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98
Sensitivity analysis
, 2000
"... 6359. Authors are listed in alphabetical order. We thank Yuanfang Lin for setting up the data in usable form for our empirical analyses. We thank Prof. Glenn MacDonald and Prof. Mark Daskin for their valuable guidance and comments during the preliminary stages of this project. We appreciate the many ..."
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Cited by 480 (11 self)
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6359. Authors are listed in alphabetical order. We thank Yuanfang Lin for setting up the data in usable form for our empirical analyses. We thank Prof. Glenn MacDonald and Prof. Mark Daskin for their valuable guidance and comments during the preliminary stages of this project. We appreciate the many insightful comments by
An Empirical Model of Firm Entry with Endogenous ProductType Choices,” working paper, Graduate
, 2002
"... This paper presents a model of entry with endogenous producttype choices. These choices are formalized as the outcomes of a game of incomplete information in which rivals ’ differentiated products have nonuniform competitive effects on firms ’ profits. The model is estimated for location choices i ..."
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Cited by 192 (10 self)
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This paper presents a model of entry with endogenous producttype choices. These choices are formalized as the outcomes of a game of incomplete information in which rivals ’ differentiated products have nonuniform competitive effects on firms ’ profits. The model is estimated for location choices in the video retail industry using a nested fixedpoint algorithm solution. The results imply significant payoffs to product differentiation. Simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with larger product spaces, and thus more scope for differentiation, support greater entry.
What happens when WalMart comes to town: An empirical analysis of the discount retailing industry
, 2006
"... In the past few decades multistore retailers, especially those with a hundred or more stores, have experienced substantial growth. At the same time, there is widely reported public outcry over the impact of these chain stores on small retailers and local communities. This paper develops an empirica ..."
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Cited by 113 (0 self)
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In the past few decades multistore retailers, especially those with a hundred or more stores, have experienced substantial growth. At the same time, there is widely reported public outcry over the impact of these chain stores on small retailers and local communities. This paper develops an empirical model to assess the impact of chain stores on the profitability and entry/exit decisions of small discount retailers and to quantify the size of the scale economies within a chain. The model has two key features. First, it allows for flexible competition patterns among all players. Second, for chains, it incorporates the scale economies that arise from operating multiple stores in nearby regions. In doing so, the model relaxes the commonly used assumption that entry in different markets is independent. The estimation exploits a unique data set that covers the discount retail industry from 1988 to 1997 and yields interesting results. First, WalMart’s expansion from the late 1980s to the late 1990s explains about fifty to seventy percent of the net change in the number of small discount retailers. Failure to address the endogeneity of the firms ’ entry decisions would result in underestimating this impact by fifty to sixty percent. Second, scale economies were important for both Kmart and WalMart, but the magnitude did not grow proportionately with the chains ’ sizes. Finally, direct government subsidies to either chains or small retailers are unlikely to be cost effective in increasing the number of firms or the level of employment.
Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach
, 2005
"... We reconsider the identification and estimation of GormanLancasterstyle hedonic models of demand for differentiated products in the spirit of Sherwin Rosen. We generalize Rosen’s first stage to account for product characteristics that are not observed and to allow the hedonic pricing function to ha ..."
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Cited by 98 (1 self)
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We reconsider the identification and estimation of GormanLancasterstyle hedonic models of demand for differentiated products in the spirit of Sherwin Rosen. We generalize Rosen’s first stage to account for product characteristics that are not observed and to allow the hedonic pricing function to have a general nonseparable form. We take an alternative semiparametric approach to Rosen’s second stage in which we assume that the parametric form of utility is known, but we place no restrictions on the aggregate distribution of utility parameters. If there are only a small number of products, we show how to construct bounds on individuals’ utility parameters, as well as other economic objects such as aggregate demand and consumer surplus. We apply our methods to estimating the demand for personal computers.
Nonlinear Pricing in an Oligopoly Market: the Case of Specialty Coffee
, 2003
"... Firms that practice seconddegree price discrimination may intentionally distort product characteristics away from their efficient levels (e.g., the small version of a product is “too small.”) This paper offers the first empirical study of this product design issue. Using data from a specialty coffe ..."
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Cited by 46 (0 self)
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Firms that practice seconddegree price discrimination may intentionally distort product characteristics away from their efficient levels (e.g., the small version of a product is “too small.”) This paper offers the first empirical study of this product design issue. Using data from a specialty coffee market, I estimate a structural utility model that allows for consumer screening under vertical preference heterogeneity. Comparisons of cost data and the estimated benefits from changing product characteristics suggest that some of the central predictions of nonlinear pricing theory are realized in the observed market. Product design distortions are relatively large for drinks that are not the most pro…table but over which the firms hold market power. The estimated distortions decrease toward zero for the products with the highest pricecost margins; this result provides empirical support for the “no distortion at the top” prediction from theory.
Structural analysis of competitive behavior: New Empirical Industrial Organization methods in marketing
, 2001
"... The impact of a firm’s strategic marketing mix choices on profitability can be evaluated by understanding the impact of those choices on consumer demand for the firm’s products and on the firm’s costs. Additionally, a firm’s strategic marketing mix choices, and its demand and costs can be affected b ..."
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Cited by 24 (4 self)
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The impact of a firm’s strategic marketing mix choices on profitability can be evaluated by understanding the impact of those choices on consumer demand for the firm’s products and on the firm’s costs. Additionally, a firm’s strategic marketing mix choices, and its demand and costs can be affected by rival firms’ strategic choices. Therefore, to understand the effects of choice of marketing mix on profitability, we have to understand its effects on demand, cost and competitor reactions. The effects of choices of marketing mix on consumer demand have been analyzed in great depth in marketing, but research on the strategic reactions of competitors to such choices have been far more limited. The New Empirical Industrial Organization Ž NEIO. framework provides us with a source of methods that has potential to substantially add to our insights about competitive interactions among firms. In this paper, we first discuss a simple NEIO model to illustrate the basic methodology. We then discuss the contributions of this literature to our knowledge of competitive marketing strategy. In the process, we discuss methodological extensions of the basic model that are needed to model the institutional realities of specific markets. We also summarize how the existing literature has evolved, and provide our view of where the literature might profitably proceed from here. In particular, we discuss how future methodological innovations in the dynamics of competition, discrete strategy choice, and
Estimating MultiWay Error Components Models with Unbalanced Data Structures
, 2000
"... I develop simple matrix algebra techniques that simplify and unify much of the previous literature on estimating error components models (ECMs). In fact, the simple analytic results provided here are useful for analyzing a very broad set of models with complex error structures. To illustrate the tec ..."
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Cited by 23 (0 self)
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I develop simple matrix algebra techniques that simplify and unify much of the previous literature on estimating error components models (ECMs). In fact, the simple analytic results provided here are useful for analyzing a very broad set of models with complex error structures. To illustrate the techniques, I develop the algebra for threeand fourway ECMs explicitly. In addition I provide Monte Carlo simulation evidence on the performance of several estimators for the threeway ECM and estimate the model using data from a retail market where the three dimensions of data variation are products selling in many locations over time. Key Words: Unbalanced Panel data, Instrumental variables, Error Component Models. JEL Classication: C13, C23. Thanks are due to Steve Berry, Ariel Pakes, Nadia Soboleva, and Tom Stoker for helpful comments and suggestions. This paper is a substantially revised version of Chapter 3 of my Ph.D. dissertation which has beneted greatly from the suggestions of ...
Discrete Choice Models as Structural Models of Demand: Some Economic Implications of Common Approaches
, 2001
"... We derive some theoretical economic properties of standard discrete choice econometric models that we believe are undesirable if the models are to be used as structural models of demand. We show that many standard models have the following properties: as the number of products increases, the comp ..."
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Cited by 22 (1 self)
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We derive some theoretical economic properties of standard discrete choice econometric models that we believe are undesirable if the models are to be used as structural models of demand. We show that many standard models have the following properties: as the number of products increases, the compensating variation for removing all of the inside goods tends to innity, all rms in a BertrandNash pricing game have markups that are bounded away from zero, and for each good there is always some consumer that is willing to pay an arbitrarily large sum for the good. These undesirable properties may lead to incorrect conclusions about many policies of interest, including calculation of price indexes, the benets of new goods, and the welfare loss due to mergers. We demonstrate that these undesirable properties hold not only in the logit model, but also in all random utility models with the following three general properties: 1) the model includes an additive error term whose conditional support is unbounded, 2) the deterministic part of the utility function satises standard continuity and monotonicity conditions, and 3) the hazard rate of the error distribution is bounded above. One approach to avoiding these undesirable properties is to weaken these three restrictions. However, we also show that random utility models are not in general nonparametrically identied from market shares or individual level choice data. Our ndings support the use of alternative structural approaches that have better economic properties, such as those of Bajari and Benkard (2001) and Berry and Pakes (2000).
Product variety and competition in the retail market for eyeglasses
 J. Indust. Econom
"... I analyze an original dataset on the display inventories of several hundred eyewear retailers to study how firms ’ productrange choices depend on separation from rivals in geographicallydifferentiated markets. A twostage estimation approach is used, employing Seim’s (2002) structural entry model ..."
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Cited by 19 (0 self)
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I analyze an original dataset on the display inventories of several hundred eyewear retailers to study how firms ’ productrange choices depend on separation from rivals in geographicallydifferentiated markets. A twostage estimation approach is used, employing Seim’s (2002) structural entry model for firms ’ firststage location choices, followed by reducedform storelevel variety regressions. Following Mazzeo (2000) estimates from the first stage are used in the second stage to correct for the endogeneity of rivals ’ locations. Results from the firststage entry model suggest that sellers ’ postentry profits decline in the number of nearby competitors, although the first such rivals exert a significantly less negative effect. The secondstage results show that sellers ’ product ranges also are nonlinear functions of the number of nearby rivals. When a seller is relatively isolated in the product space its equilibrium product variety is increasing in nearby competition. But for more than a few nearby rivals variety starts to decline with extra competitors, consistent with the eventual dominance of businessstealing among proximate sellers. For comments and guidance at various stages of this project I am grateful to Professors Michael Mazzeo, Robert Porter, and Asher Wolinsky. I also had helpful conversations with
SilverScreener: A Modeling Approach to Movie Screens
 Management,” Marketing Science
, 1999
"... Managing the allocation of shelf space fornew products is a problem of significant importance for retailers. The problem is particularly complex for exhibitors—the retailers in the motion picture supply chain—because they face dynamic challenges, given the short life cycles of movies, the changing l ..."
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Cited by 19 (4 self)
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Managing the allocation of shelf space fornew products is a problem of significant importance for retailers. The problem is particularly complex for exhibitors—the retailers in the motion picture supply chain—because they face dynamic challenges, given the short life cycles of movies, the changing level of demand overtime, the scarcity of shelf space, and the complex revenue sharing contract between the exhibitor and the distributor. In the face of this complexity, the aim of current research is to provide a structure for analyzing management problems of exhibitors in the movie industry. Using a mathematical programming approach and a fast, but readily accessible algorithm, we propose a decision support model, SilverScreener, whose aim is to help exhibitors make effective and timely decisions regarding theater screens management.