Anomalies in estimates of cross-price elasticities for marketing mix models
Subtitle: theory and empirical test
By: Andre Bonfrer, Ernst R. Berndt, Alvin Silk
Contributors: Ernst, Berndt R. .; Silk, Alvin; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12756; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12756.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "We investigate the theoretical possibility and empirical regularity of two troublesome anomalies that frequently arise when cross-price elasticities are estimated for a set of brands expected to be substitutes.  These anomalies are the occurrence of: (a) negatively signed cross-elasticities; and (b) sign asymmetries in pairs of cross price elasticities.  Drawing upon the Slutsky equation from neoclassical demand theory, we show how and why these anomalies may occur when cross elasticities are estimated for pairs of brands that are substitutes.  We empirically examine these issues in the context of the widely used Multiplicative Competitive Interaction (MCI) and Multinomial Logit (MNL) specifications of the fully extended attraction models (Cooper and Nakanishi 1988).  Utilizing a database of store-level scanner data for 25 categories and 127 brands of frequently purchased branded consumer goods, we find that about 18% of a total of 732 cross elasticity estimates are negative and approximately 40% of the 366 pairs of cross elasticities are sign asymmetric.  Finally, we find that the occurrence of negatively signed cross elasticities can be partially explained by a set of hypothesized relationships between cross-price elasticities and brand share and elasticities of income and category demand"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 12/22/2006.

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