed to consider pricing strategy product freshness linked to expiration date and purchasing cost in this study we enhance previous models by 1 taking pricing into consideration 2 exploring deterioration rate linked to expiration date and 3 adding an appropriate non constant purchasing cost we then derive theoretical results and run numerical examples to obtain managerial insights for instance the total profit without purchasing cost is significantly lower than that with purchasing cost included also if the cost of lost sales is improperly low then the total profit may become negative due to a large amount of lost sales

competitive advertising strategies and market size dynamics a research note on theory and evidence this paper analyzes competing firms advertising strategies in markets characterized by dynamic market sizes for new product innovations a large literature has been developed on the basis of the celebrated bass diffusion process which captures what we call market size dynamics however in spite of the significant literature incorporating competitiveness into the bass model few if any analytical results have been obtained especially those with normative implications on the other hand important theoretical and empirical insights have recently been obtained using the famous lanchester warfare model of competition in which market share dynamics are governed by advertising activities for mature products whose market sizes are typically fixed or stable our paper seeks to address the issue of optimal advertising strategies incorporating both market share dynamics and market size dynamics in doing so we seek to take advantage of the theoretical and normative insights currently available in the lanchester formulation for mature products to obtain normative analytical results on competitive advertising strategies for new product innovations whose markets evolve around the bass process we first obtain analytical solutions to the problem at hand and offer theoretical implications for competitive advertising on the bass diffusion model the models parameters are then estimated using a set of data on sales and advertising expenditures of polaroid corp and eastman kodak co in instant photography during the 19761985 period optimal trajectories for the firms advertising spending are then calculated and other marketing and managerial implications of optimal advertising strategies are explored

two way product recovery in a closed loop supply chain with variable markup under price and quality dependent demand abstract this article considers a two way product recovery in a two echelon closed loop supply chain which comprises one manufacturer and one retailer for trading a single product the market demand of the product is linearly dependent on selling price and product quality the retailer sets the selling price with a variable markup on the wholesale price of the manufacturer the manufacturer also sets his wholesale price with a fixed markup on the production cost of the product the retailer recovers the used product in two ways he collects from consumers the used products which is a fraction of newly sold products in the forward channel he also collects the used products through an exchange offer and replaces a fraction of the collected used products by new ones we analyze the proposed model under four different decision structures decentralized nash game manufacture led and retailer led stackelberg games and centralized cooperative game structures we then compare these policies to identify the best policy we also examine the feasibility of the cooperative game through a bargaining model to examine the effects of key model parameters on the decisions we perform a sensitivity analysis for a numerical example

fslic assistance and the wealth effects of savings and loan acquisitions abstract this paper examines whether fslic assisted failed thrift mergers in the 1980s resulted in wealth transfers from the insurance fund to acquiring firm stockholders we find that winning bidders earned positive abnormal returns upon the announcement of such mergers more importantly the abnormal returns are larger in cases where the fslic provided direct financial assistance and bidder abnormal returns are positively related to the size of fslic assistance these results suggest that the process followed by the fslic in arranging failed thrift mergers did result in wealth transfers

dynamics of pricing in the video game console market skimming or penetration abstract nintendo lost its dominant position in the video game industry during the console war between its nintendo 64 and sony s playstation however nintendo could have made several different strategic decisions to change the outcome this article develops a structural model and investigates these alternative strategies through policy simulations in particular the author provides a framework to study firms optimal pricing strategies under network effects consumer heterogeneity and oligopolistic competition consumer heterogeneity provides an incentive for a durable goods manufacturer to price skim while network effects lead to an opposite motive for penetration pricing the proposed framework incorporates these two competing motives under oligopolistic competition the author estimates a demand system that allows for indirect network effects and consumer heterogeneity and then numerically solves for the markov perfect equilibrium in firms dynamic pricing game policy simulations indicate that ni

coordinating advertising and pricing in a manufacturer retailer channel abstract cooperative advertising is a practice that a manufacturer pays retailers a portion of the local advertising cost in order to induce sales cooperative advertising plays a significant role in marketing programs of channel members nevertheless most studies to date on cooperative advertising have assumed that the market demand is only influenced by advertising expenditures but not by retail price this paper addresses channel coordination by seeking optimal cooperative advertising strategies and equilibrium pricing in a two member distribution channel we establish and compare two models a non cooperative leader follower game and a cooperative game we develop propositions and insights from the comparison of these models the cooperative model achieves better coordination by generating higher channel wide profits than the non cooperative model with these features a the retailer price is lower to consumers and b the advertising efforts are higher for all channel members we identify the feasible solutions to a bargaining problem where the channel members can determine how to divide the extra profits

the effect of risk sensitivity on a supply chain of mobile applications under a consignment contract with revenue sharing and quality investment abstract the paper provides a thorough investigation of the revenue sharing contract format typically used in the mobile applications apps industry the platform provider sets the level of revenue sharing and the app developer determines the investment in quality and the selling price of the app the demand for an app which depends on both price and quality investment is assumed to be uncertain so the risk attitude of the supply chain members has to be considered specifically we focus on how risk sensitive behavior of supply chain members affects chain performance the members equilibrium strategies are analyzed under different attitudes toward risk averse neutral and seeking we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to identify these strategies for any utility function of the developer we find that i the revenue sharing contract circumvents the double marginalization effect associated with vertical competition and therefore yields the best selling price for the customer ii a decentralized supply chain sometimes performs better than a centralized one and iii a risk seeking developer may obtain a higher expected profit than does a risk neutral developer

a diffusion model incorporating product benefits price income and information we start by assuming that a major benefit of many new durable products such as dishwashers and microwave ovens is time savings others such as vcrs also enhance the value of our leisure time using a household production framework we demonstrate that a utility maximizing individual will have a reservation price for the product which is a function of the product benefits and his wage rate by assuming that the wage rate has an extreme value distribution across the population we are able to derive for the aggregate process an income price dependent logistic adoption equation we then allow for the possibility that certain eligible consumers may delay their purchase of the product because they are unaware that it exists are suspicious of its quality or expect its price to fall unawareness uncertainty and hope for further price declines are assumed to decrease with the increase in the number of previous adopters the resulting diffusion model has the property that the product life cycle phenomenon can be explained jointly or separately by the income price process and the awareness uncertainty expectations process using data on household income on durable penetration within different income classes and on first purchase sales the aggregate diffusion model and its premises are tested and supported it is found that both the income price and awareness uncertainty expectations processes are at work however the dependence of the awareness uncertainty expectations delay process on the number of previous adopters e g word of mouth type effect exists only in certain product categories and is usually relatively weak it is demonstrated that if the word of mouth type effects are weak a price skimming strategy is optimal for a monopolist and also is likely to be implemented by oligopolists the sales forecasting implications of the model also are pursued

the dynamic pricing of next generation consumer durables learning curve effects aspects of consumer demand models e g reservation price distributions intertemporal utility maximizing behavior and competitive activity are reasons which have been offered to explain why prices of new durables decline over time this paper presents an alternative rationale based on the buying behavior for products with overlapping replacement cycles i e next generation products a model for consumer sales of a new durable is developed by incorporating the replacement behavior of a previous generation product pricing strategies for two product generations are investigated analytically and with numerical methods results indicate that durable replacement behavior leads to a wider set of optimal pricing strategies than previously obtained several empirical illustrations of industry pricing practices for successive product generations are also shown to be consistent with the theoretical results finally various areas for future research are outlined

nash game model for optimizing market strategies configuration of platform products in a vendor managed inventory vmi supply chain for a product family this paper discusses how a manufacturer and its retailers interact with each other to optimize their product marketing strategies platform product configuration and inventory policies in a vmi vendor managed inventory supply chain the manufacturer procures raw materials from multiple suppliers to produce a family of products sold to multiple retailers multiple types of products are substitutable each other to end customers the manufacturer makes its decision on raw materials procurement platform product configuration product replenishment policies to retailers with vmi price discount rate and advertising investment to maximize its profit retailers in turn consider the optimal local advertising investments and retail prices to maximize their profits this problem is modeled as a dual simultaneous non cooperative game as a dual nash game model with two sub games one is between the retailers serving in competing retail markets and the other is between the manufacturer and the retailers this paper combines analytical iterative and ga genetic algorithm methods to develop a game solution algorithm to find the nash equilibrium a numerical example is conducted to test the proposed model and algorithm and gain managerial implications

optimal advertising policies for diffusion models of new product innovation in monopolistic situations this paper deals with the determination of optimal advertising strategies for new product diffusion models we consider the introduction of a new consumer durable in a monopolistic market and the evolution of sales is modelled by a flexible diffusion model repeat sales and possible entry of rivals are disregarded but we allow for discounting of future revenue streams and cost learning curve using standard methods of optimal control theory we characterize qualitatively the structure of an optimal advertising strategy for different versions of the diffusion model

the impact of competitive entry in a developing market upon dynamic pricing strategies this paper analyzes dynamic pricing strategies for new durable goods in a two period context the first period is characterized as a monopoly market structure for a new product having dynamic demand the second period begins when a new firm enters the market and thereby changes the market structure to a duopolistic one we begin by analyzing the pricing strategies of three types of monopolists nonmyopic myopic and surprised a nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry a myopic monopolist totally discounts the duopolistic period and a surprised monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist but who does not foresee the competitive entry our results indicate that the nature of these pricing strategies may be quite different it is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist additional results indicate under what circumstances the surprised monopolist will p

a game theoretic approach to coordinate pricing and vertical co op advertising in manufacturer retailer supply chains vertical cooperative co op advertising is a marketing strategy in which the retailer runs local advertising and the manufacturer pays for a portion of its entire costs this paper considers vertical co op advertising along with pricing decisions in a supply chain this consists of one manufacturer and one retailer where demand is influenced by both price and advertisement four game theoretic models are established in order to study the effect of supply chain power balance on the optimal decisions of supply chain members comparisons and insights are developed these embrace three non cooperative games including nash stackelberg manufacturer and stackelberg retailer and one cooperative game in the latter case both the manufacturer and the retailer reach the highest profit level subsequently the feasibility of bargaining game is discussed in a bid to determine a scheme to share the extra joint profit

optimal pricing strategies for new products in dynamic oligopolies this paper deals with the determination of optimal pricing policies for firms in oligopolistic markets the problem is studied as a differential game and optimal pricing policies are established as nash open loop controls cost learning effects are assumed such that unit costs are decreasing with cumulative output discounting of future profits is also taken into consideration initially the problem is addressed in a general framework and we proceed to study some specific cases that are related to models presented in recent literature three basic classes of sales dynamics are analyzed competition with price effects only competition with price as well as adoption effects and competition with adoption effects only in some cases it turns out that results which hold for the monopoly case carry over to the multi firm case in the sense that the qualitative structure of optimal pricing strategies is the same in the monopoly and the oligopoly cases however due to competitive interdependencies differences certainly exist in the levels as well as the rates of change of optimal prices

optimal dynamic advertising policy for new products advertising is one of the key marketing tools managers have at their disposal to influence their customers into purchasing a new product the overall objective of new product advertising is to inform and persuade customers drawing up an advertising plan for a new product that is under the influence of diffusion phenomenon is not an easy task hence research in this area is very limited in our research we use an empirically proven diffusion demand function that explicitly incorporates the advertising component our results suggest that optimal advertising is determined by the advertising effectiveness discount rate and the ratio of advertisement to profits depending upon the interplay among these factors the optimal advertising takes decrease increase increase decrease monotonically increasing or monotonically decreasing shape

an analysis of fdic failed bank auctions abstract this paper examines whether the sales mechanism used by the fdic in failed bank auctions results in wealth transfers from the fdic to the acquiring banks we test this hypothesis by examining the returns to winning bidders in fdic auctions we find positive abnormal returns to these bidders more importantly we find a negative and significant relation between the returns to winning bidders and the number of bidders participating in the auction this evidence suggests that the fdic s auction procedures do generate wealth transfers

regulation competition and abnormal returns in the market for failed thrifts abstract this study investigates the returns to acquiring firm stockholders in federally assisted mergers in the savings and loan industry it is unique in that a these mergers are arranged and subsidized by government regulators and b they occur in a single industry one plagued by well publicized financial difficulties the contribution of resources by the federal government creates the possibility of wealth transfers from the government to owners of the acquiring firms we find consistent with the oversubsidization hypothesis that shareholders of acquiring firms earn significant positive returns

optimal trade credit and lot size policies in economic production quantity models with learning curve production costs abstract in reality a seller e g a supplier or a manufacturer frequently offers his her buyers trade credit e g permissible delay in payment trade credit reduces the buyer s holding cost of inventory and hence attracts new buyers who consider it to be a type of price reduction on the other hand granting trade credit also increases the seller s opportunity cost i e the loss of capital opportunity during the credit period and default risk i e the event in which the buyer will be unable to make the required payments on his her debt obligation in addition it is a well known fact of learning by doing that production cost of a new product declines by a factor of from 10 to 50 percent each time the accumulated production volume doubles therefore we propose an economic production quantity model from the seller s prospective to determine his her optimal trade credit period and production lot size simultaneously in which i trade credit increases not only sales but also opportunity cost and default risk and ii production cost declines and obeys a learning curve phenomenon then the necessary and sufficient conditions to obtain the seller s optimal trade credit and order quantity are derived finally we use some numerical examples to illustrate the theoretical results and to provide some managerial insights

cooperative advertising models in supply chain management a review this paper reviews articles on cooperative advertising a topic which has gained substantial interest in recent years thereby we first briefly distinguish five different definitions of cooperative advertising which can be found in operations research literature after that we concentrate on vertical cooperative advertising which is the most common object of investigation it is understood as a financial agreement where a manufacturer offers to pay a certain share of his retailer s advertising expenditures in total we identified 58 scientific papers considering mathematical modeling of vertical cooperative advertising these articles are then analyzed with regard to their general model setting e g the underlying supply chain structure and design of the cooperative advertising program after that we explain the different demand and cost functions that are employed whereupon we distinguish between static and dynamic models the last dimension of our review is dedicated to the game theoretic concepts which are mostly used to reflect different forms of distribution of power within the channel

myopic solutions to affine dynamic models new sufficient conditions are presented for a dynamic process to have a myopic optimum and for a sequential game to possess a myopic equilibrium point an optimum or an equilibrium point is said to be myopic if it can be specified by solving a static optimization problem or a static nash game the results are applied to an aquaculture harvesting model and a dynamic oligopoly model with advertising decisions

optimal pricing and advertising policies for new product oligopoly models in this paper our previous work on monopoly and oligopoly new product models is extended by the addition of pricing as well as advertising control variables these models contain bass s demand growth model and the vidale wolfe and ozga advertising models as well as the production learning curve model and an exponential demand function the problem of characterizing an optimal pricing and advertising policy over time is an important question in the field of marketing as well as in the areas of business policy and competitive economics these questions are particularly important during the introductory period of a new product when the effects of the learning curve phenomenon and market saturation are most pronounced we consider first the monopoly case with linear advertising cost exponential demand and three different pricing rules the optimal variable pricing the instantaneous marginal pricing and the optimal constant pricing rules several theoretical results are established for these rules including the facts that the instantaneous marginal pricing rule is a myopic version of the optimal pricing rule and the optimal constant pricing rule is a weighted average over time of the instantaneous marginal pricing rule another surprising result is that after the market is at least half saturated a pulse of advertising must be preceded by a significant drop in price numerical solutions of a number of examples are discussed oligopolistic models are analyzed as nonzero sum differential games in the rest of the paper the state and adjoint equations are easy to write down but impossible to solve in closed form hence we describe how to reformulate these models as discrete differential games and give a numerical algorithm for finding open loop nash solutions the latter was used to solve three triopoly models in each case it was found that optimal prices and advertising rates start high and steadily decline

a simulation analysis of alternative pricing strategies for dynamic environments the implicit assumption of the classical economic model of price determination is that the firm maximizes short run profits however one of the key implications of strategy research of the past decade is that short run profit maximization is not an appropriate criterion for many market situations instead market share has been proposed as the key to long term profitability see e g buzzell gale and sultan 1974 abell and hammond 1979 this proposition has had a strong impact on both marketing practice and research hopkins 1981 reports that 88 of industrial firms surveyed spell out market share goals in detail the emphasis on market share in practice has been reflected in the theoretical side also where numerous market share forecasting and maximizing models have been published long term profitability has also become a research interest in its own right more than a dozen papers have appeared in major journals since 1975 the impetus to this activity has been the recognition of the existence of intertemporal effects in the environment for example on the demand side a consumer s purchasing in a given time period may preclude purchasing in the future because of the durability of the good or personal inventory loading on the supply side added current production early in new product introduction may reduce the cost of future proresearchers of the strategic implications of the well known demand e g adoption and diffusion and supply e g experience effects dynamics have typically sought analytical solutions their success in this has been achieved partly by limiting the richness of the dynamics considered this paper describes a simulation modeling capability simstrat which trades off analytical solutions for richer more realistic representations of supply and demand we present the model and then the results of our initial investigations using simstrat when joined with new computer graphics capabilities the model is successful in identifying conditions conducive to skimand penetration pricing strategies

competition strategy and price dynamics a theoretical and empirical investigation the authors explore how competition affects dynamic pricing of new products dynamics of diffusion saturation and cost reduction due to experience are all considered with emphasis on the last t

oligopoly models for optimal advertising when production costs obey a learning curve business policy questions frequently involve competitive encounters among several different firms oligopoly theory in economics was devised to answer similar questions but its results so far are largely confined to cases of monopoly one firm duopoly two firms and many firms wheat farmers the cases with n firms where 3 n 10 are of great interest to business policy but are rarely treated in the economics literature because of their extreme difficulty the natural mathematical model for studying such questions is the theory of differential games originally devised by r isaacs isaacs r 1975 differential games robert e krieger publishing co huntington new york originally published by john wiley sons new york 1965 for pursuer evader games later it was extended by j case case j h 1979 economics and the competitive process new york university press new york to nonzero sum differential games for application to questions of economic competition the problem of characterizing an optimal advertising policy over time is an important question in the field of marketing it is especially important during the period of the introduction of a new product and it is also during this time that the production learning curve phenomenon is most pronounced in this paper we study oligopoly models which combine elements of bass s demand growth model bass f m 1969 a new product growth model for consumer durables management sci 15 january 215 227 the vidale wolfe vidale m l h b wolfe 1957 an operations research study of sales response to advertising oper res 5 370 381 and ozga ozga s 1960 imperfect markets through lack of knowledge quart j econom 74 29 52 advertising models with linear or quadratic costs and the production learning curve hirschmann w p 1964 profit from the learning curve harvard bus rev 42 january february 125 139 the boston consulting group 1972 perspectives on experience the boston consulting group boston in the monopoly case n 1 the optimal advertising function is derived by applying green s theorem in the duopoly n 2 and triopoly n 3 cases we use discrete differential game models and find nash equilibrium solutions in each of these models the form of the optimal policy is easy to find but because of the complicated nature of the resulting differential equations closed form solutions for the optimal state and control trajectories are impossible to find hence we use a computer to compute these optimal trajectories and plot them for various parameter settings because 13n parameters must be chosen to define a model with n players a complete search of the parameter space is clearly impossible we content ourselves in this paper with presenting computer plots of four different interesting encounters of the triopoly model our methods can be extended to work just as well for competitive encounters among n players where 1 n 10 we believe that in this paper we have opened up the way to studying oligopoly theory with a small number of participants and under widely varying conditions although the lack of closed form solutions may disappoint some readers we feel that the easy availability of graphical solutions is a more than adequate substitute

investment and harvest strategies of the finnish forest sector under different forest tax policies a differential game approach with computer based decision aid abstract this study deals with the simultaneous solution of the investment harvest and taxation problems of the finnish forest sector these strategic questions involve competitive and contradictory interests among forestry the forest industry and society we build a computer based decision aid to support a decision maker who wants to analyze the consequences of different forest tax policies it is essential to this computational approach that only minor mathematical manipulations are needed to produce equilibrium open loop nash harvest and investment strategies moreover as a differential game approach it allows us to study the tax incidence we solve our model under three alternative tax policies lump sum unit and yield taxes

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines