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A nested logit model of strategic promotion

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  • Timothy Richards

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Abstract

This paper presents a test of the nature of the pricing and promotion game played by supermarket retailers in a large, U.S. market. Using a nested-logit modeling approach, the results show that retailers set discount depth and promotional frequency in a manner that is less competitive than Bertrand. We also find that the elasticity of substitution among competing stores is lower than among products within each store, but not equal to zero. Therefore, sales do cannibalize existing products, but can also build a significant amount of store-traffic. Relative to strategic factors, price promotions have their greatest impact on store-conditional product demand. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11129-006-9013-1
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Bibliographic Info

Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 5 (2007)
Issue (Month): 1 (March)
Pages: 63-91

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Handle: RePEc:kap:qmktec:v:5:y:2007:i:1:p:63-91

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Web page: http://www.springerlink.com/link.asp?id=111240

Related research

Keywords: Game theory; Nested logit; Product differentiation; Promotion; Retailing; Strategic marketing;

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References

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Citations

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Cited by:
  1. Allender, William J. & Richards, Timothy J., 2009. "Measures of Brand Loyalty," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49536, Agricultural and Applied Economics Association.
  2. Pham, Vivienne & Prentice, David, 2010. "An empirical analysis of the counterfactual: a merger and divestiture in the Australian cigarette industry," MPRA Paper 26713, University Library of Munich, Germany.
  3. Michaela Draganska & Sanjog Misra & Victor Aguirregabiria & Pat Bajari & Liran Einav & Paul Ellickson & Dan Horsky & Sridhar Narayanan & Yesim Orhun & Peter Reiss & Katja Seim & Vishal Singh & Raphael, 2008. "Discrete choice models of firms’ strategic decisions," Marketing Letters, Springer, vol. 19(3), pages 399-416, December.
  4. Tjasa Loga & Saso Polanec, 2011. "College Major Choice and Ability: Why is General Ability not Enough?," LICOS Discussion Papers 27411, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  5. William Allender & Timothy Richards, 2010. "Market Diversion and Market Power: California Eggs," Review of Industrial Organization, Springer, vol. 36(1), pages 37-58, February.

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