the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns

time varying stock price response to earnings induced by uncertainty about the time series process of earnings in this paper i examine how changes in the level of uncertainty about the time series process of earnings affect the magnitude of the stock price response to earnings announcements the basic premise is that when there is more uncertainty about the time series parameters of earnings a given level of unexpected earnings can have a larger effect on stock price because it is weighted more heavily by investors in determining the value of the firm tests are based on a simple model in which price is a function of expected future earnings which follow a random walk with drift time

the wealth effect and diamond risk structure of financial regulation the objective of this article was to evaluate the effect of announcements of financial regulation on risk and return in the vietnamese equity market the techniques used for the purpose of analysing risk and return include event study and non parametric tests as well as asset pricing models supplemented with interaction variables and a variety of arch like specifications such as garch tarch egarch and parch we find evidence for the wealth effect the presence of delayed response and a risk shifting behaviour in the form of diamond risk structure our results show that abnormal returns are present around the announcements of operating rules and other stock market regulations abnormal returns can also be obtained after considering legal documents such as circulars and decisions

measuring the effects of regulation with stock price data this article examines the usefulness of stock returns in measuring the effects of regulation when the dates on which market expectations change are not known and standard sources e g the wall street journal are used to choose announcement dates twenty major changes in regulatory constraint since 1887 are considered tests using either monthly or daily data are found to have surprisingly little ability to detect the effects of regulation the evidence shows that formal regulatory announcements are generally anticipated in cases where it is unclear when expectations change

firms fiscal years size and industry abstract most u s corporations choose their fiscal years to coincide with the calendar year we document that the larger the firm the more likely it is to begin its fiscal year in january this finding holds across industries

market implication of predisc10sure information size and exchange effects differential market reactions to earnings announcements can inter alia be ascribed to the extent to which such announcements entail surprise i e unexpected information the greater the predisclosure information the less the surprise element in earnings announcements since there is no direct measure of predisclosure information the literature has utilized two different proxies i firm size the size effect atiase 1980 1985 and ii exchange listing the exchange effect grant 1980 atiase 1980 argues that private predisclosure information production and dissemination are an increasing function of firm size capitalization if so the amount of unexpected information conveyed to the market by actual earnings reports should be inversely related to firm size other things equal empirical evidence in atiase 1985 supports this hypothesis grant 1980 found that for otc firms the average price revaluation associated with annual earnings announcements is significantly higher in the report week relative to both nonannouncement

how does the stock market react to the announcement of green policies abstract we investigate the impact of 19 announcements of environmental regulation on the equities listed on the australian stock exchange over the period 2005 2011 using a well established event study methodology we assess whether these announcements are value constructive or destructive for equity investors additionally we estimate the change in systematic risk following the announcements our results show that the australian market was particularly sensitive to the carbon pollution reduction scheme cprs announcement a cumulative abnormal return of 31 was recorded in the alternative energy sector after australia submitted its target range to the copenhagen accord we observe that a move towards a greener nation has a mixed effect on abnormal returns with apparent sector by sector differences green policies appear to affect the long term systematic risk of industries leading to the diamond risk phenomenon

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

the dynamic effect of discounting on sales empirical analysis and normative pricing implications baseline sales measure what retail sales would be in the absence of a promotion abraham and lodish 1993 and models that measure baseline sales are widely used by managers to assess the profitability of promotions bucklin and gupta 1999 this issue estimates of baseline sales and promotional response are typically independent of past promotional activity even though there is evidence to suggest that increased discounting reduces off promotion sales and increases the percentage of purchases made on deal e g krishna 1994 as a result models that do not consider dynamic promotional effects can mislead managers to overpromote given the widespread use of static models to evaluate the efficacy of promotions it is particularly desirable to calibrate a dynamic brand sales model and use it to establish an optimal course of action accordingly we develop a descriptive dynamic brand sales model and use it to determine normative price promotion strategies our descriptive approach consists of estimating a varying parameter sales response model letting model parameters vary with past discounting activity accommodates the possibility that market response changes with firms discounting policies in the normative model we use the estimates obtained in the descriptive model to determine optimal retailer and manufacturer prices over time the results of the descriptive model indicate that promotions have positive contemporaneous effects on sales accompanied by negative future effects on baseline sales the results of the normative model suggest that the higher share brands in our data tend to overpromote while the lower share brands do not promote frequently enough we project that the use of our model could improve manufacturers profits by as much as 7 to 31 more generally the normative results indicate that i if deals become more effective in the current period i e if consumers are more price sensitive promotions should be used more frequently and ii as the negative dynamic effect of discounts on sales increases the optimal level of discounting should go down without our approach it would be difficult to make this trade off exact finally we demonstrate that these dynamic effects provide another perspective to the marketing literature regarding the existence of promotions

price promotions limiting competitive encroachment in this paper we explore equilibrium pricing strategies in an infinite horizon repeated game for an oligopoly we model the interactions between three firms in a market of switchers and loyals our analysis shows that if there are sufficiently large number of switchers in the market the demand parameter is within an acceptable range and the firms have a sufficiently low discount rate alternating promotions between national firms can be an outcome of a perfect nash equilibrium between competing firms this equilibrium results in an implicit collusion between national firms and therefore suggests that price promotions can be interpreted as a long run strategy pursued by national firms to defend their market shares from possible encroachments of a third firm in this way we attempt to provide an explanation for the patterns of promotion observed in some industries and in particular the beverage industry

a resource based perspective on corporate environmental performance and profitability drawing on the resource based view of the firm we posited that environmental performance and economic performance are positively linked and that industry growth moderates the relationship with the returns to environmental performance higher in high growth industries we tested these hypotheses with an analysis of 243 finns over two years using independently developed environmental ratings results indicate that it pays to be green and that this relationship strengthens with industry growth we conclude by highlighting the study s academic and managerial implications making special reference to the social issues in management literature

deregulation contestability and airline acquisitions abstract we test whether airline consolidations generate monopoly profits by examining returns to listed carriers around horizontal airline acquisition bids and evaluating effects of industry concentration on share price reactions under civil aeronautics board cab regulation returns to targets bidders and rival carriers are positive functions of changes in concentration implied by bids changes in concentration after deregulation have no positive effect on carrier returns these results support jordan s 1970 1972 hypothesis that cab activities fostered carrier collusion there is no evidence of monopoly gains from carrier consolidations after deregulation

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

option listing and the stock price response to earnings announcements abstract we examine the effect of option listing on the immediate stock price response to earnings announcements contrary to prior studies using earlier data we find firms initiating option trading after 1986 fail to exhibit a significant decline in earnings response we then examine 420 firms initiating option trading during 1973 1993 in a series of tests controlling for market wide effects and changing firm size we find some evidence that option listing may actually increase the stock price response to earnings but no evidence listing reduces the response both longitudinal and cross sectional tests produce similar results

an investigation into the order of the brand choice process this paper investigates the order of the brand choice process at the individual family level using a variety of tests t likelihood ratio binomial runs and multinomial runs tests the test of stationarity developed permits separate analyses for stationary and nonstationary purchase sequences our analyses indicate that the purchase sequences of a majority of stationary consumers are consistent with the zero order assumption this result is observed for all the nine frequently bought packaged goods studied with the use of panel data and for a product category soft drinks using experimental data

price induced patterns of competition this research focuses on how price changes influence the observed pattern of brand competition the paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition a price tier model is proposed to operationalize the theory and to allow predictive testing the price tier model is estimated on 28 brands across four product categories the results show a specific asymmetric pattern of price competition higher price higher quality brands steal share from other brands in the same price quality tier as well as from brands in the tier below however lower price lower quality brands take sales from their own tier and the tier below brands but do not steal significant share from the tiers above the results are consistent with a bimodal preference distribution with the regular price indifference point being located toward the lower quality end of the preference distribution for the categories analyzed

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

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

trading volume reactions to annual accounting earnings announcements the incremental role of predisclosure information asymmetry abstract this study provides empirical evidence regarding the effect of annual accounting earnings announcements on investors trading behavior we find that the magnitude of trading volume reaction is an increasing function of both the magnitude of the associated price reaction and the level of predisclosure information asymmetry these results are consistent with kim and verrecchia s 1991a theoretical trading volume proposition

the impact of terrorism on financial markets an empirical study the main focus of this paper is to previous termstudynext term empirically the previous termimpact of terrorismnext term on the behavior of stock bond and commodity previous termmarkets next term we consider terrorist events that took place in 25 countries over an 11 year time period and implement our analysis using different methods an event previous termstudynext term approach a non parametric methodology and a filtered garch evt approach in addition we compare the effect of terrorist attacks on previous termfinancial markets with the impactnext term of other extreme events such as previous termfinancialnext term crashes and natural catastrophes the results of our analysis show that a non parametric approach is the most appropriate method among the three for analyzing the previous termimpact of terrorism on financial markets next term we demonstrate the robustness of this method when interest rates equity previous termmarketnext term integration spillover and contemporaneous effects are controlled we show how the results of this approach can be used for investors portfolio diversification strategies against previous termterrorismnext term risk

mergers and the market concentration doctrine evidence from the capital market the last 3 decades of vigorous enforcement of u s antimerger laws is based on the market concentration doctrine one of the oldest and most controversial propositions in industrial economics this doctrine which is an implication of oligopoly models in the tradition of cournot 1838 1927 and nash 1950 holds that the level of industry concentration is a reliable index of the industry s market power the empirical implication is that a relatively high level of industry concentration which in the presence of entry barriers is believed to facilitate intraindustry collusion or dominant firm pricing should be associated with relatively large industrywide monopoly rents following bain 1951 numerous the market concentration doctrine predicts that a horizontal merger is more likely to have collusive anticompetitive effects the greater the merger induced change in industry concentration since a collusive anticompetitive merger generates an increase in the industry s quality adjusted product price or a decrease in factor prices it also follows from the doctrine that the mergerinduced expected benefits to the product market rivals of the merging firms should be an increasing function of the concentration change the empirical results of this paper which are based on the industry wealth effect of a large sample of horizontal mergers including cases found in violation of antimonopoly laws fail to support this prediction this conclusion is robust with respect to assumptions concerning the probability that a proposed merger will be prevented by the law enforcement agencies and it continues to hold after transforming the industry wealth effect into a hypothetical constant expected change in the industry s product price the results imply that the levels of concentration and market shares found in the department of justice s merger guidelines are unlikely to identify truly anticompetitive mergers i wish to thank paul asquith gregg jarrell rex thompson walter vandaele the participants of the economics workshop at the antitrust division of the u s department of justice and a referee of this journal for helpful comments earlier drafts were presented at the 1983 meetings of the european association for research in industrial economics and at the 1984 meetings of the western finance association financial support from the social sciences and humanities research council of canada grant no 494 83 0091 and the u s federal trade commission is also gratefully acknowledged 1 a closely related but somewhat less general prediction is that high levels of concentration should be associated with relatively high supracompetitive product prices although

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

on the efficiency of least squares regression with security abnormal returns as the dependent variable monte carlo procedures are used to compare the finite sample performance of several estimators that may be used in cross sectional regressions with security abnormal returns as the dependent variable alternative models of event induced increases in stock return variance are examined for the event clustering scenario event clustering implies crosssectional correlation and heteroskedasticity in market model prediction errors violating one of the fundamental ordinary least squares ols assumptions i i d disturbances nonetheless provided that the conditions for asymptotic validity derived by greenwald 1983 are met the ols estimator is well specified in finite samples further for sufficiently large cross sections there is no advantage to several other more complex estimators

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

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

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

the determination of fair profits for the property liability insurance firm although the property liability insurance industry has been subject to price regulation for many years surprisingly little research has been directed at producing valuation models of a property liability insurance firm although property liability price regulation has historically involved setting minimum prices to reduce the risk of insolvency some commissions have begun to move toward setting prices more in the spirit of public utility regulation 1 if in an effort to promote efficiency the working objective of such regulation requires the determination of prices that would prevail under competition then regulation must be founded on some model of the costs of regulated firms under competition with free entry prices just cover all economic costs including the opportunity costs of investment by suppliers of capital and a valuation model is required to explain how the market value of the firm and therefore the cost of capital reacts to changes in the prices it charges our objective in this chapter is to provide such a framework

observed and unobserved preference heterogeneity in brand choice models this paper extends the scanner based choice literature by explicitly incorporating individual level brand preference data we illustrate our model using a unique data set that combines survey and scanner data collected from the same individuals the addition of individual specific brand preference information significantly improves fit and prediction furthermore this observed heterogeneity better explains choice than does unobserved heterogeneity in the standard scanner model s parameters more importantly we find that the standard model underestimates the importance of consumers brand preferences and overestimates both brand loyalties and price sensitivities brand loyalty is overestimated because models without preference information confound state dependence heterogeneity and preference effects price sensitivities are inflated because the average preference based consumer is implicitly assumed to be more willing to switch from his preferred brand than is the real preference based consumer further standard models overestimate the heterogeneity in price and loyalty sensitivities and misidentify both price and loyalty sensitive consumers the managerial implications of our findings and the applicability of our methodology when survey data are collected infrequently and for only a subsample of consumers are pursued we demonstrate that even under these circumstances better populationwide pricing and promotion decisions are identified and more accurate targeting results

decomposing the sales promotion bump with store data sales promotions generate substantial short term sales increases to determine whether the sales promotion bump is truly beneficial from a managerial perspective we propose a system of store level regression models that decomposes the sales promotion bump into three parts cross brand effects secondary demand cross period effects primary demand borrowed from other time periods and category expansion effects remaining primary demand across four store level scanner datasets we find that each of these three parts contribute about one third on average one extension we propose is the separation of the category expansion effect into cross store and market expansion effects another one is to split the cross item effect total across all other items into cannibalization and between brand effects we also allow for a flexible decomposition by allowing all effects to depend on the feature display support condition and on the magnitude of the price discount the latter dependence is achieved by local polynomial regression we find that feature supported price discounts are strongly associated with cross period effects while display only supported price discounts have especially strong category expansion effects while the role of the category expansion effect tends to increase with higher price discounts the roles of cross brand and cross period effects both tend to decrease

a simultaneous approach to the whether what and how much to buy questions consumer s purchase decisions of whether to buy what to buy and how much to buy are examined simultaneously based on a consumer utility maximization problem an unobservable threshold price about which a consumer pivots from nonpurchase to purchase can be deduced with any model specification the interrelationships between purchase decisions can be explicitly derived the model is applied to coffee purchasing data in addition by suppressing the nonpurchase options the model is compared with an alternative approach appearing in the marketing literature

wealth effects of regulatory reform abstract this paper investigates the effect of california s proposition 103 on the market value of publicly traded property and liability insurance companies the passage of this referendum on november 8 1988 moved california from a market oriented to a heavily regulated insurance pricing system during the period surrounding the election the average stock price of insurance companies doing business in california declined by 6 91 the decline is positively related to the proportion of a firm s premiums affected by the referendum and the proportion generated in other states where insurance regulation is likely to change and negatively related to the firm s profitability

an empirical investigation of advertising strategies in a dynamic duopoly the equilibrium profit maximizing advertising policies of firms operating in a dynamic duopoly are derived by linking in a single framework the econometric estimation of the market response function and the technique of differential games that characterizes dynamic competitive behavior we use the lanchester model of combat to represent the system dynamics that capture the competitive shifts due to investments in advertising by the two market rivals we determine the equilibrium advertising levels using both closed and open loop policies we also compare these equilibrium advertising policies for each firm to those obtained using an optimal control theory formulation wherein the advertising spending levels of the rival are assumed to be known the empirical results obtained by analyzing the advertising rivalry between coke and pepsi for the period 1968 1981 under the above three alternative spending policies provide some interesting insights into the nature of competition between these two market rivals a significant contribution of this paper is to extend the existing literature on advertising competition by integrating theoretical and empirical analyses

investigating purchase incidence brand choice and purchase quantity decisions of households we develop a comprehensive utility maximizing framework to study the impact of marketing variables on the category purchase brand choice and purchase quantity decisions of households for frequently purchased packaged goods the model allows for dependence among the three decisions while ensuring that these decisions provide in combination the greatest possible utility to the household by accounting for variations in reservation prices and intrinsic brand preferences across households the modeling framework explicitly captures the effects of unobserved heterogeneity on all three purchase decisions the principal empirical finding from analyzing the a c nielsen data for the yogurt product category is that the substantive implications for the effects of marketing variables are sensitive to whether these effects are determined conditional or unconditional on a product category purchase our results show that reservation prices and intrinsic brand preferences vary across households and not accounting for these variations in the estimation could lead to biased estimates for the coefficients of the marketing variables a comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals that our proposed model performs better using both a formal statistical test as well as the criterion of predictive validity in a holdout sample of panelists further the purchase quantity model compares favorably with two alternative models of quantity choice in the validation sample

learning forgetting and sales sellers of almost any product or service rarely keep their prices constant through time and frequently offer price discounts or sales this paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product and learn about its fit and where informed consumers may forget about or change their preferences we investigate the role of the rate of consumer forgetting on the timing between sales and of the rate of consumer learning and menu costs on the length of a sale the rate of consumer forgetting can be linked to the length of purchase cycle and the level of consumer involvement we show that the discount frequency and the discount depth are increasing in the rate of consumer forgetting and that the discount frequency is increasing in the learning rate the duration of a sale is increasing in the rate of consumer forgetting and the rate of consumer learning

consumer learning brand loyalty and competition in several markets consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase this could then generate loyalty for the products tried first this paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products given what they learned in the first period the paper finds that if the distribution of valuations for each product is negatively positively skewed a firm benefits is hurt in the future from having a greater market share today the brand loyalty characteristic with negative skewness two effects are identified on one hand marginal forward looking consumers are less price sensitive than myopic consumers and this is a force toward higher prices on the other hand forward looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices for similar discount factors for consumers and firms the latter effect dominates the paper also characterizes the importance of consumer learning effects on the market outcome

a market based evaluation of the election versus appointment of regulatory commissioners this paper examines the elected versus appointed commissioner dichotomy from a market value perspective previous empirical analysis tends to concentrate on rates rather than examining the impact on shareholders wealth we examine life insurance industry data during the period surrounding the passage of california s proposition 103 the primary impact of the referendum on life insurers is to change the method of commissioner selection from appointment to popular vote we find that this change significantly reduced the value of life insurers doing business in california this result is consistent with the recent findings of boyes and mcdowell 1989 and smartt 1994 using alternative evaluation procedures for firms in other regulated industries this implies that the change to a popular election of commissioners either increases the level of risk and or decreases the expected cash flows of regulated firms

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

price competition under stockpiling and flexible consumption abstract conventional wisdom suggests that the main effect of price promotion is on brand switching i e secondary demand however some recent studies demonstrate that the primary demand expansion effect can be considerably larger than previously believed a significant driver of this primary demand effect is consumer stockpiling in response to price promotions indeed experimental studies have shown that additional inventory on hand can lead to an endogenous increase in consumption the authors develop a model of price competition between firms in response to the stockpiling and subsequent consumption dynamics of consumers in this setting the flexible consumption effect causes more intense price competition deeper promotions and an increase in the frequency of promotions the authors use two years of scanner panel data from eight product categories and 4313 stockkeeping units to test three implications of the theoretical model they find strong support for each

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

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