the value priority hypotheses for consumer budget plans based on the behavioral sciences and mathematical programming we hypothesize that consumers rank durables by a value or net value priority approximated by utility per dollar or utility minus price and plan to choose items in that order up to a budget cutoff this paper derives these hypotheses and develops a convergent linear programming procedure to estimate utility using primary field data on reservation prices purchase probabilities lottery orders and combination prizes we estimate utilities and compare the hypotheses to 215 actual budget plans lisrel v analysis provides further support for the hypotheses

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

news a decision oriented model for new product analysis and forecasting modeling efforts in the area of new product introductions have had a significant impact on marketing planning and strategy one result of these efforts bbdo s new product early warning system news has been used since the late 1960s to provide marketing managers with forecasts and diagnostic information regarding their new product strategies this article presents the specification of the news model its parameter estimation methods and its validation a brief case history is also included which illustrates how the model is applied in a typical new product situation news is designed to use a variety of readily obtainable input data to generate forecasts of consumer awareness trial repeat purchase usage sales and market share for a new brand these outputs combined with diagnostics from the model can then be incorporated into the marketing plan in a way that will improve the new entry s chances of success in the marketplace the model can be used to project early test market data news market

interconnectivity of communications networks and international trade in this study a multi country model of trade is developed that captures the role of country specific communications network interconnectivity which enhances trade in intermediate business services the number of countries connected to inter nationally interconnected networks is found to determine the structure of comparative advantage that is countries with interconnected networks have a comparative advan tage in the good that requires business services provided via networks in connected countries producers of that good benefit from the efficient transmission of business services this research also demonstrates that countries whose country specific net works are not connected to the interconnected networks may become worse off as the

network externalities discrete demand shifts and submarginal cost pricing the introduction of a new product often causes a massive discrete demand shift to the new product this study demonstrates that if a large scale demand shift to a new product is accompanied by network externalities it may result in submarginal cost pricing by which the seller sets its price below the marginal cost this finding casts new light on dumping and safeguard issues in the real world jel classification d42 externalites de reseaux deplacements discrets de la demande et tarification en deca du cout marginal l introduction d un nouveau produit engendre souvent un deplacement massif discret de la demande vers le nouveau produit cette etude montre que si un tel deplacement de la demande est accompagne d externalites de reseaux il peut s ensuivre une tarification en deca du cout marginal ou le vendeur fixe son prix en dessous du cout marginal ce resultat jette une lumiere nouvelle sur les problemes de dumping et de protection dans le monde reel

ownership patterns for durable goods and financial assets a rasch analysis there has been considerable discussion about the way in which consumers purchase durable and financial products and a number of modelling procedures have been used to examine this issue the present paper outlines a study that used a new and more general scaling approach the rasch model for this purpose using a larger than usual set of durable goods as well as a set of financial products it was found that both sets of products could be analysed using the rasch model and that there was an inherent order in the data further respondents in the sample followed the same order suggesting that examining subgroups as has been done in the past would be of little use a set of respondents backgroundcharacteristics was also collected that measured people s ability and willingness to purchase it was found that high levels of ownership were related to people s ability to purchase rather than to their willingness to purchase this suggests that the macro rather than the micro environment is likely to be t

voluntary export restraints and expectations an analysis of export quotas in oligopolistic markets the frequency of export quotas imposed as voluntary export restraints has been increasing this tends to create the expectation that similar export quotas will be imposed in the future even if free trade is allowed now the author analyzes the effect of such an expectation he demonstrates that if a quota is expected to be imposed on foreign exporting firms it intensifies the exporting firms competition in the prequota period this offsets the protection which the export quota as a voluntary export restraint will provide for domestic import competing firms in the future quota period copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

congestible communications networks and international trade we build a two country model of monopolistic competition with communications networks a communications network is characterized by 1 the existence of large fixed costs of network provision and 2 the presence of congestion it is demonstrated that both the size of a country and the relative magnitude of the congestion effect determine its comparative advantage if the congestion effect resp the cost sharing effect prevails universally a comparative advantage in the goods that require communications is held by the smaller resp larger of the two countries jel classification d43 f12 reseaux de communication congestion et commerce international ce memoire presente un modele de concurrence monopolistique a deux pays avec des reseaux de communication un reseau de communication est caracterise par 1 l existence de couts fixes importants pour la mise en place du reseau et 2 la presence de congestion on montre que la taille du pays et la magnitude relative de la congestion determinent l avantage comparatif si l effet de congestion ou respectivement l effet de partage des couts prevaut un avantage comparatif dans les biens qui demandent plus de communication est detenu par le plus grand respectivement le plus petit des deux pays

on the reswitching property of r d existing theoretical models of research and development r d treat r d as a single economic activity once r d terminates the only way for the activity to resume is by assuming some exogenous changes in the basic parameters of the model e g the distribution of technological advances in contrast this paper treats r d as two unique but dependent economic activities a sequential r d search model is developed to establish three fundamental results first reswitching of r d is endogenized success in development may bring research back as the next optimal choice of action it is shown that the reswitching phenomenon of the dynamic process of r d is a result of optimal decision making second when the economic returns based on existing production technology are low compared to what is potentially feasible the immediate returns to development are high thus development is preferable to research as the level of economic returns increases due to development success the likelihood of further developmen

dynamic analysis of consumer response to marketing strategies this paper develops a methodology for modeling consumer response that integrates previous research in stochastic brand selection diffusion of innovation test market analysis and new product design the methodology makes it practical to extend brand selection models to include diffusion phenomena such as awareness trial and information flow purchase timing and brand selection are interdependent and both phenomena depend jointly on managerial controls such as advertising coupons price off promotion product positioning and consumer characteristics within this general structure we provide practical estimation procedures a least squares approximation to the maximum likelihood estimates to determine the parameters which link managerial controls to consumer response closed form solutions are derived for cumulative awareness cumulative trial penetration expected sales and purchases due to promotion all as a function of time we also provide simplified expressions for equilibrium t market share tradeoffs among complexity of the diffusion process number of managerial variables nonstationarity complexity of purchase timing consumer segmentation and sample size are made explicit so that the marketing scientist can customize his analyses to the managerial problems that he faces the effects of sample size data interval frequency and collinearity in the explanatory variables are investigated with simulations based on a five state consumer response process which depends on 8 10 marketing variables the paper closes with a brief description of the application and predictive test of a consumer response model based on the methodology

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

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

dumping and dynamic competition abstract when the current output level affects future production costs domestic and foreign profit maximizing firms may set prices below current costs to gain experience antidumping enforcement which poses a barrier to below cost sales by foreign rivals changes the payoff structure of competition and alters the equilibrium decisions of both foreign and domestic firms a comparison of the nash equilibria with and without antidumping rules shows that these rules change market outcomes even when they do not appear to be binding ex post this positive analysis of antidumping enforcement complements previous studies that have considered the motivation for dumping

an empirical analysis of scarcity strategies in the automobile industry recent product introductions such as the xbox 360 sony playstation 2 and pt cruiser have been characterized by shortage of these products some experts have suggested that such scarcity can be a deliberate strategy for making the product more desirable in this paper we empirically examine the relationship between introductory inventory levels and consumer preference in the u s automobile industry and show that relative scarcity of a car at the time of introduction is associated with higher consumer preference for the product furthermore we perform an empirical test of alternative theories about the rationale for introductory product scarcity specifically we consider two theories of supplier induced scarcity namely the buying frenzy theory and the signaling theory and an alternative theory that suggests that demand uncertainty causes introductory product scarcity we find more support for the signaling theory of supplier induced scarcity than the buying frenzy theory or the demand uncertainty theory in our analysis of the automobile market

domino dumping i competitive exporters when exporting firms face the prospect of voluntary export restraints they have an incentive to export more than with no prospect of a voluntary export restraint since greater exports lead to larger license allocations in the event of a voluntary export restraint export country governments incentives differ leading either to export tax or subsidy depending on the circumstances the prospect of one departure from free trade thus leads to another a domino effect antidumping enforcement will ordinarily not eliminate and ironically may increase dumping copyright 1992 by american economic association

timing decisions of new product preannouncement and launch with competition abstract we develop a game theoretic model to study the timing of new product preannouncement and launch under competition we derive firms optimal timing choices and conducted a numerical analysis to evaluate the role of various factors our analytical and numerical results showed that anticipated competitor s timing choices are the most significant factors a firm should not preannounce early unless the preannouncement is effective in creating pent up demands however the preannouncement and launch should be rushed if the quality or profit margin of the new product is high and postponed if the market share of the existing product is high the market leader should preannounce earlier in a simultaneous game than in a sequential game but the opposite for the market follower data collected from the microprocessor industry validated our model

moviemod an implementable decision support system for prerelease market evaluation of motion pictures in spite of the high financial stakes involved in marketing new motion pictures marketing science models have not been applied to the prerelease market evaluation of motion pictures the motion picture industry poses some unique challenges for example the consumer adoption process for movies is very sensitive to word of mouth interactions which are difficult to measure and predict before the movie has been released in this article we undertake the challenge to develop and implement moviemod a prerelease market evaluation model for the motion picture industry moviemod is designed to generate box office forecasts and to support marketing decisions for a new movie after the movie has been produced or when it is available in a rough cut but before it has been released unlike other forecasting models for motion pictures the calibration of moviemod does not require any actual sales data also the data collection time for a product with a limited lifetime such as a movie should not take too long for moviemod it takes only three hours in a consumer clinic to collect the data needed for the prediction of box office sales and the evaluation of alternative marketing plans the model is based on a behavioral representation of the consumer adoption process for movies as a macroflow process the heart of moviemod is an interactive markov chain model describing the macro flow process according to this model at any point in time with respect to the movie under study a consumer can be found in one of the following behavioral states undecided considerer rejecter positive spreader negative spreader and inactive the progression of consumers through the behavioral states depends on a set of movie specific factors that are related to the marketing mix as well as on a set of more general behavioral factors that characterize the movie going behavior in the population of interest this interactive markov chain model allows us to account for word of mouth interactions among potential adopters and several types of word of mouth spreaders in the population marketing variables that influence the transitions among the states are movie theme acceptability promotion strategy distribution strategy and the movie experience the model is calibrated in a consumer clinic experiment respondents fill out a questionnaire with general items related to their movie going and movie communication behavior they are exposed to different sets of information stimuli they are actually shown the movie and finally they fill outpostmovie evaluations including word of mouth intentions these measures are used to estimate the word of mouth parameters and other behavioral factors as well as the movie specific parameters of the model moviemod produces forecasts of the awareness adoption intention and cumulative penetration for a new movie within the population of interest for a given base marketing plan it also provides diagnostic information on the likely impact of alternative marketing plans on the commercial performance of a new movie we describe two applications of moviemod one is a pilot study conducted without studio cooperation in the united states and the other is a full fledged implementation conducted with cooperation of the movie s distributor and exhibitor in the netherlands the implementations suggest that moviemod produces reasonably accurate forecasts of box office performance more importantly the model offers the opportunity to simulate the effects of alternative marketing plans in the dutch application the effects of extra advertising extra magazine articles extra tv commercials and higher trailer intensity compared to the base marketing plan of the distributor were analyzed we demonstrate the value of these decision support capabilities of moviemod in assisting managers to identify a final plan that resulted in an almost 50 increase in the test movie s revenue performance compared to the marketing plan initially contemplated management implemented this recommended plan which resulted in box office sales that were within 5 of the moviemod prediction moviemod was also tested against several benchmark models and its prediction was better in all cases an evaluation of moviemod jointly by the dutch exhibitor and the distributor showed that both parties were positive about and appreciated its performance as a decision support tool in particular the distributor who has more stakes in the domestic performance of its movies showed a great interest in using moviemod for subsequent evaluations of new movies prior to their release based on such evaluations and the initial validation results moviemod can fruitfully and inexpensively be used to provide researchers and managers with a deeper understanding of the factors that drive audience response to new motion pictures and it can be instrumental in developing other decision support systems that can improve the odds of commercial success of new experiential products

innovation diffusion in the presence of supply restrictions innovation diffusion models are developed to represent the spread of a new product from its manufacturers to its ultimate users in the marketplace however the growth of a new product can be retarded by supply restrictions such as the unavailability of the product due to limitations on the production capacity or difficulties encountered in setting up distribution systems in the presence of supply restrictions diffusion models must be developed to capture the dynamics of supply restrictions and to allow management to evaluate the impact of such supply restrictions on the growth of a new product in the market place based on the bass innovation diffusion model the objective of this paper is to suggest a parsimonious diffusion model that integrates the demand side dynamics with the supply side restrictions the sensitivity of innovation diffusion patterns in the presence of supply restrictions is examined an application examining the diffusion of new telephones in israel is documented to illustrate the usefulness of the proposed model

dumping at less than marginal cost abstract the traditional analysis of dumping in an export market treats the term merely as a synonym for price discrimination in an international context crucially it does not predict that goods will be sold overseas at price less than marginal cost this paper explores the possibility that dumping can occur in the more obvious lay sense of selling at less than marginal cost it suggests three reasons why this may occur in circumstances of uncertainty pursuance of managerial goals and strategic entry deterrence in the first of these the traditional prediction of reduced surplus for domestic consumers is no longer assured

trade and communication costs two models in which communication costs are a cost to trade are investigated one model looks at the role of communication in determining the firms geographic extent in the use of local factor services communication costs are modelled as a quasi public good network in which communication services are provided by an average cost pricing monopolist the network technology is subject to increasing returns congestion effects and network externalities the second model focuses on communication for the purposes of international trade in goods with similar assumptions on the technology of communication as in the first model in this model an important distinction is made between international equilibrium and global equilibrium in both models the impact of reductions in communication costs on the market extent of firms trade volumes and productivity are examined the models have generic multiple equilibria with quite different welfare and comparative static properties

on the reswitching and convergence properties of research development rivalry under an alternate assumption of the payoff function we analyze lee s dynamic game model of r d rivalry both similarities and differences in the equilibrium results of the model are obtained it is shown that both the reswitching property and the convergence property of r d rivalry are robust under the alternate assumption the reswitching property of r d rivalry states that after gaining a technological edge against a rival a decision maker stops doing r d and he will resume doing r d when his rival succeeds in narrowing the technological gap between the two rivals the convergence property of r d rivalry states that when the technology levels of two rivals differ by a wide margin the one with a lower technology level will be the only one doing r d to narrow the technological gap between the two rivals this formalizes the perception of r d managers that the r d decision of one firm should depend on the r d decision of its rivals for competitive reasons moreover when multiple nash equilibria exist

innovation firm size and growth in a centralized organization the optimal innovation firm size and growth are derived for a centrally controlled firm in which only the entrepreneur evaluates and restores current projects or evaluates and adopts new projects current projects are subject to failure due to entry and possible obsolescence while new projects may not be successful the optimal allocation of attention implies bounds on firm size and that the rate of innovation depends not only on monopoly profits firm size and technological opportunity but also on the probability of obsolescence the effects of monopoly power and firm size on innovation also depend on the degree of obsolescence

reality check combining choice experiments with market data to estimate the importance of product attributes discrete choice models estimated using hypothetical choices made in a survey setting i e choice experiments are widely used to estimate the importance of product attributes in order to make product design and marketing mix decisions choice experiments allow the researcher to estimate preferences for product features that do not yet exist in the market however parameters estimated from experimental data often show marked inconsistencies with those inferred from the market reducing their usefulness in forecasting and decision making we propose an approach for combining choice based conjoint data with individual level purchase data to produce estimates that are more consistent with the market unlike prior approaches for calibrating conjoint models so that they correctly predict aggregate market shares for a baseline market the proposed approach is designed to produce parameters that are more consistent with those that can be inferred from individual level market data the proposed method relies on a new general framework for combining two or more sources of individual level choice data to estimate a hierarchical discrete choice model past approaches to combining choice data assume that the population mean for the parameters is the same across both data sets and require that data sets are sampled from the same population in contrast we incorporate in the model individual characteristic variables and assert only that the mapping between individuals characteristics and their preferences is the same across the data sets this allows the model to be applied even if the sample of individuals observed in each data set is not representative of the population as a whole so long as appropriate product use variables are collected that can explain the systematic deviations between them the framework also explicitly incorporates a model for the individual characteristics which allows us to use bayesian missing data techniques to handle the situation where each data set contains different demographic variables this makes the method useful in practice for a wide range of existing market and conjoint data sets we apply the method to a set of conjoint and market data for minivan choice and find that the proposed method predicts holdout market choices better than a model estimated from conjoint data alone or a model that does not include demographic variables

chapter 7 pretest market forecasting 6 summary pretest market models provide a low cost and rapid method to test the combined product advertising price promotion selling and distribution plan the full proposition analyses are sufficiently accurate to identify most winners and eliminate most losers they provide an effective way to control the risks of failure and supply actionable managerial diagnostics to improve the product the output is a high quality product that meets customer needs and reaches the market quickly pretest market models are an accepted practice for most frequently purchased products but are relatively new for consumer durables they are now being developed and tested for really new industrial products and services since pretest markets are extremely valuable in reducing risk and increasing the expected benefit of new products we expect that proven models will soon be available for all products and services research on premarket forecasting in these new industries should be the highest priority for future work

on the joint decisions of r d and technology adoption this paper attempts to bridge the gap between r d models that do not consider technology adoption decisions and technology adoption models that do not consider r d decisions it develops and analyzes a decision theoretic model on the joint decisions of r d and technology adoption of a firm two interesting comparative statics results are obtained first an increase in the cost of r d reduces the incentive for a firm to do r d secondly an increase in the cost of technology adoption or an increase in the market interest rate reduces the incentive for a firm to adopt new technology and also reduces the incentive for a firm to do r d under certain conditions an increase in the cost of r d increases the incentive for a firm to adopt new technology

new brand positioning and pricing in an oligopolistic market the positioning and pricing of a new brand requires knowledge about the relationship of both demand and cost with potential attribute locations and prices this paper addresses this problem and illustrates it in the context of the automobile market multi attribute expected utility theory which allows for consumer uncertainty about the brands is used to model individuals behavior attribute weights are estimated from market survey data on brands attributes and preferences using linmap as an estimation procedure expected utility is then updated using the multinomial logit model and choice data to account for the observation that stated preferences do not perfectly reflect the eventual choice it is hypothesized that when faced with an actual choice price may become more important to the consumer while other attributes may become more or less important than is reflected in stated preferences the resulting estimated choice probabilities are aggregated to form demand functions facing each brand which depend on all brands prices and attribute space locations assuming there is a price equilibrium in the existing market and that firms have the same variable cost function variable costs as a function of a brand s attribute levels are estimated given the demand and cost functions facing each firm including the potential new entrant the profit maximizing positioning and pricing of a new brand is analyzed using a game theoretic approach a solution is sought under the assumption that incumbents react to entry by changing their prices possible approaches to the translation of the perceptual attribute positioning of the new brand to physical and engineering attributes are reviewed improvements and future extensions of the study are discussed

what you don t know might hurt you some unresolved issues in the design and analysis of discrete choice experiments the papers and comments in this issue focus on four broad areas related to understanding and modeling choices 1 the use of laboratory experiments to improve valuation methods 2 the design of stated preference choice set and choice occasions 3 latent class models as means of identifying and accommodating preference heterogeneity and 4 accommodating uncertainty about the true model modeling ranking and rating tasks and pooling data sources in what follows i offer some comments on each area and briefly discuss several unresolved issues associated with each area closing with some comments about future research opportunities