the motivation and bias of bureaucrats many individuals are motivated to exert effort because they care about their jobs rather than because there are monetary consequences to their actions the intrinsic motivation of bureaucrats is the focus of this paper and three primary results are shown first bureaucrats should be biased second sometimes this bias takes the form of advocating for their clients more than would their principal while in other cases they are more hostile to their interests for a range of bureaucracies those who are biased against clients lead to more efficient outcomes third self selection need not produce the desired bias instead selection to bureaucracies is likely to be bifurcated in the sense that it becomes composed of those who are most preferred by the principal and those who are least preferred

advertising learning and consumer choice in experience good markets an empirical examination this article empirically analyzes different effects of advertising in a nondurable experience good market a dynamic learning model of consumer behavior is presented in which i allow both informative effects of advertising and prestige or image effects of advertising this learning model is estimated using consumer level panel data tracking grocery purchases and advertising exposures over time empirical results suggest that in this market advertising s primary effect was that of informing consumers the estimates are used to quantify the value of this information to consumers and evaluate the welfare implications of an alternative advertising regulatory regime

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

effects of brand preference product attributes and marketing mix variables in technology product markets we develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand s performance to account for the potential correlation in the preferences of models offered by a particular brand we use a nested logit model with the brand e g sony at the upper level and its various models e g mavica fd dsc etc at the lower level of the nest relative model preferences are captured via their attributes and prices we allow for heterogeneity across consumers in their preferences for these attributes and in their price sensitivities in addition to heterogeneity in consumers intrinsic brand preferences together with the nested logit assumption this allows for a flexible substitution pattern across models at the aggregate level the attractiveness of a brand s product line changes over time with entry and exit of new models and with changes in attribute and price levels to allow for time varying intrinsic brand preferences we use a state space model based on the kalman filter which captures the influence of marketing actions such as brand level advertising on the dynamics of intrinsic brand preferences hence the proposed model accounts for the effects of brand preferences model attributes and marketing mix variables on consumer choice first we carry out a simulation study to ensure that our estimation procedure is able to recover the true parameters generating the data then we estimate our model parameters on data for the u s digital camera market overall we find that the effect of dynamics in the intrinsic brand preference is greater than the corresponding effect of the dynamics in the brand s product line attractiveness assuming plausible profit margins we evaluate the effect of increasing the advertising expenditures for the largest and the smallest brands in this category and find that these brands can increase their profitability by increasing their advertising expenditures we also analyze the impact of modifying a camera model s attributes on its profits such an analysis could potentially be used to evaluate if product development efforts would be profitable

the cost structure of american research universities 1597 this study estimates translog variable cost functions for 147 american doctorate granting universities accounting for three major products of these institutions undergraduate and graduate instruction and research explicit measures of research output and quality are employed evidence is found for considerable economies of scale for the average institution as well as economies of scope related to the joint production of undergraduate and graduate instruction the public or private ownership of an institution is not significant for the explanation of variable costs the intensity of state regulation in the public sector does not have a significant impact on production efficiency copyright 1991 by mit press

determinants of international university rankings scores this article analyses the relationship between a university s score in international university rankings its expenditure per student and other factors such as university mission size and productive inefficiency we develop an economic model of rankings and universities and estimate this model with data on universities classified in the top 200 by the times higher education supplement ranking of 2007 we find that the elasticity of a university s ranking score for the expenditure per student is between 4 and 9 and that there are no clear signs of inefficiency in production among the top 200 universities university mission and size are also significant predictors of ranking score these results are especially interesting given the relevance attributed to rankings by government officials university directors and students

does experience make you tougher evidence from competition law this article investigates experience effects for public officials using a unique data set of companies investigated under uk competition law we find very strong experience effects for chairmen of investigation panels estimated from the increase in experience of individual chairman probit and iv probit regressions indicate that replacing an inexperienced chairman with one of average experience increases the probability of a guilty outcome by approximately 30 and after chairing around 30 cases a chairman is predicted to find almost every case guilty

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

input and output substitution in higher education abstract this study estimates a multi input multi output model of production in higher education based on data from academic departments from a large public university the results show that there are economies of scale in all dimensions undergraduate and graduate instruction and research of the university s output over the observed range all three types of labor tenured faculty non tenured faculty and graduate assistants are substitutes with the demand for the most skilled category tenured faculty being least elastic

the quality double whammy this research focuses on how consumers perceive the quality level of a complex stimulus in our case a service encounter and how this perception affects consumers overall assessment of the quality level of the firm as such it should be of interest to consumer behavior theorists as well as to those involved in marketing management issues we start our presentation by developing a normative bayesian data integration and updating model somewhat similar to that put forth by rust et al 1999 the major constructs of interest in this model are the person s belief about the overall service quality level of a firm and what will happen on the next service encounter two major results following from this baseline normative model are that the updated means of these two beliefs are identical to the dynamic updating equations put forth by boulding et al 1993 and that an underlying assumption of this model is that consumers form unbiased perceptions of the complex stimulus next based on substantial empirical evidence from the behavioral literature we incorporate into this baseline model a process by which consumers form nonrandom perceptions specifically we postulate that a person s perception of a complex service encounter is a blend of the objective dimensions of the service encounter and the person s prior overall belief about the quality level of the firm the relative weights placed on these two factors are determined at least in part by the experience level of the customer and the complexity of the service encounter we then use this expanded model to compare and test different models of service quality and provide deeper insights into the process by which consumers form perceptions of both the service transaction and the overall service quality level of a firm we test this model using data from two different experiments in each experiment we manipulate the service provided and the person s initial will and should expectations using both obtrusive and unobtrusive measures of the underlying constructs of our model we employ multiple tests to determine the veracity of our expanded model relative to the baseline model these tests support the expanded model specification as found previously and as predicted by a bayesian updating process consumers prior beliefs influence their cumulative overall opinion of service quality e g anderson and sullivan 1993 bolton and drew 1991 boulding et al 1993 rust et al 1999 perhaps more importantly these prior beliefs also influence their perceptions of the data themselves which in turn affect their new updated overall opinion these two different influences of prior beliefs on cumulative evaluations of quality constitute the double whammy referred to in the title this double whammy effect has major managerial significance specifically we see from our model development that all activities of a firm will be perceived in light of a person s prior beliefs and that these priors will be double counted relative to our baseline model thus any marketing action taken by a firm will be perceived more positively or negatively depending on the person s prior belief about the quality level of the firm as such our model provides a formal explanation for the notion of brand equity as differential leverage in marketing activities as proposed by keller 1993

institutions of higher education as multi product firms economies of scale and scope a multiple output cost function is estimated for institutions of higher education in the united states employing data for 1981 82 the authors flexible fixed cost quadratic function includes three outputs undergraduate teaching graduate teaching and research grants and one input price average faculty salaries results indicate the existence of scope economies at least up to a point for both public and private institutions of higher education ray economies of scale are more pronounced in the private sector and product specific economies of scale are observed only in the public sector for research and graduate teaching copyright 1989 by mit press

measuring the impact of promotions on brand switching when consumers are forward looking abstract logit choice models have been used extensively to study promotion response this article examines whether brand switching elasticities derived from these models are overestimated as a result of rational consumer adjustment of purchase timing to coincide with promotion schedules and whether a dynamic structural model can address this bias using simulated data the authors first show that if the structural model is correct brand switching elasticities are overestimated by stand alone logit models a nested logit model improves the estimates but not completely second the authors estimate the models on real data the results indicate that the structural model fits better and produces sensible coefficient estimates the authors then observe the same pattern in switching elasticities as they do in the simulation third the authors predict sales assuming a 50 increase in promotion frequency the reduced form models predict much higher sales levels than does the dynamic structural model the autho

a simple theory of advertising as a good or bad our analysis treats advertisements and the goods advertised as complements in stable metautility functions and generates new results for advertising by building on and extending the general analysis of complements by assimilating the theory of advertising into the theory of complements we avoid the special approaches to advertising found in many studies that place obstacles in the way of understanding the effects of advertising we also use this approach to evaluate advertising from a welfare perspective whether there is excessive or too little advertising depends on several variables the effects on consumer utility the degree of competition in the market for advertised goods the induced changes in prices and outputs of advertised goods and whether advertising is sold to consumers

the advertising mix for a search good we extend the persuasion game to bring it squarely into the economics of advertising we model advertising as exciting consumer interest into learning more about the product and determine a firm s equilibrium choice of advertising content over quality information price information and horizontal match information equilibrium is unique whenever advertising is necessary the outcome is a separating equilibrium with quality unravelling lower quality firms need to provide more information for a given quality level as a function of consumer visit costs first quality information is disclosed then price information and then horizontal product information are added to the advertising mix some suggestive evidence is provided from airline ads in newspapers this paper was accepted by j miguel villas boas marketing

higher education costs and scale and scope economies higher education multi product cost functions are estimated for the public and private sectors disaggregated by research comprehensive baccalaureate and associate level institutions the output mix incorporates professional school teaching output in addition to undergraduate and graduate teaching and research outputs scale and scope economies are examined by sector and institutional level also accounting for regional differences ray economies are found throughout the private sector but confined to lower level public institutions research economies are widespread throughout all sector levels economies of scope prevail among private institutions across levels but only among comprehensive and baccalaureate public colleges

invited paper learning models an assessment of progress challenges and new developments learning models extend the traditional discrete choice framework by postulating that consumers have incomplete information about product attributes and that they learn about these attributes over time in this survey we describe the literature on learning models that has developed over the past 20 years using the model of erdem and keane as a unifying framework erdem t keane m 1996 decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets marketing sci 15 1 1 20 we describe how subsequent work has extended their modeling framework and applied learning models to a wide range of different products and markets we argue that learning models have contributed greatly to our understanding of consumer behavior in particular in enhancing our understanding of brand loyalty and long run advertising effects we also discuss the limitations of existing learning models and potential extensions one key challenge is to disentangle learning as a source of

understanding responses to contradictory information about products although prior literature has examined reactions to drastic negative news we examine the situation in which decision makers receive contradictory information about products and they have to decide whether to persist with or abandon product usage we investigate physician reactions to conflicting information concerning the cardiovascular risk of avandia a diabetes drug we examine how beliefs about both drug effectiveness and drug safety are updated and speculate that experience expertise and self efficacy impact how such information is integrated with current quality beliefs unlike previous bayesian learning models we consider that some signals such as positive and negative news releases and the firm s marketing effort may be biased in that they provide an opinionated point of view the results show interesting differences in how physician types specialists hospital based primary care physicians heavy and light prescribers update their beliefs and the information sources they use to do so we find evidence that safety issues about avandia resulted in spillover concern to close competitor actos the results have implication for determining who should be targeted and what vehicles should be used if a firm is faced with a situation where consumers are in a quandary because of receiving conflicting messages

learning from experience simply there is substantial academic interest in modeling consumer experiential learning however approximately optimal solutions to forward looking experiential learning problems are complex limiting their behavioral plausibility and empirical feasibility we propose that consumers use cognitively simple heuristic strategies we explore one viable heuristic index strategies and demonstrate that they are intuitive tractable and plausible index strategies are much simpler for consumers to use but provide close to optimal utility they also avoid exponential growth in computational complexity enabling researchers to study learning models in more complex situations well defined index strategies depend on a structural property called indexability we prove the indexability of a canonical forward looking experiential learning model in which consumers learn brand quality while facing random utility shocks following an index strategy consumers develop an index for each brand separately and choose the brand with the highest index using synthetic data we demonstrate that an index strategy achieves nearly optimal utility at substantially lower computational costs using iri data for diapers we find that an index strategy performs as well as an approximately optimal solution and better than myopic learning we extend the analysis to incorporate risk aversion other cognitively simple heuristics heterogeneous foresight and an alternative specification of brands

measuring and decomposing economies of diversification an application to biogas fuelled cogeneration plants in austria abstract this paper investigates the existence and the degree of economies of diversification for small scaled renewable fuelled cogeneration systems using 2014 cross sectional data from 67 austrian biogas plants it is the first study applying the recently introduced concept of economies of diversification proposed by chavas and kim 2010 which is a generalization and decomposition of economies of scope economies of diversification are decomposed into three additive parts a part measuring complementarity among outputs a part reflecting economies of scale a part reflecting convexity in addition this paper extends the decomposition introduced by chavas and kim 2010 in such a way that the contribution of each input to economies of diversification and its components can be investigated the results indicate substantial cost savings from diversification for very small scaled plants 100 kwel most of the cost savings come from scale economies for larger plants 250 kwel positive complementarity and convexity effects are the main source of economies of diversification and outweigh the negative effect from scale diseconomies in addition to substantial fuel feedstock cost reductions significant costs saving effects from the jointness in labour and other inputs positively contribute to the complementarity effect while on average capital and labour costs positively contribute to economies of scale feedstock costs work in the direction of diseconomies of scale

monopoly in the uk what determines whether the mmc finds against the investigated firms this paper draws on data from 73 uk monopolies and mergers commission reports on monopoly between 1973 and 1995 it shows that there is a roughly two in three chance that the commission will come to an adverse conclusion against the investigated firms in a given case 75 80 of decisions can be explained purely in terms of the market share of the leading firm and knowledge of the broad nature of the alleged anti competitive practice an adverse finding is most likely in cases involving exclusive dealing and least likely where other vertical restraints are involved

try it you ll like it or will you the perils of early free trial promotions for high tech service adoption the proliferation of free trials for high tech services calls for a careful study of their effectiveness and the drivers thereof on one hand free trials can generate new paying subscribers by allowing consumers to become acquainted with the service free of charge on the other hand a disappointing trial experience might alienate potential customers when they decide not to adopt the system and are lost for good this dilemma is particularly worrisome in early periods when service quality has not been tried and tested in the field and breakdowns occur we accommodate these phenomena in a model of consumers free trial and regular adoption decisions among other effects it incorporates usage and word of mouth based learning about quality in a setting where quality itself is evolving consumers are forward looking in that they account for changes in quality and anticipate uncertainty reduction due to trial usage we estimate our model and run simulations on the basis of a rich and unique data set t

cross selling investment products with a win win perspective in portfolio optimization we propose a novel approach to cross selling investment products that considers both the customers and the bank s interests our goal is to improve the risk return profile of the customer s portfolio and the bank s profitability concurrently essentially creating a win win situation while deepening the relationship with an acceptable product our cross selling approach takes the customer s status quo bias into account by starting from the existing customer portfolio rather than forming an efficient portfolio from scratch we estimate a customer s probability of accepting a product offer with a predictive model using readily available data then we model the investment product cross selling problem as a nonlinear mixed integer program that maximizes a customer s expected return from the proposed portfolio while ensuring that the bank s profitability improves by a certain factor we implemented our methodology at the private banking division of yapi kredi the fourth largest private bank in turkey emp

informing transforming and persuading disentangling the multiple effects of advertising on brand choice decisions prior behavioral research has suggested that advertising can influence a consumer s quality evaluation through informative and transformative effects the informative effect acts directly to inform a consumer of product attributes and hence shapes her evaluations of brand quality the transformative effect affects the consumer s evaluation of brand quality by enhancing her assessment of her subsequent consumption experience in addition advertising may influence a consumer s utility directly even without providing any explicit information this is the persuasive effect in this paper we propose a framework that formally models the processes through which all three effects of advertisements impact consumers brand evaluations and their subsequent brand choice decisions in particular we model source credibility confirmatory bias and bounded rationality on the part of consumers by appropriately modifying the standard bayesian learning approach our model conforms closely to prior behavioral literature and the experimental findings therein in our empirical analysis we get significant estimates of both informative and transformative effects across brands we find interesting temporal patterns across the effects for instance the importance of transformative effects seem to grow over time while that of informative effects diminishes finally we conduct policy experiments to examine the impact of increased ad intensity on advertising effects as well as the role played by consumption ambiguity

competitive reactions to advertising and promotion attacks how do competitors react to each other s price promotion and advertising attacks what are the reasons for the observed reaction behavior we answer these questions by performing a large scale empirical study on the short run and long run reactions to promotion and advertising shocks in over 400 consumer product categories over a four year time span our results clearly show that the most predominant form of competitive response is passive in nature when a reaction does occur it is usually retaliatory in the same instrument i e promotion attacks are countered with promotions and advertising attacks are countered with advertising there are very few long run consequences of any type of reaction behavior by linking reaction behavior to both cross and own effectiveness we further demonstrate that passive behavior is often a sound strategy while firms that do opt to retaliate often use ineffective instruments resulting in spoiled arms accommodating behavior is observed in only a minority of cases and often results in a missed sales opportunity when promotional support is reduced the ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response not the vigilance of competitors

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

regulatory behaviour under threat of court reversal theory and evidence from the swedish electricity market this paper investigates how regulators influence outcomes in regulated markets when their decisions are subject to the threat of court review we develop a theoretical model that provides a number of behavioural implications when i all regulators dislike having their decisions overturned by courts ii inexperienced regulators care more about not having their decisions overturned than experienced regulators and iii experienced regulators also care about consumer surplus the theoretical implications are tested using a database of swedish regulatory decisions from the electricity distribution sector we provide empirical evidence that inexperienced regulators are more likely to set higher regulated prices than experienced regulators and as the complexity of the case increases there are on average more overturned decisions and higher prices for inexperienced regulators the links between experience complexity and regulatory outcomes are both statistically and economically significant simulations show that if those decisions that were not appealed had been appealed then the court would have lowered the prices by 10 on average

perception spillovers across competing brands a disaggregate model of how and when abstract drawing on the accessibility diagnosticity framework and previous literature on branding and order of entry the authors hypothesize that perception spillovers can also occur across directly competing products that do not share a common brand name the authors suggest two mechanisms prior perception spillover and dynamic perception spillover and one moderating variable product brand similarity to test for spillovers across competing brands the authors develop a structural bayesian learning model and estimate it using prescription choice and marketing communication data from a panel of physicians from their model results the authors find evidence of prior and dynamic perception spillovers across competing brands only when brands are sufficiently similar in contrast they find no evidence of spillover effects across brands that are highly dissimilar finally several policy experiments illustrate the strength and significance of competitive spillovers for product diffusion and from the re

price uncertainty and consumer search a structural model of consideration set formation we offer an econometric framework that models consumer s consideration set formation as an outcome of her costly information search behavior because frequently purchased products are characterized by frequent price promotions of varying depths of discounts a consumer faces significant uncertainty about the prices of the brands the consumers engage in a fixed sample search strategy that results in their discovering the posted prices of a subset of the available brands this subset is referred to as the consumer s consideration set the proposed model is estimated using the scanner data set for liquid detergents our key empirical results are i consumers zincur significant search costs to discover the posted prices of the brands ii whereas in store displays and feature ads do not influence consumers quality perceptions of the brands they significantly reduce search costs for observing the prices of the brands iii per capita income of consumer s household significantly increases her search costs and iv the consumers price sensitivity is seriously underestimated if we were to assume that consumers get to know all the posted prices at zero cost the proposed model is also estimated for the ketchup category to enable us to do cross category comparisons of consumers price search behavior

promotion effect on endogenous consumption over the years researchers have found that promotion makes consumers switch brands and purchase earlier or more however it is unclear how promotion affects consumption especially for product categories that are perceived to be versatile and substitutable in this paper we propose a dynamic structural model with endogenous consumption under promotion uncertainty to analyze the promotion effect on consumption this model recognizes consumers as rational decision makers who form promotion expectations and plan their purchase and consumption decisions in light of promotion schedule applying the proposed model to packaged tuna and yogurt we find that endogenous consumption responds to promotion as a result of forward looking and stockpiling behavior this is the first empirical paper that recognizes consumption as an endogenous decision variable and proposes a structural model to offer behavioral explanations on whether how and why promotion encourages consumption for product categories with flexible consumption