government debt government spending and private sector behavior comment in a recent issue of this review 1983 roger kormendi relied upon the work of martin bailey 1962 1971 and robert barro 1974 to develop an alternative approach to modeling private sector consumptionsaving behavior based on rational evaluation of the consequences of government fiscal policy p 995 briefly this approach involves determining to what extent government spending substitutes for private consumption and to what extent government debt is net wealth and thereby also affects private consumption this consolidated approach to examining private sector consumption is not only novel but appears at a time when there is widespread interest as well as controversy over the effects of government fiscal policy it therefore seems only appropriate to examine further the results obtained by kormendi not to criticize them but rather to explore their robustness this comment specifically explores the sensitivity of kormendi s results to alternative time periods of estimation to the differentiation between federal debt and state and local government debt and to the measurement of government debt particularly par vs market value

competition in posted prices with stochastic discounts we study price competition between firms over public list or posted prices when a fraction of consumers can subsequently receive discounts with some probability such stochastic discounts are a feature of markets in which some consumers bargain explicitly and of markets in which sellers use the marketing practice of couponing even though bargainers receive reductions off the posted prices the potential to discount dampens competitive pressure in the market thus raising all prices and increasing profits welfare falls because of the stochastic nature of the discounts which generates some misallocation of products to consumers stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation

a model of advertising with application to the german automobile industry this paper develops a dynamic duopolistic model of advertising and price competition advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered it is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided in the second empirical part of the article estimations of the demand equations are presented using data from the german automobile industry the main conclusion drawn is that advertising plays an important role in this market and has a predatory nature

government debt government spending and private sector behavior revisited comment perhaps no issue has generated as much controversy among economists in the past decade as the proposition that an increase in the government deficit induces an equal offsetting increase in private saving the truth of this so called ricardian equivalence proposition is central to whether budget deficits reduce capital accumulation to the feasibility of expansionary tax reductions and to the effects of social security on private saving and aggregate capital accumulation although the basic idea that the future tax liabilities associated with government deficits and debt induce individuals to increase their saving has been around since the time of david ricardo and was treated explicitly by don patinkin 1965 martin bailey 1971 and levis kochin 1974 the current debate was launched by robert barro 1974 the voluminous theoretical literature of recent years has shown that complete ricardian equivalence would be expected to prevail only under very special conditions see douglas bernheim 1987 for an especially useful survey and analysis but the theoretical restrictiveness of the assumptions required for complete ricardian equivalence does not constitute a practical refutation defenders of ricardian equivalence can argue that the theory is only an approximation and can claim that although the stringent conditions required for complete ricardian equivalence do not hold the economy s behavior in practice is close to the predictions of ricardian equivalence there are two key empirical questions the first is whether a higher level of taxes with government spending constant induces individuals to reduce their spending on consumption as traditional theory holds or has no effect on consumer spending as the ricardian equivalence proposition predicts the second deals with the effect of government outlays on goods and services although the absence of a negative effect on consumer spending of such government outlays is clearly contrary to the ricardian equivalence proposition the existence of a moderate negative effect of government outlays on consumer spending is not in itself evidence in favor of the ricardian equivalence proposition that individuals increase their saving to finance anticipated debt service as feldstein 1982 explained consumers may correctly believe that a rise in current government spending is a good indicator of a higher level of future government spending once a program is launched or budgets increased the process is unlikely to be reversed an increase in current government spending is therefore a good indication that future taxes will have to be higher to finance a higher level of future government spending individuals may rationally reduce their own spending when government outlays increase without a concurrent increase in taxes because they anticipate higher future taxes to finance higher future government spending even if they give little or no weight to the debt service implications of the current deficit the strongest direct evidence in favor of ricardian equivalence is roger kormendi s 1983 article in the american economic review he presents consumption regression equations that relate an estimate of consumption to net national product wealth martin feldstein is professor of economics at harvard university and president of the national bureau of economic research douglas elmendorf is assistant professor of economics at harvard university we are grateful to greg mankiw and lawrence summers for comments on an earlier draft the research reported here is part of the nber study of the government budget and the private economy ikormendi defines consumption as the sum of current expenditures on services and nondurables plus 10

replicating ricardian equivalence tests with simulated series this paper replicates standard consumption function tests of ricardian equivalence using series generated from a model which nests ricardian equivalence within a non ricardian alternative due to finite horizons and or distortionary taxation the author shows that the estimates of the effects of taxation on consumption are not robust and that standard tests may have weaknesses which can lead to conflicting results whether ricardian equivalence holds or not the simulations also show that no clear conclusions about ricardian equivalence can be drawn from observing a low correlation between the current account and government budget deficits copyright 1997 by american economic association

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

beggar thy neighbor advertising theory and application to generic commodity promotion programs profits from generic advertising by a producer group often come partly at the expense of producers of closely related commodities the resulting tendency toward excessive advertising is exacerbated by check off funding to analyze this beggar thy neighbor behavior we compare a scenario where different producer groups cooperate and choose their advertising expenditures jointly to maximize the sum of profits across the groups and a scenario where they optimize independently in an illustrative example using 1998 data for u s beef and pork the noncooperatively chosen expenditure on beef and pork advertising is more than three times the cooperative optimum copyright 2001 oxford university press

race and gender discrimination in bargaining for a new car more than three hundred paired audits at new car dealerships reveal that dealers quoted significantly lower prices to white males than to black or female test buyers using identical scripted bargaining strategies ancillary evidence suggests that the dealerships disparate treatment of women and blacks may be caused by dealers statistical inferences about consumers reservation prices but the data do not strongly support any single theory of discrimination copyright 1995 by american economic association

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 interdependent consumer preferences abstract a consumer s preference for an offering can be influenced by the preferences of others in many ways ranging from social identification and inclusion to the benefits of network externalities in this article the authors introduce a bayesian spatial autoregressive discrete choice model to study the preference interdependence among individual consumers the autoregressive specification can reflect patterns of heterogeneity in which influence propagates within and across networks these patterns cannot be modeled with standard random effect specifications and can be difficult to capture with covariates in a linear model the authors illustrate their model of interdependent preferences with data on automobile purchases and show that preferences for japanese made cars are related to geographically and demographically defined networks

nash s theory of cooperative games as a predictor of the outcomes of buyer seller negotiations an experiment in media purchasing the authors report an experimental investigation of the ability of nash s theory of cooperative games to predict the outcomes of buyer seller negotiations using the purchase of media time as an ex

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

who loses when prices are negotiated an analysis of the new car market we establish that there are large and persistent differences in final transaction prices for identical new cars and that demographic characteristics explain at least 20 of the observed variation older consumers perform progressively worse in negotiations and the age premium is greater for women than for men our results suggest that the complex nature of vehicle transactions leads to price dispersion in this market and that the worst performing groups older women have the lowest rates of market participation we conjecture that the results are driven by the sharp increases in women s education and labor force participation in recent decades

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

informative advertising competition or cooperation there are two main views of advertising the informative view and the persuasive view this thesis studies aspects of the informative view one aspect of interest is whether firms can benefit from collusion on advertising even though advertising is only informative if so will this enhance or lower welfare there are several reasons why firms may want to collude on adver tising first the legal field is tilted in favour of nonprice collusion second it is not at all obvious that collusion on price is more profitable than collusion on advertising and third the analyses of grossman and shapiro 1984 and others show that profits can be increased by restricting advertising in paper 1 we examine firms incentives to collude on advertising and the implications for welfare we find that collusion on advertising and competition on price is more profitable than competition on both price and advertising we also find that semicollusion on advertising is detrimental to welfare this suggests a need for monitoring especially since it is in the interest of firms to restrict price advertising we also compare semicollusion on price to semicollusion on advertising we find that in general semicollusion on price does not lead to higher profits compared to semicollusion on advertising hence we lend theoretical support to the empirical literature that consistently find evidence of semicollusion on advertising rather than on price another important issue concerns the effect on prices and profits of ad vertising only a subset of the product range many firms in particular those in the retail sector sell a wide variety of products but only advertise a few recent empirical evidence suggests that prices of unadvertised products are higher milyo and waldfogel 1999 theoretically little is known in paper 2 we study the effects of advertising only a subset of products we allow for both low and high differentiation and at the same time we explicitly model the advertising decision we find that the extend of differentiation between competing firms plays an important role in the analysis of loss leader pricing when firms sell products with the same reservation price loss leader pric ing obtains only when differentiation is low when products are less similar however price competition is less intense and as a result firms advertise prices above marginal cost our loss leader pricing results enable us to shed some light on the seemingly paradoxical empirical findings in the marketing literature that loss leader pricing fails to increase store traffic loss leader sales and hence to increase profits we also consider a different subject price discrimination although it is well understood that movements in the exchange rate have a bearing on firm profitability and hence affect firm behaviour the role of exchange rate variability in the firm s choice of the number of varieties to produce has to my knowledge not been explored this despite the fact that the product mix is an important aspect of firm strategy by tinkering with the number of varieties a firm can bolster its ability to extract consumer surplus in paper 3 we explore this issue we show that variability in the exchange rate induces the firm to vertically segment markets i e offer two varieties in each market this happens because exchange rate variability affects income dispersion and hence the firm s incentives to extract consumer surplus to better extract surplus the firm offers two price quality menus high quality variant priced high for top end surplus extraction and a low quality variety priced low to address market coverage concerns

let me talk to my manager haggling in a competitive environment although negotiating over prices with sellers is common in many markets such as automobiles furniture services consumer electronics etc it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market in this paper we explore the implications of haggling and fixed prices as pricing policies in a competitive market we develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers there are two consumer segments in our analysis one segment thehagglers has a lower opportunity cost of time and a lower haggling cost than the other segment thenonhagglers when both retailers follow the same pricing policy then a haggling policy is more profitable than a fixed price policy only when the proportion of nonhagglers is sufficiently high we find two kinds of prisoners dilemma under some conditions a more profitable haggling policy can be broken by a fixed price policy and under other conditions a fixed price policy can be broken by a haggling policy surprisingly we show that under some conditions an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium

on modeling the advertising operations interface under asymmetric competition abstract using a market share attraction structure of advertising competition and following a supermodular game approach this article demonstrates for an asymmetric oligopoly the directional impact of changes in model parameters on the marketing controlled variables of all rivals advertising budgets and the operations controlled variables of all rivals ordered quantities importantly the various changes are examined analytically empirically and numerically in both non dominated and dominated asymmetric oligopolies in this regard the results indicate that firms in a dominated oligopoly one firm of market share larger than or equal to 50 behave differently compared to firms in a non dominated oligopoly each firm of market share less than 50 in response to changes in model parameters furthermore changes in model parameters are investigated in terms of their relative influential impact on a variety of equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters exert much more influence on the equilibrium measures than the operations parameters additionally a change in the mode of competition from non cooperation oligopoly to cooperation joint ownership dictates that strong asymmetric firms of favorable marketing and operations parameters continue advertising but at lower levels and weak asymmetric firms of less favorable parameters cease advertising altogether

a simultaneous model of consumer brand choice and negotiated price in this paper we develop a simultaneous model of consumer brand choice and negotiated price in the highly relevant marketing context of automobile transactions consumer brand choice is modeled as a multinomial probabilistic outcome and the individual consumer level transaction price is modeled to be consistent with the nash bargaining solution our simultaneous model introduces a natural way to account for price endogeneity in a microlevel choice setting when the price paid is individual specific and correlated with the idiosyncratic preference of a buyer it also accounts for the potential selectivity bias in studying the negotiated price by integrating consumer brand choice modeling we apply the proposed model to a data set of 4 795 consumer automobile purchases the empirical results show that the proposed approach not only better fits the data of consumer choice and negotiated price but it also provides additional insights into buyers and sellers behaviors in comparison with models that study only consumer choice or the negotiated price but not both simultaneously

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

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

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

bargaining with incomplete information an infinite horizon model with two sided uncertainty the resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others preferences this paper explores within the context of an infinite horizon bargaining model with two sided uncertainty how timing and information affect the rational behaviour of agents when commitment is not possible since the bargainers are uncertain about whether trade is desirable they must communicate some of their private information before an agreement can be reached this need for learning due to incomplete information about preferences results in bargaining inefficiencies trade often occurs after costly delay thus the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice

optimal franchise contracts with private cost information abstract this paper considers franchise arrangements in the case where the franchisee has private information about the marginal cost of sale it is shown that the optimal contract in general leads to different margins for the parties than with common cost information however in special cases the same margins than with common cost information are optimal

a bargaining theory of distribution channels abstract a critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties in this article the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two part tariffs will not be part of the market contract even in a simple one manufacturer one retailer channel to establish the institutional and theoretical bases for these results the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract they show that the institution of bargaining has force and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present the authors find that greater retailer power promotes channel coordination thus there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members the authors rec

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

assessing the profitability of cooperative advertising programs in competing channels abstract a large literature studied the profitability effectiveness of cooperative advertising programs caps in distribution channels but very few studies modeled pricing decisions in competitive markets under different channel structures this paper fills this gap we propose a game theoretic model where two competing channels make pricing and promotional decisions the effectiveness of caps is studied under different channel structures to examine how vertical and horizontal externalities can impact the effectiveness of caps each channel structure can be integrated or decentralized to account for different vertical interaction effects resulting in three cases i both channels are decentralized dd ii both are integrated ii and iii a hybrid structure where one channel is decentralized and is competing with an integrated channel di we solve six non cooperative games 1 both manufacturers offer caps under dd 2 only one manufacturer offers a cap under dd 3 both manufacturers do not offer caps under dd 4 the decentralized manufacturer offers a cap under di 5 the decentralized manufacturer does not offer a cap under di and 6 the channel problem under ii then we obtain and compare equilibrium profits and strategies across these games the main results indicate that the profitability of caps depends on the levels of price competition and of the advertising effects also while manufacturers benefit from caps retailers may not find such programs profitable finally the decentralized or integrated structure of the competing channel significantly impacts the effects of cooperative advertising for example caps can effectively coordinate the dd channel and even help it exceed profits earned by a vertically integrated channel however in the di case although caps can improve total channel profits they do not fully coordinate the channel

multilateral bargaining and downstream competition we examine multilateral bargaining in vertical supply relationships that involve an upstream manufacturer who sells through two competing retailers in these relationships the negotiations are interdependent and bargaining externality may arise across the retailers in addition the timing by which the manufacturer negotiates with the retailers becomes important in simultaneous bargaining the retailers negotiate without knowing if an agreement has been reached in the other retail channel whereas in sequential bargaining the retailer in the second negotiation is able to observe whether an agreement was reached in the first negotiation we show that simultaneous bargaining is optimal for the manufacturer when the retail prices and profitability are similar and sequential bargaining is preferred when the dispersion in the retail prices is sufficiently large as a result of ex post renegotiations the manufacturer may strategically stock out the less profitable retailer who charged a relatively low retail price and exclusively supply only the retailer who charged a relatively high retail price and maintained high channel profitability moreover ex post multilateral bargaining can buffer downstream competition and thus lead to positive retail profits even in markets that are close to perfect competition

on a cooperative advertising model for a supply chain with one manufacturer and one retailer abstract huang and li 2001 huang et al 2002 li et al 2002 xie and ai 2006 yue et al 2006 recently studied a game theoretic model for cooperative advertising in a supply chain consisting of one manufacturer and one retailer however the sales volume demand function considered in this model can become negative for some values of the decision variables and in fact this does happen for the proposed stackelberg and nash equilibrium solutions yue et al 2006 acknowledge the negativity problem and suggest two constraints to fix it however they do not incorporate these constraints into their mathematical analysis in this paper we show that the results obtained by analyzing the advertising model under the constraints suggested by yue et al can differ significantly from those obtained in the previous papers

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 ability of nash s theory of cooperative games to predict the outcomes of buyer seller negotiations a dyad level test this research develops and implements a dyad level procedure for testing whether the outcomes of buyer seller negotiations correspond to settlements prescribed by nash s theory of cooperative games the procedure entails a multivariate statistical test in which some parameters are estimated by simulation while others are provided directly from the assessment of negotiator utility functions by means of conjoint analysis the procedure is applied to an experiment in which subjects participated in a realistic role playing exercise that replicated the purchase of television advertising time results indicate that at the 0 01 significance level 57 8 of the dyads can be rejected as not having achieved nash solutions these results and their implications for marketing practitioners as well as future research are discussed

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

double sided moral hazard and the nature of share contracts contractual arrangements involving revenue profit sharing are often based on fairly simple often linear rules in addition in many contexts these contracts are not finely adjusted to the particular circumstances of individual agents or markets nor do they vary over time to the extent current theories based on optimal contracting suggest they should we develop a simple model of such revenue or profit sharing arrangements based on double sided moral hazard and show that this model can account for many of these stylized facts more specifically the model shows that linear contracts can be optimal and that benefits from customizing terms can in some cases be quite limited if not zero

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

effects of a demand curve s shape on the optimal solutions of a multi echelon inventory pricing model abstract when a price demand relationship is needed in inventory pricing models very often a convenient typically linear function is arbitrarily chosen the common wisdom implication is that any downward sloping demand curve would lead to similar conclusions this paper applies different demand curve functions to a simple inventory pricing model and shows that while the common wisdom implication is valid for a single echelon system assuming different demand curve functions can lead to very different results in a multi echelon system in some situations a very small change in the demand curve appearance leads to very large changes in the model s optimal solutions other significant but counter intuitive effects of the demand curve form are also revealed this paper does not completely resolve the difficulties revealed by the counter intuitive effects reported here but establishing the existence of these effects represents a first step towards developing procedures to handle such effects these procedures will be necessary to ensure the reliability of many multi echelon models for products having price sensitive demands

pure strategy nash equilibria in an advertising game with interference abstract two manufacturers produce substitutable goods for a homogeneous market the advertising efforts of the two manufacturers determine the demand for the goods and interfere negatively with each other the demand of each good is a piecewise linear function of the product goodwill and the latter is a linear function of advertising efforts in a game with two competing profit maximizing manufacturers who have access to a set of several advertising media the pure strategy nash equilibria are characterized and their existence is shown

the informational role of product trade ins for pricing durable goods this research theorizes that sellers of durable goods can utilize inferences about the buyer s willingness to pay based not only on her decision to trade in the old good but also on its characteristics we find empirical support for this theory using transaction data for new car purchases the results support the notion that dealers infer a higher willingness to pay and charge higher prices to consumers who trade in a used vehicle than to those who do not we also find that dealers charge even higher prices to those consumers who trade in used cars that are similar to the new one

the influence of generic advertising on brand preferences more than a billion dollars is spent annually on generic advertisements that promote the consumption of commodity goods generic advertising is designed to increase primary demand or the size of the pie without affecting selective demand or the share of the pie we find evidence to the contrary generic advertising increases the consumer s sensitivity to changes in price and systematically alters brand preferences these effects of generic advertising can be attributed to the tendency of generic ads to change the relative importance of the attributes used to evaluate the brands the results have implications for the public policy issue of how to effectively implement generic advertising without differentially benefiting certain brands and the managerial issue of how to integrate generic and brand advertising in order to achieve product category and brand differentiation goals

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

ricardian equivalence and the public and private saving nexus in india abstractthis study tests the ricardian equivalence theorem ret and examines the responsiveness of private saving to public saving in india most estimators do not provide support for the empirical validity of ret and long run cointegration between public and private saving the increases in household saving hhs seem to have been engendered by the provision of saving incentives institution of saving schemes self driven motivation to save and the precautionary accumulations induced by uncovered uncertainties in incomes rather than by ricardian behaviour of households the self imposed aversion to debt and debt bequest borrowing and liquidity constraints and the intertemporal smoothing of consumption have been the added catalysts that contributed to the increases in hhs the households with binding borrowing constraints inadequate or no insurance and uncovered uncertainties in incomes seem to have been saving more to pay for higher inflation tax the fiscal consolidation and generation of public s

the strategic nature of advertising in segmented markets we develop a simple model in which firm specific advertising has cooperative and predatory effects our model is set in a static market where firms are naturally segmented into two distinct submarkets several large firms located in the core with small firms operating as a fringe we test the net effect of opposing market size cooperative and market share predatory effects of both fringe and core firm advertising on the advertising decisions of large firms in several us consumer industries empirically fringe firm advertising leads to an increase in advertising efforts by large firms implying strategic complementarity on the other hand increased advertising by core firms in an industry decreases advertising expenditures of other core firms indicating they are strategic substitutes our findings imply that equilibrium levels of advertising can be greater with asymmetric rather than symmetric strategic interactions

an oligopoly model of dynamic advertising competition abstract an oligopoly model is presented that allows the determination of feedback nash equilibrium advertising strategies for an oligopoly analyses of symmetric and asymmetric oligopolies with the model show that unit contribution and advertising effectiveness have positive effects on a competitor s own advertising and steady state sales while discount rate and decay rate have negative effects an asymmetric analysis further shows that unit contribution and advertising effectiveness affect positively and discount rate and decay rate negatively a competitor s rivals advertising but have effects in opposite directions regarding rivals steady state sales the symmetric and asymmetric analyses also show that steady state sales per competitor decline with the number of competitors in the oligopoly while total oligopoly steady state sales increase the model is applied empirically to the triopolistic competition involving anheuser busch sabmiller and molson coors in the beer industry

endogeneity and individual consumer choice abstract in many markets there is likely to be correlation both across periods in terms of the choices of one consumer and across consumers in terms of their choices in each period the former is caused by consumer heterogeneity and the latter may be the result of demand common shocks across consumers furthermore if firms partially observe these common shocks their market decisions may end up being endogenous and correlated with the common shocks because researchers cannot typically fully observe consumer heterogeneity and the common shocks the estimation method must account for the endogeneity of firms decisions in this article the authors present a test for endogeneity under unobserved consumer heterogeneity and common shocks which is based on a quasi likelihood estimation method to estimate the model parameters consistently when endogenous firm behavior unobserved heterogeneity and common shocks are present the test examines the differences in general method of moments coefficient estima

price markdown scheme in a multi echelon supply chain in a high tech industry this paper studies the price markdown scheme in a supply chain that consists of a supplier a contract manufacturer cm and a buyer retailer the buyer subcontracts the production of the final product to the cm the cm buys the components from the supplier and charges the buyer a service fee for the final product produced the price markdown is made possible by the supplier with the development of new manufacturing technologies that reduce the production cost for the sourced component consequently the buyer adjusts the retail price in order to possibly stimulate stronger demand that may benefit both the supplier and the buyer under this scenario we identify the optimal discount pricing strategies capacity reservation and the stocking policies for the supplier and the buyer we also investigate the optimal inventory decision for the cm to cope with the price discount by considering both demand and delivery uncertainties our results suggest that higher production cost accelerates the effects of higher price sensitivity on lowering the optimal capacity and stocking policies in the supply chain the effect of mean demand error on the optimal prices is relatively marginal compared with that from price sensitivity we also found that increasing the standard deviation of the random demand does not necessarily increase the stocking level as one would predict the results show that delivery uncertainty plays an important role in the inventory carried beyond the price break we discuss potential extensions for future research

effectiveness of fluid milk advertising since the dairy and tobacco adjustment act of 1983 an econometric model pooling monthly cross sectional and time series data is estimated to measure the impact of national and regional generic fluid milk advertising the estimated model shows that the effectiveness of advertising has increased since the implementation of the dairy adjustment act gains in fluid milk sales attributed to milk advertising are estimated sales gains for both the pre and post act periods are shown along with the gains associated with parameter changes in the post act periods marginal advertising responses are derived

government debt government spending and private sector behavior reply and update the preceding articles by martin feldstein and douglas elmendorf and by franco modigliani and arlhe sterling give us a welcome opportunity to return to the effects of fiscal policy on private consumption at stake in this debate we believe is a potential paradigm change from what kormendi 1983 termed the standard approach which bases private consumption on disposable personal income to what he termed the consolidated approach which bases consumption on aggregate income government spending and transfer payments each with separate effects the standard approach excludes ricardian equivalence a priori the consolidated approach not only incorporates ricardian equivalence but in its augmented form allows one to nest the various hypotheses associated with the two approaches feldstein and elmendorf argue that kormendi s 1983 results and implicitly those of kormendi and meguire 1986 which reject the standard approach in favor of the consolidated ricardian alternative are not robust to the exclusion of data from world war ii and other specification changes modigliani and sterling argue that accounting for temporary taxes reverses our rebuttal of their 1986 comment we first take up the challenge of feldstein and elmendorf before turning to modigliani and sterling we then assess the validity of our preference for estimating in differences by testing whether consumption income and the fiscal variables are cointegrated finally we summarize what can be learned from the debate i feldstein and elmendorf

quality improvement vs advertising support which strategy works better for a manufacturer abstract we consider a marketing channel with a single manufacturer and a single retailer where both advertising and quality improvement contribute to the build up of goodwill in a non coop scenario the retailer controls the advertising efforts while the manufacturer controls the quality improvements and wholesale price although improving quality positively contributes to goodwill it also increases the production cost thereby reducing the manufacturer s profit in a coop scenario the manufacturer supports the retailer s advertising while decreasing his investments in quality we investigate the conditions under which a coop program is beneficial when such a trade off occurs our results demonstrate that only when advertising significantly contributes to goodwill the manufacturer has an incentive to cooperate and a coop program turns out to be pareto improving conversely the retailer is always better off with a coop program moreover the channel is operational and marketing driven when quality effectiveness is high independent of advertising effectiveness or when both quality and advertising effectiveness are large in all other cases the channel is marketing driven

an empirical investigation of returns to search using data on search and choice behavior from a local automobile market we estimate monetary returns to search in terms of lower prices resulting from additional time invested in price search for our analytical framework we adapt a model developed in the job search literature to the problem of consumer search this framework is especially useful for illuminating the relationship between time spent searching the outcome of search and demand and supply side variables our results indicate that for this particular sample of buyers marginal returns to search are broadly consistent with what one might expect if consumers balance costs and benefits of search and that potential gains from additional search for lower car prices do not appear to be large for most consumers our study highlights many of the methodological difficulties involved in estimating returns to search including isolating returns to different outcomes of search and sensitivity of results to model specification and sampling error we deal with these problems by trying to isolate time spent searching for price from other uses of search time by deriving our model used in estimation from a specific conceptual framework and by extensive specification testing

to bargain or not to bargain the role of fixed costs in price negotiations abstract retailers routinely allow consumers to negotiate a discount off the posted price especially for big ticket items such as home appliances furniture automobiles and real estate as well as on online platforms such as amazon ebay and alibaba the profitability of such a strategy relative to selling only at posted prices depends on consumers willingness to initiate a negotiation and ability to negotiate a discount in this paper we incorporate a consumers decision of whether or not to negotiate into a demand model the decision to negotiate hinges on how the expected discount from negotiation compares to the magnitude of a non pecuniary cost that the consumer incurs by initiating the negotiation this cost has implications for consumer demand and firm profitability the current study shows how this cost can be non parametrically identified separately from consumers ability to get a discount and marginal utility of income the application of this model to individual level data on refrigera

recent developments in dynamic advertising research a variety of continuous time differential functions have been developed to investigate dynamic advertising problems in business and economics fields since major dynamic models appearing before 1995 have been reviewed by a few survey papers we provide a comprehensive review of the dynamic advertising models published after 1995 which are classified into six categories i nerlove arrow model and its extensions ii vidale wolfe model and its extensions iii lanchester model and its extensions iv the diffusion models v dynamic advertising competition models with other attributes and vi empirical studies for dynamic advertising problems for each category we first briefly summarize major relevant before 1995 models and then discuss major after 1995 models in details we find that the dynamic models reviewed in this paper have been extensively used to analyze various advertising problems in the monopoly duopoly oligopoly and supply chain systems our review reveals that the diffusion models have not been used to analyze advertising problems in supply chain operations which may be a research direction in the future moreover we learn from our review that very few publications regarding dynamic advertising problems have considered the supply chain competition we also find that very few researchers have used the diffusion model to investigate the dynamic advertising problems with product quality as a decision variable and the pricing decision has not been incorporated into any extant lanchester model the paper ends with a summary of our review and suggestions on possible research directions in the future

bargaining search costs and equilibrium price distributions this paper studies a bargaining model of equilibrium price distributions consumers choose a seller at random and face search costs to switching to another store in the market equilibrium the prices at all stores are determined simultaneously as the perfect equilibrium of a bargaining game in this game the buyer has the outside option to search for another seller differences between the sellers types create price dispersions typically the number of active sellers increases with higher search costs the market equilibrium converges to the competitive equilibrium under perfect information when search costs become small

quality effects in different advertising models an impulse control approach abstract in this paper we integrate quality as a control variable in three classical dynamic optimal control models of advertising namely nerlove arrow vidale wolfe and ozga models quality refers to design quality which may deteriorate over time we assume that decisions in quality improvement can only be made at some exogenously given instants of time and consequently we use the formalism of impulse optimal control to determine optimal advertising and quality investments we report numerical results for the three models and discuss the impact of adding quality on the results