IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Strategic Pricing Behavior under Asset Value Maximization

  • Wang, Shinn-Shyr

    (U of Wisconsin)

  • Stiegert, Kyle W.
  • Dhar, Tirtha P.

    (U of British Columbia)

In this paper, we develop and estimate a model of strategic firm behavior under financial market uncertainty. The model employs an objective function derived from the capital asset pricing model (CAPM), which draws theoretical linkages between product market uncertainty and financial market returns. An interesting feature of the model is that profit maximization enters as a nested component of the general market value maximization (MVM) model. The model is tested using 4-week interval retail scanner data for margarine and butter from 1998-2002. The traditional profit maximization model is rejected in favor of the proposed MVM structure. Counterfactual simulations point toward significant biases in estimated Lerner indexes when capital market dimensions are ignored or if the wrong market structure is assumed.

If you experience problems downloading a file, check if you have the proper application to view it first. 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://www.aae.wisc.edu/pubs/sps/pdf/stpap495.pdf
Download Restriction: no

Paper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 495.

as
in new window

Length:
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ecl:wisagr:495
Contact details of provider: Postal: 427 Lorch Street, Madison, WI 53706-1503
Phone: 608-262-8966
Fax: 608-262-4376
Web page: http://www.aae.wisc.edu/pubs/sps/
Email:


More information through EDIRC

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.:

as in new window
  1. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," The Journal of Business, University of Chicago Press, vol. 73(1), pages 109-37, January.
  2. Miller, Nolan H. & Pazgal, Amit, 2005. "Strategic trade and delegated competition," Journal of International Economics, Elsevier, vol. 66(1), pages 215-231, May.
  3. Duffy, Martyn, 1995. "Advertising in demand systems for alcoholic drinks and tobacco: A comparative study," Journal of Policy Modeling, Elsevier, vol. 17(6), pages 557-577, December.
  4. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  6. Chevalier, Judith A, 1995. "Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry," American Economic Review, American Economic Association, vol. 85(3), pages 415-35, June.
  7. Dan Kovenock & Gordon M Phillips, 1995. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," Working Papers 95-4, Center for Economic Studies, U.S. Census Bureau.
  8. Dan Kovenock & Gordon M Phillips, 1995. "Capital Structure And Product Market Rivalry: How Do We Reconcile Theory And Evidence?," Working Papers 95-3, Center for Economic Studies, U.S. Census Bureau.
  9. Rafael Moner-Colonques & José J. Sempere-Monerris & Amparo Urbano, 2004. "Strategic Delegation with Multiproduct Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 405-427, 09.
  10. Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-24, June.
  11. Timothy J. Richards & Pieter. Van Ispelen & Albert Kagan, 1997. "A Two-Stage Analysis of the Effectiveness of Promotion Programs for U.S. Apples," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 825-837.
  12. Banal-Estanol, Albert & Ottaviani, Marco, 2005. "Mergers with Product Market Risk," CEPR Discussion Papers 4831, C.E.P.R. Discussion Papers.
  13. Conlin, Michael & Furusawa, Taiji, 2000. "Strategic Delegation and Delay in Negotiations over the Bargaining Agenda," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 55-73, January.
  14. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
  15. Gasmi, F & Laffont, J J & Vuong, Q, 1992. "Econometric Analysis of Collusive Behavior in a Soft-Drink Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 277-311, Summer.
  16. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  17. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  18. Richard Blundell & Robin, J M, 1995. "Latent separability: grouping goods without weak separability," IFS Working Papers W95/09, Institute for Fiscal Studies.
  19. Golan, Amos & Karp, Larry S & Perloff, Jeffrey M, 2000. "Estimating Coke's and Pepsi's Price and Advertising Strategies," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 398-409, October.
  20. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  21. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
  22. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
  23. Jean-Pierre Dubé, 2004. "Multiple Discreteness and Product Differentiation: Demand for Carbonated Soft Drinks," Marketing Science, INFORMS, vol. 23(1), pages 66-81, September.
  24. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  25. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  26. Tirtha Pratim Dhar & Jean-Paul Chavas & Brian W. Gould, 2002. "An Empirical Assessment of Endogeneity Issues In Demand Analysis for Differentiated Products," Food Marketing Policy Center Research Reports 066, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  27. Subrahmanyam, Marti G & Thomadakis, Stavros B, 1980. "Systematic Risk and the Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 94(3), pages 437-51, May.
  28. Moschini, GianCarlo & Moro, D. & Green, Richard D., 1994. "Maintaining and Testing Separability in Demand Systems," Staff General Research Papers 11247, Iowa State University, Department of Economics.
  29. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  30. Browning, Martin, 1991. "A Simple Nonadditive Preference Structure for Models of Household Behavior over Time," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 607-37, June.
  31. repec:inr:wpaper:249984 is not listed on IDEAS
  32. Hunt-McCool, Janet & Kiker, B F & Ng, Ying Chu, 1994. "Estimates of the Demand for Medical Care under Different Functional Forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(2), pages 201-18, April-Jun.
  33. Brian W. Gould, 2003. "An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 605-617.
  34. Alessie, Rob & Kapteyn, Arie, 1991. "Habit Formation, Interdependent References and Demographic Effects in the Almost Ideal Demand System," Economic Journal, Royal Economic Society, vol. 101(406), pages 404-19, May.
  35. repec:ner:tilbur:urn:nbn:nl:ui:12-332471 is not listed on IDEAS
  36. Kedia, Simi, 2006. "Estimating product market competition: Methodology and application," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 875-894, March.
  37. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Paper Series 496, University of Wisconsin, Agricultural and Applied Economics.
  38. Mittelhammer, Ronald C. & Shi, Hongqi & Wahl, Thomas I., 1996. "Accounting For Aggregation Bias In Almost Ideal Demand Systems," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(02), December.
  39. Muellbauer, John, 1975. "Aggregation, Income Distribution and Consumer Demand," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 525-43, October.
  40. Sundaram, Anant K. & John, Teresa A. & John, Kose, 1996. "An empirical analysis of strategic competition and firm values The case of R&D competition," Journal of Financial Economics, Elsevier, vol. 40(3), pages 459-486, March.
  41. Mark J. Roberts & Larry Samuelson, 1988. "An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 200-220, Summer.
  42. Harris, Frederick H deB, 1986. "Market Structure and Price-Cost Performance under Endogenous Profit Risk," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 35-59, September.
  43. Naufel J. Vilcassim & Vrinda Kadiyali & Pradeep K. Chintagunta, 1999. "Investigating Dynamic Multifirm Market Interactions in Price and Advertising," Management Science, INFORMS, vol. 45(4), pages 499-518, April.
  44. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  45. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-66, September.
  46. Verbeke, Wim & Ward, Ronald W., 2001. "A fresh meat almost ideal demand system incorporating negative TV press and advertising impact," Agricultural Economics, Blackwell, vol. 25(2-3), pages 359-374, September.
  47. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  48. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecl:wisagr:495. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.