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73
Valuing New Goods in a Model with Complementarities: Online Newspapers,” working paper
, 2004
"... Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been l ..."
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Cited by 44 (3 self)
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Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study the specific case of competition between print and online newspapers. Using new micro data from the Washington DC market, I show that the major print and online papers appear to be strong complements in the raw data, but that this is an artifact of unobserved consumer heterogeneity. I estimate that the online paper reduced print readership by 27,000 per day, at a cost of $5.5 million per year in lost print profits. I find that online news has provided substantial welfare benefits to consumers and that charging positive online prices is unlikely to substantially increase firm profits. JEL classification:C25,L82
Competitive pricing behavior in the auto market: A structural analysis
 Marketing Science
, 2001
"... In a competitive marketplace, the effectiveness of any element of the marketing mix is determined not only by its absolute value, but also by its relative value with respect to the competition. For example, the effectiveness of a price cut in increasing demand is critically related to competitors ’ ..."
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Cited by 23 (11 self)
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In a competitive marketplace, the effectiveness of any element of the marketing mix is determined not only by its absolute value, but also by its relative value with respect to the competition. For example, the effectiveness of a price cut in increasing demand is critically related to competitors ’ reaction to the price change. Managers therefore need to know the nature of competitive interactions among firms. In this paper, we take a theorydriven empirical approach to gain a deeper understanding of the competitive pricing behavior in the U.S. auto market. The abilitymotivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy (Boulding and Staelin 1995). We use arguments from the gametheoretic literature to understand firm motivation and abilities
Dynamics of Consumer Demand for New Durable Goods
, 2007
"... This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characte ..."
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Cited by 23 (1 self)
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This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characterized by relatively high initial prices followed by rapid declines in prices and improvements in quality. The evolving nature of product attributes suggests the importance of modeling dynamics in estimating consumer preferences. We estimate the model on the digital camcorder industry using a panel data set on prices, sales and characteristics. We find that dynamics are a very important determinant of consumer preferences and that estimated coefficients are more plausible than with traditional static models. We use the estimates to investigate the value of new consumer goods and intertemporal elasticities of demand.
Improving the Numerical Performance of BLP Static and Dynamic Discrete Choice Random Coefficients Demand Estimation
, 2008
"... The widelyused estimator of Berry, Levinsohn and Pakes (1995) produces consistent instrumental variables estimates of consumer preferences from a discretechoice demand model with random coefficients, marketlevel demand shocks and potentially endogenous regressors (prices). The nested fixedpoint ..."
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Cited by 21 (0 self)
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The widelyused estimator of Berry, Levinsohn and Pakes (1995) produces consistent instrumental variables estimates of consumer preferences from a discretechoice demand model with random coefficients, marketlevel demand shocks and potentially endogenous regressors (prices). The nested fixedpoint algorithm typically used for estimation is computationally intensive, largely because a system of market share equations must be repeatedly numerically inverted. We provide numerical theory results that characterize the properties of typical nested fixedpoint implementations. We use these results to discuss several problems with typical computational implementations and, in particular, cases which can lead to incorrect parameter estimates. As a solution, we introduce a new computational formulation of the estimator that recasts estimation as a mathematical program with equilibrium constraints (MPEC). In many instances, MPEC is faster than the nested fixed point approach. It also avoids the numerical issues associated with nested inner loops. Several Monte Carlo experiments support our numerical concerns about NFP and the advantages of MPEC. We also discuss estimating static BLP using maximum likelihood instead of GMM. Finally, we show that MPEC is particularly attractive for forwardlooking demand models where
Vertical Contracts between Manufacturers and Retailers: An Empirical Analysis
 DEPARTMENT OF AGRICULTURAL & RESOURCE ECONOMICS,UCB.CUDAREWORKINGPAPER943
, 2002
"... This paper tests different models of vertical contracting between manufacturers and retailers in the supermarket industry. I estimate demand and use the estimates to compute pricecost margins for retailers and manufacturers under different supply models without observing wholesale prices. I then te ..."
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Cited by 18 (0 self)
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This paper tests different models of vertical contracting between manufacturers and retailers in the supermarket industry. I estimate demand and use the estimates to compute pricecost margins for retailers and manufacturers under different supply models without observing wholesale prices. I then test which set of margins seems to be compatible with the margins obtained from direct estimates of cost and select the best among the nonnested competing models. The models considered are: (1) a double marginalization pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios, allowing for collusion, nonlinear pricing and strategic behavior with respect to private label products. Using data on yogurt sold at several stores in a large urban area of the United States, I find that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with nonlinear pricing by the manufacturers or with high bargaining power of the retailers.
An Empirical Model of Optimal Dynamic Product Launch and Exit Under Demand Uncertainty,” Marketing Science 25
, 2006
"... This paper considers the decision problem of a firm that is uncertain about the demand, and hence profitability, of a new product. We develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales. Based on the current information, the de ..."
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Cited by 15 (1 self)
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This paper considers the decision problem of a firm that is uncertain about the demand, and hence profitability, of a new product. We develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales. Based on the current information, the decision maker decides whether to scrap the product. Central to this decision problem are sequential information gathering, and the option value of scrapping the product at any point in time. The model predicts the optimal demand for information (e.g., in the form of test marketing), and it predicts how the launch or exit policy depends on the firm’s demand uncertainty. Furthermore, it predicts what fraction of newly developed products should be launched on average, and what fraction of these products will “fail, ” i.e., exit. The model is solved using numerical dynamic programming techniques. We present an application of the model to the case of the U.S. readytoeat breakfast cereal industry. Simulations show that the value of reducing uncertainty can be large, and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched, even if their point estimate of profits is negative. Alternative, simpler decision rules are shown to lead to large profit losses compared to our method. Finally, we find that the high observed exit rate in the U.S. readytoeat cereal industry is optimal and to be expected based on our model. Key words: new product strategy; product launch; product exit; managerial decision making under uncertainty; Bayesian learning; numerical dynamic programming; dynamic structural models
Discrete Choice Models with Multiple Unobserved Choice Characteristics ∗
, 2007
"... Since the pioneering work by Daniel McFadden in the 1970s and 1980s (McFadden, 1973, 1981, 1982, 1984) discrete (multinomial) response models based on utility maximization have become an important tool of empirical researchers. A key feature of these models is the specification of utilities associat ..."
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Cited by 9 (0 self)
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Since the pioneering work by Daniel McFadden in the 1970s and 1980s (McFadden, 1973, 1981, 1982, 1984) discrete (multinomial) response models based on utility maximization have become an important tool of empirical researchers. A key feature of these models is the specification of utilities associated with the alternatives in terms of choice characteristics and individual preferences. Various generalizations of the basic models have been developed to allow for heterogeneity in taste parameters and heterogeneity in product characteristics that is unobserved to the econometrician. In this paper we investigate how rich a specification of the unobserved components is needed to rationalize arbitrary patterns of choice data (generated by utilitymaximizing behavior) in settings with many individual decision makers and large choice sets. We find that in general the model must include at least one unobserved choice characteristic. If, as in common, one restricts the utility function to be monotone in the unobserved choice characteristic, then up to two unobserved choice characteristics may be needed to rationalize the choice data. We illustrate the results using scanner data about yoghurt purchases, employing a Bayesian estimation strategy that is particularly well suited to dealing with multiple unobserved product characteristics. We find that the inclusion of two unobserved choice characteristics leads to more reasonable estimates of elasticities.
ProductLine Length as a Competitive Tool
 Journal of Economics and Management Strategy
"... for many helpful discussions. Comments and suggestions by participants of the 2000 Marketing Science conference in Los Angeles are gratefully acknowledged. ProductLine Length as a Competitive Tool The increasing number of consumer goods and services offered in recent years suggests that product lin ..."
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Cited by 8 (1 self)
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for many helpful discussions. Comments and suggestions by participants of the 2000 Marketing Science conference in Los Angeles are gratefully acknowledged. ProductLine Length as a Competitive Tool The increasing number of consumer goods and services offered in recent years suggests that product line extensions have become a favored strategy of product managers. A larger assortment, it is often argued, keeps customers loyal and allows firms to charge higher prices. There is disagreement, however, to what extent a longer product line translates into higher profits. We develop an econometric model derived from a gametheoretic perspective that explicitly models firms ’ use of productline length as a competitive tool. On the demand side, we analytically establish the link between consumer choice and the length of the product line. Based on our derivations, we include a measure of line length in the utility function to investigate consumer preference for variety using a brand level discretechoice model. The supply side is characterized by price and line length competition between oligopolistic firms.
Product Attributes and Consumer Welfare: Evidence from ATM’s
 Advances in Economic Analysis and Policy
"... Incompatibility in market with network effects reduces consumers ’ ability to “mix and match” components offered by different sellers, but can also spur changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility on consumers in a classic har ..."
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Cited by 8 (1 self)
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Incompatibility in market with network effects reduces consumers ’ ability to “mix and match” components offered by different sellers, but can also spur changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility on consumers in a classic hardware/software market: ATM cards and machines. We find that ATM fees ceteris paribus reduce the network benefit from other banks ’ ATMs. However, a surge in ATM deployment accompanies the shift to surcharging. Even under conservative assumptions regarding how much of the surge is directly attributable to surcharging, greater deployment often completely offsetstheharmfromhigherfees. Theresultssuggest that policy discussions of incompatibility must consider not only its direct effect on consumers, but also its effect on product attributes.
Horizontal Mergers With FreeEntry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy
, 2001
"... I analyze the effects of a merger between two firms in a spatially differentiated ..."
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Cited by 6 (0 self)
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I analyze the effects of a merger between two firms in a spatially differentiated