what drives the high moments of hedge fund returns abstractwe study the high moment distribution of hedge fund returns and identify factors that drive high moment risk using hedge fund monthly returns we find a strong correlation between the first four moments of returns i e mean standard deviation sd skewness and kurtosis and different characteristics of the funds such as leverage liquidity incentives and strategy related factors we find that after controlling for other factors incentives related factors and a hedge fund s specific strategy have the greatest impact on the distribution of fund returns our evidence also suggests investors allocate across hedge fund characteristics while placing greater emphasis on fund strategies and incentive factors

does price elasticity vary with economic growth a cross category analysis abstract how does price sensitivity change with the macroeconomic environment the authors explore this question by measuring price elasticity using household level data across 19 grocery categories over 24 quarters for each category they estimate a separate random coefficients logit model with quarter specific price response parameters and control functions to address endogeneity this specification yields a novel set of 456 elasticities across categories and time that are generated using the same method and therefore can be directly compared on average price sensitivity is countercyclical it rises when the macroeconomy weakens however substantial variation exists and a handful of categories exhibit procyclical price sensitivity the authors show that the relationship between price sensitivity and macroeconomic growth correlates strongly with the average level of price sensitivity in a category they examine several explanations for this result and conclude that a category s share of wallet is th

de facto exchange rate arrangement tightness and bilateral trade flows abstract this paper estimates the effect of switching into and out of 14 different modes of exchange rate arrangements on bilateral exports between 1948 and 2001 in the world economy increasing the exchange rate arrangement tightness by one degree in the classification of reinhart and rogoff reinhart carmen m and kenneth s rogoff 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics 119 1 48 increases bilateral trade flows by about 2 4 as compared to their initial level

prelaunch forecasting of new automobiles this paper develops and applies a prelaunch model and measurement system to the marketing planning of a new automobile the analysis addresses active search by consumers dealer visits word of mouth communication magazine reviews and production constraints issues that are important in understanding consumer response to durable goods we address these issues with a detailed consumer flow model which monitors and projects key consumer transitions in response to marketing actions a test vs control consumer clinic provides data which with judgment and previous experience are used to calibrate the model to fit the sales history of the control car we illustrate how the model evolved to meet management needs and provided suggestions on advertising dealer training and consumer incentives comparison of the model s predictions to actual sales data suggests reasonable accuracy when an implemented strategy matches the planned strategy

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

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

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

bounded rationality in pricing under state dependent demand do firms look ahead and if so how far the authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state dependent demand rather than assuming that firms are perfectl

product positioning under price competition this paper presents a consumer based methodology for new product pricing and positioning in the face of price competition the price competition is modelled as a nash equilibrium for which two complementary approaches are employed an analytical approach of duopoly provides qualitative insights into the competitive behavior and a numerical approach of general oligopoly provides quantitative solutions under a wide variety of market scenarios the optimal product positioning is formulated as a stackelberg nash leader followers equilibrium which can be solved numerically using recent advances in the field of variational inequalities a small example concerning analgesics is used to illustrate this methodology

on the distribution of exchange rate regime treatment effects on international trade abstract this paper provides evidence of heterogeneous treatment effects on trade for six different types of exchange rate regime transitions utilizing data on 218 643 country pair year observations all together previous research mainly focused on the currency union effect on trade and widely assumed that country pairs with identical observable characteristics receive the same effect we test the hypothesis of a homogeneous treatment effect empirically and find substantive statistical support for the presence of effect heterogeneity moreover we characterize the probability distribution of effect heterogeneity among observationally equivalent country pairs by way of a random coefficients model we estimate selected features of the empirical distributions of the treatment effects for each of the six different types of exchange rate regime transitions under two different sets of assumptions about the probability distribution of effect heterogeneity our findings suggest that the immediate effects on trade from switching to an exchange rate regime different from the one in the outset have wide waists and exhibit large positive extreme values we estimate the probability of two countries to experience an immediate positive effect on the growth of bilateral trade due to the adoption of any new exchange rate regime tighter or not to be approximately one half

additional evidence on bonus plans and income management abstract we extend healy 1985 by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980 1990 period contrary to healy we find that when earnings before discretionary accruals fall below the lower bound managers select income increasing discretionary accruals and vice versa we believe that our results are more consistent with the income smoothing hypothesis than with healy s bonus hypothesis however mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results

equilibrium price communication and unadvertised specials by competing supermarkets this paper is concerned with how retailers supermarkets in particular communicate price discounts and use unadvertised specials a common practice for supermarkets is to communicate price deals on some products through newspaper advertisements while communicating discounts on other products through in store mechanisms such as shelf talkers this raises the question so far as store choice is concerned how might consumers take into account not only advertised prices at competing stores but also expected prices of unadvertised goods it also begs the question of why stores have unadvertised specials since their effect on store choice is not quite the same as the advertised discounts further competing supermarkets advertise the same products part of the time and different products at other times they also tend to sometimes advertise a product in consecutive weeks but sometimes not can these actions be part of a strategy we formulate a game theoretic model of retail competition by first extending the work of lal and matutes 1994 and then developing an alternative framework to answer these questions our model has two retailers each of whom carries two goods to simplify exposition we assume that the stores are symmetric the two goods are symmetric in their reservation prices and are neither substitutes nor complements consumers are identical in their preferences and consumer heterogeneity is in the convenience that each store presents to a representative consumer the stores may advertise the price of one good reflecting the reality that stores do not advertise their whole assortment they compete through advertising and prices to maximize profits we thus recognize the strategic role of advertised prices and furthermore we investigate the strategic role of unadvertised prices in retail competition for this model we derive a rational expectations nash equilibrium in which each store randomly advertises the price of one good following a mixed strategy consumer expectations of the prices of the unadvertised goods are rational we obtain three kinds of results first unadvertised specials occur in equilibrium and induce temporal and cross sectional variation in the identity of advertised goods consistent with casual observation in this equilibrium the two stores advertise the same good part of the time and different goods at other times when they advertise the same good they do not offer any unadvertised discount on the other good however when they advertise different goods they offer an unadvertised discount on the good that they do not advertise intuitively unadvertised discounts come about because stores randomize the identity of the advertised good in the mixed strategy equilibrium if retailers were to advertise the same good at all times they would have to compete intensely for store traffic and therefore discount the advertised good very deeply and having done so they would find it optimal to set the unadvertised good at the reservation price and offer no discount on it however if stores randomize the advertised good as shown in this paper both stores advertise the same good some of the time and at other times they advertise different goods because they advertise different goods some of the time they do not fight intensely for store traffic on just one good but rather they find it optimal to offer a discount on the unadvertised good also as a result an implication of our equilibrium for consumer choice is that unadvertised discounts affect store choice and in equilibrium some consumers may shop around second we obtain managerial insights into the role of unadvertised specials they affect store choice prevent consumer shopping around either fully or partly and reduce head to head competition on the price of the advertised good the most salient strategic implication of retailers offering unadvertised discounts is to reduce competition among stores and this is again due to the randomization strategy of the stores in fact stores can reduce head to head competition further by increasing the number of products in their assortment and randomizing on the advertised good from this assortment third we provide a resolution of the diamond 1971 paradox which says that prices at competing stores approach the monopoly price in our equilibrium expected prices of both advertised and unadvertised goods are always below the monopoly price

do hedge funds manage their reported returns f or funds with high incentives and more opportunities to inflate returns we find that i returns during december are significantly higher than returns during the rest of the year even after controlling for risk in both the time series and the cross section and ii this december spike is greater than for funds with lower incentives and fewer opportunities to inflate returns these results suggest that hedge funds manage their returns upward in an opportunistic fashion in order to earn higher fees finally we find strong evidence that funds inflate december returns by underreporting returns earlier in the year but only weak evidence that funds borrow from january returns in the following year jel g10 g19 g23 g30

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

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

do female gender role attitudes affect labour market participation in egypt abstractwe analyse the inter generational relationship of attitudes towards gender roles and their impact on individuals labour market participations in egypt we find a strong correlation between mothers and daughters perceptions of gender roles unlike the existing literature perceptions are not associated with the labour market status even if we control for endogeneity issues using an instrumental variable regression furthermore higher educated females are more likely to be unemployed in egypt these results imply that perceptions among females are not translated into their labour market behaviour and the supply side policies alone may not be sufficient for improving young women s employment opportunities

discussion of a market based evaluation of discretionary accrual models the use of accrual models has been pervasive in accounting research in the past ten years this literature has sought to examine whether and why managers use discretion in financial reporting the findings suggest that managers use their discretion for a wide range of reasons including to increase their own compensation and protect their job security to communicate their expectations of long term firm performance with investors and to create stockholder wealth at the expense of other stakeholders such as debtholders taxpayers and regulatory bodies of course the power and internal validity of these tests depend critically on whether the models of accruals used in the studies are well specified guay kothari and watts s henceforth gkw paper attempts to provide evidence on this question by modeling the relation between stock returns and discretionary accruals and nondiscretionary earnings gkw then examine whether the five most popular accrual models used in the literature produce discretionary accruals and nondiscretionary earnings that conform to their modeling predictions the findings suggest that even the most effective models the jones and modified jones models do only a modest job of parsing earnings into discretionary and nondiscretionary components taken at face value the findings of the gkw paper have serious consequences for how readers should interpret the findings of earlier earnings management studies however such strong conclusions are

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

the role of targeted communication and contagion in product adoption the two main influences leading to adoption at the individual consumer level are marketing communication and interpersonal communication although evidence of the effect of these two influences is abundant at the market level there is a paucity of research documenting the simultaneous effect of both influences at the individual consumer level thus the primary objective of this paper is to fill the gap in the literature by documenting the existence and magnitude of both influences at the individual customer level while controlling for unobserved temporal effects the pharmaceutical industry provides an appropriate context to study this problem it has been conjectured that adoption and usage patterns of a new drug by physicians contagion acts as a consumption externality as it allows a given physician to learn about the efficacy and use of the drug in addition pharmaceutical companies target individual physicians via marketing activities such as detailing sampling and direct to consumer adverti

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

modeling asymmetric competition the effects of the marketing actions of one brand can be distributed among its competitors market shares in a complex manner this paper presents and illustrates methods for modeling brand competition and brand strategies in markets where competitive effects can be differentially and asymmetrically distributed we discuss the empirical specification parameter estimation and competitive strategy implications of the models proposed price and advertising competition among eleven brands of an australian household product is used to illustrate the application of these procedures

empirical analysis of competitive product line pricing decisions lead follow or move together researchers have recently developed models for determining which market conduct best describes observed data we apply these techniques from the new empirical industrial organization literature to the competitive product line pricing decision where a firm strategically prices its brands when determining the profit maximizing conduct in the market demand cost and market structure are estimated endogenously empirical results from analyzing price competition in the laundry detergent market between procter and gamble selling tide and eraplus and lever brothers offering wisk and surf indicate that each firm positions its strong brand as a stackelberg leader with the rival s minor brand being the follower

is 75 of the sales promotion bump due to brand switching no only 33 is abstract several researchers have decomposed sales promotion elasticities based on household scanner panel data a key result is that the majority of the sales promotion elasticity approximately 74 on average is attributed to secondary demand effects brand switching and the remainder is attributed to primary demand effects timing acceleration and quantity increases the authors demonstrate that this result does not imply that if a brand gains 100 units in sales during a promotion the other brands in the category lose 74 units the authors offer a complementary decomposition measure based on unit sales the measure shows the ratio of the current cross brand unit sales loss to the current own brand unit sales gain during promotion the authors report empirical results for this measure they also derive analytical expressions that transform the elasticity decomposition into a decomposition of unit sales effects these expressions show the nature of the difference between the two decompositions to ga

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

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

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

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

modeling multiple sources of heterogeneity in multinomial logit models methodological and managerial issues we offer a framework to specify and estimate various sources of heterogeneity in multinomial logit brand choice models we let each brand specific intercept and each parameter of the explanatory variable vector vary randomly across households in addition we distinguish loyal households from the rest our results suggest that incorporating multiple sources of heterogeneity improves the model fit and suggests higher impact of marketing mix elements on brand choice we highlight the importance of incorporating multiple sources of heterogeneity the model we implement yields valuable managerial insights

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

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

vertical relationships between manufacturers and retailers inference with limited data in this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared demand estimates are used to compute price cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed the purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non nested competing models the models considered are 1 a simple linear pricing model 2 a vertically integrated model and 3 a variety of alternative strategic supply scenarios that allow for collusion non linear pricing and strategic behaviour with respect to private label products using data on yogurt sold in several stores in a large urban area of the u s the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain this is consistent with non linear pricing by the manufacturers or high bargaining power of the retailers

endogeneity in semiparametric binary response models this paper develops and implements semiparametric methods for estimating binary response binary choice models with continuous endogenous regressors it extends existing results on semiparametric estimation in single index binary response models to the case of endogenous regressors it develops a control function approach to account for endogeneity in triangular and fully simulataneous binary response models the proposed estimation method is applied to estimate the income effect in a labor market participation problem using a large micro data set from the british fes the semiparametric estimator is found to perform well detecting a significant attenuation bias the proposed estimator is contrasted to the corresponding probit and linear probability specifications jel c14 c25 c35 j22

a control function approach to endogeneity in consumer choice models abstract endogeneity arises for numerous reasons in models of consumer choice it leads to inconsistency with standard estimation methods that maintain independence between the model s error and the included variables the authors describe a control function approach for handling endogeneity in choice models observed variables and economic theory are used to derive controls for the dependence between the endogenous variable and the demand error the theory points to the relationships that contain information on the unobserved demand factor such as the pricing equation and the advertising equation the authors approach is an alternative to berry levinsohn and pakes s 1995 product market controls for unobserved quality the authors apply both methods to examine households choices among television options including basic and premium cable packages in which unobserved attributes such as quality of programming are expected to be correlated with price without correcting for endogeneity aggregate d

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

pricing patterns as outcomes of product positions prior empirical work shows that different markets are characterized by different pricing patterns such as bertrand nash pricing or stackelberg leader follower pricing the author considers a duopolistic market where ex ante identical firms sequentially position their products prior to competing on prices in a single or multiperiod setting and show that the unique equilibrium outcome involves 1 firms choosing stackelberg pricing over bertrand nash pricing and 2 the positioning first mover acting as the price leader an attractive property of this model is that the ex post larger firm acts as the price leader which is consistent with prior empirical evidence copyright 1999 by university of chicago press

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

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

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

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

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

multiple faces of preferential market access their causes and consequences this paper suggests an integrated approach to study selection into and consequences of five modes of preferential economic integration agreements peias goods trade agreements gtas services trade agreements stas double taxation treaties dtts bilateral investment treaties bits and currency unions as well as currency pegs cuas a detailed descriptive analysis reveals typical integration patterns with dtts and bits often being first steps towards deeper integration we consider the effects of peias on bilateral goods trade services trade and fdi and provide conclusive evidence that single and combined peias are associated with positive effects not only on single outcome but typically on all outcomes investment liberalization through dtts and bits seems to be particularly beneficial since concluding them alone or in any combination with other agreements encourages goods trade even more than the liberalization of goods trade per se peter egger and georg wamser

time varying competition normative models typically suggest that prices rise in periods of high demand and cost however in many markets prices fall when demand or costs rise this inconsistency occurs because the normative models assume that competitive intensity does not change with demand and cost conditions over time we therefore introduce the notion of time varying competition by suggesting that it is important not only to account for the direct effect of demand and cost on prices e g higher demand means higher prices but also the indirect effect of demand and cost changes on competition e g higher demand could cause more competition and hence lower prices we develop a general unified framework to empirically model the direct and indirect effects of demand and cost shifts on pricing in differentiated product markets our approach allows us to measure the indirect effect of multiple demand and cost drivers on competitive intensity and test predictions from alternative theories of repeated games the empirical application is to the u s photographic film industry where there are two main players kodak and fuji we find that the indirect effects are highly significant and comparable in magnitude to the direct effects competitive intensity is greater in periods of high demand and lower cost and is moderated by whether demand or costs are expected to grow or decline interestingly we find asymmetries in the competitive responses of kodak and fuji while kodak is sensitive to demand factors fuji is sensitive to costs our results suggest that market characteristics such as observability of competitor prices can be an important determinant of how competitive intensity is affected by demand and cost conditions

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

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

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

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

beyond the endogeneity bias the effect of unmeasured brand characteristics on household level brand choice models we investigate the role of potential weekly brand specific characteristics that influence consumer choices but are unobserved or unmeasurable by the researcher we use an empirical approach based on the estimation methods used for standard random coefficients logit models to account for the presence of such unobserved attributes using household scanner panel data we find evidence that ignoring such time varying latent to the researcher characteristics can lead to two types of problems first consistent with previous literature we find that these unobserved characteristics may lead to biased estimates of the mean price response parameters this argument is based on a form of price endogeneity if marketing managers set prices based on consumer willingness to pay then the observed prices will likely be correlated with the latent to the researcher brand characteristics we resolve this problem by using an instrumental variables procedure our findings suggest that simply ignoring these attributes may also lead to larger estimates of the variance in the heterogeneity distribution of preferences and price sensitivities across households this could overstate the benefits from marketing activities such as household level targeting we resolve the problem by using weekly brand intercepts embedded in a random coefficients brand choice model to control for weekly brand specific characteristics while accounting for household heterogeneity overall our results extend the finding on the endogeneity bias from the mean of the heterogeneity distribution i e the price effect to include the variance of that distribution

rational herding in microloan markets microloan markets allow individual borrowers to raise funding from multiple individual lenders we use a unique panel data set that tracks the funding dynamics of borrower listings on prosper com the largest microloan market in the united states we find evidence of rational herding among lenders well funded borrower listings tend to attract more funding after we control for unobserved listing heterogeneity and payoff externalities moreover instead of passively mimicking their peers irrational herding lenders engage in active observational learning rational herding they infer the creditworthiness of borrowers by observing peer lending decisions and use publicly observable borrower characteristics to moderate their inferences counterintuitively obvious defects e g poor credit grades amplify a listing s herding momentum as lenders infer superior creditworthiness to justify the herd similarly favorable borrower characteristics e g friend endorsements weaken the herding effect as lenders attribute herding to these observable merits follow up analysis shows that rational herding beats irrational herding in predicting loan performance this paper was accepted by pradeep chintagunta marketing

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

incorporating consumer price expectations in diffusion models in this paper the sensitivity of the optimal price path of a new durable product to the price expectations of consumers is examined consumers enter the market every period in a diffusion type framework during the initial periods more consumers enter the market due to word of mouth influence but in the latter periods saturation effects set in the entering set of cohorts form expectations about future prices and in a stable equilibrium these expectations are fulfilled it is shown that the price path is cyclical with the following properties at the beginning of the cycle the price is at its highest level it falls monotonically over time reaching a low price at the end of the cycle equal to the reservation price of the consumers willing to pay less the cycle lengths are not equal the sensitivity of the optimal price path to model parameters is explored through a numerical procedure

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

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

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

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

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

the evolution of internal market structure we present a dynamic factor analytic choice model to capture evolution of brand positions in latent attribute space our dynamic model allows researchers to investigate brand positioning in new categories or mature categories affected by structural change such as entry we argue that even for mature categories not affected by structural change the assumption of stable attributes may be untenable we allow for evolution in attributes by modeling individual level time specific attributes as arising from dynamic means the dynamic attribute means are modeled as a bayesian dynamic linear model dlm the dlm is nested within a factor analytic choice model our approach makes efficient use of the data by leveraging estimates from previous and future periods to estimate current period attributes we demonstrate the robustness of our model with data that simulate a variety of dynamic scenarios including stationary behavior we show that misspecified attribute dynamics induce temporal heteroskedasticty and correlation between the preference weights and the error term applying the model to a panel data set on household purchases in the malt beverage category we find considerable evidence for dynamics in the latent brand attributes from a managerial perspective we find advertising expenditures help explain variation in the dynamic attribute means

incentives discretion and asset valuation in closed end mutual funds this paper studies earnings management using 363 closed end mutual fund firm years of data closed end fund assets consist of unrestricted and restricted securities and realized and unrealized income while unrestricted securities are not subject to earnings management restricted security values are largely discretionary managerial valuation of restricted securities is modeled as contingent on unrestricted returns relative to a performance benchmark four unrestricted performance regions are identified known multi period compensation incentives become the basis for hypothesizing earnings management behaviors in the regions in the form of restricted security valuation across several benchmarks the results are consistent with multi period maximization rather than simpler single period compensation maximization or income smoothing funds with extreme unrestricted performance show relatively larger income decreasing earnings management and funds with slightly below benchmark returns show relatively larger income increasing earnings management than those slightly above these results clarify the relationship between complex earnings management behavior and managerial incentives

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

a bayesian semiparametric approach for endogeneity and heterogeneity in choice models marketing variables that are included in consumer discrete choice models are often endogenous extant treatments using likelihood based estimators impose parametric distributional assumptions such as normality on the source of endogeneity these assumptions are restrictive because misspecified distributions have an impact on parameter estimates and associated elasticities the normality assumption for endogeneity can be inconsistent with some marginal cost specifications given a price setting process although they are consistent with other specifications in this paper we propose a heterogeneous bayesian semiparametric approach for modeling choice endogeneity that offers a flexible and robust alternative to parametric methods specifically we construct centered dirichlet process mixtures cdpm to allow uncertainty over the distribution of endogeneity errors in a similar vein we also model consumer preference heterogeneity nonparametrically via a cdpm results on simulated data show that incorrect distributional assumptions can lead to poor recovery of model parameters and price elasticities whereas the proposed semiparametric model is able to robustly recover the true parameters in an efficient fashion in addition the cdpm offers the benefits of automatically inferring the number of mixture components that are appropriate for a given data set and is able to reconstruct the shape of the underlying distributions for endogeneity and heterogeneity errors we apply our approach to two scanner panel data sets model comparison statistics indicate the superiority of the semiparametric specification and the results show that parameter and elasticity estimates are sensitive to the choice of distributional forms moreover the cdpm specification yields evidence of multimodality skewness and outlying observations in these real data sets data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1811 this paper was accepted by j miguel villas boas marketing

managing blood donations with marketing blood banks rely on marketing to encourage donors to give blood many if not most blood banks in the united states are community based not for profit organizations with limited marketing budgets as a result blood banks increasingly use novel and inexpensive online media i e paid owned and earned poe media in their marketing efforts we propose a dynamic model to help blood bank marketing managers understand how blood donations can be managed via online poe media we analytically characterize the optimal forward looking paid media strategies taking into account the asymmetric costs related to shortage and excess of blood as well as the possibility of a cost free target donation zone we detail new advertising resource allocation rules for blood banks and show when traditional allocation recommendations do not apply additionally we discover that under certain circumstances owned earned media activities hurt the blood bank s performance despite being predominantly free we validate our analytical model by using daily donation data from a community based blood bank and measure the effects of poe media activities on the level of blood donated

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

currency unions and trade the effect is large the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated copyright cepr ces msh 2001

investigating heterogeneity in brand preferences in logit models for panel data in analyzing panel data the issue of heterogeneity across households is an important consideration if heterogeneity is present but is ignored in the analysis it will result in biased and inconsi

proactive and reactive product line strategies asymmetries between market leaders and followers to what extent do firms engage in product line actions simultaneously with actions in other marketing variables what are the determinants of product line actions to what extent are product line actions proactive to what degree are they reactive how can a firms product line action elasticity percent change in product line length with respect to percent change in competitors past and anticipated actions be decomposed into reaction and anticipation elasticities are product line actions and elasticities symmetric across market leaders and followers to address these questions we develop a conceptual framework comprising determinants of product line and other marketing actions in a single framework we formulate hypotheses about the asymmetries between market leaders and followers regarding product line actions based on extended expectancy valence and competitive demand elasticity theories we develop a simultaneous equation model of demand and supply with product line and other marketing actions which can be used to identify reaction and anticipation elasticities through the rational expectations approach we estimate the model using data from the computer printer market comprising the market leader hewlett packard hp and followers epson canon and lexmark the results show that the market leader practices a product proliferation strategy and rarely fights on price in contrast market followers adopt a price fighting strategy a firm is more likely to engage in product line actions when its competitors changed their product lines in the past when the firm is large and when its price is high product line reaction and anticipation elasticities are asymmetric between themselves and across the firms for the market leader followers product line reaction elasticity is higher lower than product line anticipation elasticity these differences are related to product line demand elasticities which are higher for the market leader than they are for the followers

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

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

rational herding toward the poor evidence from location decisions of microfinance institutions within pakistan analyzing the geographical location of almost all the microfinance institutions mfis within pakistan this paper gives further evidence that microfinance activities do not reach the poorest rural areas especially we explore how this result is driven by the uncertainty faced by mfis in their location decision i e they can hardly predict accurately whether or not they will perform financially furthermore we find that mfis are spatially clustered and identify three main reasons for this common attraction factors i e the characteristics of one area fits to the preferences of all mfis so that they are all located in the same areas payoff externalities to be collocated and herd behavior i e mfis follow one another most importantly we find that a significant part of this herding process is rational i e early locations of mfis convey information used by later ones such that it reverses or neutralizes the negative impact of uncertainty resulting then in more locations in needier areas since it allows them to be located in poorer areas mfis improve the achievement of their social goal this latter result is rather good news for those who reckon that a better access to financial services enhances economic growth and fosters poverty alleviation indeed rational herding constitutes an endogenous moderator effect to the big issue that financial services penetration is too weak in the poorest rural areas

annual bonus schemes and the manipulation of earnings abstract using confidential data of executive specific short term bonus plans we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments as such this paper extends the work of healy 1985 like healy we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum unlike healy we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus we demonstrate that healy s results at the lower bound are likely to be induced by his methodology

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

hedge funds pricing controls and the smoothing of self reported returns w e investigate the extent to which hedge fund managers smooth self reported returns in contrast to prior research on the anomalous properties of hedge fund returns we observe the mechanisms used to price the fund s investment positions and report the fund s performance to investors thereby allowing us to differentiate between asset illiquidity and misreporting based explanations we find that funds using less verifiable pricing sources and funds that provide managers with greater discretion in pricing investment positions are more likely to have returns consistent with intentional smoothing traditional controls however such as removing the manager from the setting and reporting of the fund s net asset value and the use of reputable auditors and administrators are not associated with lower levels of smoothing with respect to asset illiquidity versus misreporting investment style and portfolio characteristics explain 14 0 24 3 of the variation in our smoothing measures and pricing controls explain an additional 4 1 8 8 suggesting that asset illiquidity is the major factor driving the anomalous properties of self reported hedge fund returns jel g12 g23 m41 m42

logit demand estimation under competitive pricing behavior an equilibrium framework discrete choice models of demand have typically been estimated assuming that prices are exogenous since unobservable to the researcher product attributes such as coupon availability may impact consumer utility as well as price setting by firms we treat prices as endogenous specifically prices are assumed to be the equilibrium outcomes of nash competition among manufacturers and retailers to empirically validate the assumptions we estimate logit demand systems jointly with equilibrium pricing equations for two product categories using retail scanner data and cost data on factor prices in each category we find statistical evidence of price endogeneity we also find that the estimates of the price response parameter and the brand specific constants are generally biased downward when the endogeneity of prices is ignored our framework provides explicit estimates of the value created by a brand i e the difference between consumers willingness to pay for a brand and its cost of production we develop theoretical propositions about the relationship between value creation and competitive advantage for logit demand systems and use our empirical results to illustrate how firms use alternative value creation strategies to accomplish competitive advantage

commentaries and rejoinder to measuring the impact of negative demand shocks on car dealer networks by paulo albuquerque and bart j bronnenberg this series of discussions presents commentaries and a rejoinder on strategic and managerial issues arising from albuquerque and bronnenberg albuquerque p b j bronnenberg 2012 measuring the impact of negative demand shocks on car dealer networks marketing sci 31 1 4 23

a latent instrumental variables approach to modeling keyword conversion in paid search advertising abstract the authors present a modeling approach to assess the purchase conversion performance of individual keywords in paid search advertising the model facilitates estimation of daily keyword conversion and click through rates in a sparse data environment while accounting for the endogenous position of the text advertisement served in response to a search position endogeneity in paid search data can arise from both omitted variables and measurement error the authors propose a latent instrumental variable approach to address this problem they estimate their model on keyword level paid search data containing daily information on impressions clicks and reservations for a major lodging chain they find that higher positions increase both the click through and conversion rates when advertisements are served in higher positions approximately one third of new conversions is due to increased click through while approximately two thirds are due to increased conversion rates the authors show that the ke

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates

a dynamic model of the effect of online communications on firm sales interpersonal communications have long been recognized as an influential source of information for consumers internet based media have facilitated information exchange among firms and consumers as well as observability and measurement of such exchanges however much of the research addressing online communication focuses on ratings collected from online forums in this paper we look beyond ratings to a more comprehensive view of online communications we consider the sales effect of the volume of positive negative and neutral online communications captured by web crawler technology and classified by automated sentiment analysis our modeling approach captures two key features of our data dynamics and endogeneity in terms of dynamics we model daily measures of online communications about a firm and its products as contributing to a latent demand generating stock variable to account for the endogeneity we extend the latent instrumental variable technique to account for dynamic endogenous regressors our results demonstrate a significant effect of positive negative and neutral online communications on daily sales performance failure to account for endogeneity results in a severe attenuation of the estimated effects from a managerial perspective we demonstrate the importance of accounting for communication valence as well as the impact of shocks to positive negative and neutral online communications

what motivates managers choice of discretionary accruals abstract the papers by subramanyam 1996 and kasanen kinnunen and niskanen kkn 1996 both consider why managers manipulate accounting accruals subramanyam finds that discretionary accruals are associated with several performance measures and concludes that managers accrual choices increase the informativeness of accounting earnings however a strong competing alternative is that the jones model systematically mismeasures discretionary accruals so that they contain a significant non discretionary component unlike many us studies kkn find strong evidence of earnings management in finland where finnish managers set earnings to satisfy the demand for dividends by keiretsu like institutional investors

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