Pradeep K. Chintagunta

REVISION: Making a Smooth Exit? Menthol Bans and Cigarette Sales in Massachusetts
Date Posted:Mon, 22 Aug 2022 17:01:18 -0500
Public health regulators in the United States are currently advocating for a ban on menthol-flavored cigarettes because they are believed to be more dangerous than traditional non-menthol cigarettes. However, these bans will have limited benefits if consumers are able to circumvent them. We examine this issue by evaluating the effects of a statewide menthol ban that was instituted by Massachusetts in 2020. An examination of store-level retail sales data from Massachusetts indicates that some demand shifted from menthols to non-menthols after the ban was instituted, thereby supporting the goals of the ban. However, broadening our analysis to neighboring states shows a sharp increase in menthol sales in areas just outside the Massachusetts border, thereby suggesting that many Massachusetts residents were able to get around the ban by engaging in cross-state shopping for menthol cigarettes. This cross-state shopping is damaging because it reduces the tax revenue for Massachusetts while ...

REVISION: Consumer Loyalty Programs and Retail Prices: Evidence from Gasoline Markets
Date Posted:Thu, 18 Aug 2022 02:02:01 -0500
Past research shows that loyalty programs can generate switching costs for consumers and increase their purchase frequency. Theoretical work suggests that if switching costs are significant, firms should charge lower prices in the early periods of a program to boost market share, and increase prices in later periods, to take advantage of the ``lock-in' effect. However, it is not clear whether these costs soften or exacerbate price competition. Using a large database of gas stations' prices in the Italian market, we study fuel prices in early and late periods of loyalty programs: the sharp price changes adopted by gas stations affiliated with the program during the introduction and termination dates of the program allow us to establish the causal relationship between the program and the pricing behavior of gas stations. We find evidence that gas stations affiliated with the program increase prices in later periods of the program, as predicted by theory. The higher prices of ...

New: Product Attributes, Cross Elasticities and Dynamic Market Structure in a Category with Many Products
Date Posted:Fri, 05 Aug 2022 09:54:48 -0500
Understanding changes in a market and the ways in which brands compete with one another (market structure) are critically important especially in product categories with changes in product variety. Over time, products offer different combinations of attributes and marketing messages. This leads to changes in competitive structures. In characterizing a category's market structure, researchers need to account for (potentially) large and changing numbers of products while allowing for rapid changes in the marketing environment. Building on existing literature, we propose a model that accounts for dynamics, temporal changes in product variety and competition. A challenge with that approach is (cross-effects) parameter explosion when variety increases. We leverage a dataset with detailed product descriptions that contains information on intrinsic characteristics of the product (e.g., fat content) to construct “distances” between products in attribute space. Cross elasticities are then ...

REVISION: Making a Smooth Exit? Menthol Bans and Cigarette Sales in Massachusetts
Date Posted:Wed, 03 Aug 2022 07:20:28 -0500
Public health regulators in the United States are currently advocating for a ban on menthol-flavored cigarettes because they are believed to be more dangerous than traditional non-menthol cigarettes. However, these bans will have limited benefits if consumers are able to circumvent them. We examine this issue by evaluating the effects of a statewide menthol ban that was instituted by Massachusetts in 2020. An examination of store-level retail sales data from Massachusetts indicates that some demand shifted from menthols to non-menthols after the ban was instituted, thereby supporting the goals of the ban. However, broadening our analysis to neighboring states shows a sharp increase in menthol sales in areas just outside the Massachusetts border, thereby suggesting that many Massachusetts residents were able to get around the ban by engaging in cross-state shopping for menthol cigarettes. This cross-state shopping is damaging because it reduces the tax revenue for Massachusetts while ...

REVISION: From Free to Paid: Monetizing a Non-advertising-based App
Date Posted:Fri, 29 Jul 2022 10:38:49 -0500
Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services; among them: the choice of pricing strategies (hard landing vs. soft landing, i.e., a “pay or churn” paywall or continue offering limited free services to existing users after monetization) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment with an app firm to test the causal effects of such pricing and product design strategies. Results show that both soft landing and exclusive secondary offerings decrease existing app users’ willingness to subscribe; but there is a positive interaction between these two strategies on subscriptions. We propose a theoretical framework, discuss potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. A customer survey by the firm and an experiment on Prolific provide further ...

REVISION: Making a Smooth Exit? Menthol Bans and Cigarette Sales in Massachusetts
Date Posted:Thu, 28 Jul 2022 15:11:22 -0500
Public health regulators in the United States are currently advocating for a ban on menthol-flavored cigarettes because they are believed to be more dangerous than traditional non-menthol cigarettes. However, these bans will have limited benefits if consumers are able to circumvent them. We examine this issue by evaluating the effects of a statewide menthol ban that was instituted by Massachusetts in 2020. An examination of store-level retail sales data from Massachusetts indicates that some demand shifted from menthols to non-menthols after the ban was instituted, thereby supporting the goals of the ban. However, broadening our analysis to neighboring states shows a sharp increase in menthol sales in areas just outside the Massachusetts border, thereby suggesting that many Massachusetts residents were able to get around the ban by engaging in cross-state shopping for menthol cigarettes. This cross-state shopping is damaging because it reduces the tax revenue for Massachusetts while ...

REVISION: From Free to Paid: Monetizing a Non-advertising-based App
Date Posted:Wed, 20 Jul 2022 05:28:02 -0500
Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services; among them: the choice of pricing strategies (hard landing vs. soft landing, i.e., a “pay or churn” paywall or continue offering limited free services to existing users after monetization) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment with an app firm to test the causal effects of such pricing and product design strategies. Results show that both soft landing and exclusive secondary offerings decrease existing app users’ willingness to subscribe; but there is a positive interaction between these two strategies on subscriptions. We propose a theoretical framework, discuss potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. A customer survey by the firm and an experiment on Prolific provide further ...

REVISION: From Free to Paid: Monetizing a Non-advertising-based App
Date Posted:Tue, 19 Jul 2022 10:42:50 -0500
Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services: the choice of pricing strategies (whether to continue offering limited free services to current users) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment to test the causal effects of such pricing strategies and product design. Results show that providing either feature decreases existing app users’ willingness to subscribe to the service after monetization. Further, we find a positive interaction between providing limited free services and exclusive secondary offerings on subscriptions. We provide a discussion of potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. To assess generalizability, we conducted a second field experiment with a different operationalization of limited free content and obtained ...

New: Disruption on the Streets: A Case Study on the Impact of Uber’s Entry on the Taxi Business
Date Posted:Wed, 16 Mar 2022 14:30:50 -0500
The disruptive effects of the sharing economy have received considerable attention from the press, researchers and policymakers. We empirically study whether and to what extent the entry of ridesharing programs (e.g., Uber) in a city changes the outcomes and behaviors of taxi drivers in that city. Using unique data that contain high frequency GPS and trip information from all taxis in a Chinese city, we examine the impact of Uber’s entry on taxi drivers’ work output and input behaviors, and importantly, their earnings. We use a “regression discontinuity in time” approach based on the temporal discontinuity in treatment (i.e., Uber entry date), and leverage high-frequency outcome data along with an extensive set of trend and control variables. We find that taxi drivers’ hourly earnings decreased by 6% after Uber entry. This net effect reflects the entry itself, as well as drivers’ responses to it. We show that a reduced number of trips accounts for the taxi drivers’ decreasing income. ...

REVISION: Consumer Loyalty Programs and Retail Prices: Evidence from Gasoline Markets
Date Posted:Tue, 08 Feb 2022 10:57:28 -0600
Past research shows that loyalty programs can generate switching costs for consumers and increase their purchase frequency. Theoretical work suggests that if switching costs are significant, firms should charge lower prices in the early periods of a program to boost market share, and increase prices in later periods, to take advantage of the ``lock-in' effect. However, it is not clear whether these costs soften or exacerbate price competition. Using a large database of gas stations' prices in the Italian market, we study fuel prices in early and late periods of loyalty programs: the sharp price changes adopted by gas stations affiliated with the program during the introduction and termination dates of the program allow us to establish the causal relationship between the program and the pricing behavior of gas stations. We find evidence that gas stations affiliated with the program increase prices in later periods of the program, as predicted by theory. The higher prices of ...

REVISION: Show and Sell: Studying the Effects of Branded Cigarette Product Placement in TV Shows on Cigarette Sales
Date Posted:Tue, 01 Feb 2022 21:16:00 -0600
We evaluate whether and how branded TV product placement affects sales for cigarette brands. We use data on product placement from TV shows and data on retail sales of cigarettes to estimate a demand model that incorporates the level of product placement exposure for each cigarette brand. We find that product placement has a small yet positive and statistically significant effect on both own-brand sales and competitor-brand sales: both of these elasticities are roughly 0.02. These results indicate that cigarette product placement affects demand for individual cigarette brands and that it also leads to greater overall cigarette use. This issue is of particular importance to policymakers because product placement is one of the few remaining ways that cigarette brands can reach a mass audience. To illustrate how these results could be used by policymakers, we use our model estimates to evaluate how cigarette sales would be affected by two hypothetical kinds of regulations. Limiting ...

REVISION: Consumer Tax Credits for EVs: Some Quasi-Experimental Evidence on Consumer Demand, Product Substitution, and Carbon Emissions
Date Posted:Tue, 18 Jan 2022 08:59:03 -0600
Abstract Governments worldwide have spent billions of dollars on monetary incentives for consumers to encourage the adoption of eco-friendly (“green”) products. However, there is little consensus on the effectiveness of delayed monetary incentives with complex structures such as tax credits in increasing green product adoption and reducing carbon emissions. The literature is also limited on the mechanisms through which monetary incentives work in general. We address these issues by studying the impact of tax credit incentives on green and non-green vehicle sales in the U.S. auto industry. A tax credit incentive could boost green vehicle sales through cost savings on the vehicle's price. However, the incentive may prove ineffective due to important barriers to adoption (e.g., long charging times for electric cars). To measure the sales and emissions impacts of tax credits, we study incentive changes in South Carolina and Oregon via various quasi-experimental approaches and assess the ...

REVISION: Show and Sell: Studying the Effects of Branded Cigarette Product Placement in TV Shows on Cigarette Sales
Date Posted:Tue, 04 Jan 2022 19:41:16 -0600
We evaluate whether and how branded TV product placement affects sales for cigarette brands. We use data on product placement from TV shows and data on retail sales of cigarettes to estimate a demand model that incorporates the level of product placement exposure for each cigarette brand. We find that product placement has a small yet positive and statistically significant effect on both own-brand sales and competitor-brand sales: both of these elasticities are roughly 0.02. These results indicate that cigarette product placement affects demand for individual cigarette brands and that it also leads to greater overall cigarette use. This issue is of particular importance to policymakers because product placement is one of the few remaining ways that cigarette brands can reach a mass audience. To illustrate how these results could be used by policymakers, we use our model estimates to evaluate how cigarette sales would be affected by two hypothetical kinds of regulations. Limiting ...

REVISION: Do Consumer Tax Credits for Electric Vehicles Work? Implications for Product Substitution and Carbon Emission
Date Posted:Tue, 21 Dec 2021 13:22:36 -0600
Abstract Governments worldwide have spent billions of dollars on monetary incentives for consumers to encourage the adoption of eco-friendly (“green”) products. However, there is little consensus on the effectiveness of delayed monetary incentives with complex structures such as tax credits in increasing green product adoption and reducing carbon emissions. The literature is also limited on the mechanisms through which monetary incentives work in general. We address these issues by studying the impact of tax credit incentives on green and non-green vehicle sales in the U.S. auto industry. A tax credit incentive could boost green vehicle sales through cost savings on the vehicle's price. However, the incentive may prove ineffective due to important barriers to adoption (e.g., long charging times for electric cars). To measure the sales and emissions impacts of tax credits, we study incentive changes in South Carolina and Oregon via various quasi-experimental approaches and assess the ...

REVISION: Government policy, strategic consumer behavior, and spillovers to retailers: The case of demonetization in India
Date Posted:Tue, 23 Nov 2021 22:22:44 -0600
This paper studies strategic consumer shopping behavior in response to a macroeconomic policy in the case of currency reform, and quantifies its unintended consequences for retailers vis-a-vis the policy goal. Using transaction-level data from a large retail chain in India, we document consumer strategies that leverage the presence of retailers to avoid costs associated with the country's currency reform policy. We observe both an increase in returns of cash-purchased items that were bought before demonetization (strategic returns) and a spike in final (unreturned) cash purchases with soon-to-be-illegal notes (strategic purchases). Both practices serve consumer incentives either to receive legal notes from the retailer or to avoid depositing cash in formal bank accounts. Our analysis suggests that strategic consumers hindered the intended policy effect while partly benefiting the retail chain, leaving more than 20 million INR (0.3 million USD) of demonetized notes outside the formal ...

REVISION: Do Households' Budget Allocations Vary with Economic Factors? Evidence from Nielsen Data
Date Posted:Sat, 16 Oct 2021 01:16:46 -0500
How do households' joint budget allocations across different store types (grocery vs. discount vs. warehouse vs other stores), category types (food vs. non food) and brand types (private label vs. national brand) change with changes to their income, wealth, employment status, household size and macro factors like the recession? We answer this question using consumer packaged goods (CPG) purchases from more than 1000 categories by a representative panel of US households over fourteen years. We measure within household effects on expenditure shares of joint bivariate (e.g., grocery-food) and trivariate (e.g. grocery-food-private label) baskets along with their effects on univariate baskets. We demonstrate that such an analysis is important for nuanced responses to changes in economic conditions by managers across the different combinations of store formats, product categories and brand types. For example, managers of national brands looking at univariate baskets would conclude that an ...

REVISION: Do Households' Budget Allocations Vary with Economic Factors? Evidence from Nielsen Data
Date Posted:Tue, 12 Oct 2021 19:38:33 -0500
How do households' joint budget allocations across different store types (grocery vs. discount vs. warehouse vs other stores), category types (food vs. non food) and brand types (private label vs. national brand) change with changes to their income, wealth, employment status, household size and macro factors like the recession? We answer this question using consumer packaged goods (CPG) purchases from more than 1000 categories by a representative panel of US households over fourteen years. We measure within household effects on expenditure shares of joint bivariate (e.g., grocery-food) and trivariate (e.g. grocery-food-private label) baskets along with their effects on univariate baskets. We demonstrate that such an analysis is important for nuanced responses to changes in economic conditions by managers across the different combinations of store formats, product categories and brand types. For example, managers of national brands looking at univariate baskets would conclude that an ...

REVISION: Show and Sell: Studying the Effects of Branded Cigarette Product Placement in TV Shows on Cigarette Sales
Date Posted:Tue, 03 Aug 2021 06:05:43 -0500
We evaluate whether and how branded TV product placement affects sales for cigarette brands. We use data on product placement from TV shows and data on retail sales of cigarettes to estimate a demand model that incorporates the level of product placement exposure for each cigarette brand. We find that product placement has a small yet positive and statistically significant effect on both own-brand sales and competitor-brand sales: both of these elasticities are roughly 0.02. These results indicate that cigarette product placement affects demand for individual cigarette brands and that it also leads to greater overall cigarette use. This issue is of particular importance to policymakers because product placement is one of the few remaining ways that cigarette brands can reach a mass audience. To illustrate how these results could be used by policymakers, we use our model estimates to evaluate how cigarette sales would be affected by two hypothetical kinds of regulations. Limiting ...

REVISION: Show and Sell: Studying the Effects of Branded Cigarette Product Placement in TV Programs on Cigarette Sales
Date Posted:Tue, 06 Jul 2021 12:01:50 -0500
We evaluate whether and how branded TV product placement affects sales for cigarette brands. We use data on product placement from TV shows and data on retail sales of cigarettes to estimate a demand model that incorporates the level of product placement exposure for each cigarette brand. We find that product placement has a small yet positive and statistically significant effect on both own-brand sales and competitor-brand sales: both of these elasticities are roughly 0.02. These results indicate that cigarette product placement affects demand for individual cigarette brands and that it also leads to greater overall cigarette use. This issue is of particular importance to policymakers because product placement is one of the few remaining ways that cigarette brands can reach a mass audience. To illustrate how these results could be used by policymakers, we use our model estimates to evaluate how cigarette sales would be affected by two hypothetical kinds of regulations. Limiting ...

REVISION: Commercial Success through Commercials? Advertising and Pay TV Operators
Date Posted:Wed, 09 Jun 2021 05:31:58 -0500
The US pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. This study documents the role of television advertising to explain the success. Using data on US households' subscription choices and operators' advertising decisions, the authors document both demand- and supply-side conditions conducive to the growth of the satellite operators. First, the authors find consumers in this market were sensitive to advertising, and especially so to that of the satellite operators (ad-elasticities of about .05-.06 for satellite operators vs. .02 for cable operators). The authors employ a border strategy to demonstrate advertising-elastic demand and discuss its robustness to potential threats to identification. Second, the authors provide suggestive evidence that a form of asymmetric cost efficiencies in television advertising benefited the ...

REVISION: Commercial Success through Commercials? Advertising and Pay TV Operators
Date Posted:Tue, 11 May 2021 11:23:04 -0500
The US pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. This paper documents the role of television advertising to explain the success. Using data on US households' subscription choices and operators' advertising decisions, we document both demand- and supply-side conditions conducive to the growth of the satellite operators. First, we find consumers in this market were sensitive to advertising, and especially so to that of the satellite operators (advertising elasticities of about 0.05-0.06 for satellite operators vs. 0.02 for cable operators). We employ a border strategy to demonstrate advertising-elastic demand and discuss its robustness to potential threats to identification. Second, we provide suggestive evidence that a form of asymmetric cost efficiencies in television advertising benefited the entrants more than the ...

REVISION: Effects of Payment on User Engagement in Online Courses
Date Posted:Wed, 21 Apr 2021 03:56:53 -0500
Massive Open Online Courses (MOOCs) have the potential to democratize education by improving access. Although retention and completion rates for non-paying users have not been promising, these statistics are much brighter for users who pay to receive a certificate upon completing the course. We investigate whether paying for the certificate option can increase engagement with course content. In particular, we consider two such effects: (a) the certificate effect, which is the boost in motivation to stay engaged in order to receive the certificate; and (b) the sunk-cost effect, which arises solely because the user paid for the course. We use data from over 70 courses offered on the Coursera platform and study the engagement of individual participants at different milestones within each course. The panel nature of the data enables us to include controls for intrinsic differences between non-paying and paying users in terms of their desire to stay engaged. We find evidence that the ...

REVISION: What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales
Date Posted:Wed, 21 Apr 2021 03:55:41 -0500
We measure the cross-category spillover effects of a retailer changing its assortment at the extensive margin (by dropping an entire category from its portfolio) on the outcomes for its rivals in the industry.By leveraging the quasi-experimental nature of the exit by a national pharmacy chain, hereinafter referred to as the Exiting Chain (EC) from the tobacco category, we measure the effects of this event on the revenue generated by non-tobacco products at rival pharmacy chains. We show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an“exiting” EC store relative to those non-EC drugstores that are not, the revenue generated by non-tobacco products grows by 0.04%. Next, using Nielsen Homescan panel data, we try to uncover the mechanism underlying this spillover by looking at how the behavior of smokers and non-smokers at EC stores is affected by the decision. We find that the frequency of trips to the exiting stores that ...

REVISION: Government policy, strategic consumer behavior, and spillovers to retailers: The case of demonetization in India
Date Posted:Fri, 16 Apr 2021 03:37:55 -0500
This paper studies strategic consumer shopping behavior in response to a macroeconomic policy in the case of currency reform, and quantifies its unintended consequences for retailers vis-a-vis the policy goal. Using transaction-level data from a large retail chain in India, we document consumer strategies that leverage the presence of retailers to avoid costs associated with the country's currency reform policy. We observe both an increase in returns of cash-purchased items that were bought before demonetization (strategic returns) and a spike in final (unreturned) cash purchases with soon-to-be-illegal notes (strategic purchases). Both practices serve consumer incentives either to receive legal notes from the retailer or to avoid depositing cash in formal bank accounts. Our analysis suggests that strategic consumers benefited the retail chain overall while partly hindering the intended effect of the policy, leaving more than 20 million INR (0.3 million USD) of demonetized notes ...

REVISION: Government policy, strategic consumer behavior, and spillovers to retailers: The case of demonetization in India
Date Posted:Wed, 14 Apr 2021 11:49:37 -0500
This paper studies strategic consumer shopping behavior in response to a macroeconomic policy in the case of currency reform, and quantifies its unintended consequences for retailers vis-\`{a}-vis the policy goal. Using transaction-level data from a large retail chain in India, we document consumer strategies that leverage the presence of retailers to avoid costs associated with the country's currency reform policy. We observe both an increase in returns of cash-purchased items that were bought before demonetization (strategic returns) and a spike in final (unreturned) cash purchases with soon-to-be-illegal notes (strategic purchases). Both practices serve consumer incentives either to receive legal notes from the retailer or to avoid depositing cash in formal bank accounts. Our analysis suggests that strategic consumers benefited the retail chain overall while partly hindering the intended effect of the policy, leaving more than 100 billion INR (1.5 billion USD) of demonetized notes ...

REVISION: Strategic Consumer Behavior in Response to Government Policy
Date Posted:Mon, 29 Mar 2021 10:44:53 -0500
This paper studies consumer behavior in the retail setting in response to a government policy aimed at economic transparency, and quantifies its unintended consequences for retailers vis-a-vis the policy goal. Using transaction-level data from a large retail chain in India, we document consumer strategies, that leverage the presence retailers, to avoid costs associated with the country's currency reform policy. We observe both an increase in returns of cash-purchased items that were bought before demonetization (strategic returns) and a spike in final cash purchases with soon-to-be-illegal notes (strategic purchases). Both practices serve consumer incentives to either receive legal notes from the retailer or to avoid depositing cash to formal bank accounts. Our analysis suggests that strategic consumers benefited the retail chain overall while partly hindering the intended effect of the policy, leaving more than 100 billion INR (1.5 billion USD) of demonetized notes outside the ...

REVISION: From Free to Paid: Monetizing a Non-advertising-based App
Date Posted:Wed, 17 Mar 2021 06:19:38 -0500
Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services: the choice of pricing strategies (whether to continue offering limited free services to current users) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment to test the causal effects of such pricing strategies and product design. Results show that providing either feature decreases existing app users’ willingness to subscribe to the service after monetization. Further, we find a positive interaction between providing limited free services and exclusive secondary offerings on subscriptions. We provide a discussion of potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. To assess generalizability, we conducted a second field experiment with a different operationalization of limited free content and obtained ...

New: Geography as Branding: Descriptive Evidence from Taobao
Date Posted:Mon, 25 Jan 2021 01:52:32 -0600
The geographic associations of brands and branding have been well demonstrated in the country-of-origin (COO) effect literature in that a product’s COO has a branding effect and consumers have preferences for goods from specific countries. The aggregation of these preferences can lead to unique and asymmetric trading patterns between countries. In this paper, we extend the geographic associations of brands and branding to domestic trade and document that seller provinces have a branding effect and geographic preference asymmetries can arise within peer-to-peer trade networks such as Taobao in China. We find that while buyers in one province in China are willing to purchase goods from sellers in another province, it is often the case that the relationship is not reciprocal. This asymmetry in preferences persists after controlling for time-varying factors at both buyer and seller locations. Like brands, a location therefore serves as a quality cue and reputation mechanism for the ...

REVISION: Commercial Success through Commercials? Advertising and Satellite TV Operators
Date Posted:Mon, 28 Dec 2020 04:44:07 -0600
The US pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. This paper highlights the role of television advertising to explain the success. Using data on US households' subscription choices and operators' advertising decisions, we document both demand- and supply-side conditions conducive to the success of the satellite operators. First, we find consumers in this market were sensitive to advertising, and especially so to that of the satellite operators. We employ a border strategy to demonstrate advertising-elastic demand and discuss its robustness to potential threats to identification. Second, we provide evidence that scale economies in television advertising were in effect and benefited the entrants more than the incumbents. Advertising scale economies arise in our setting where the unit costs of local advertising are higher than ...

REVISION: Marketing Mix Response Across Retail Formats - The Role of Shopping Trip Types
Date Posted:Fri, 04 Dec 2020 03:12:46 -0600
We study differences in the effects of prices, non-price promotions, and brand line length on brand shares at different retail formats. Our conceptual framework rests on the presence of trip level fixed and category level variable utility components and shows how the trade-off between these components results in (i) different formats visited on different types of shopping trips; and (ii) differential marginal sensitivities of brand shares to changes in marketing mix variables across trip types. Together, these provide predictions on how marketing mix variables differentially impact brand shares at various retail formats. We use Nielsen Homescan and store level data from 2011-2014 and analyze the top ten spending product categories across four retail formats - convenience stores, drug stores, supermarkets and mass merchandisers, in over 200 Nielsen markets. We then describe how our findings linking the effects of marketing mix variables with different retail formats has implications ...

REVISION: Price Uncertainty and Market Power in Retail Gasoline: The Case of an Italian Highway
Date Posted:Wed, 07 Oct 2020 02:49:48 -0500
We quantify the effect of consumers' price uncertainty on gasoline prices and margins on an Italian highway. We observe the change in prices triggered by a longitudinal policy-based change in consumers' price information from one in which drivers on the highway had no information on the prices of stations they encountered to one that allows consumers to observe the prices of four upcoming stations on a single price sign by the side of the highway. Using these data, we estimate a model of consumer search and purchase behavior and a corresponding model of gas station pricing. We then measure the impact of varying degrees of price information on equilibrium prices, including (i) no price information, (ii) the current policy and (iii) full price information. We also compare the current policy with an alternative policy in which stations' prices are advertised with individual price signs. We find that when consumers do not have price information, gas stations are able to charge 31% more, ...

New: Comparative Messaging, Learning and Forgetting: Evidence from Pharmaceutical Drug Detailing
Date Posted:Thu, 10 Sep 2020 15:00:54 -0500
A firm launching a new product in an existing category can leverage comparative messages to provide information to customers and to distinguish it from others. Incumbents, on the other hand, benefit less from comparative messaging as this could be interpreted as providing legitimacy to the entrant. In our empirical context in a pharmaceutical category, we see both incumbents and entrants employing comparative messages during their detailing visits. To incorporate the effects of comparative messaging, we develop a learning model of doctor prescription behavior. The model has three distinguishing features relative to the standard Bayesian learning framework. First, the information efficiency associated with the detailing visits differ across message formats (comparative vs. non-comparative) and brands. Second, comparative messages from competing brands can “jam” or disrupt a doctor’s learning of a drug’s quality. Finally, the doctors can “forget” the quality of a drug with the time ...

New: Search Revisits
Date Posted:Wed, 08 Jul 2020 06:54:10 -0500
Why do consumers revisit previously searched products (“search revisits”) before making a purchase decision? Using a detailed click-stream data set from a popular hotel meta-search engine that uniquely identifies the information (photos, reviews, prices etc.) consumers obtained on every product search, we show the following. Search revisits are common, with half of all search sessions where consumers searched two or more hotels including at least one revisit. Surprisingly, most revisit behavior is not driven by consumers’ desire to look at additional information about a product, as assumed in prior work. Rather, in 70% of all revisits, consumers look at a subset of the same information that they saw on previous searches. Also, products revisited for additional information are frequently purchased. In contrast, revisits for the same information are typically short, involve more expensive and lower quality products, and are unlikely to lead to a purchase. Based on these findings, we ...

New: The Impact of Volunteer Marketers on Product Differentiation and Firm Growth: A Field Experiment with Ugandan Entrepreneurs
Date Posted:Thu, 28 May 2020 10:25:57 -0500
This paper examines a business support intervention in which international professionals from different functional backgrounds (e.g., marketing, consulting) volunteered their time to help Ugandan entrepreneurs improve performance. Findings from a multi-year field experiment show that entrepreneurs randomly matched with volunteer marketing coaches significantly increased firm growth. Compared to control firms, the entrepreneurs in the Marketer treatment grew monthly sales by 24.5%, on average, while their monthly profits improved by 35.8%, total assets increased by 21.6%, and paid employees rose by 16.2%. Mechanism analyses indicate that volunteer marketers focused the intervention around helping the entrepreneurs’ businesses become more differentiated, an outcome that appears to be elusive for many emerging market entrepreneurs. As a result, average prices, profits, margins and value-add per unit increased for the products of entrepreneurs who collaborated with a marketer. Moreover, ...

REVISION: Commercial Success through Commercials? Advertising and Satellite TV Operators
Date Posted:Fri, 17 Apr 2020 09:12:08 -0500
The US pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. In this paper, we focus on the role of television advertising to explain the success of these new entrants. Using data on US households’ subscription choices with advertising spending data, we estimate a household demand model and advertising cost functions for the operators. We find both demand- and supply-side conditions conducive to the success of the satellite operators. First, consumers in this market are sensitive to advertising, and especially so to that of the satellite operators. Second, scale economies in television advertising benefited the entrants more than the incumbents. Further, unit costs of local advertising are higher than of national advertising in the large media markets. This allowed the satellite operators to better leverage their national presence with ...

REVISION: Income and Wealth Effects on Consumer Packaged Goods Purchases
Date Posted:Tue, 03 Mar 2020 05:44:06 -0600
When economic cycles cause changes in household income and wealth, consumers change their budget allocations across store formats, product categories, and brands. Using Nielsen Homescan data for the years 2004 to 2014, we investigate the impact of income and wealth changes on households' budget allocations to (i) alternative store formats; (ii) food and non-food categories; and (iii) private labels and national brands. Since budgets can be reallocated across formats, categories and brands simultaneously, we measure the causal effects on the "joint' (e.g., grocery store - food - national brand budget shares) budget allocations of households. This allows us to decompose income and wealth effects on the "marginal' (e.g., grocery store) shares, which previous literature has focused on, into those on its joint components (e.g., grocery - food - national brand, grocery - food - private label, etc.). This joint analysis reveals situations in which managers of a specific brand-type in a ...

REVISION: Capital Market Returns to New Product Development Success: Informational Effects on Product Market Advertising
Date Posted:Tue, 04 Feb 2020 09:40:02 -0600
The authors seek to answer the question: if the capital market reacts with abnormal stock returns to new product development success events, do these returns influence subsequent marketing decisions? Drawing on informational market feedback and managerial learning theories, the authors posit that when firms are uncertain about how responsive the product market will be to their marketing activities, signals received from the capital market help them update their beliefs about the responsiveness. After decomposing the abnormal returns at the new drug approval event into components that can and cannot be predicted by the firm (i.e., predicted and unpredicted abnormal returns), the authors find that the post-approval advertising budget is larger when unpredicted abnormal approval returns are higher. Further, this tendency is more pronounced for detailing spending than for direct-to-consumer (DTC) advertising. Consistent with these higher budgets, the authors find that post-launch ...

REVISION: Capital Market Returns to New Product Development Success: Informational Effects on Product Market Advertising
Date Posted:Wed, 29 Jan 2020 14:46:04 -0600
The authors seek to answer the question: if the capital market reacts with abnormal stock returns to new product development success events, do these returns influence subsequent marketing decisions? Drawing on informational market feedback and managerial learning theories, the authors posit that when firms are uncertain about how responsive the product market will be to their marketing activities, signals received from the capital market help them update their beliefs about the responsiveness. After decomposing the abnormal returns at the new drug approval event into components that can and cannot be predicted by the firm (i.e., predicted and unpredicted abnormal returns), the authors find that the post-approval advertising budget is larger when unpredicted abnormal approval returns are higher. Further, this tendency is more pronounced for detailing spending than for direct-to-consumer (DTC) advertising. Consistent with these higher budgets, the authors find that post-launch ...

REVISION: Income and Wealth Effects on Consumer Packaged Goods Purchases
Date Posted:Tue, 07 Jan 2020 09:16:27 -0600
When economic cycles cause changes in household income and wealth, consumers change their budget allocations across store formats, product categories, and brands. Using Nielsen Homescan data for the years 2004 to 2014, we investigate the impact of income and wealth changes on households' budget allocations to (i) alternative store formats; (ii) food and non-food categories; and (iii) private labels and national brands. Since budgets can be reallocated across formats, categories and brands simultaneously, we measure the causal effects on the "joint' (e.g., grocery store - food - national brand budget shares) budget allocations of households. This allows us to decompose income and wealth effects on the "marginal' (e.g., grocery store) shares, which previous literature has focused on, into those on its joint components (e.g., grocery - food - national brand, grocery - food - private label, etc.). This joint analysis reveals situations in which managers of a specific brand-type in a ...

REVISION: Marketing Mix Response Across Retail Formats - The Role of Shopping Trip Types
Date Posted:Sun, 01 Dec 2019 04:13:25 -0600
We study differences in the effects of prices, non-price promotions, and brand line length on brand shares at different retail formats. Our conceptual framework rests on the presence of trip level fixed and category level variable utility components and shows how the trade-off between these components results in (i) different formats visited on different types of shopping trips; and (ii) differential marginal sensitivities of brand shares to changes in marketing mix variables across trip types. Together, these provide predictions on how marketing mix variables differentially impact brand shares at various retail formats. We use Nielsen Homescan and store level data from 2011-2014 and analyze the top ten spending product categories across four retail formats - convenience stores, drug stores, supermarkets and mass merchandisers, in over 200 Nielsen markets. We then describe how our findings linking the effects of marketing mix variables with different retail formats has implications ...

REVISION: Marketing Mix Response Across Retail Formats - The Role of Shopping Trip Types
Date Posted:Sun, 24 Nov 2019 05:50:24 -0600
We study differences in the effects of prices, non-price promotions, and assortment on brand shares at different retail formats. Our conceptual framework rests on the presence of trip level fixed and category level variable utility components and shows how the trade-off between these components results in (i) different formats visited on different types of shopping trips; and (ii) differential marginal sensitivities of brand shares to changes in marketing mix variables across trip types. Together, these provide predictions on how marketing mix variables differentially impact brand shares at various retail formats. We use Nielsen Homescan and store level data from 2011-2014 and analyze the top ten spending product categories across four retail formats - convenience stores, drug stores, supermarkets and mass merchandisers, in over 200 Nielsen markets. We then describe how our findings linking the effects of marketing mix variables with different retail formats has implications for ...

REVISION: Learning-by-Doing and Preference Discovery in Video Game Play
Date Posted:Wed, 25 Sep 2019 10:45:07 -0500
In this paper we investigate how players learn about their preferences for different modes of play and how this influences their engagement in a popular franchise video game. An important aspect of players' session-level data from a specific generation of the game is that they budget their game time between competitive and non-competitive modes of play. Player behavior over time is consistent with learning and initial competition aversion; shares of time spent in competitive modes tend to drop upon adoption of a new game generation and then rise with time played. To study how the firm can increase player engagement, and to understand preferences for competitive and non-competitive play, we formulate and estimate a structural model that nests Bayesian learning within a multiple-discrete continuous framework. This allows us to explain behavior along the extensive (whether to play a mode) and intensive (how long to play that mode) margins for the multiple modes of play. With this model, ...

REVISION: Learning-by-Doing and Preference Discovery in Video Game Play
Date Posted:Tue, 17 Sep 2019 21:08:27 -0500
In this paper we investigate how players learn about their preferences for different modes of play and how this influences their engagement in a popular franchise video game. An important aspect of players' session-level data from a specific generation of the game is that they budget their game time between competitive and non-competitive modes of play. Player behavior over time is consistent with learning and initial competition aversion; shares of time spent in competitive modes tend to drop upon adoption of a new game generation and then rise with time played. To study how the firm can increase player engagement, and to understand preferences for competitive and non-competitive play, we formulate and estimate a structural model that nests Bayesian learning within a multiple-discrete continuous framework. This allows us to explain behavior along the extensive (whether to play a mode) and intensive (how long to play that mode) margins for the multiple modes of play. With this model, ...

REVISION: Marketing Mix Response Across Retail Formats - The Role of Shopping Trip Types
Date Posted:Tue, 03 Sep 2019 03:47:40 -0500
In this paper, we study the differences in the effects of marketing mix variables, such as prices, non-price promotions, and assortment, on brand shares at different retail formats. Our conceptual framework rests on the presence of fixed and variable costs of shopping and has two building blocks: (i) The trade-off between these costs has implications for the different formats visited on different types of shopping trips; and (ii) the magnitude of fixed costs, that shoppers can justify investing on different trip types, influences the marginal sensitivities of brand shares to changes in marketing mix variables on those trips. Taken together, the building blocks provide predictions on how marketing mix variables differentially impact brand shares at various retail formats. We use Nielsen Homescan and store level data from 2011-2014 and analyze the top ten spending product categories across four retail formats - convenience stores, drug stores, supermarkets and mass merchandisers, in ...

REVISION: What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales
Date Posted:Sun, 28 Jul 2019 06:10:42 -0500
We measure the cross-category spillover effects of a retailer changing its assortment at the extensive margin (by dropping an entire category from its portfolio) on the outcomes for its rivals in the industry.By leveraging the quasi-experimental nature of the exit by a national pharmacy chain, hereinafter referred to as the Exiting Chain (EC) from the tobacco category, we measure the effects of this event on the revenue generated by non-tobacco products at rival pharmacy chains. We show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an“exiting” EC store relative to those non-EC drugstores that are not, the revenue generated by non-tobacco products grows by 0.04%. Next, using Nielsen Homescan panel data, we try to uncover the mechanism underlying this spillover by looking at how the behavior of smokers and non-smokers at EC stores is affected by the decision. We find that the frequency of trips to the exiting stores that ...

REVISION: Effect of Payment on User Engagement in MOOCs
Date Posted:Fri, 05 Jul 2019 14:07:51 -0500
MOOCs have the potential to democratize access to education by improving access. Although retention and completion rates for free users have not been promising, these statistics are much brighter for paid users who receive a certificate upon completing the course. We investigate whether paying for the certificate option can increase engagement with course content. In particular, we consider two such effects: (a) certificate effect, which is the boost in motivation to stay engaged in order to receive the certificate and (b) sunk cost effect, which arises solely because the user paid for the course. We use data from over 70 courses offered on the Coursera platform and study the engagement of individual participants at different milestones within each course. The panel nature of the data enables us to include strong controls for intrinsic differences between free and paid users in terms of their desire to stay engaged. We find evidence that the certificate and sunk cost effects increase ...

REVISION: Commercial Success through Commercials? Advertising and Satellite TV Operators
Date Posted:Tue, 25 Jun 2019 07:31:17 -0500
The pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The satellite operators have been consistently growing their footprints since. While there have been many reasons for the success of satellite operators, in this paper, we focus on one potential factor that could explain, at least partially, the success of these new entrants in a market, where the entrenched incumbents commanded a near 100% market share and firms had to make large investments for entry. In particular, we characterize the role of television advertising in making this success possible. Using data on US households’ subscription choices with data on advertising spending for various operators, we estimate a household demand model and advertising cost functions for the operators. We find that both demand- as well as supply-side factors could have contributed to the success of the satellite operators. On the demand side, while these ...

REVISION: Estimation of Sequential Search Model
Date Posted:Thu, 09 May 2019 11:09:16 -0500
We propose a new likelihood-based estimation method for the sequential search model. By allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated with the purchase decision and the search sequence under the sequential search algorithm. We then present details from an extensive simulation study that compares the proposed approach with existing estimation methods recently used for sequential search model estimation, viz., the kernel-smoothed frequency simulator (KSFS) and the crude frequency simulator (CFS). In the empirical application, we apply the proposed method to the Expedia dataset from Kaggle which has previously been ...

New: Search and Learning at a Daily Deals Website
Date Posted:Sun, 14 Apr 2019 11:15:48 -0500
We study consumers' purchase behavior on daily deal websites (e.g., Groupon promotions) using individual clickstream data on the browsing history of new subscribers to Groupon between January and March 2011. We observe two patterns in the data. First, the probability that a given consumer clicks on a merchant in the emailed newsletter declines over time, which appears to be consistent with the notion of consumer "fatigue'--a phenomenon highlighted by the popular press. Second, the probability that the consumer makes a purchase conditional on clicking increases over time, which seems contrary to the notion of "fatigue.' To reconcile these two observations, we propose a model that rationalizes these patterns and then use it to provide insights for companies in the daily deal industry.

When consumers first subscribe to a daily deal website, they are unlikely to be fully informed about the quality of the deals offered on that site. The daily newsletter provides only the price ...

REVISION: Estimation of Sequential Search Model
Date Posted:Thu, 07 Mar 2019 05:50:36 -0600
We propose a new likelihood-based estimation method for the sequential search model. By allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated with the purchase decision and the search sequence under the sequential search algorithm. We then present details from an extensive simulation study that compares the proposed approach with existing estimation methods recently used for sequential search model estimation, viz., the kernel-smoothed frequency simulator (KSFS) and the crude frequency simulator (CFS). In the empirical application, we apply the proposed method to the Expedia dataset from Kaggle which has previously been ...

REVISION: Estimation of Sequential Search Model
Date Posted:Wed, 27 Feb 2019 09:48:44 -0600
We propose a new likelihood-based estimation method for the sequential search model. By allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated with the purchase decision and the search sequence under the sequential search algorithm. We then present details from an extensive simulation study that compares the proposed approach with existing estimation methods recently used for sequential search model estimation, viz., the kernel-smoothed frequency simulator (KSFS) and the crude frequency simulator (CFS). In the empirical application, we apply the proposed method to the Expedia dataset from Kaggle which has previously been ...

New: What Explains Price Declines in Seasonal Goods Markets? An Empirical Examination
Date Posted:Sun, 20 Jan 2019 07:34:45 -0600
Three explanations have been proposed in the literature to describe the reason behind sharp price declines observed over a product's short lifecycle in seasonal (perishable) goods markets: Prices decline as a result of (i) inter-temporal price discrimination; (2) firm's uncertainty about product popularity at the start of the season; (3) decreasing opportunity costs. We first translate these explanations into a set of predictions that can be tested within a unified empirical framework. Then, using two unique data sets from a large US specialty apparel retailer, we examine several cross sectional and time series regularities in the pricing and sales of many different types of products and shopping patterns of many consumers to assess whether these explanations have empirical support in the fashion apparel market. Our results show that rapid decline in opportunity costs within the selling season is the main reason behind the observed price declines, and neither initial uncertainty nor ...

REVISION: Point-of-Sale Marketing Mix and Brand Performance – The Moderating Role of Retail Format and Brand Type
Date Posted:Tue, 04 Dec 2018 14:56:59 -0600
In this paper, we study the role of point-of-sale (POS) marketing mix variables in explaining variation in brand shares (i) at different retail formats, and (ii) across national and store brands. Different store formats attract different types of shopping trips, and different brand types differ in consumer's quality uncertainty and cross-category spillovers in learning through consumption. Together, these have implications for how POS variables such as prices, features and assortment differentially impact brand shares at different retail formats, and of different brand types, and the corresponding implications for retailers and manufacturers. We use Nielsen store level data from 2011-2014 and analyze the top ten spending product categories across four retail formats - convenience stores, drug stores, supermarkets and mass merchandisers, in over 200 Nielsen markets. Consistent with theoretical predictions, we find that brand shares at convenience (drug) stores are least (most) ...

REVISION: Selling Smokes or Smoking Sales: Investigating the Consequences of Ending Tobacco Sales
Date Posted:Sat, 13 Oct 2018 03:55:23 -0500
Measuring the cross-category spillover effects of product offerings by a retail firm on the outcomes for that firm and for others in the industry is a challenging task given the difficulty in accounting for environmental factors concomitant with the action. In this paper, we study the voluntary decision by a national drugstore chain, hereinafter referred to as the Exiting Chain (EC), to drop the tobacco category from its stores in 2014. By leveraging the quasi-experimental nature of the exit "intervention" on revenue outcomes for other drugstore chains, we measure the spillover effect of selling tobacco on the revenue generated by non-tobacco products. We show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an "exiting" EC store relative to those non-EC drugstores that are not, the revenue generated by non-tobacco products grows by 0.04%. Next, using Nielsen Homescan panel data, we attempt to understand the underlying ...

New: Search Duration
Date Posted:Sun, 07 Oct 2018 18:25:29 -0500
In studying consumer search behavior, researchers typically focus on which products consumers add to their consideration sets (the extensive margin of search). In this article, we attempt to additionally study how much consumers search individual products (the intensive margin of search), by analyzing the time they spend searching (search duration). We develop a sequential search model where consumers who are uncertain (and have prior beliefs) about their match value for a product search to reveal (noisy) signals about it that they then use to update their beliefs in a Bayesian fashion. Search duration, in this context, is an outcome of the decision by a consumer to seek information on the same product multiple times; with a unit of time corresponding to one signal, the more the number of signals sought greater is the search duration. We also show how the model can be used to study revisits - a feature not easily accommodated in Weitzman’s (1979) sequential search model. We build on ...

New: Consumer Response to Chapter 11 Bankruptcy: Negative Demand Spillover to Competitors
Date Posted:Wed, 03 Oct 2018 08:43:54 -0500
When financially distressed firms have overwhelming debts, a prominent option for survival is to file for Chapter 11 bankruptcy protection. We empirically study the effect of Chrysler's Chapter 11 bankruptcy filing on the quantity sold by its competitors in the U.S. auto industry. The demand for competitors could increase as they may benefit from the distress of the bankrupt firm (competitive effect). On the other hand, competitors could experience lower sales if the bankruptcy increases consumer uncertainty about their own viability (contagion effect). A challenge to measuring the impact of bankruptcies is the coincident decline in economic conditions stemming from the Great Recession and the potential effect of the “cash for clunkers” program (among other confounding factors). To identify the effect of the bankruptcy filing, we employ a regression-discontinuity-in-time design based on a temporal discontinuity in treatment (i.e., bankruptcy filing), along with an extensive set of ...

REVISION: Selling Smokes or Smoking Sales: Investigating the Consequences of Ending Tobacco Sales
Date Posted:Tue, 04 Sep 2018 17:01:56 -0500
Measuring the impact of changes in product offerings by a firm on the outcomes for that firm and for others in the industry is a challenging task given the difficulty in accounting for environmental factors concomitant with the action. In this paper, we study the voluntary decision by a national drugstore chain, hereinafter referred to as the Exiting Chain (EC), to drop the tobacco category from its stores - a socially responsible decision given the well known consequences of smoking and other forms of tobacco consumption. By leveraging the quasi-experimental nature of the exit "intervention' on revenue outcomes for other drugstore chains, we measure the spillover effect of selling tobacco on the revenue generated by non-tobacco products. In particular, we show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an "exiting' EC store relative to those non-EC stores that are not, the revenue generated by non-tobacco products ...

REVISION: Estimation of Sequential Search Models
Date Posted:Thu, 30 Aug 2018 08:12:37 -0500
In this paper, we propose a new likelihood based estimation method for the sequential search model. We demonstrate that, by allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated the purchase decision and the search sequence under the sequential search algorithm. Next, we present two extensions of the estimation method to allow the estimation of the sequential search model 1) when researchers have access only to market share data instead of individual purchase data (data on individual search sequences are still available) and 2) when consumers search to discover a subset of product characteristics (e.g. price) besides their ...

REVISION: Selling Smokes or Smoking Sales: Investigating the Consequences of Ending Tobacco Sales
Date Posted:Sat, 25 Aug 2018 05:57:10 -0500
Measuring the impact of changes in product offerings by a firm on the outcomes for that firm and for others in the industry is a challenging task given the difficulty in accounting for environmental factors concomitant with the action. In this paper, we study the voluntary decision by a national drugstore chain, hereinafter referred to as the Exiting Chain (EC), to drop the tobacco category from its stores - a socially responsible decision given the well known consequences of smoking and other forms of tobacco consumption. By leveraging the quasi-experimental nature of the exit "intervention' on revenue outcomes for other drugstore chains, we measure the spillover effect of selling tobacco on the revenue generated by non-tobacco products. In particular, we show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an "exiting' EC store relative to those non-EC stores that are not, the revenue generated by non-tobacco products ...

REVISION: Estimation of Sequential Search Models
Date Posted:Fri, 17 Aug 2018 10:38:04 -0500
In this paper, we propose a new likelihood based estimation method for the sequential search model. We demonstrate that, by allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated the purchase decision and the search sequence under the sequential search algorithm. Next, we present two extensions of the estimation method to allow the estimation of the sequential search model 1) when researchers have access only to market share data instead of individual purchase data (data on individual search sequences are still available) and 2) when consumers search to discover a subset of product characteristics (e.g. price) besides their ...

REVISION: Estimation of Sequential Search Models
Date Posted:Fri, 03 Aug 2018 09:19:23 -0500
In this paper, we propose a new likelihood based estimation method for the sequential search model. We demonstrate that, by allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated the purchase decision and the search sequence under the sequential search algorithm. Next, we present two extensions of the estimation method to allow the estimation of the sequential search model 1) when researchers have access only to market share data instead of individual purchase data (data on individual search sequences are still available) and 2) when consumers search to discover a subset of product characteristics (e.g. price) besides their ...

REVISION: Estimation of Sequential Search Models
Date Posted:Sat, 21 Jul 2018 07:10:20 -0500
In this paper, we propose a new likelihood based estimation method for the sequential search model. We demonstrate that, by allowing search costs to be heterogeneous across consumers and products, we can directly compute the joint probability of the search sequence and the purchase decision when consumers are searching for the idiosyncratic preference shocks in their utility functions. Under this procedure, one recursively makes random draws for each dimension that requires numerical integration to simulate the probabilities associated the purchase decision and the search sequence under the sequential search algorithm. Next, we present two extensions of the estimation method to allow the estimation of the sequential search model 1) when researchers have access only to market share data instead of individual purchase data (data on individual search sequences are still available) and 2) when consumers search to discover a subset of product characteristics (e.g. price) besides their ...

REVISION: Licensing and Price Competition in Tied-Goods Markets: An Application to the Single-Serve Coffee System Industry
Date Posted:Tue, 17 Apr 2018 04:34:21 -0500
We develop a structural model of demand and supply for tied-goods which we estimate using aggregate data from the single-serve coffee system industry. We use the parameter estimates to quantify the impact of licensing on equilibrium prices and profits for firms in the industry. In particular, we look at the decision to allow other firms to sell components (coffee pods) that are compatible with a firm’s primary good (coffee machines) by licensing the use of its patents. We solve for the counterfactual market equilibrium in which one of the market leaders enters a licensing agreement with one of the competitor brands; with the latter brand only selling compatible coffee pods and not the machines. We show the existence of a range of royalty rates under which firms could potentially reach a beneficial licensing agreement. In addition, we find that the relationship between the licensee’s profits and the royalty rate is not always decreasing. Finally, we find that, within the set of ...

REVISION: Price Uncertainty and Market Power in Retail Gasoline: The Case of an Italian Highway
Date Posted:Wed, 28 Mar 2018 11:38:11 -0500
We quantify the effect of consumers' price uncertainty on gasoline prices and margins on an Italian highway. We observe the change in prices triggered by a longitudinal policy-based change in consumers' price information from one in which drivers on the highway had no information on the prices of stations they encountered to one that allows consumers to observe the prices of four upcoming stations on a single price sign by the side of the highway. Using these data, we estimate a model of consumer search and purchase behavior and a corresponding model of gas station pricing. We then measure the impact of varying degrees of price information on equilibrium prices, including (i) no price information, (ii) the current policy and (iii) full price information. We also compare the current policy with an alternative policy in which stations' prices are advertised with individual price signs. We find that when consumers do not have price information, gas stations are able to charge 31% more, ...

REVISION: Point-of-Sale Marketing Mix and Brand Performance – The Moderating Role of Retail Format and Brand Type
Date Posted:Fri, 02 Mar 2018 06:43:03 -0600
In this paper, we study the role of point-of-sale (POS) marketing mix variables in explaining variation in brand shares (i) at different retail formats, and (ii) across national and store brands in different price tiers. Stores in different retail formats differ in their positioning, the clientele they attract, and types of shopping trips made to the store. Further, national and store brands in different price tiers differ in the quality perception, and the contracts between the retailer and the manufacturer. Together, this implies that POS variables may influence brand shares very differently in different retail formats and for different brand types, which has important implications for retailers and manufacturers. We use Nielsen store level data from 2011-2014 and analyze the top ten spending product categories spreading across four product departments - dry grocery, non-food grocery, dairy and frozen, and across four retail formats - convenience stores, drug stores, supermarkets ...

REVISION: Point-of-Sale Marketing Mix and Brand Performance - The Moderating Role of Retail Format and Brand Type
Date Posted:Wed, 21 Feb 2018 05:49:05 -0600
In this paper, we study the role of point-of-sale (POS) marketing mix variables in explaining variation in brand shares (i) at different retail formats, and (ii) across national and store brands in different price tiers. Stores in different retail formats differ in their positioning, the clientele they attract, and types of shopping trips made to the store. Further, national and store brands in different price tiers differ in the quality perception, and the contracts between the retailer and the manufacturer. Together, this implies that POS variables may influence brand shares very differently in different retail formats and for different brand types, which has important implications for retailers and manufacturers. We use Nielsen store level data from 2011-2014 and analyze the top ten spending product categories spreading across four product departments - dry grocery, non-food grocery, dairy and frozen, and across four retail formats - convenience stores, drug stores, supermarkets ...

New: What's in a Brand Name? Assessing the Impact of Rebranding in the Hospitality Industry
Date Posted:Wed, 03 Jan 2018 06:28:11 -0600
Using a panel dataset on hotel rebranding over the time period 1994-2012, we quantify the impact of rebranding on the occupancy rate and other performance indicators of the hotel properties. We find that rebranding results, on average, in about a 6.31% increase in occupancy rates with increases in other metrics such as revenues per room. We then decompose this effect into two components. The first is attributable to the brand identities (e.g., Holiday Inn) before and after rebranding (60%); the second component reflects the intrinsic value of rebranding that can arise from better management, more motivated employees or a better match of the brand with the location (40%). The former component allows us to quantify the strength of a hotel brand; and our approach can be used more generally to obtain a measure of brand value. The intrinsic value of rebranding is associated with hotels that (i) move upscale or downscale; (ii) are upscale or luxury hotels prior to rebranding; (iii) switch ...

REVISION: Licensing and Price Competition in Tied-Goods Markets: An Application to the Single-Serve Coffee System Industry
Date Posted:Sat, 04 Nov 2017 23:54:12 -0500
We develop a structural model of demand and supply for tied-goods which we estimate using aggregate data from the single-serve coffee system industry. We use the parameter estimates to quantify the impact of licensing on equilibrium prices and profits for firms in the industry. In particular, we look at the decision to allow other firms to sell components (coffee pods) that are compatible with a firm’s primary good (coffee machines) by licensing the use of its patents. We solve for the counterfactual market equilibrium in which one of the market leaders enters a licensing agreement with one of the competitor brands; with the latter brand only selling compatible coffee pods and not the machines. We show the existence of a range of royalty rates under which firms could potentially reach a beneficial licensing agreement. In addition, we find that the relationship between the licensee’s profits and the royalty rate is not always decreasing. Finally, we find that, within the set of ...

REVISION: Brand Performance at Walmart versus Supermarkets – The Role of Marketing Mix and Consumer Format Loyalty
Date Posted:Sat, 15 Jul 2017 06:55:58 -0500
In this paper, we study the role of marketing mix variables in explaining variation in brand shares (i) across different brand types defined based on price tiers, (ii) at supermarkets and Walmart supercenters, and (iii) among loyal and non-loyal consumers of these channels. In doing so, we extend the previous literature (Bronnenberg et al. (2007) and Hwang and Thomadsen (2015)) which explores the role of geographic differences and point of sale activities in explaining variation in brand shares of top brands at supermarkets. In order to draw generalizations across categories, rather than study a subset of brands in each category, we classify brands into “premium”, “value” and “store” brands and study the relative drivers of choices of brands in these groups. We use Nielsen household data from 2011-2014 and analyze 10 product categories which account for 15% of all spending. The categories include dry grocery, non-food grocery, dairy and frozen product departments. We find that shares ...

REVISION: Licensing and Price Competition in Tied-Goods Markets: An Application to the Single-Serve Coffee System Industry
Date Posted:Sat, 17 Jun 2017 00:51:07 -0500
We develop a structural model of demand and supply for tied-goods which we estimate using aggregate data from the single-serve coffee system industry. We use the parameter estimates to quantify the impact of licensing on equilibrium prices and profits for firms in the industry. In particular, we look at the decision to allow other firms to sell components (coffee pods) that are compatible with a firm’s primary good (coffee machines) by licensing the use of its patents. We solve for the counterfactual market equilibrium in which one of the market leaders enters a licensing agreement with one of the competitor brands; with the latter brand only selling compatible coffee pods and not the machines. We show the existence of a range of royalty rates under which firms could potentially reach a beneficial licensing agreement. In addition, we find that the relationship between the licensee’s profits and the royalty rate is not always decreasing. Finally, we find that, within the set of ...

REVISION: Do Targeted Discount Offers Serve as Advertising? Evidence from 70 Field Experiments
Date Posted:Sat, 04 Mar 2017 03:00:13 -0600
The prevalence and widespread usage of email has given businesses a direct and cost effective way of providing consumers with targeted discount offers. While these discounts are expected to increase the demand for the promoted products, are they effective in increasing revenues? Do they have effects beyond acting as price reductions? We study these questions using individual-level data from 70 randomized experiments run by a large online ticket resale platform. We estimate the redemption rates of the offers and also measure the broader impact of emailed promotions by comparing purchases by individuals who received the experimental promotions with purchases by those who did not receive the offers because of the experimental randomization. We find that the offers cause the average expenditure to increase significantly, by $3.03 (a 37.2% increase) during the promotion window. However, the redemption rate of these offers is low. Importantly, ninety percent of these gains are not through ...

REVISION: Personalization in Email Marketing: The Role of Non-Informative Advertising Content
Date Posted:Thu, 26 Jan 2017 11:21:08 -0600
In collaboration with three companies selling a diverse set of products, we conducted randomized field experiments in which experimentally tailored email ads were sent to millions of individuals. We found consistently that personalizing the emails by adding consumer-specific information (e.g., name, employer name) benefited the advertisers. Importantly, such content is not likely to be informative about the advertised product or the company. In our main experiment, we found that adding the name of the message recipient to the email's subject-line increased the probability of the recipient opening it by 20% (from 9.05% to 10.80%), which translated to an increase in sales leads by 31% (from 0.39% to 0.51%) and a reduction in the number of individuals unsubscribing from the email campaign by 17% (from 1.2% to 1.0%). We present similar experiments conducted with other companies, which show that the effects we document extend from objectives ranging from acquiring new customers to ...

New: Intra-Household Heterogeneity and Targeting
Date Posted:Thu, 05 Jan 2017 04:02:46 -0600
Using a dataset in which we observe the specific individuals in a household making choices, we study differences in purchase behaviors within and across households in five grocery categories. We develop a choice model that recovers utility parameters from individuals’ choices while allowing for the behavior of individuals from the same household to be correlated via a Bayesian hierarchy. We find that our modeling approach is better at recovering the utility parameters corresponding to each household member’s brand choices especially when we observe few purchase occasions from each of them. The improvement stems from using the household information as a prior for the individual. We find that the within-household heterogeneity in estimated brand intercepts and (to a lesser extent) price sensitivities is about 50% of the across household heterogeneity in these parameters. However, with promotion sensitivities we find within-household heterogeneity to be as large as the across household ...

REVISION: Price Uncertainty and Market Power in Retail Gasoline: The Role of Price Signs on an Italian Highway
Date Posted:Mon, 29 Aug 2016 07:20:11 -0500
We investigate the effect of consumers' price uncertainty and search costs on gasoline price levels. The introduction of a mandatory price disclosure policy on the Italian highway enables us to observe market prices when (a) consumers have no price information; and (b) some information about the prices of competing stations is available to consumers. To characterize the observed pricing outcomes in the marketplace we then propose a model of consumers' sequential search and purchase of gasoline and combine it with a model of gas station pricing. Using data on actual prices and traffic patterns on a particular segment of the highway, we obtain estimates for consumer search costs and other model parameters. Via a counterfactual analysis, we then predict the levels of prices that would prevail in a scenario where consumers have full price knowledge. We also use our model and estimates to measure the stations' market power as a consequence of consumers' lack of price information. We find ...

REVISION: Price Uncertainty and Market Power in Retail Gasoline: The Role of Price Signs on an Italian Highway
Date Posted:Mon, 29 Aug 2016 07:19:46 -0500
We investigate the effect of consumers' price uncertainty and search costs on gasoline price levels. The introduction of a mandatory price disclosure policy on the Italian highway enables us to observe market prices when (a) consumers have no price information; and (b) some information about the prices of competing stations is available to consumers. To characterize the observed pricing outcomes in the marketplace we then propose a model of consumers' sequential search and purchase of gasoline and combine it with a model of gas station pricing. Using data on actual prices and traffic patterns on a particular segment of the highway, we obtain estimates for consumer search costs and other model parameters. Via a counterfactual analysis, we then predict the levels of prices that would prevail in a scenario where consumers have full price knowledge. We also use our model and estimates to measure the stations' market power as a consequence of consumers' lack of price information. We find ...

Update: Brand Performance Across Store Formats: Beyond Walmart's Low Prices
Date Posted:Sun, 28 Aug 2016 13:59:41 -0500
We study whether certain types of brands are more likely to perform better at Walmart supercenters as compared to supermarkets. We correlate the variation in brand sales performance at these two store formats (over time and across markets) with marketing mix variables such as prices, promotions, assortments, and competition while controlling for market and time specific trends, and differences in consumers shopping at different formats. Based on data from four product categories in the Nielsen homescan panel, we consistently find that value brands perform better at Walmart supercenters, while premium brands perform better at supermarkets. We find substantial differences in assortments carried at Walmart supercenters and supermarkets. On average, assortment explains 30% of the variation in relative brand shares while prices and promotions explain 24% of the variation. Importantly, this pattern persists among consumers not loyal to either format i.e., who split their spending at ...
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Update: Food Purchases During the Great Recession
Date Posted:Sun, 28 Aug 2016 11:46:06 -0500
Using the Nielsen Homescan data, we describe what happened to household purchase behavior during the Great recession (Dec 2007-June 2009). Our specific objectives in this study are to understand how the recession impacted: households’ grocery spending in a broad cross-section of 31 food categories; prices paid and quantities bought by households in these categories; the types of outlets they made purchases in; the composition of the food basket in the choice of more expensive brands and less expensive brands and private label products; product volume purchased with retailer discounts and coupons; and, whether there were differences in these behaviors across different demographic groups. We find that during the recession, households purchased more in these food categories, and substituted to cheaper outlets and items sold on deal. However, contrary to expectations, we do not find evidence that the recession was the primary driver behind the increases in store brand share and coupon ...
New PDF Uploaded

REVISION: Licensing and Price Competition in Tied-Goods Markets: An Application to the Single-Serve Coffee System Industry
Date Posted:Wed, 17 Aug 2016 01:27:18 -0500
We develop a structural model of demand and supply for tied-goods which we estimate using aggregate data from the single-serve coffee system industry. We use the parameter estimates to quantify the impact of licensing on equilibrium prices and profits for firms in the industry. In particular, we look at the decision to allow other firms to sell components (coffee pods) that are compatible with a firm’s primary good (coffee machines) by licensing the use of its patents. We solve for the counterfactual market equilibrium in which one of the market leaders enters a licensing agreement with one of the competitor brands; with the latter brand only selling compatible coffee pods and not the machines. We show the existence of a range of royalty rates under which firms could potentially reach a beneficial licensing agreement. In addition, we find that the relationship between the licensee’s profits and the royalty rate is not always decreasing. Finally, we find that, within the set of ...

REVISION: Promotion Spillovers: Drug Detailing in Combination Therapy
Date Posted:Fri, 29 Jul 2016 10:34:17 -0500
This paper examines the spillover effects of promotions when products from different firms are consumed in a bundle. Using data from the HIV/AIDS category, a canonical example of combination therapy, we estimate a hierarchical Bayesian logit model across treatment regimens and show that detailing for one drug can increase demand for other drugs that are often combined with the focal drug. Such spillover effects could lead to free riding by the drugs benefitting from the spillover. We investigate the managerial and policy implications of detailing spillover effects via counterfactual policy simulations based on a dynamic oligopoly game of detailing. For managers, we show how firms can internalize the spillover effects and reduce the incentive for free riding. For policy makers, the implications of our findings relate to detailing restrictions that are often proposed on branded drugs. These restrictions aim to increase social welfare by encouraging the use of generic drugs. However, in ...

REVISION: Promotion Spillovers: Drug Detailing in Combination Therapy
Date Posted:Sat, 23 Jul 2016 05:20:27 -0500
This paper examines the spillover effects of promotions when products from different firms are consumed in a bundle. Using data from the HIV/AIDS category, a canonical example of combination therapy, we estimate a hierarchical Bayesian logit model across treatment regimens and show that detailing for one drug can increase demand for other drugs that are often combined with the focal drug. Such spillover effects could lead to free riding by the drugs benefitting from the spillover. We investigate the managerial and policy implications of detailing spillover effects via counterfactual policy simulations based on a dynamic oligopoly game of detailing. For managers, we show how firms can internalize the spillover effects and reduce the incentive for free riding. For policy makers, the implications of our findings relate to detailing restrictions that are often proposed on branded drugs. These restrictions aim to increase social welfare by encouraging the use of generic drugs. However, in ...

New: Representing Heterogeneity in Consumer Response Models 1996 Choice Conference Participants
Date Posted:Thu, 09 Jun 2016 10:58:02 -0500
We define sources of heterogeneity in consumer utility functions related to individual differences in response tendencies, drivers of utility, form of the consumer utility function, perceptions of attributes, stated expendencies, and stochasticity. A variety of alternative modeling approaches are reviewed that accommodate subsets of these various sources including cluster-wise regression, latent structure models, compound distributions, random coefficients models, etc. We conclude by defining a number of promising research areas in this field.

REVISION: Promotion Spillovers: Drug Detailing in Combination Therapy
Date Posted:Mon, 23 May 2016 04:38:03 -0500
This paper examines the spillover effects of promotions when products from different firms are consumed in a bundle. Using data from the HIV/AIDS category, a canonical example of combination therapy, we estimate a hierarchical Bayesian logit model across treatment regimens and show that detailing for one drug can increase demand for other drugs that are often combined with the focal drug. Such spillover effects could lead to free riding by the drugs benefiting from the spillover. We investigate the managerial and policy implications of detailing spillover effects via counterfactual policy simulations based on a dynamic oligopoly game of detailing. For managers, we show how firms can internalize the spillover effects and reduce the incentive for free riding. For policy makers, the implications of our findings relate to detailing restrictions that are often proposed on branded drugs. These restrictions aim to increase social welfare by encouraging the use of generic drugs. However, in ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Wed, 03 Feb 2016 21:37:55 -0600
We study the identification of the search method consumers use when resolving uncertainty in the prices of alternatives. We show that the search method -- simultaneous or sequential -- is identified with data on consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. We show that identification comes from differences in the patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model that uses such data. Using data on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets is consistent with consumers searching simultaneously. Via counterfactuals we show that the consideration set and purchase market shares of the largest insurance companies are ...

REVISION: Personalization in Email Marketing: The Role of Non-Informative Advertising Content
Date Posted:Mon, 01 Feb 2016 07:46:40 -0600
In collaboration with three companies selling a diverse set of products, we conduct randomized field experiments in which experimentally tailored email messages are sent to millions of individuals. We find consistently that personalizing the emails, while adding no informative content about the product or the company, benefits the advertisers. In our main experiment, we find that adding the name of the message recipient to the email's subject-line increases the probability of the recipient opening it by 20%, which translates to an increase in sales leads by 31% and a reduction in the number of individuals unsubscribing from the email campaign by 17%. We present similar experiments conducted with other companies, which show that the effects we document extend from objectives ranging from acquiring new customers to retaining customers who have purchased from the company in the past. The effects also extend to other content of similar nature. Our investigation of several possible ...

REVISION: Brand Performance Across Store Formats: Beyond Walmart's Low Prices
Date Posted:Sat, 28 Nov 2015 00:26:09 -0600
We study whether certain types of brands are more likely to perform better at Walmart supercenters as compared to supermarkets. We correlate the variation in brand sales performance at these two store formats (over time and across markets) with marketing mix variables such as prices, promotions, assortments, and competition while controlling for market and time specific trends, and differences in consumers shopping at different formats. Based on data from four product categories in the Nielsen homescan panel, we consistently find that value brands perform better at Walmart supercenters, while premium brands perform better at supermarkets. We find substantial differences in assortments carried at Walmart supercenters and supermarkets. On average, assortment explains 30% of the variation in relative brand shares while prices and promotions explain 24% of the variation. Importantly, this pattern persists among consumers not loyal to either format i.e., who split their spending at ...

REVISION: Do Targeted Discount Offers Serve as Advertising? Evidence from 70 Field Experiments
Date Posted:Fri, 27 Nov 2015 10:01:34 -0600
The prevalence and widespread usage of email has given businesses a direct and cost effective way of providing consumers with targeted discount offers. While these discounts are expected to increase the demand for the promoted products, are they effective in increasing revenues? Do they have effects beyond acting as price reductions? We study these questions using individual-level data from 70 randomized experiments run by a large online ticket resale platform. We estimate the redemption rates of the offers and also measure the broader impact of emailed promotions by comparing purchases by individuals who received the experimental promotions with purchases by those who did not receive the offers because of the experimental randomization. We find that the offers cause the average expenditure to increase significantly, by $3.03 (a 37.2% increase) during the promotion window. However, the redemption rate of these offers is low. Importantly, ninety percent of these gains are not through ...

REVISION: Brand Performance Across Store Formats: Beyond Walmart's Low Prices
Date Posted:Wed, 25 Nov 2015 08:02:49 -0600
We study whether certain types of brands are more likely to perform better at Walmart supercenters as compared to supermarkets. We correlate the variation in brand sales performance at these two store formats (over time and across markets) with marketing mix variables such as prices, promotions, assortments, and competition while controlling for market and time specific trends, and differences in consumers shopping at different formats. Based on data from four product categories in the Nielsen homescan panel, we consistently find that value brands perform better at Walmart supercenters, while premium brands perform better at supermarkets. We find substantial differences in assortments carried at Walmart supercenters and supermarkets. On average, assortment explains 30% of the variation in relative brand shares while prices and promotions explain 24% of the variation. Importantly, this pattern persists among consumers not loyal to either format i.e., who split their spending at ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Sun, 22 Nov 2015 20:50:33 -0600
We study the identification of the search method consumers use when resolving uncertainty in the prices of alternatives. We show that the search method - simultaneous or sequential - is identified with data on consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. We show that identification comes from differences in the patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model that uses such data. Using data on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets is consistent with consumers searching simultaneously. Via counterfactuals we show that the consideration set and purchase market shares of the largest insurance companies are ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Sat, 21 Nov 2015 08:51:40 -0600
We study the identification of the search method consumers use when resolving uncertainty in the prices of alternatives. We show that the search method - simultaneous or sequential - is identified with data on consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. We show that identification comes from differences in the patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model that uses such data. Using data on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets is consistent with consumers searching simultaneously. Via counterfactuals we show that the consideration set and purchase market shares of the largest insurance companies are ...

New: Price Reactions to Rivals' Local Channel Exits
Date Posted:Sun, 08 Nov 2015 03:19:02 -0600
In this paper, we study the effect of a firm’s local channel exits on prices charged by incumbents remaining in the marketplace. Exits could result in higher prices due to tempered competition or lower prices due to reduced co-location or agglomeration benefits. The net effect of these two countervailing forces remains unknown. In addition, little is known about how this effect could change depending on incumbents’ geographic locations. We address this research gap by examining new car price reactions by incumbent multi-product automobile dealerships who experience the exit of a Chrysler dealership in their local markets. We find evidence that the competition effect exceeds the co-location effect: prices increase by about 1% ($318) following an exit relative to the price change in the absence of an exit. Importantly, we find that the price increase is lower at dealerships more proximate to the exiting dealership than dealerships farther away for the same set of cars available across ...

New: An Empirical Test of Price Theories in the Market for Seasonal Goods
Date Posted:Wed, 30 Sep 2015 11:06:29 -0500
Three theories have been proposed in the literature to describe the reason behind sharp price declines observed over a product's short lifecycle in seasonal (perishable) goods markets: Prices decline as a result of (i) inter-temporal price discrimination; (2) a firm's uncertainty about product popularity at the start of the season; (3) decreasing opportunity costs due to product perishability. We first provide empirically testable implications of each theory. Then, using data from a large US specialty apparel retailer, we assess whether these theories have empirical support in the fashion apparel market. Our results indicate that inter-temporal price discrimination and product perishability both contribute to the observed price declines. We do not find empirical support for the impact of retailer’s initial demand uncertainty on observed price declines in our data.

REVISION: Promotion Spillovers: Drug Detailing in Combination Therapy
Date Posted:Tue, 22 Sep 2015 11:04:46 -0500
A growing literature has investigated various sources of promotion spillovers. Spillover can be across markets within a brand, across related brands within a firm, across rival brands, through category expansion, and across media and channels. In this paper we examine the spillover effects when products from different firms are consumed in a bundle. Our empirical context is combination therapy, an increasingly important phenomenon in the pharmaceutical industry. In this context the simultaneous prescription of two or more medications from multiple firms leads to complex complementarities and substitution effects of detailing promotion between the drugs involved. Using data from the HIV/AIDS category, a canonical example of combination therapy, we first provide reduced-form evidence for the nature of relationships that exist among the various drugs. We then estimate a formal hierarchical Bayesian logit model across treatment regimens to investigate how the detailing effort for one ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Thu, 10 Sep 2015 10:07:17 -0500
We show that the search method consumers use when resolving uncertainty in the prices of alternatives is identified in data where consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. We show that identification comes from differences in the patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model; complementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the consideration set and purchase market shares of the largest insurance companies are ...

REVISION: Price Transparency and Retail Prices
Date Posted:Mon, 10 Aug 2015 02:02:27 -0500
Price transparency initiatives are typically undertaken by third parties to ensure that consumers can compare the prices of competing offers in markets where obtaining such information is costly. Such practices have recently become widespread, yet it is unclear whether the increased price competition due to lower search costs overcomes the potential for collusion between competitors due to lower price coordination costs. Motivated by this question, we investigate the effect of mandatory price posting (on large electronic signs) by competing gas stations on their pricing behavior in the Italian motorway. When prices are posted, the average price of gasoline decreases by 1 cent per liter, which represents about 20% of stations' margins. About half the price decrease can be attributed to the introduction of a sign posting a station's own price and those of its nearest neighbors, with the other half coming from the introduction of other signs posting the prices of other stations on the ...

New: Food Purchases During the Great Recession
Date Posted:Sat, 11 Jul 2015 06:21:25 -0500
Using the Nielsen Homescan data, we describe what happened to household purchase behavior during the Great recession (Dec 2007-June 2009). Our specific objectives in this study are to understand how the recession impacted: households’ grocery spending in a broad cross-section of 31 food categories; prices paid and quantities bought by households in these categories; the types of outlets they made purchases in; the composition of the food basket in the choice of more expensive brands and less expensive brands and private label products; product volume purchased with retailer discounts and coupons; and, whether there were differences in these behaviors across different demographic groups. We find that during the recession, households purchased more in these food categories, and substituted to cheaper outlets and items sold on deal. However, contrary to expectations, we do not find evidence that the recession was the primary driver behind the increases in store brand share and coupon ...

REVISION: Price Reactions to Rivals' Local Channel Exits
Date Posted:Sat, 13 Jun 2015 03:09:30 -0500
In this paper, we study the effect of a firm's local channel exits on prices charged by incumbents remaining in the marketplace. Exits could result in higher prices due to tempered competition or lower prices due to reduced co-location or agglomeration benefits. The net effect of these two countervailing forces remains unknown. In addition, little is known about how this effect could change depending on incumbents' geographic locations. We address this research gap by examining new car price reactions by incumbent multi-product automobile dealerships who experience the exit of a Chrysler dealership in their local markets. We find evidence that the competition effect exceeds the co-location effect: prices increase by about 1% ($318) following an exit relative to the price change in the absence of an exit. Importantly, we find that the price increase is lower at dealerships more proximate to the exiting dealership than dealerships farther away for the same set of cars available across ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Fri, 29 May 2015 08:24:22 -0500
We show that the search method consumers use when resolving uncertainty in the prices of alternatives is identified in data where consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. We show that identification comes from differences in the patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model; complementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the consideration set and purchase market shares of the largest insurance companies are ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Wed, 13 May 2015 00:21:26 -0500
We show that the search method consumers use when resolving uncertainty in the prices of alternatives is identified in data where consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. The search method is non-parametrically identified by different patterns of actual prices in consumers' consideration sets across search methods. We also provide a new estimation approach for the sequential search model; complementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers' consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the consideration set and purchase market shares of the largest insurance companies are ...

REVISION: Price Transparency and Retail Prices
Date Posted:Fri, 27 Mar 2015 07:21:33 -0500
Price transparency initiatives are typically undertaken by third parties to ensure that consumers have access to price information in markets where obtaining such information is costly. Since providing information is not a strategic decision by the firms in the market, what is the effect of such a practice on the pricing behavior of firms? We investigate the effect of mandatory price posting (on large electronic signs) by competing gas stations on their pricing behavior in the Italian motorway. The theoretical ambiguity in how the signs may affect prices, due to the opposing forces of lower search costs and the potential for collusion, motivates our empirical question. When prices are posted, the average price of gasoline decreases by 1 cent per liter, which represents about 20% of stations' margins. About half the price decrease can be attributed to the introduction of a sign posting a station's own price and those of its nearest neighbors, with the other half coming from the ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Sat, 21 Feb 2015 06:27:50 -0600
We show that the search method consumers use when resolving uncertainty in the prices of alternatives is identified in data where consumers’ consideration sets (but not sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. The search method is identified by different patterns of actual prices in consumers’ consideration sets across search methods. We also provide a new estimation approach for the sequential search model; complementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets and choices, we find that the pattern of actual prices in consumers’ consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the largest insurance companies are better off in terms of market share when consumers search sequentially, while ...

REVISION: Price Reactions to Rivals' Local Channel Exits
Date Posted:Fri, 20 Feb 2015 00:59:59 -0600
In this paper, we study the effect of a firm’s local channel exits on prices charged by incumbents remaining in the marketplace. Exits could result in higher prices due to tempered competition or lower prices due to reduced co-location or agglomeration benefits. The net effect of these two countervailing forces remains unknown. In addition, little is known about how this effect could change depending on incumbent characteristics (e.g., location or products carried). We address this research gap by examining new car price reactions by incumbent multi-product automobile dealerships who experience the exit of a Chrysler dealership in their local markets. We find evidence that the competition effect exceeds the co-location effect: prices increase by about 1% ($318) following an exit relative to the price change in the absence of an exit. Importantly, we find that the price increase is lower at dealerships more proximate ($265) to the exiting dealership than dealerships farther away ...

New: Food Purchases During the Great Recession
Date Posted:Tue, 17 Feb 2015 06:14:31 -0600
Using the Nielsen Homescan data, we describe what happened to household purchase behavior during the Great recession (Dec 2007-June 2009). Our specific objectives in this study are to understand how the recession impacted: households’ grocery spending in a broad cross-section of 31 food categories; prices paid and quantities bought by households in these categories; the types of outlets they made purchases in; the composition of the food basket in the choice of more expensive brands and less expensive brands and private label products; product volume purchased with retailer discounts and coupons; and, whether there were differences in these behaviors across different demographic groups. We find that during the recession, households purchased more in these food categories, and substituted to cheaper outlets and items sold on deal. However, contrary to expectations, we do not find evidence that the recession was the primary driver behind the increases in store brand share and coupon ...

New: Food Purchases During the Great Recession
Date Posted:Thu, 05 Feb 2015 10:36:16 -0600
Using the Nielsen Homescan data, we describe what happened to household purchase behavior during the Great recession (Dec 2007-June 2009). Our specific objectives in this study are to understand how the recession impacted: households’ grocery spending in a broad cross-section of 31 food categories; prices paid and quantities bought by households in these categories; the types of outlets they made purchases in; the composition of the food basket in the choice of more expensive brands and less expensive brands and private label products; product volume purchased with retailer discounts and coupons; and, whether there were differences in these behaviors across different demographic groups. We find that during the recession, households purchased more in these food categories, and substituted to cheaper outlets and items sold on deal. However, contrary to expectations, we do not find evidence that the recession was the primary driver behind the increases in store brand share and coupon ...

New: Price Transparency and Retail Prices
Date Posted:Sun, 25 Jan 2015 01:41:29 -0600
Price transparency initiatives are typically undertaken by third parties to ensure that consumers have access to price information in markets where obtaining such information is costly. Since providing information is not a strategic decision by the firms in the market, what is the effect of such a practice on the pricing behavior of firms? We investigate the effect of mandatory price posting (on large electronic signs) by competing gas stations on their pricing behavior in the Italian motorway. The theoretical ambiguity in how the signs may affect prices, due to the opposing forces of lower search costs and the potential for collusion, motivates our empirical question. When prices are posted, the average price of gasoline decreases by 1 cent per liter, which represents about 20\% of stations' margins. About half the price decrease can be attributed to the introduction of a sign posting a station's own price and those of its nearest neighbors, with the other half coming from the ...

Update: Structural Models of Complementary Choices
Date Posted:Sun, 18 Jan 2015 05:54:46 -0600
Complementary choices are important and pervasive yet occasionally elusive. Single consumers make complementary choices in purchase decisions (e.g. chips and salsa), product interoperabilities (smartphones and networks), and dynamic decisions (current exercise and future healthcare consumption). Multiple consumers make complementary choices when they interact in strategic games or form networks. Firms make complementary choices when determining production inputs, entering related markets, and strategic mergers. The structural empirical literature has recently started to address the difficult problem of how to model complementary choices. This new work contrasts with traditional approaches such as discrete choice models, wherein all choices are mutually exclusive. A naïve approach to modeling complementary choices is to include all possible bundles of choices in the choice set. However, for any given set of options, the set of all possible subsets is exponentially larger, and often ...
New PDF Uploaded

New: Food Purchases During the Great Recession
Date Posted:Wed, 14 Jan 2015 05:43:55 -0600
We look at the Nielsen Homescan data to describe what happened during the Great recession (Dec 2007-June 2009). Our specific objectives in this study are to determine how the recession impacted: grocery spending in a broad cross-section of 31 food categories; prices paid and quantities bought by consumers in these categories; the selection of type of outlets to make purchases in; the composition of the food basket in the choice of private label versus national brand purchases; product volume bought with retailer discounts and coupons; whether there were differences in behavior across different demographic groups.

REVISION: Product Recalls, Category Effects and Competitor Response
Date Posted:Tue, 13 Jan 2015 10:09:19 -0600
Product recalls are ubiquitous in a variety of industries such as food, cosmetics, hi-tech and pharmaceuticals. However, recalls differ in their category level impact depending on the product category as well as the underlying reason for the recall. We focus on product categories where sales force effort is the main driver of sales and an individual firm's product recall may have negative consequences for the entire category. In such contexts, competitors in the category would have to respond to the recall through their sales effort. Often, this decision is complicated by the fact that the sales effort has to be allocated across a portfolio of products across categories not all of which are directly affected by the recall. We use some empirical evidence in the pharmaceutical industry to illustrate that the prevalent wisdom is to increase sales effort towards the product directly affected by the recall. We formulate a game-theoretic model to show that this might not always be the ...

REVISION: Impact of Competition on Product Decisions: Movie Choices of Exhibitors
Date Posted:Tue, 13 Jan 2015 08:08:57 -0600
We empirically study the impact of entry of a new theater on two important product decisions that incumbents in the movie exhibition industry face: 1) whether to invest in screening movies that are expected to be popular and 2) when to adopt new releases. For theaters, both of these decisions feature a cost-demand tradeoff inherent in quality decisions; while screening popular and recent movies brings more patrons to the theater, distributors take a higher share of the revenue for such movies. The impact of competitive entry on the incumbent's quality decisions is ambiguous, as it may simultaneously increase the competitive pressure to invest more in these dimensions of quality and also change the demand conditions that incumbents face. We find that incumbent theaters do not increase the provision of popular and recent movies in response to rival entry. To identify the role of competitive incentives, we study the differential impact of entry based on whether or not the entrant ...

REVISION: Product Recalls, Category Effects and Competitor Response
Date Posted:Fri, 09 Jan 2015 07:50:13 -0600
Product recalls are ubiquitous in a variety of industries such as food, cosmetics, hi-tech and pharmaceuticals. However, recalls differ in their category level impact depending on the product category as well as the underlying reason for the recall. We focus on product categories where sales force effort is the main driver of sales and an individual firm's product recall may have negative consequences for the entire category. In such contexts, competitors in the category would have to respond to the recall through their sales effort. Often, this decision is complicated by the fact that the sales effort has to be allocated across a portfolio of products across categories not all of which are directly affected by the recall. We use some empirical evidence in the pharmaceutical industry to illustrate that the prevalent wisdom is to increase sales effort towards the product directly affected by the recall. We formulate a game-theoretic model to show that this might not always be the ...

REVISION: Impact of Competition on Product Decisions: Movie Choices of Exhibitors
Date Posted:Tue, 25 Nov 2014 01:48:40 -0600
We empirically study the impact of entry of a new theater on two important product decisions incumbents in the movie exhibition industry face: 1) how much to invest in screening movies that are expected to be popular and 2) when to adopt new releases. For theaters, both these decisions feature a cost-demand tradeoff inherent in quality decisions; while screening popular and recent movies brings more patrons to the theater, distributors take a higher share of the revenue for such movies. The impact of competitive entry on the incumbent's quality decisions is ambiguous as it may may simultaneously increase the competitive pressure to invest more in these dimensions of quality and also change the demand conditions incumbents face. We find that incumbent theaters do not increase the provision of popular and recent movies in response to rival entry. To identify the role of competitive incentives, we study the differential impact of entry based on whether or not the entrant belongs to the ...

REVISION: Effects of Targeted Promotions: Evidence from Field Experiments
Date Posted:Mon, 24 Nov 2014 11:20:51 -0600
The prevalence and widespread usage of email has given businesses a direct and cost effective way of providing consumers with targeted promotional offers. While targeted promotions are expected to increase the demand for the promoted products, are these promotions effective in increasing revenues? Do they have effects beyond acting as price reductions? We study these questions using individual-level data from 70 randomized experiments run by a large online ticket resale platform. We measure the impact of emailed promotions by comparing purchases by individuals who received the experimental promotions with purchases by those who did not receive the offers because of the experimental randomization. We find that the offers cause the average expenditure to increase by $3.03 (a 37.2% increase) during the promotion window. However, ninety percent of these gains are not through redemption of the offers. Interestingly, the promotion causes carryover to the week after the promotion expires; ...

REVISION: Service Quality Variability and Termination Behavior
Date Posted:Fri, 26 Sep 2014 07:14:34 -0500
We investigate the roles of the level and variability in quality in driving customer retention for a new service. We present model-free evidence that while high average quality helps in retaining customers, high variability leads to higher termination rates. Apart from these main effects, we use model-free evidence to document the presence of (a) an interaction effect between average service quality and its variability on termination rates, (b) customer learning about service quality over time, and (c) slower rate of learning among households that experience high variability. We postulate a mechanism involving risk aversion and learning, which can induce this interaction effect and test this against several alternative explanations. We show that it is important to consider variability in quality while inferring the impact of improvements to average quality - ignoring the interaction effect between average quality and variability leads 18% to 64% (5% to 31%) overestimation ...

REVISION: Service Quality Variability and Termination Behavior
Date Posted:Wed, 24 Sep 2014 22:10:28 -0500
We investigate the roles of the level and variability in quality in driving customer retention for a new service. We present model-free evidence that while high average quality helps in retaining customers, high variability leads to higher termination rates. Apart from these main effects, we use model-free evidence to document the presence of (a) an interaction effect between average service quality and its variability on termination rates, (b) customer learning about service quality over time, and (c) slower rate of learning among households that experience high variability. We postulate a mechanism involving risk aversion and learning, which can induce this interaction effect and test this against several alternative explanations. We show that it is important to consider variability in quality while inferring the impact of improvements to average quality - ignoring the interaction effect between average quality and variability leads 18% to 64% (5% to 31%) overestimation ...

New: Structural Models of Complementary Choices
Date Posted:Wed, 13 Aug 2014 03:43:16 -0500
Complementary choices are important and pervasive yet occasionally elusive. Single consumers make complementary choices in purchase decisions (e.g. chips and salsa), product interoperabilities (smartphones and networks), and dynamic decisions (current exercise and future healthcare consumption). Multiple consumers make complementary choices when they interact in strategic games or form networks. Firms make complementary choices when determining production inputs, entering related markets, and strategic mergers. The structural empirical literature has recently started to address the difficult problem of how to model complementary choices. This new work contrasts with traditional approaches such as discrete choice models, wherein all choices are mutually exclusive. A naïve approach to modeling complementary choices is to include all possible bundles of choices in the choice set. However, for any given set of options, the set of all possible subsets is exponentially larger, and often ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Thu, 01 May 2014 06:01:44 -0500
We show that the search method consumers use when resolving uncertainty in the prices of alter- natives is identified in data where consumers’ consideration sets (but not sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. The search method is identified by different patterns of actual prices in consumers’ consideration sets across search methods. We also provide a new estimation approach for the sequential search model; com- plementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains in- formation on consideration sets and choices, we find that the pattern of actual prices in consumers’ consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the largest insurance companies are better off in terms of market share when consumers search sequentially, ...

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Wed, 30 Apr 2014 03:04:24 -0500
We show that the search method consumers use when trying to resolve uncertainty in the prices of available alternatives is identified in data where consumers' consideration sets (but not the sequence of searches), the prices for the considered alternatives and market-wide price distributions are observed. The search method is identified by different patterns of actual prices in consumers' consideration sets across the two search methods. We also provide a new estimation approach for the sequential search model with these data; thereby complementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains information on consideration sets as well as choices, we find that the pattern of actual prices in consumers' consideration sets are consistent with consumers searching simultaneously. In the counterfactuals, we find that the largest insurance companies are better ...

REVISION: Service Quality Variability and Termination Behavior
Date Posted:Wed, 19 Mar 2014 23:26:43 -0500
While researchers have documented a positive relationship between the average quality of a service and customer retention, the effect of variability on customer retention has been viewed more ambiguously in the literature. We investigate the roles of the level and variability in quality in the context of a new video on demand service in driving customer retention. We find that while high average quality helps in retaining customers, high variability leads to higher termination rates. Apart from these main effects, we empirically document the presence of an interaction effect between average service quality and its variability on termination rates; customers who experience low variability are more responsive to mean quality compared to those experiencing high variability. As an extreme outcome, at the lower end of the quality spectrum, customers experiencing high variability have a higher retention rate than those experiencing low variability; this is contrary to what the main effect ...

REVISION: Advertising Spillovers: Drug Detailing in Combination Therapy
Date Posted:Sat, 08 Mar 2014 12:54:40 -0600
A growing literature has investigated various sources of advertising spillovers. Spillover can be across markets within a brand, across related brands within a firm, across rival brands, and across media and channels. Using the empirical context of combination therapy in the pharmaceutical industry, we examine advertising spillovers when products from different firms are consumed as a bundle. With data from the HIV/AIDS category, we first provide reduced-form evidence for the nature of relationships that exist among the various drugs. We then estimate a formal hierarchical Bayesian logit model across treatment regimens to investigate how the detailing effort for one drug spills over to related drugs. Spillover effects create a tradeoff for the firm – increased detailing of one’s own drug benefits sales of that drug but also those of other drugs in the combination. The latter effect could lead to free riding by the drug benefitting from the spillover. We numerically solve a dynamic ...

REVISION: Service Quality Variability and Termination Behavior
Date Posted:Tue, 04 Mar 2014 05:24:25 -0600
While researchers have documented a positive relationship between the average quality of a service and customer retention, the effect of variability on customer retention has been viewed more ambiguously in the literature. We investigate the roles of the level and variability in quality in the context of a new video on demand service in driving customer retention. We find that while high average quality helps in retaining customers, high variability leads to higher termination rates. Apart from these main effects, we empirically document the presence of an interaction effect between average service quality and its variability on termination rates; customers who experience low variability are more responsive to mean quality compared to those experiencing high variability. As an extreme outcome, at the lower end of the quality spectrum, customers experiencing high variability have a higher retention rate than those experiencing low variability; this is contrary to what the main effect ...

New: Editorial — Marketing Science: A Strategic Review
Date Posted:Tue, 12 Nov 2013 10:35:17 -0600
Marketing Science is in a great competitive position with a strong editorial board and infrastructure support. This editorial summarizes the state of the journal as perceived by its stakeholders. They believe that the journal should strive to remain a premier international journal and embrace diverse topics, methods, and foci. It should continue to draw upon allied fields while being open to the various methods and philosophies as recognized in those fields. It should strive to avoid silos and embrace applications and relevance while not sacrificing rigor. The path may not be easy, but we can move forward successfully. We highlight potential threats to success and recommend how the journal might overcome those threats.

REVISION: Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
Date Posted:Sun, 27 Oct 2013 11:47:41 -0500
We explore whether the search strategy consumers use is identified in cases where researchers observe consumers' consideration sets (but not the sequence of searches) in addition to their purchases, price distributions, prices for the considered alternatives and other characteristics. We show that the search method is identified by the difference in the pattern of actual prices in consumers' consideration sets across the two methods. Next, we provide an approach to estimating the parameters of a sequential search model with these data; thereby complementing earlier work that has estimated a simultaneous search model with such data. We then undertake a comprehensive simulation study to understand the implications of making an incorrect assumption on search method for model fit and estimated parameters. Conditional on our assumed functional form for consumers' utility functions, we find that the correctly specified model recovers the true parameters. The incorrect search model is ...

REVISION: New Drug Diffusion When Forward-Looking Physicians Learn from Patient Feedback and Detailing
Date Posted:Wed, 18 Sep 2013 11:03:58 -0500
We study physicians' prescription choices when uncertainty about drug efficacy is resolved through two channels: firms' marketing activities (e.g., detailing) and patients' experiences with the drugs. We first provide empirical evidence that suggests the well-understood information incentive for physicians to experiment with new drugs is reduced when physicians anticipate future detailing. Increased detailing activity therefore triggers opposing forces: adoption is hastened as physicians become informed (assuming priors are initially low), and slows as they reduce experimentation and instead obtain information from detailing at no cost. We then estimate a dynamic Bayesian learning model that embodies these trade-offs using physician-level data on prescription choices and detailing received in the months surrounding the introduction of two erectile dysfunction drugs, Levitra and Cialis. Detailing elasticities are lower when physicians anticipate changes in detailing activity than ...

REVISION: Service Quality Variability and Termination Behavior
Date Posted:Wed, 22 May 2013 03:17:35 -0500
While researchers have documented a positive relationship between the average quality of a service and customer retention, the effect of variability on customer retention has been viewed more ambiguously in the literature. We investigate the roles of the level and variability in quality in the context of a new video on demand service in driving customer retention. Apart from the main effects, we empirically document the presence of an interaction effect between average service quality and its ...

REVISION: Impact of Competition on Product Quality Provision: Case of the Motion Picture Exhibitors
Date Posted:Mon, 25 Feb 2013 14:05:59 -0600
We study product quality choice as a competitive tool to answer two related questions. What is the impact of competition on the quality provision of firms? How does the ability to adjust quality impact business stealing? We present empirical evidence of quality responses to market structure changes in the movie exhibition industry. We show that competitive incentives, all else constant, exert an upward pressure on quality. The incumbent's quality response to entry is negative if the entrant is ...

REVISION: Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone
Date Posted:Mon, 18 Feb 2013 14:55:13 -0600
Since the Apple iPhone’s first launch in 2007 with an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by “locked-out” consumers, due to the fact that a consumer has to subscribe to a particular service ...

REVISION: Blogs, Advertising and Local-Market Movie Box-Office Performance
Date Posted:Thu, 14 Feb 2013 07:46:09 -0600
We measure the effects of pre- and post-release blog volume, blog valence and advertising on the performance of 75 movies in 208 geographic markets of the U.S. We attribute the variation in blog effects across markets to differences in demographic characteristics of markets combined with differences across demographic groups in their access and exposure to blogs as well as their responsiveness conditional on access. We study the effects of pre-release factors on opening day box-office ...

REVISION: Impact of Competition on Product Quality Provision: Case of the Motion Picture Exhibitors
Date Posted:Tue, 12 Feb 2013 14:13:08 -0600
Abstract We study product quality choice as a competitive tool to answer two related questions. What is the impact of competition on the quality provision of firms? How does the ability to adjust quality impact business stealing? We present empirical evidence of quality responses to market structure changes in the movie exhibition industry. We show that competitive incentives, all else constant, exert an upward pressure on quality. The incumbent's quality response to entry is negative if the ...

New: Quantifying Transaction Costs in Online/Off-Line Grocery Channel Choice
Date Posted:Wed, 24 Oct 2012 12:36:03 -0500
Households incur transaction costs when choosing among off-line stores for grocery purchases. They may incur additional transaction costs when buying groceries online versus off-line. We integrate the various transaction costs into a channel choice framework and empirically quantify the relative transaction costs when households choose between the online and off-line channels of the same grocery chain. The key challenges in quantifying these costs are (i) the complexity of channel choice ...

New: Investigating Brand Preferences Across Social Groups and Consumption Contexts
Date Posted:Sat, 28 Apr 2012 14:32:02 -0500
Using a unique dataset on U.S. beer consumption, we investigate brand preferences of consumers across various social group and context related consumption scenarios (“scenarios”). As sufficient data are not available for each scenario, understanding these preferences requires us to share information across scenarios. Our proposed modeling framework has two main building blocks. The first is a standard continuous random coefficients logit model that the framework reduces to in the absence of ...

REVISION: New Drug Diffusion When Forward-Looking Physicians Learn from Patient Feedback and Detailing
Date Posted:Thu, 26 Apr 2012 04:08:36 -0500
We study physicians' prescription choices when uncertainty about drug efficacy is resolved through two channels: firms' marketing activities (e.g., detailing) and patients' experiences with the drugs. We first provide empirical evidence that suggests the well-understood information incentive for physicians to experiment with new drugs is reduced when physicians anticipate future detailing. Increased detailing activity therefore triggers opposing forces: adoption is hastened as physicians ...

REVISION: Blogs and Local-market Movie Box-office Performance
Date Posted:Wed, 30 Nov 2011 18:00:35 -0600
We measure the effects of user-generated blogs on the box-office performance of movies in local geographic markets. We investigate two aspects of blogs – their volume and valence. The primary focus of the paper is on pre-release blogs and their impact on opening day, opening market box-office performance. Our movie-level data on user generated content are at the national level whereas our box-office data are at the local geographic market level (e.g., Atlanta, Chicago, etc.). The econometric ...

REVISION: Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone
Date Posted:Thu, 24 Nov 2011 04:24:48 -0600
Since the Apple iPhone’s first launch in 2007 with an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by “locked-out” consumers, due to the fact that a consumer has to subscribe to a particular service provider ...

New: Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone
Date Posted:Mon, 21 Nov 2011 13:01:53 -0600
Since the Apple iPhone’s launch in 2007 in an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by “locked-out” consumers, due to the fact that a consumer has to subscribe to a particular service provider if he or ...

REVISION: Quantifying Transaction Costs in Online/Offline Grocery Channel Choice
Date Posted:Thu, 01 Sep 2011 15:29:55 -0500
Households incur transaction costs when choosing among offline stores for grocery purchases. They may incur additional transaction costs when buying groceries online versus offline. We integrate the various transaction costs into a channel choice framework and empirically quantify the relative transaction costs when households choose between the online and offline channels of the same grocery chain. The key challenges in quantifying these costs are (i) the complexity of channel choice ...

New: Roi Implications for Pharmaceutical Promotional Expenditures: The Role of Marketing Mix Interactions
Date Posted:Sat, 04 Jun 2011 20:15:40 -0500
In recent years, pharmaceutical companies have increased their promotional expenditures, particularly on direct to consumer advertising (DTC) and detailing. Given the large dollar amounts involved, this study focuses on the likely effect of these expenditures on a firm's revenues. More specifically, using data from a category of pharmaceutical products, the study empirically explores the impact of interactions between pairs of marketing mix elements on ROI. The findings of this study from ...

New: The Role of Self Selection, Usage Uncertainty and Learning in the Demand for Local Telephone Service
Date Posted:Sat, 04 Jun 2011 13:52:36 -0500
elephone services are often characterized by the presence of ‘fixed’ plans, involving only a fixed monthly fee, as well as ‘measured’ plans, with both fixed fees and per-unit charges for usage. Consumers are faced with the decisions of which plan to choose and how much to use the phone and these decisions are not, in general, independent. Due to the presence of a time lag between plan choice and usage decisions, consumers are uncertain about usage at the plan-choice stage. We develop a ...

REVISION: Marketing Models of Consumer Demand
Date Posted:Wed, 02 Mar 2011 17:51:58 -0600
Marketing researchers have used models of consumer demand to forecast future sales; to describe and test theories of consumer behavior; and to measure the response to marketing interventions. The basic framework typically starts from microfoundations of expected utility theory to obtain a statistical system that describes consumers’ choices over available options, and to thus characterize product demand. The basic model has been augmented significantly to account for quantity choice decisions; ...

REVISION: A New Multivariate Count Data Model to Study Multi-Category Physician Prescription Behavior
Date Posted:Thu, 03 Feb 2011 16:11:25 -0600
Multivariate count models represent a natural way of accommodating data from multiple product categories when the dependent variable in each category is represented by a positive integer. In this paper, we propose a new simultaneous equation multi-category count data model – the Poisson-lognormal simultaneous equation model – that allows for the Poisson parameter in one equation to be a function of the Poisson parameters in other equations. While generally applicable to any situation where ...

New: Marketing Models of Consumer Demand
Date Posted:Sat, 04 Dec 2010 00:33:42 -0600
Marketing researchers have used models of consumer demand to forecast future sales; to describe and test theories of consumer behavior; and to measure the response to marketing interventions. The basic framework typically starts from microfoundations of expected utility theory to obtain a statistical system that describes consumers' choices over available options, and to thus characterize product demand. The basic model has been augmented significantly to account for quantity choice decisions; ...

REVISION: Marketing Models of Consumer Demand
Date Posted:Thu, 02 Dec 2010 15:14:58 -0600
Marketing researchers have used models of consumer demand to forecast future sales; to describe and test theories of consumer behavior; and to measure the response to marketing interventions. The basic framework typically starts from microfoundations of expected utility theory to obtain a statistical system that describes consumers’ choices over available options, and to thus characterize product demand. The basic model has been augmented significantly to account for quantity choice decisions; ...

REVISION: Quantifying Transaction Costs in Online / Offline Grocery Channel Choice
Date Posted:Wed, 24 Nov 2010 19:26:08 -0600
Households incur a number of transaction costs when choosing stores to make grocery purchases. When the online channel is available as an alternative to physical-store shopping, they may need to incur additional transaction costs. In this paper, we empirically quantify relative transaction costs when households choose between the online and offline channels of the same grocery chain. A key challenge to quantifying these costs is that several of them, such as picking items from the store and ...

REVISION: A New Multivariate Count Data Model to Study Multi-Category Physician Prescription Behavior
Date Posted:Sat, 02 Oct 2010 04:14:44 -0500
Multivariate count models represent a natural way of accommodating data from multiple product categories when the dependent variable in each category is represented by a positive integer. In this paper, we propose a new simultaneous equation multi-category count data model – the Poisson-lognormal simultaneous equation model – that allows for the Poisson parameter in one equation to be a function of the Poisson parameters in other equations. While generally applicable to any situation where ...

REVISION: Measuring Local Market-Level Differences in the Effects of Pre-Release Blogs on a Movie’s Opening Bo
Date Posted:Wed, 22 Sep 2010 09:44:58 -0500
In this study, our objective is to understand differences across geographic markets in their responsiveness to consumer-generated media. Our empirical context is the U.S. motion-picture industry, for which we try to infer the causal effects of pre-release consumer-generated blogs (volume and valence) and of firm-generated media (i.e., pre-release advertising) on local market-level box-office performance of a new movie. Identifying the causal effects of blogs on box-office performance is an ...

REVISION: Investigating Cross-Category Physician Prescription and Firm Detailing Behaviors with Implications f
Date Posted:Tue, 25 May 2010 19:02:47 -0500
An important issue facing firms marketing several drugs across categories to the same primary care physicians is to understand these physicians’ responsiveness to detailing across categories. We propose a general multicategory model of physicians’ prescriptions while accounting for the endogeneity and simultaneity of firms’ detailing efforts within and across categories. Within a category, the prescription model allows for physicians’ brand preferences and detailing sensitivities be correlated ...

REVISION: What Drives Household Choice of Online and Offline Grocery Channels?
Date Posted:Thu, 04 Mar 2010 16:38:50 -0600
This paper studies how households choose between online and offline grocery stores on a given store visit. We describe a simple economic framework of household home production in which a household makes tradeoffs between and within direct costs and transaction costs of shopping and chooses the store with the lowest total cost. We then empirically quantify these tradeoffs using a unique household panel dataset that records households’ shopping trips to the online and offline stores of the same ...

REVISION: The Effects of Online User Reviews on Movie Box-Office Performance: Accounting for Sequential Rollou
Date Posted:Mon, 01 Mar 2010 05:39:35 -0600
Our objective in this paper is to measure the impact of national online user reviews (valence, volume and variance) on Designated Market Area (DMA) level local geographic box-office performance of movies. We account for three complications with analyses that use national level aggregate box-office data – (i) aggregation across heterogeneous markets (“spatial aggregation”); (ii) serial correlation due to sequential release of movies (“endogenous rollout”); and (iii) serial correlation due to ...

REVISION: Can Ignoring Cross-Category Prescription Behavior Lead to Incorrect Inferences Regarding Physician S
Date Posted:Sat, 11 Jul 2009 07:45:40 -0500
An important issue facing managers of firms marketing several prescription drugs in different categories to the same primary care physicians is to understand the responsiveness of these physicians to detailing across categories. In this paper, we show that, for the categories we consider, (i) physicians’ prescription decisions are correlated across categories; and (ii) if this correlation is ignored, then one can arrive at incorrect inferences regarding physicians’ detailing sensitivities in ...

REVISION: Online Word-of-Mouth Effects on the Offline Sales of Sequentially Released New Products: An Applicat
Date Posted:Mon, 30 Mar 2009 10:53:18 -0500
The growth of online word-of-mouth via user ratings, blogs, etc. has prompted an emerging area of research into the effects of such factors on offline product performance. Measuring the actual effects of such factors on offline sales remains a challenge due to the presence of unobserved factors that can be correlated with both the online word-of-mouth online WOM measure and the offline sales measure. The key objective of this study is to measure the effects of online word-of-mouth, ...

REVISION: What Drives Channel Choice in Grocery Shopping?
Date Posted:Wed, 25 Mar 2009 09:06:19 -0500
We provide a descriptive study of a household's decisions on where to shop, when to shop and how much to spend for grocery products in the same grocery chain's online and offline stores. We observe households that shop interchangeably in the online and offline stores and make a majority of their purchases in the chain. The data cover all product categories purchased by households at the chain (packaged goods, perishables, etc.). For each household we identify the top 30 categories that account ...

REVISION: Online Word-of-Mouth Effects on the Offline Sales of Sequentially Released New Products: An Applicat
Date Posted:Mon, 02 Mar 2009 19:09:49 -0600
The growth of online word-of-mouth via user ratings, blogs, etc. has prompted an emerging area of research into the effects of such factors on offline product performance. Measuring the actual effects of such factors on offline sales remains a challenge due to the presence of unobserved factors that can be correlated with both the online word-of-mouth (OWOM) measure and the offline sales measure. The key objective of this study is to propose an econometric approach to measure the effects of ...

REVISION: Complementarities and the Demand for Home Broadband Internet Services
Date Posted:Wed, 25 Feb 2009 18:41:59 -0600
Before the deregulation of Digital Subscriber Line (DSL) services by the FCC in 2005, phone companies were required to share their DSL bandwidth with independent DSL providers. However, despite the large number of independent providers that entered the market, phone companies accounted for 95.3% of all DSL subscribers in 2005. A common explanation for this is based on supply-side factors such as the costs faced by these providers to lease the telephone lines from the phone companies with whom ...

REVISION: A Multi-Category Model of Physician Prescriptions and Detailing
Date Posted:Wed, 25 Feb 2009 18:39:44 -0600
An important issue facing managers of firms marketing several prescription drugs in different categories to the same primary care physicians is to understand the responsiveness of these physicians to detailing across categories. In this paper we propose a multicategory model of physician prescription while accounting for the endogeneity of firms' detailing efforts. Within a category, the proposed Multivariate Poisson - Mixture of lognormals prescription model allows for physicians' intrinsic ...

REVISION: Investigating Consumer Adoption of Related Technology Products
Date Posted:Wed, 25 Feb 2009 18:35:09 -0600
We present a framework for modeling consumer adoption of multiple categories of technology products that may be related as complements (or substitutes). The context of technology products as well as the relationship between categories poses some unique challenges. First, the declining prices (and the corresponding increase in quality levels) over time imply that consumers anticipate these changes and make a trade-off between adopting the product early on and consuming the product for a longer ...

REVISION: What Drives Channel Choice in Grocery Shopping?
Date Posted:Wed, 25 Feb 2009 18:24:36 -0600
We provide a descriptive study of a household's decisions on where to shop, when to shop and how much to spend for grocery products in the same grocery chain's online and offline stores. We observe households that shop interchangeably in the online and offline stores and make a majority of their purchases in the chain. The data cover all product categories purchased by households at the chain (packaged goods, perishables, etc.). For each household we identify the top 30 categories that account ...

REVISION: A Multi-Category Model of Physician Prescriptions and Detailing
Date Posted:Wed, 11 Feb 2009 09:01:45 -0600
An important issue facing managers of firms marketing several prescription drugs in different categories to the same primary care physicians is to understand the responsiveness of these physicians to detailing across categories. In this paper we propose a multicategory model of physician prescription while accounting for the endogeneity of firms' detailing efforts. Within a category, the proposed Multivariate Poisson - Mixture of lognormals prescription model allows for physicians' intrinsic ...

REVISION: What Drives Channel Choice in Grocery Shopping?
Date Posted:Sun, 08 Feb 2009 17:37:15 -0600
We provide a descriptive study of a household's decisions on where to shop, when to shop and how much to spend for grocery products in the same grocery chain's online and offline stores. We observe households that shop interchangeably in the online and offline stores and make a majority of their purchases in the chain. The data cover all product categories purchased by households at the chain (packaged goods, perishables, etc.). For each household we identify the top 30 categories that account ...

REVISION: Online Word-of-Mouth Effects on the Offline Sales of Sequentially Released New Products: An Applicat
Date Posted:Sat, 07 Feb 2009 18:20:37 -0600
The growth of online word-of-mouth via user ratings, blogs, etc. has prompted an emerging area of research into the effects of such factors on offline product performance. Measuring the actual effects of such factors on offline sales remains a challenge due to the presence of unobserved factors that can be correlated with both the online word-of-mouth (OWOM) measure and the offline sales measure. The key objective of this study is to propose an econometric approach to measure the effects of ...

REVISION: A Multi-Category Model of Physician Prescriptions and Detailing
Date Posted:Sat, 07 Feb 2009 07:14:36 -0600
An important issue facing managers of firms marketing several prescription drug products in different therapeutic categories to the same set of primary care physicians is to understand the responsiveness of these physicians to detailing in the various categories. In this paper we propose a multicategory model of physician prescription behavior that also accounts for the endogeneity of firms' detailing efforts. Within a category, the proposed Multivariate Poisson - Mixture of lognormals ...

REVISION: Online Word-of-Mouth Effects on the Offline Sales of Sequentially Released New Products: An Applicat
Date Posted:Fri, 23 Jan 2009 07:34:20 -0600
The growth of online word-of-mouth via user ratings, blogs, etc. has prompted an emerging area of research into the effects of such factors on offline product performance. Measuring the actual effects of such factors on offline sales remains a challenge due to the presence of unobserved factors that can be correlated with the measures of online word-of-mouth and the offline sales levels. The key objective of this study is to propose an econometric approach to measure the effects of online ...

REVISION: Complementarities and the Demand for Home Broadband Internet Services
Date Posted:Mon, 20 Oct 2008 00:36:27 -0500
Before the deregulation of Digital Subscriber Line (DSL) services by the FCC in 2005, phone companies were required to share their DSL bandwidth with independent DSL providers. However, despite the large number of independent providers that entered the market, phone companies accounted for 95.3% of all DSL subscribers in 2005. A common explanation for this is based on supply-side factors such as the costs faced by these providers to lease the telephone lines from the phone companies with whom ...

New: Information, Learning, and Drug Diffusion: The Case of Cox-2 Inhibitors
Date Posted:Fri, 05 Sep 2008 02:23:39 -0500
The recent withdrawal of Cox-2 Inhibitors has generated debate on the role of information in drug diffusion: can the market learn the efficacy of new drugs, or does it depend solely on manufacturer advertising and FDA updates? In this study, we use a novel data set to study the diffusion of three Cox-2 Inhibitors - Celebrex, Vioxx and Bextra - before the Vioxx withdrawal. Our study has two unique features: first, we observe each patient's reported satisfaction after consuming a drug. This ...

REVISION: Accounting for Primary and Secondary Demand Effects with Aggregate Data
Date Posted:Wed, 11 Jun 2008 10:38:41 -0500
Discrete choice models of aggregate demand, such as the random coefficients logit, can handle large differentiated products categories parsimoniously while still providing flexible substitution patterns. However, the discrete choice assumption may not be appropriate for many categories in which we expect consumers may purchase more than one unit of the selected item. We derive the aggregate demand system corresponding to a discrete/continuous household-level model of demand. We also propose a ...

Structural Modeling in Marketing: Review and Assessment
Date Posted:Tue, 22 Apr 2008 09:25:46 -0500
The recent marketing literature reflects a growing interest in structural models, stemming from: 1) the desire to test a variety of behavioral theories with market data, and 2) recent developments that facilitate estimation of and inference for these models. Whether one should always go through the effort of developing such tightly parameterized models with the associated computational burden of estimating them, and whether it pays off to make strict behavioral assumptions in terms of better ...

Recovering SKU-level Preferences and Response Sensitivities from Market Share Models Estimated on It...
Date Posted:Tue, 22 Apr 2008 09:05:51 -0500
We propose an alternative approach to obtaining SKU-level preferences and response sensitivities. An attribute-level model in which the unit of analysis is the market share for an alternative created by aggregation e.g., Colgate toothpaste) is distinguished from a truly disaggregate SKU-level model and develop an analytical relationship between parameters obtained from these two models is established. We show that the researcher can recover SKU-level parameters via calculation from estimated ...

Estimating an SKU-level Brand Choice Model Combining Household Panel Data and Store Data
Date Posted:Tue, 22 Apr 2008 09:04:30 -0500
The extant literature using household scanner data to estimate consumer choice models has identified two key sources of bias in estimated mean responses to marketing variables. Omitted heterogeneity may bias mean responses towards zero. At the same time, omitted time-varying characteristics of alternatives that influence consumer choices may also bias mean responses towards zero if these characteristics are correlated with observed factors such as price - the endogeneity bias. Both these ...

Response Modeling with Non-random Marketing Mix Variables
Date Posted:Tue, 22 Apr 2008 07:22:55 -0500
Sales response models are widely used as the basis for optimizing the marketing mix or for allocation of the sales force. Response models condition on the observed marketing mix variables and focus on the specification of the distribution of observed sales given marketing mix activities. These models fail to recognize that the levels of the marketing mix variables are often chosen with at least partial knowledge of the response parameters in the conditional model. This means that, contrary ...

Time Varying Competition
Date Posted:Tue, 22 Apr 2008 07:19:46 -0500
Normative models typically suggest that prices rise in periods of high demand and cost. Yet in many markets, prices fall when demand or costs rise. This inconsistency occurs because the normative models assume that competitive intensity does not change with demand and cost conditions over time. We therefore introduce the notion of time varying competition by suggesting that it is important to not account for the direct effect of demand and cost on prices (e.g., higher demand means higher ...

Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants
Date Posted:Tue, 22 Apr 2008 07:13:49 -0500
We present a framework to measure empirically the size of indirect network effects in high-technology markets with competing incompatible technology standards. These indirect network effects arise due to inter-dependence in demand for hardware and compatible software. By modeling the joint determination of hardware sales and software availability in the market, we are able to describe the nature of demand inter-dependence and to measure the size of the indirect network effects. We apply the ...

REVISION: Tipping and Concentration in Markets with Indirect Network Effects
Date Posted:Thu, 24 Jan 2008 18:35:19 -0600
This paper develops a framework to measure 'tipping' - the increase in a firm's market share dominance caused by indirect network effects. Our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects. In practice, this measure requires a model that can predict the counter-factual market concentration under different parameter values capturing the strength of indirect network effects. We build ...

REVISION: Tipping and Concentration in Markets with Indirect Network Effects
Date Posted:Mon, 21 Jan 2008 13:30:20 -0600
This paper develops a framework to measure 'tipping' - the increase in a firm's market share dominance caused by indirect network effects. Our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects. In practice, this measure requires a model that can predict the counter-factual market concentration under different parameter values capturing the strength of indirect network effects. We build ...

REVISION: Investigating Consumer Adoption of Related Technology Products
Date Posted:Tue, 04 Dec 2007 09:41:27 -0600
We present a framework for modeling consumer adoption of multiple categories of technology products that may be related as complements (or substitutes). The context of technology products as well as the relationship between categories poses some unique challenges. First, the declining prices (and the corresponding increase in quality levels) over time imply that consumers anticipate these changes and make a trade-off between adopting the product early on and consuming the product for a longer ...

New: Nonparametric Discrete Choice Models With Unobserved Heterogeneity
Date Posted:Mon, 03 Sep 2007 09:36:00 -0500
In this research, we provide a new method to estimate discrete choice models with unobserved heterogeneity that can be used with either cross-sectional or panel data. The method imposes nonparametric assumptions on the systematic subutility functions and on the distributions of the unobservable random vectors and the heterogeneity parameter. The estimators are computationally feasible and strongly consistent. We provide an empirical application of the estimator to a model of store format choice.

REVISION: Quantifying the Benefits of Individual Level Targeting in the Presence of Firm Strategic Behavior
Date Posted:Fri, 29 Jun 2007 20:32:04 -0500
Targeting - setting marketing policy differentially for different customers or segments - is an important marketing practice. Previous approaches to quantifying the benefits from targeting have typically calibrated a response model and used the variation in response parameter estimates to compare the firm's profits under targeting schemes at different levels of aggregation. Implicit in this approach is the assumption that the data do not reflect any strategic behavior that the firm may be ...

REVISION: The Effects of Service Quality and Word of Mouth on Customer Acquisition, Retention and Usage
Date Posted:Mon, 09 Apr 2007 21:42:53 -0500
This paper documents the existence of the direct and indirect (via word-of-mouth) effects of service quality on new customer acquisition, usage and retention using behavioral data from the launch of a new video on demand type service. For this technology, service quality - the quality of the signal determining the number of movies available for viewing - is exogenously determined and objectively measured. This information, coupled with location and neighborhood information for each subscriber ...

REVISION: The Effects of Service Quality and Word of Mouth on Customer Acquisition, Retention and Usage
Date Posted:Sun, 11 Mar 2007 17:07:16 -0500
This paper documents the existence of the direct and indirect (via word-of-mouth) effects of service quality on new customer acquisition, usage and retention using behavioral data from the launch of a new video on demand type service. For this technology, service quality - the quality of the signal determining the number of movies available for viewing - is exogenously determined and objectively measured. This information, coupled with location and neighborhood information for each subscriber ...

REVISION: The Effects of Service Quality and Word of Mouth on Customer Acquisition, Retention and Usage
Date Posted:Sun, 11 Mar 2007 17:07:16 -0500
This paper documents the existence of the direct and indirect (via word-of-mouth) effects of service quality on new customer acquisition, usage and retention using behavioral data from the launch of a new video on demand type service. For this technology, service quality - the quality of the signal determining the number of movies available for viewing - is exogenously determined and objectively measured. This information, coupled with location and neighborhood information for each subscriber ...

REVISION: The Effects of Service Quality and Word of Mouth on Customer Acquisition, Retention and Usage
Date Posted:Sun, 11 Mar 2007 17:07:15 -0500
This paper documents the existence of the direct and indirect (via word-of-mouth) effects of service quality on new customer acquisition, usage and retention using behavioral data from the launch of a new video on demand type service. For this technology, service quality - the quality of the signal determining the number of movies available for viewing - is exogenously determined and objectively measured. This information, coupled with location and neighborhood information for each subscriber ...

REVISION: The Effects of Service Quality and Word of Mouth on Customer Acquisition, Retention and Usage
Date Posted:Sun, 11 Mar 2007 17:07:13 -0500
This paper documents the existence of the direct and indirect (via word-of-mouth) effects of service quality on new customer acquisition, usage and retention using behavioral data from the launch of a new video on demand type service. For this technology, service quality - the quality of the signal determining the number of movies available for viewing - is exogenously determined and objectively measured. This information, coupled with location and neighborhood information for each subscriber ...

New: Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations
Date Posted:Fri, 17 Nov 2006 08:17:36 -0600
In the context of introducing new products around the world, it is important to understand the relative attractiveness of various countries in terms of maximum penetration potential and diffusion speed. In this paper, we examine these market characteristics for a new category of prescription drugs in both developing and developed countries. Using data from fifteen countries, and a logistic specification in the Hierarchical Bayesian framework, we report the differences in diffusion speed and ...

REVISION: Accounting for Primary and Secondary Demand Effects with Aggregate Data
Date Posted:Fri, 17 Nov 2006 08:13:27 -0600
Discrete choice models of aggregate demand, such as the random coefficients logit, can handle large differentiated products categories parsimoniously while still providing flexible substitution patterns. However, the discrete choice assumption may not be appropriate for many categories in which we expect consumers may purchase more than one unit of the selected item. We derive the aggregate demand system corresponding to a discrete/continuous household-level model of demand. We also propose a ...

REVISION: Quantifying the Benefits of Individual Level Targeting in the Presence of Firm Strategic Behavior
Date Posted:Tue, 17 Oct 2006 13:55:15 -0500
Targeting - setting marketing policy differentially for different customers or segments - is an important marketing practice. Previous approaches to quantifying the benefits from targeting have typically calibrated a response model and used the variation in response parameter estimates to compare the firm's profits under targeting schemes at different levels of aggregation. Implicit in this approach is the assumption that the data do not reflect any strategic behavior that the firm may be ...

Banner Advertising as a Customer Retention Tool in Customer Relationship Management
Date Posted:Thu, 05 Jan 2006 15:55:59 -0600
One of the major advances of the digital economy is the facilitation of building and managing individual customer relationships - a process usually referred to as "customer relationship management" or CRM. For a typical web site selling frequently-purchased consumer items, the most important stage of CRM is customer retention. This is because the long-term viability of a website is based on its ability to retain a significant customer base. In this study, we focus on a hitherto unexplored ...

Effects of Brand Preference, Product Attributes, and Marketing Mix Variables in Technology Product M
Date Posted:Thu, 03 Nov 2005 20:48:03 -0600
We develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand's performance. In order to account for the potential correlation in the preferences of models offered by a particular brand, we use a nested logit model with the brand (e.g., Sony) at the upper level and its various models (e.g., Mavica, FD, DSC, etc.) at the lower level of the nest.

Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants
Date Posted:Mon, 15 Mar 2004 02:42:16 -0600
We present a framework to measure empirically the size of indirect network effects in high-technology markets with competing incompatible technology standards. These indirect network effects arise due to inter-dependence in demand for hardware and compatible software. By modeling the joint determination of hardware sales and software availability in the market, we are able to describe the nature of demand inter-dependence and to measure the size of the indirect network effects. We apply the ...

The Informative versus Persuasive Role of Marketing Communication in New Product Categories: An Appl...
Date Posted:Mon, 08 Dec 2003 00:56:05 -0600
Marketing communication plays a major role in influencing consumer purchases in new product categories. An important question about this communication is whether it plays an informative or a persuasive role over the life cycle of the new product category. We expect that consumers are not well informed about product quality in the early stages of the product life cycle but they become better informed over time. The informative role of marketing communication is likely to have a much larger ...

Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?
Date Posted:Mon, 04 May 1998 08:17:27 -0500
Researchers have recently developed models for determining which market conduct best describes observed data. We apply these techniques from the "new empirical industrial organization" literature to the competitive product line pricing decision, where a firm strategically prices its brands when determining the profit-maximizing conduct in the market. Demand, cost, and market structure are estimated endogenously. Empirical results from analyzing price competition in the laundry detergent market ...