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A nested logit model of strategic promotion

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  • Timothy Richards

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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  • Timothy Richards, 2007. "A nested logit model of strategic promotion," Quantitative Marketing and Economics (QME), Springer, vol. 5(1), pages 63-91, March.
    • Handle: RePEc:kap:qmktec:v:5:y:2007:i:1:p:63-91
    DOI: 10.1007/s11129-006-9013-1
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    9. Minakshi Trivedi & Dinesh K. Gauri & Yu Ma, 2017. "Measuring the Efficiency of Category-Level Sales Response to Promotions," Management Science, INFORMS, vol. 63(10), pages 3473-3488, October.
    10. Carlo Russo & Rachael Goodhue, 2018. "Farmgate prices, retail prices, and supermarkets' pricing decisions: An integrated approach," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 24-43, December.
    11. 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.
    12. Yonezawa, Koichi & Richards, Timothy J., 2016. "Competitive Package Size Decisions," Journal of Retailing, Elsevier, vol. 92(4), pages 445-469.
    13. Anna Lu, 2017. "Consumer Stockpiling and Sales Promotions," Discussion Papers of DIW Berlin 1680, DIW Berlin, German Institute for Economic Research.
    14. Ashutosh Prasad & Brian T. Ratchford & Sonika Singh, 2020. "Consumer Choice and Multi-Store Shopping: an Empirical Investigation," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 74-89, October.
    15. Richards, Timothy J. & Chenarides, Lauren & Çakir, Metin, 2022. "Dollar Store Entry," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322100, Agricultural and Applied Economics Association.
    16. 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.
    17. William Allender & Timothy Richards, 2010. "Market Diversion and Market Power: California Eggs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(1), pages 37-58, February.
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