This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

A Nested Logit Model of Strategic Promotion

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Richards, Timothy
Abstract

Retailers use sales "price promotions" for a number of potential reasons. There is relatively little research, however, on their strategic role among frequently consumed perishable products. Using a two-stage, nested logit model of retail equilibrium, we show that promotion will be most effective (ie. increase store-level sales) if products are highly differentiated, but stores are relatively similar. To test this hypothesis, we an oligopolistic model of promotion rivalry with category-level scanner data from the four largest supermarket retailers in a major U.S. metropolitan market. The results show that promotion has a greater impact on store share than product share, because the elasticity of substitution among stores is larger than the elasticity of substitution among products. Consequently, promotion has its greatest value in driving demand for differentiated products among stores that are similar. This finding supports the observed trend toward premium private label products being offered by supermarket retailers.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://purl.umn.edu/19336
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number 19336.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:ags:aaea05:19336

Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Email:
Web page: http://www.aaea.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (AgEcon Search).

Related research
Keywords: Research Methods/ Statistical Methods;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Daniel Hosken & David Reiffen, 2004. "Patterns of Retail Price Variation," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 128-146, Spring.
  2. MacDonald, James M, 2000. "Demand, Information, and Competition: Why Do Food Prices Fall at Seasonal Demand Peaks?," Journal of Industrial Economics, Blackwell Publishing, vol. 48(1), pages 27-45, March. [Downloadable!] (restricted)
  3. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-59, July. [Downloadable!] (restricted)
    Other versions:
  4. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January. [Downloadable!]
  5. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Kadiyali, Vrinda & Vilcassim, Naufel & Chintagunta, Pradeep, 1998. "Product line extensions and competitive market interactions: An empirical analysis," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 339-363, November. [Downloadable!] (restricted)
  7. Cotterill, Ronald W. & Dhar, Tirtha, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Research Reports 25189, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
  8. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Blackwell Publishing, vol. 40(3), pages 261-76, September. [Downloadable!] (restricted)
    Other versions:
  9. McAfee R. Preston, 1995. "Multiproduct Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 67(1), pages 83-105, October. [Downloadable!] (restricted)
  10. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
    Other versions:
  11. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Blackwell Publishing, vol. 36(4), pages 375-91, June. [Downloadable!] (restricted)
  12. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA. [Downloadable!]
    Other versions:
  13. Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(3), pages 445-76, Fall.
  14. Lach, Saul & Tsiddon, Daniel, 1996. "Staggering and Synchronization in Price-Setting: Evidence from Multiproduct Firms," American Economic Review, American Economic Association, vol. 86(5), pages 1175-96, December. [Downloadable!] (restricted)
    Other versions:
  15. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October. [Downloadable!] (restricted)
  16. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management. [Downloadable!]
  17. Slade, Margaret E, 1987. "Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 499-516, June. [Downloadable!] (restricted)
  18. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May. [Downloadable!] (restricted)
  19. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November. [Downloadable!] (restricted)
  20. Michaela Draganska & Dipak C. Jain, 2005. "Product-Line Length as a Competitive Tool," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 14(1), pages 1-28, 03. [Downloadable!] (restricted)
  21. Giulietti, M., 1995. "Multiproduct Firms' Pricing Behavior in the Italian Grocery Trade," Discussion Papers 95/09, University of Exeter, School of Business and Economics.
  22. Slade, Margaret E., 1990. "Strategic pricing models and interpretation of price-war data," European Economic Review, Elsevier, vol. 34(2-3), pages 524-537, May. [Downloadable!] (restricted)
    Other versions:
  23. Epstein, G. S., 1998. "Retail pricing and clearance sales: the multiple product case," Journal of Economics and Business, Elsevier, vol. 50(6), pages 551-563, November. [Downloadable!] (restricted)
  24. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer. [Downloadable!] (restricted)
  25. Baker, Jonathan B & Baresnahan, Timothy F, 1985. "The Gains from Merger or Collusion in Product-differentiated Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 33(4), pages 427-44, June. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You can use convenient plug-ins to search directly IDEAS from your browser.

This page was last updated on 2009-12-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.