optimal promotion planning depth and frequency for a two stage supply chain under markov switching demand abstract in considering the retailer supplier supply chain this paper analyzes how a retailer reasonably decides both the depth and frequency of the price discount promotion including or excluding a supplier s inventory decision assuming that the promotion frequency used by the retailer is probabilistic we model a promotion inventory decision under an ar 1 demand with a markov switching promotion regime after obtaining the optimal promotion plan our analysis also considers the behavior of the optimal promotion decision the retailer s price format selection either an every day low price policy edlp or a promotion policy hilo and the impact of information sharing of promotion status on the system s performance our results suggest that a retailer tends to overpromote if inventory cost is excluded in its promotion decision that increasing the market share is a preferable action for both the retailer and the supplier that total margin and price elasticity play an important role in selecting the price format and that the profitability for a supplier of sharing promotion information depends on the transition probabilities of the markov switching regime

an r d race with knowledge accumulation i develop a model of an r d race with knowledge accumulation my model does not inherit the memorylessness property of the exponential distribution that troubles existing models of r d races hence firms knowledge stocks are no longer irrelevant to their behavior during the r d race and knowledge accumulation has strategic implications in this more general setting i obtain results that stand in marked contrast to the previous literature in particular under some conditions the firm that is behind in the race engages in catch up behavior this pattern of strategic interactions action reaction is consistent with empirical research copyright 2003 by the rand corporation

competitive maps the structure underlying asymmetric cross elasticities a special case of three mode factor analysis is used to portray the systematic structure underlying asymmetric cross elasticities for a broad class of market share attraction models analysis of the variation over retail outlets and weeks reveals competitive patterns corresponding to sales for the major brands in the market as well as patterns reflecting shelf price competition analysis of the brand domain results in a joint space one set of brand positions portrays how brands exert influence over the competition the other set of points portrays how brands are influenced by others the interset distances angles provide direct measures of competitive pressures maps are formed as spatial representations of each of the competitive patterns discovered

please or squeeze brand performance implications of constrained and unconstrained multi item promotions existing research on price promotions typically investigates the effects of single product promotions however brand managers often promote multiple items simultaneously to bolster the performance of a complete brand line this paper investigates the brand performance implications of such multi item promotions we distinguish between two types of multi item promotions traditional unconstrained multi item promotions that grant a discount irrespective of the size or composition of the purchase set and constrained multi item promotions that require consumers to purchase specific quantities self bundling or even predetermined combinations fixed bundling of promoted items using a normative consumer decision model the authors analyze the relative effectiveness of these promotions in terms of unit sales and revenue impact and show that promotion performance is moderated by consumers preference for variety the authors find that unconstrained multi item promotions outperform single item promotions especially in markets without variety seeking in markets with variety seeking unconstrained multi item promotions are not as effective in stealing extra sales from competition because consumers prefer to spread their purchases across all items including competitive ones however in those markets self bundling promotions are particularly effective because they force consumers to adopt larger amounts of the promoted items at the expense of competitors finally in neither type of market does fixed bundling substantially improve promotion performance

who should abate carbon emission we review the optimal pattern of carbon emission abatements across countries in a simple multi country world we model explicitly with the model in chichilnisky 4 the fact that the atmosphere is a public good within this framework we establish conditions for it to be necessary for optimality that the marginal cost of abatement be the same in all countries these condition are quite restrictive and amount to either ignoring distributional issues between countries or operating within a framework within which lump sum transfers can be made between countries these results have implications for the use of tradeable emission permits which as normally advocated will lead to the equalization of marginal abatement costs across countries the observation that the atmosphere is a public good implies that we may need to look at a lindahl equilibrium rather than a walrasian equilibrium in tradeable permits

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

the effects of cross ruff coupons on sales and profits cross ruff coupons are obtained at the time of purchase of a carrier brand and may be redeemed at a later date on a target brand these coupons therefore have the ability to link consumer purchases across different brands as well as shopping trips we model the effects of cross ruff coupons on consumer choice behavior and derive the conditions under which cross ruff coupons can lead to higher sales and profits than other types of package coupons the model also provides insights into the selection of appropriate carrier and target brands and on how the choice of an appropriate carrier or a target brand is affected when the categories that these brands belong to are demand complements or substitutes we conduct an empirical analysis using data from 195 different cross ruff coupon campaigns observed in grocery stores in a major u s city over a three month period the data are consistent with the key insights provided by the model

variety seeking through brand switching a concept of variety seeking behavior is modeled as a stochastic brand choice model the model yields a measure of variety seeking for each individual consumer panel data for 28 products are analyzed for each household and the possibility of market segmentation by variety seeking behavior is explored

dynamic modelling of energy consumption capital stock and real income in g 7 countries abstract this paper applies an aggregate production function to examine the dynamic linkages among energy consumption capital stock and real income real gdp per capita in g 7 counties we employ the toda and yamamoto 1995 granger causality test the generalized impulse response approach and variance decompositions in a multivariate setting to uncover the extent and the magnitude of the relationship among variables our empirical results find evidence of a unidirectional relationship running from energy consumption to real income in canada italy and the uk indicating that energy conservation may hinder economic growth in the three countries furthermore the causality relationship appears to be unidirectional but reversed for france and japan implying that energy conservation in both countries may still be viable but without being detrimental to economic growth as to germany and the u s there is no causality between the variables which demonstrates the neutrality hypothesis and in such a case economic growth will not affect energy use we further see that the impact of capital stock is relatively higher compared with that of energy consumption transitory initial impacts of innovations in energy consumption on capital stock and real income are observed

positioning and pricing in a variety seeking market we study competitive positioning and pricing strategies in markets where consumers seek variety variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion using a three stage hotelling type model we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium thereby explaining some otherwise counterintuitive findings in empirical research we find that firms charge higher prices in period 1 and lower prices in period 2 the lower price in period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching furthermore we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers finally we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus surplus increases for variety seeking consumers as well as regular consumers therefore the presence of variety seeking consumers benefits everyone in the market

non cooperative and cooperative responses to climate catastrophes in the global economy a north south perspective the optimal response to a potential productivity shock which becomes more imminent with global warming is to have carbon taxes to curb the risk of a calamity and to accumulate precautionary capital to facilitate smoothing of consumption this paper investigates how differences between regions in terms of their vulnerability to climate change and their stage of development affect the cooperative and non cooperative responses to this aspect of climate change it is shown that the cooperative response to these stochastic tipping points requires converging carbon taxes for developing and developed regions the non cooperative response leads to a bit more precautionary saving and diverging carbon taxes we illustrate the various outcomes with a simple stylized north south model of the global economy

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

competitive market structures a subset selection analysis market structure models are used to identify submarkets or to test for the presence of submarkets where within group competition is much stronger than across group competition the implicit assumption in such models is that the brands in a submarket compete on the basis of their shared product features however if significant variety seeking effect exist in the market such an assumption may not be valid we present a model based on a subset selection procedure for analyzing competitive market structures and develop tests of significance for variety seeking effects present in the market for each brand in the market the subset selection procedure identifies sets submarkets of brands that are in close competition the competitive market structure is defined by the possibly overlapping submarkets that are identified for each brand and the model provides insights on whether the brands in a submarket are of a reinforcing or a variety seeking kind the application of our model to two different consumer packaged goods markets highlights its contribution relative to extant methods

who should abate carbon emissions an international viewpoint abstract we review the optimal pattern of carbon emission abatements across countries in a simple multi country world we model explicitly with the model in chichilnisky 1993b the fact that the atmosphere is a public good within this framework we establish conditions for it to be necessary for optimality that the marginal cost of abatement be the same in all countries these conditions are quite restrictive and amount to either ignoring distributional issues between countries or operating within a framework within which lump sum transfers can be made between countries these results have implications for the use of tradeable emission permits which as normally advocated will lead to the equalization of marginal abatement costs across countries the observation that the atmosphere is a public good implies that we may need to look at a lindahl equilibrium rather than a walrasian equilibrium in tradeable permits

economics and climate change integrated assessment in a multi region world this paper develops a model that integrates the climate and the global economy an integrated assessment model with which different policy scenarios can be analyzed and compared the model is a dynamic stochastic general equilibrium setup with a continuum of regions thus it is a full stochastic general equilibrium version of rice nordhaus s pioneering multi region integrated assessment model like rice our model features traded fossil fuel but otherwise has no markets across regions there is no insurance nor any intertemporal trade across them the extreme form of market incompleteness is not fully realistic but arguably not a bad approximation of reality its major advantage is that along with a set of reasonable assumptions on preferences technology and nature it allows a closed form model solution we use the model to assess the welfare consequences of carbon taxes that differ across as well as within oil consuming and producing regions we show that surprisingly only taxes on oil producers can improve the climate taxes on oil consumers have no effect at all the calibrated model suggests large differences in views on climate policy across regions

abrupt positive feedback and the social cost of carbon optimal climate policy should act in a precautionary fashion to deal with tipping points that occur at some future random moment the optimal carbon tax should include an additional component on top of the conventional present discounted value of marginal global warming damages this component increases with the sensitivity of the hazard to temperature or the stock of atmospheric carbon if the hazard of a catastrophe is constant no correction is needed of the usual pigouvian tax the results are applied to a tipping point resulting from an abrupt and irreversible release of greenhouse gases from the ocean floors and surface of the earth which set in motion a positive feedback loop convex enough hazard functions cause overshooting of the carbon tax but a linear hazard function gives rise to undershooting a more convex hazard function and a high discount rate speed up adjustment

niching versus change of pace brands using purchase frequencies and penetration rates to infer brand positionings the authors examine deviations from ehrenberg s wi 1 bi equal to a constant law to infer the positioning of low share brands as niche versus change of pace brands results from empirical anal

try it you will like it does consumer learning lead to competitive price promotions there is strong evidence that consumers learn from their brand consumption experiences and continuously update their brand purchase probabilities however in explaining why established competitive brands continuously compete through periodic price promotions most of the existing theories do not attribute this phenomenon to underlying consumer learning yet try it you will like it is often the stated rationale of the practicing marketing manager in offering consumers a price promotion on a brand this paper examines the connection between consumer learning and the offering of price promotions the consumer model specified is markovian in nature and encompasses in addition to consumer learning other empirical findings such as the increase in product class consumption in response to price reductions the consumer models used in the existing game theoretic approaches to this problem are shown to be mostly special cases of the proposed model it is demonstrated that for the commonly used price response functions the existence of consumer learning at a level of intensity consistent with that identified in empirical works makes it optimal for competing brands to periodically offer price promotions moreover it is shown that the competing brands should promote in different periods as opposed to head to head

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

endogenous asymmetry in a dynamic procurement auction we show how to numerically solve for a markov perfect equilibrium of a dynamic auction game where a procurer repeatedly purchases construction services from capacity constrained firms we find that the procurer is best off scheduling frequent auctions for small project sizes otherwise firm capacity utilization rates become larger and more asymmetric which softens competition and increases procurement costs we also find that forward looking bidding dampens the competition softening effects of asymmetry farsighted firms compete more intensely than myopic ones this can undermine the goal of a bid preference style affirmative action program more farsighted firms respond less to the asymmetry induced via bid preferences

comparing dynamic consumer choice in real and computer simulated environments actual supermarket purchases made by consumers over a seven month period are compared with the choice decisions collected in one sitting in a laboratory simulation the laboratory simulation was designed to mimic the original market environment although there were systematic biases in predictions of true purchase behavior from the simulated data the compressed simulations were reasonably valid in predicting market shares and promotion sensitivity for brands across consumers

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

theoretical models of sales promotions contributions limitations and a future research agenda our objective in this paper is to review theoretical models of sales promotions we highlight the key contributions of these models discuss their limitations and outline an agenda for future research managerial questions examined in these models include some very fundamental issues such as why firms resort to the use of sales promotions in mature markets and why the use of sales promotions has increased dramatically during the last two decades also included in this review are models that address firm level strategic issues such as the allocation of dollars between advertising and sales promotions and the relative emphasis on trade promotions vis a vis consumer promotions we also review theoretical models that explain how consumers respond to price promotions and what type of sales promotion tools may be superior to others in a particular market the review concludes with a possible agenda for future research

innovation and the dynamics of global warming global warming and the carbon cycle are a dynamic system with positive feedbacks fossil fuels are exhaustible resources these two facts mean that innovation in clean energy technology rather than mitigating global warming can lead to a permanently higher temperature path this paper explores the impact of innovation in the simplest model linking the economic theory of exhaustible resources with positive feedback dynamics in the carbon cycle

effects of price promotions on variety seeking and reinforcement behavior a stochastic model is proposed to examine how changes in frequency of price discounts affect brand choice decisions of consumers who exhibit variety seeking and reinforcement behavior it is shown that the effect on choice depends on whether the brand offering discounts is a major or minor brand in the product category this model extends the existing literature on stochastic models of variety seeking behavior by explicitly incorporating switching due to promotions along with intrinsic switching due to variety seeking the model yields testable hypotheses which are supported in a laboratory experiment and on analyses of the iri cracker data

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

a model of balanced choice behavior in some product categories consumers appear to alternate among items in a consistent and purposeful though not entirely deterministic fashion such alternation occurs even in the absence of any apparent external influences on choice to explain such balanced choice behavior we present a model based upon the premise that past consumption influences the utility of items on subsequent choice occasions individuals may seek variety on certain product attributes and exhibit loyalty toward others the model specification yields a logit choice model which may be calibrated using consumption diary panel data at the individual or cross sectional level

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way