the optimality of consumer stockpiling strategies the ability of consumers to make rational sequential purchase quantity decisions under imperfect knowledge about future prices in a product category is explored normatively a consumer should make such decisions by defining a series of reservation prices which define how many buying periods supply should be held given an observed price an experiment is reported in which consumers make sequential purchase quantity decisions under variations in the shape of the distribution of prices and its trend over time results suggest a number of systematic deviations from optimality when facing stationary uniform and bimodal price distributions for example subjects tend to systematically overbuy when small purchases are called for and underbuy when large purchases are called for likewise when facing ascending or descending series behavior is the opposite of that predicted by the normative analysis there is an increasing tendency to defer purchases given increasing prices and accelerate purchases given descending prices an explanation for the findings in terms of a prospect theory type loss function in expenditures is offered

excise taxes with multiproduct transactions i examine excise taxes levied on multiproduct retailers excise taxes reduce equilibrium output and decrease equilibrium product variety in the short run but taxes can raise output per product in the long run and induce entry excise taxes are overshifted into prices in a wide range of cases including under linear and concave demand conditions and excise taxes shift less than one for one into prices only when demand is highly convex multiproduct transactions substantively alter the efficiency of ad valorem and specific forms of excise taxes and affect the comparison of relative tax performance over short run and long run time horizons jel h25 h32 l11 l13 l81

do mergers increase product variety evidence from radio broadcasting mergers can reduce costs and alter incentives about how to position products so that theory alone cannot predict whether mergers will increase product variety we document the effect of mergers on variety by exploiting the natural experiment provided by the1996 telecommunications act we find that consolidation reduced station entry and increased the number of formats available relative to the number of stations we find some evidence that increased concentration increases variety absolutely based on the programming overlap of jointly owned stations we can infer that the effects operate through product crowding that is consistent with spatial preemption

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

do switching costs make markets less competitive abstract the conventional wisdom in economic theory holds that switching costs make markets less competitive this article challenges this claim the authors formulate an empirically realistic model of dynamic price competition that allows for differentiated products and imperfect lock in they calibrate this model with data from frequently purchased packaged goods markets these data are ideal in the sense that they have the necessary variation to identify switching costs separately from consumer heterogeneity equally important consumers exhibit inertia in their brand choices a form of psychological switching cost this makes the results applicable to the broad range of products that are distinctly identified i e branded rather than just to products for which there is a product adoption cost or explicit switching fee in the simulations prices are as much as 18 lower with than without switching costs more important equilibrium prices do not increase even in the presence of switching costs that

please or squeeze brand performance implications of constrained and unconstrained multi item promotions existing research on price promotions typically investigates the effects of single product promotions however brand managers often promote multiple items simultaneously to bolster the performance of a complete brand line this paper investigates the brand performance implications of such multi item promotions we distinguish between two types of multi item promotions traditional unconstrained multi item promotions that grant a discount irrespective of the size or composition of the purchase set and constrained multi item promotions that require consumers to purchase specific quantities self bundling or even predetermined combinations fixed bundling of promoted items using a normative consumer decision model the authors analyze the relative effectiveness of these promotions in terms of unit sales and revenue impact and show that promotion performance is moderated by consumers preference for variety the authors find that unconstrained multi item promotions outperform single item promotions especially in markets without variety seeking in markets with variety seeking unconstrained multi item promotions are not as effective in stealing extra sales from competition because consumers prefer to spread their purchases across all items including competitive ones however in those markets self bundling promotions are particularly effective because they force consumers to adopt larger amounts of the promoted items at the expense of competitors finally in neither type of market does fixed bundling substantially improve promotion performance

cooperatives as entrants a potential shortcoming of game theoretic models in industrial organization is their failure to consider consumers as players we introduce a customer coalition a cooperative as a potential entrant and compare the cooperative entry threat with that posed by the usualforprofit entrant we identify four fundamental distinctions between cooperative andfor profit entrants and demonstrate that the strategic interplay between a cooperative and an incumbent firm may differ markedly from that between the incumbent and a for profit entrant the results impart a prospectively powerful role to potential cooperatives in beneficially regulating free market performance

do people understand monetary policy abstract we combine questions from the michigan survey about future inflation unemployment and interest rates to investigate whether households are aware of the basic features of u s monetary policy our findings provide evidence that some households form their expectations in a way that is consistent with a taylor 1993 type rule we also document a large degree of variation in the pattern of responses over the business cycle in particular the negative relationship between unemployment and interest rates that is apparent in the data only shows up in households answers during periods of labor market weakness

nonparametric tests of market structure an application to the cigarette industry the revealed preference approach is used to construct a nonparametric test of the monopoly model and some simple generalizations of it and the test is applied to data for the cigarette industry it exploits the maintained hypothesis that variations in the excise tax charged on a package of cigarettes allow us to assess seller reactions to common exogenous variations in marginal cost results indicate that the monopoly hypothesis and other simple models that do not embody at least a moderate amount of competition serve as poor predictors of the effects of excise tax changes on cigarette prices sales and revenues copyright 1987 by blackwell publishing ltd

industrialization and consolidation in the u s food sector implications for competition and welfare good sources for information on recent developments in food market structure include barkema drabenstott and welch u s department of agriculture 1996b and rogers my objective is not to add to this literature but rather to consider what we have learned as a profession about the rapid consolidation in food processing and distribution what are its implications for market power economic efficiency and the distribution of economic welfare among producers consumers and marketers

measuring market power in multi product oligopolies the us meat industry this paper develops and estimates an economic model for measuring market power in a quantity setting oligopoly engaged in the joint production of demand related goods the model which allows for firms conjectures about both same and cross market responses to own output variation is applied to the us meat beef and pork industry he hypothesis that the industry s equilibrium reflects price taking behaviour is rejected the hypothesis of no cross effects cannot be rejected roughly half of the farm to retail price spreads for beef and pork appear to be attributable to market power

expectation formation in a new environment evidence from the german reunification abstract exploiting the german reunification we study how households adapt to a new environment in their macroeconomic forecasting east germans expect higher inflation than west germans decades after reunification these differences are likely driven by the persistent effect of the inflation shock after reunification which contrasted strongly with experiences of zero inflation in the gdr east germans higher inflation expectations are reflected in higher consumer debt and lower bond holdings our findings suggest that large changes in the environment can permanently impede people s ability to form expectations with an important role for the interaction of experiences before and after the event

bundling as an entry barrier in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to credibly defend both products without having to price low in each the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist although price discrimination provides a reason to bundle the gains are small compared with the gains from the entry deterrent effect i introduction in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to defend both products without having to price low in each while it is still possible to compete by offering a rival bundle a monopolist can significantly lower the potential profits of a one product entrant without having to engage in limit pricing prior to entry we also show that bundling continues to be an effective pricing tool even if entry deterrence fails or if there is already an existing one product rival a company with a monopoly in product a and a duopoly in product b makes higher profits by selling an a b bundle than by selling a and b independently leveraging market power from a into b and accepting some one product competition against the bundle is better than using the monopoly power in good a all by itself since bundling mitigates the impact of competition on the incumbent an entrant can expect the bundling strategy to persist even without any commitment the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist see stigler 1968 adams and yellen

how do firms form their expectations new survey evidence author s coibion o gorodnichenko y kumar s abstract 2018 american economic association all rights reserved we survey new zealand firms and document novel facts about their macroeconomic beliefs there is widespread dispersion in beliefs about past and future macroeconomic conditions especially inflation this dispersion in beliefs is consistent with firms incentives to collect and process information using experimental methods we find that firms update their beliefs in a bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation

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

inflation expectations and firm decisions new causal evidence author s coibion o gorodnichenko y ropele t abstract 2019 the author s we use a unique design feature of a survey of italian firms to study the causal effect of inflation expectations on firms economic decisions in the survey a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not this information treatment generates exogenous variation in inflation expectations we find that higher inflation expectations on the part of firms leads them to raise their prices increase demand for credit and reduce their employment and capital however when policy rates are constrained by the effective lower bound demand effects are stronger leading firms to raise their prices more and no longer reduce their employment

the effects of cross ruff coupons on sales and profits cross ruff coupons are obtained at the time of purchase of a carrier brand and may be redeemed at a later date on a target brand these coupons therefore have the ability to link consumer purchases across different brands as well as shopping trips we model the effects of cross ruff coupons on consumer choice behavior and derive the conditions under which cross ruff coupons can lead to higher sales and profits than other types of package coupons the model also provides insights into the selection of appropriate carrier and target brands and on how the choice of an appropriate carrier or a target brand is affected when the categories that these brands belong to are demand complements or substitutes we conduct an empirical analysis using data from 195 different cross ruff coupon campaigns observed in grocery stores in a major u s city over a three month period the data are consistent with the key insights provided by the model

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

variety seeking through brand switching a concept of variety seeking behavior is modeled as a stochastic brand choice model the model yields a measure of variety seeking for each individual consumer panel data for 28 products are analyzed for each household and the possibility of market segmentation by variety seeking behavior is explored

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

why do hot dogs come in packs of 10 and buns in 8s or 12s a demand side investigation this paper presents a theory that yields insight into the determination of package prices and sizes consumer heterogeneity in consumption rates storage costs and transactions costs costs of making trips to the store explains differences in package sizes and unit prices in the model fully informed consumers and a monopolist seller pursue optimizing behavior the seller chooses package sizes and prices to maximize profits and the consumers select package sizes that maximize their utilities the authors show that consumer heterogeneity may induce the seller to offer more than one size and that larger sizes would be sold either at unit price discounts or unit price premiums welfare implications and empirical tests of the theory are presented copyright 1987 by the university of chicago

imperfect competition functional forms and the size and distribution of research benefits abstract the effects of functional forms for supply and demand on the size and distribution of the returns to research are examined under a range of forms of competition under perfect competition the choice of functional form is relatively unimportant for the estimation of research benefits under imperfect competition the combination of the choice of functional forms for supply and demand and the nature of the research induced supply shift can have profound implications for the results functional form plays a much more important role than in the competitive model the most important contrast is between the constant elasticity model and the linear model along with various cases of a generalized linear model these findings are illustrated using a combination of analytical results and numerical simulations

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

explaining disagreement on interest rates in a taylor rule setting most studies on disagreement focus on one specific variable thereby neglecting the fact that disagreement can be co moving with disagreement on other variables in this paper we explore to what extent disagreement regarding the interest rate is driven by disagreement on inflation and unemployment this relationship can be motivated by the theoretical concept of the taylor rule using survey microdata for both professional forecasters and consumers we provide evidence that disagreement on the interest rate is mainly driven by disagreement on inflation we further show that disagreement is significantly influenced by central bank transparency as well as news on money and credit conditions

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

the farm retail price spread in an imperfectly competitive food industry in a previous article in this journal gardner investigated the effects of three distinct forces affecting food system equilibria shifts in retail demand shifts in farm commodity supply and shifts in marketing input supply he derived comparative static predictions about how the quotient of retail and farm prices the retailfarm price ratio would adjust to changes in each of these exogenous effects the investigation was conducted within a framework that

on the perils of stabilizing prices when agents are learning abstract the main advantage of price level stabilization compared with inflation stabilization rests on the central bank s ability to shape expectations we show that stabilizing prices is no longer optimal when the central bank can shape expectations of agents with incomplete knowledge who have to learn about the policy implemented disinflating in the short run more than agents expect generates short term gains without triggering an abrupt loss of confidence because agents update expectations sluggishly following this policy in the long run the central bank loses the ability to shape agents beliefs and the economy converges to a rational expectations equilibrium in which policy does not stabilize prices economic volatility is high and agents suffer the corresponding welfare losses however these losses are outweighed by short term gains from the learning phase

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

innovation and the evolution of market structure this paper examines the association between innovation and the evolution of market structure a dynamic model of market concentration is applied to seventy three u k industries 1970 79 and the results are found to be consistent with the hypothesis that innovation is deconcentrating the results reported here and those contained in earlier work combine to suggest that innovation and changes in market concentration interact in a relatively rapid mutually reinforcing but rather weak spiral of increased innovation and decreasing concentration copyright 1990 by blackwell publishing ltd

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

inattentive professional forecasters abstract using the ecb survey of professional forecasters to characterize expectations at the micro level we emphasize two new facts forecasters i fail to systematically update their forecasts and ii disagree even when updating it is moreover found that forecasters have predictable forecast errors these facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information a la mankiw reis and noisy information a la sims however building and estimating such an expectation model we find that it cannot quantitatively replicate the error and disagreement observed in the data

excess entry vertical integration and welfare this article provides a systematic analysis of the welfare effects of vertical integration by a monopolist input supplier into a monopolistically competitive downstream industry we give sufficient conditions on consumer preferences that lead to pareto improving vertical integration and demonstrate a close relationship between assumptions on preference for variety excess entry in monopolistically competitive markets and the welfare effects of vertical integration excess entry in downstream markets tends to give rise to pareto improving vertical integration we extend the analysis to vertical oligopoly and access price regulation

concentration product variety and entry for merger evidence from new product introductions in the u s food industry competing theories in industrial organization predict that more concentrated industries will lead to a smaller and more efficient variety of products or alternately a larger and less efficient array of products this paper presents an empirical study of these competing implications that estimates the impact of market concentration on new product introductions in a panel of nine food processing industries over 1983 to 2004 controlling for industry level unobservables using fixed effects and endogeneity of industry market structure we find that industry concentration promotes the introduction of new products preliminary evidence also suggests that new product introductions spur subsequent food industry mergers both conclusions are consistent with the entry for merger theory of product variety wherein small firms introduce new products in anticipation of profitable future mergers with concentrated firms

a decision support system for planning manufacturers sales promotion calendars a common event in the consumer packaged goods industry is the negotiation between a manufacturer and a retailer ofthe sales promotion calendar determining the promotion calendar involves a large number of decisions regarding levels of temporary price reductions feature ads and in store displays each executed at the level of individual retail accounts and brand skus over several months or a year though manufacturers spend much of their marketing budget on trade promotions they lack decision support systems to address the complexity and dynamics of promotion planning previous research has produced insights into how to evaluate the effectiveness of promotional events but has not addressed the planning problem in a dynamic environment this paper develops a disaggregate level econometric model to capture the dynamics and heterogeneity of consumer response by modeling the purchase incidence timing choice and quantity decisions of consumers we decompose total sales into incremental and nonincremental baseline plus borrowed the response model forms the basis of a market simulator that permits us to search for the manufacturer s optimal promotion calendar subject to a set of constraints some of them imposed by the retailer via the simulated annealing algorithm calendar profits are the net result of the contribution from incremental sales minus the opportunity cost from giving away discounts to nonincremental sales and the fixed costs associated with implementing promotional events e g retagging features displays incremental sales result from promotion induced switching the acceleration and quantity promotion effects on those switchers increased consumption and the carryover effect from purchase event feedback we applied our approach to the promotion planning problem of a large consumer packaged goods company in a nonperishable staple product category suggested by company executives canned tomato sauce subject to a retailer pass through constant rate of 80 provided to us by the collaborating firm the optimal promotion calendar produced by the modeling system followed a pattern of frequent and shallow temporary price reductions with no feature or display activity we also analyze how that result would change under different retailer pass through scenarios our findings indicated that the manufacturer could substantially improve the profitability of its sales promotion activity and that there would be a concurrent positive effect on retailer profit and volume levels management reported to us that the insights from the use of the system were implemented in their promotion planning process and produced positive results a validation analysis on follow up data for one market showed that promotion activity could be significantly reduced as recommended with no adverse effect on the brand s market share as predicted to generalize the model beyond the specific category where it was implemented we conducted a sensitivity analysis on the profile of the calendar i e frequency depth and duration of deals with respect to changes in market response competitive activity and retailer pass through first we found that the optimal depth frequency and timing of discounts is stable for price elasticities ranging from near zero to around four in absolute magnitude we also found no systematic impact of competitive promotions on the profile of the optimal calendar for example variation in competitive activity did not affect the optimal depth or frequency of discounts lastly we found changes in retailer pass through to have a significant effect on the optimal depth and number of weeks of trade promotion that a manufacturer should offer this emphasizes the importance to manufacturers of having accurate estimates of pass through for purposes of promotion budgeting and planning

oligopoly power in the food and tobacco industries in this article we estimate and test for the degree of oligopoly power and economies of scale in forty food and tobacco industries using the new empirical industrial organization neio framework and four digit sic data lerner indices and elasticities of scale are compared throughout the entire food and tobacco industries t tests verify that all but three of these industries exert statistically significant degrees of oligopoly power and that over 82 of these industries exhibit nonconstant returns to scale the empirical results also provide estimates of the price elasticities of demand for each industry

a test for market power using marginal input and output prices with application to the u s beef processing industry for a number of years it has only been applied in rather limited ways in this paper we show how this method can be used to develop a general test for oligopoly and oligopsony behavior the test exploits the fact that under price taking behavior there is a known fixed relationship between changes in input prices on output supply and changes in output price on input demands the model and test developed are shown to be quite general and not dependent on empirical estimates of output demand and input supply we apply this test to the u s beef processing industry because of the high level of market concentration in this industry there is concern that beef packing firms are exercising market power in the purchase of finished cattle by keeping cattle prices below competitive levels and in the sale of packed beef by keeping prices above competitive levels most previous studies of the beef packing industry have found evidence that firms at least part of the time are exercising market power in the purchase of finished cattle schroeter azzam and pagoulatos schroeter and azzam azzam azzam and park koontz garcia and hudson or are exercising market power in the sale of packed beef schroeter schroeter and azzam however all of these studies are fairly restrictive in their assumptions regarding fixed proportions the relationship between market power in the input and output markets and the specification of input supply and output demand previous studies by muth and by muth and wohlgenant 1999 which allow for variable proportions and do not impose restrictions on the relationship of market power in each market did not find evidence of market power in the output and input markets for the beef packing industry however the results of each of these studies do depend on the specification of input supply and output demand

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

bundling subscription tv channels abstract i analyze a market such as a subscription tv market where multiple varieties of an excludable public good are traded in bundles here bundling is not due to a producer s desire to extract consumers surplus but due to economies of scope in distribution technology the paper studies the pricing and production decisions of a supplier as well as the impacts of certain regulations such as pure bundling or pure components pricing restrictions findings of interest are as follows a profit constrained welfare maximizer would use a pure bundling price system when costs are low and a mixed bundling price system when costs are high a private monopolist produces too few varieties a pure bundling restriction on a private monopolist may increase welfare and consumer surplus but a pure components restriction never increases them

quantity discounts managerial issues and research opportunities marketing managers frequently administer pricing policies involving substantial quantity discounts however our understanding of the precise role of these discounts and their design is quite limited this paper reviews and integrates the economics and marketing literature and presents a detailed analysis of the policies of four firms in order to i specify the variety of motivations for quantity discounts ii provide guidelines to managers in designing quantity discount schedules and iii set out the most fruitful directions for future research

measuring market power and cost efficiency effects of industrial concentration in this paper i show how appelbaum s framework for testing price taking behavior in a single industry can be formally extended to consider concentration explicitly in so doing i separate the market power effect of concentration from its cost efficiency effect data from the us beef packing industry are used to illustrate an empirical application of the model the findings support oligopsonistic market power and slaughter cost efficiency in the industry however the cost efficiency effect outweighs the market power effect

entry deterrence by non horizontal merger we study when and how pure non horizontal mergers whether cross product or vertical can deter new entry organizational mergers implicitly commit firms to more aggressive price competition because heightened competition deters entry mergers can occur in equilibrium even when absent entry considerations they do not we show that in order to prevent a flood of entrants mergers arise even when a marginal merger costs incumbent firms more than does a marginal entrant

monetary policy shocks from the consumer perspective abstract applying a latent factor model to survey expectations data on economic conditions unemployment family finances and readiness to spend reveals that following a monetary policy shock consumer expectations adjust in the direction predicted by standard models further expectations respond asymmetrically to policy tightenings or easings are sluggish and are consistent with an income channel of monetary policy inflation expectations are at first anchored but significantly adjust in the long run in a way that is consistent with a delphic effect of monetary policy expectations are heterogeneous according to gender income and housing status in systematic ways

central bank announcements big news for little people little is known on how and whether central bank announcements affect consumers beliefs about policy relevant economic figures this paper focuses on consumers perceptions and expectations of inflation and interest rates and confidence therein based on a sound identification running surveys shortly before and after communication events and relying on above 15 000 observations spanning over 12 fomc press conferences between december 2015 and june 2018 we document the impact of the central bank communication on the general public while announcement events have no measurable direct effect on average beliefs they make people more likely to receive news about the central bank s policy in general informed consumers tend to have lower perceptions and expectations higher confidence and at least for perceived inflation smaller errors

the long term effects of price promotions on category incidence brand choice and purchase quantity abstract to what extent do price promotions have a long term effect on the components of brand sales namely category incidence brand choice and purchase quantity the authors answer this question by using persistence modeling on weekly sales data of a perishable and a storable product derived from a scanner panel their analysis reveals first that permanent promotion effects are virtually absent for each sales component next the authors develop and apply an impulse response approach to estimate the promotional adjustment period and the total dynamic effects of a price promotion specifically they calculate the long term equivalent of gupta s 1988 14 84 2 breakdown of promotional effects because of positive adjustment effects for incidence but negative adjustment effects for choice the authors find a reversal of the importance of category incidence and brand choice 66 11 23 for the storable product and 58 39 3 for the perishable product the authors discuss the implications of the findings an

disagreement a la taylor evidence from survey microdata there is a growing interest in studying the disagreement of economic agents most studies however focus on the disagreement regarding one specific variable hereby neglecting that disagreement may be comoving with disagreement on other variables in this paper we explore to which extent disagreement regarding the interest rate is driven by disagreement on inflation and on unemployment this relationship can be motivated by the existence of the taylor rule using micro survey data for both professional forecasters and consumers we provide evidence that disagreement on the future interest rate is mainly driven by disagreement on inflation exploring further determinants we confirm that central bank transparency as well as news on money and credit conditions significantly influence disagreement

estimating the degree of market power in the beef packing industry a technique for assessing the degree of monopoly power developed by appelbaum 1979 1982 is extended here to permit measurement of monopsony power as well data from the u s beef packing industry are examined the results reveal small but statistically significant monopoly monopsony price distortions in slaughter cattle and wholesale beef markets but in spite of a recent trend toward heightened concentration in the industry give no indication that performance has become appreciably less competitive of late this abstract was borrowed from another version of this item

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

small firm entry in us manufacturing a cross section empirical analysis examining the entry behavior of small firms is provided in this paper while the authors find that certain traditional market structure characteristics and entry barriers have a strong impact on small firm entry behavior the reliance upon innovative strategy by small firms also explains a significant amount of the variation in the pattern of entry by small firms they conclude that small firm entry is at least partially determined by entry barriers industry specific characteristics facilitating retaliatory conduct by incumbent firms and the reliance upon innovative strategy by small firms copyright 1989 by the london school of economics and political science

who supports the ecb evidence from eurobarometer survey data this paper contributes empirically to the long debated issue of the legitimacy of the european central bank ecb with regard to european polities using micro level data from the eurobarometer survey we shed light on the socio demographic determinants of public opinion support for the ecb we find that people with higher level of education and income and centre to right wing political orientation tend to support the ecb as well as people with optimistic expectations on the economic situation by contrast the unemployed tend to distrust the ecb the policy relevance of such results is important for ecb s communication strategy with the general public

inflation expectations and monetary policy surprises we use monthly data across fifteen euro area economies for the period 1985 1 2015 3 to obtain monetary policy changes that can be regarded as surprises for different types of consumers a novel feature of our empirical approach is the estimation of monetary policy surprises based on changes in monetary policy that were unanticipated according to the consumers stated beliefs about the economy we go on to investigate how these monetary policy surprises affect consumers inflation expectations we find that such monetary policy surprises can have the opposite impact on inflation expectations to those obtained under the assumption that consumers are well informed about a set of macroeconomic variables describing the state of the economy more specifically when we relax the assumption of well informed consumers by focusing instead on their stated beliefs about the economy unanticipated increases in the interest rate raise inflation expectations this is consistent with imperfect information theoretical settings where unanticipated increases in interest rates are interpreted as positive news about the state of the economy by consumers that know policymakers have relatively more information this impact changes sign since the crisis

household informedness and long run inflation expectations experimental evidence this article uses an experiment embedded in a survey to analyze the response of consumers long run inflation expectations to information about the federal reserve s inflation target and past inflation on average respondents revise forecasts toward the 2 target with either information treatment forecast uncertainty and heterogeneity decline with the treatments but remain substantial since the information in the treatments is publicly available these findings are consistent with models of imperfect information in which agents do not fully and continually update their information sets or incorporate all available information into their expectations response to treatments varies with prior informedness and with demographic characteristics

demand for farm output in a complete system of demand functions demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices a conceptual model based on reduced form specifications for retail and farm prices is formulated and applied empirically to a set of eight disaggregated food commodities this approach circumvents the need for retail quantities which are frequently unavailable for disaggregated food commodities the results are consistent with theory and generally indicate significant substitution between farm and marketing inputs except for poultry derived demand elasticities are at least 40 larger compared to those derived assuming fixed proportions

a general choice model for bundles with multiple category products application to market segmentation and optimal pricing for bundles abstract the attribute based approach to study customer choices cannot deal with bundles of heterogeneous components which are usually drawn from different product categories the authors develop the comparability based balance model which is a unified framework for modeling bundle choices the model can be employed for any bundle regardless of the heterogeneity of bundle components under a pure bundling strategy the conjoint model and balance model are special cases of the general model the authors use mixture distributions in a hierarchical bayesian framework to incorporate consumer heterogeneity in a more flexible manner than the extant approaches such as latent class and random coefficient models the empirical tests of the model show that most attribute effects are significant and consistent with the model s predictions the model is superior to those that do not consider the issues of comparability of attributes latent class structure and heterogeneity among respondents the authors show how

how buyers perceive savings in a bundle price an examination of a bundle s transaction value although bundling the selling of two or more products and or services at a single price has a history of economic research marketing oriented investigations have appeared only recently this pap

a choice model for packaged goods dealing with discrete quantities and quantity discounts utility maximizing solutions to economic models of choice for goods with either discrete quantities or non linear prices cannot always be obtained using standard first order conditions such as kuhn tucker and roy s identity when quantities are discrete there is no guarantee that derivatives of the utility function are equal to derivatives of the budget constraint moreover when prices are nonlinear as in the case of quantity discounts first order conditions can be associated with the minimum rather than the maximum value of utility in these cases the utility function must be directly evaluated to determine its maximum this evaluation can be computationally challenging when there exist many offerings and when stochastic elements are introduced into the utility function in this paper we provide an economic model of demand for substitute brands that is flexible parsimonious and easy to implement the methodology is demonstrated with a scanner panel data set of light beer purchases the model is used to explore the effects of price promotions on primary and secondary demand and the utility of product assortment

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

personal experiences and expectations about aggregate outcomes using novel survey data we document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes recent locally experienced house price movements affect expectations about future u s house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected u s house price movements when we exploit within individual variation in employment status we find that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment the extent of extrapolation is unrelated to how informative personal experiences are is inconsistent with risk adjustment and is more pronounced for less sophisticated individuals