Two Essays on the Implications of Demand State Dependence on Pricing Decisions PDF Download
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Author: Polykarpos Pavlidis
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 254
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Book Description
"Marketing strategies that firms adopt are based on consumers' response in the marketplace when they face and interact with these strategies. This dissertation examines the tendency of consumers to repeat their last purchase choices and the implications of this type of behavior on pricing related strategies of consumer packaged goods brand manufacturers. The first essay is a theory based empirical investigation about the commonly observed practice of brands offering temporary price promotions. There have been many theories that attempt to explain the popularity of price promotions as a marketing tool but with very few exceptions they are disconnected from choice dynamics. We examine the empirical support of a recent theory that connects price promotions with demand state dependence. In our investigation we measure how much each brand benefits from the consumers' tendency to repeat purchase and we examine the connection between this measure (AMEL) and the brands' price promotional frequencies. Our extensive sample includes all major brands from twenty product categories of frequently purchased goods and twenty stores in two separate geographical markets. Our empirical model accounts explicitly for the dependence of price promotions on demand response and vice versa. In summary, we find significant and robust evidence that brands which gainmore from consumers' repeat purchase behavior are offered on promotion formore weeks on average. We also demonstrate the value of our proposed estimation algorithm over simpler, two-step, approaches. In the second essay we examine consumers' state dependence not only to specific choice alternatives but also to parent brands that cover multiple sub-brands. Using a structural, forward looking, pricing model for multiproduct firms, we explore the implications of parent brand state dependence on equilibrium prices and firm profitability through counterfactual experiments. Empirically, we examine household level choice data from the category of yogurt and estimate state dependence to both the parent brand and the sub-brand level. We find evidence of parent brand state dependence for the category of yogurt. Its impact on the market equilibrium is to push prices downwards, because firms invest in future demand, and increase profitability of multiproduct firms, because per period demand increases"--Leaves iv-v.
Author: Polykarpos Pavlidis
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 254
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Book Description
"Marketing strategies that firms adopt are based on consumers' response in the marketplace when they face and interact with these strategies. This dissertation examines the tendency of consumers to repeat their last purchase choices and the implications of this type of behavior on pricing related strategies of consumer packaged goods brand manufacturers. The first essay is a theory based empirical investigation about the commonly observed practice of brands offering temporary price promotions. There have been many theories that attempt to explain the popularity of price promotions as a marketing tool but with very few exceptions they are disconnected from choice dynamics. We examine the empirical support of a recent theory that connects price promotions with demand state dependence. In our investigation we measure how much each brand benefits from the consumers' tendency to repeat purchase and we examine the connection between this measure (AMEL) and the brands' price promotional frequencies. Our extensive sample includes all major brands from twenty product categories of frequently purchased goods and twenty stores in two separate geographical markets. Our empirical model accounts explicitly for the dependence of price promotions on demand response and vice versa. In summary, we find significant and robust evidence that brands which gainmore from consumers' repeat purchase behavior are offered on promotion formore weeks on average. We also demonstrate the value of our proposed estimation algorithm over simpler, two-step, approaches. In the second essay we examine consumers' state dependence not only to specific choice alternatives but also to parent brands that cover multiple sub-brands. Using a structural, forward looking, pricing model for multiproduct firms, we explore the implications of parent brand state dependence on equilibrium prices and firm profitability through counterfactual experiments. Empirically, we examine household level choice data from the category of yogurt and estimate state dependence to both the parent brand and the sub-brand level. We find evidence of parent brand state dependence for the category of yogurt. Its impact on the market equilibrium is to push prices downwards, because firms invest in future demand, and increase profitability of multiproduct firms, because per period demand increases"--Leaves iv-v.
Author: Wai-Yip Alex Ho
Publisher: Open Dissertation Press
ISBN: 9781374726345
Category : Business & Economics
Languages : en
Pages : 126
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This dissertation, "Essays on State Dependent Pricing Models" by Wai-yip, Alex, Ho, 何偉業, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of thesis entitled Essays on State Dependent Pricing Models submitted by Wai-Yip Alex HO for the degree of Master of Philosophy in Economics at The University of Hong Kong in August 2004 Abstract A dynamic general equilibrium model is developed to study the properties of state dependent pricing. In the rst section, we analyze the long-run properties of the model and nd that the eect of strategic complementarity in pricing decision between rms plays an important role in the model. When trend ination rate exceeds some critical level, such strategic complementarity results in existence of multiple equilibria in the model (2 equilibria). As trend ination increases, the dierence between the two equilibria gets wider. We then investigate the number of possible equilibrium by looking at the best response function of rms over certain values of trend ination rate. We nd that there exist one more unstable equilibrium. We nally access the long run dierence between the state dependent pricing model and the Calvo-pricing model and nd that the eect of trend ination on the model with state dependent pricing is much smaller than with Calvo-pricing. Under the same model specication and over the range of 1% to 6% trend ination rate, we nd that the eect of an increase in trend ination with state dependent pricing is smaller than with Calvo-pricing. In the next section, we explore the properties of the impulse responses of the state-dependent pricing model and compare it with a time-dependent pricing model. State-dependent pricing models show asymmetries in responding to dierent signs of a temporary money supply growth rate shock. However, real eects of such monetary shocks are not increasing proportionally to the size of the shock. Interestingly, we nd that if the size of the shock exceeds some critical level, the impulse response of the model to a positive shock converges to the impulse response to a negative shock. DOI: 10.5353/th_b3105994 Subjects: Pricing - Mathematical models
Author: Yiyong Yuan
Publisher:
ISBN:
Category : Agricultural prices
Languages : en
Pages : 104
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The three essays of this dissertation cover issues of understanding and managing price uncertainty across the meat value chain and related futures market. The first essay discussed the implications of recent change in retailing industry's pricing strategy; the second essay described a State Space Model approach estimation of the joint distribution of cash-futures prices and a simulation-based Conditional-VaR approach determination of optimal futures exposure determination in contrast with minimum variance hedge ratio when preference free optimal hedge ratio does not exist; the third essay described the empirical changes in the hog price volatility summarized by a series of long memory GARCH model of the absolute return series in view of the recent industry structural change. The first essay investigated the impact of two coexisting retail price strategies for selling perishable products on the volatility of both the farm-level price and the retailer's margin. The two strategies included the traditional High-Low strategy and the Every-Day-Low-Price (EDLP) pricing strategy. In contrast to non-perishable consumer products, perishable products, which are often of very inelastic demand, obtain their price fluctuations mainly through supply side shocks. A two-retailer model was developed to examine the volatilities of grocery retailers' margin and producer price due to supply shocks for a perishable product. Results indicated a volatility difference exists between EDLP and High-Low retailers' marginal revenue when the two pricing strategies coexist, and as the market share of EDLP format increases this margin volatility difference deepens and farm-level price volatility also increases. The second essay proposed a state space model based estimation of the cash-futures price dependence relationship and a coherent C-VaR-approach optimal futures exposure determination based on simulated data in response to situations where the preference-free optimal hedge ratio no longer exists and the minimum variance hedge ratio is not appropriate. The State Space Model serves as an alternative method to other joint distribution estimation methods. The determined optimal futures exposure showed that the minimum variance hedge ratio discourages hedging. Parallel analyses using existing constant minimum conditional variance (MCV) hedge ratio models and a time-varying MCV ratio based on Multivariate GARCH models was also conducted for comparison. The C-VaR approach optimal futures position exposure reported different optimal futures positions for the "short hedge" and the "long hedge" situations. The third essay analyzed the historical change of the realized price volatility defined as the weekly hog price absolute return from 1973 to 2008 using long memory effect in the mean and variance process. The ARFIMA-FIGARCH/IGARCH Model results confirmed a significant long memory effect in the absolute return for a period around the end of the 1990s with documented structural change. I found no significant long memory effect for any other period. The model result also showed a significant ARCH-M effect that is explained as a fierce industry structural adjustment leading to a more dramatic price volatility change.
Author: Jacques Drèze
Publisher: CUP Archive
ISBN: 9780521386975
Category : Business & Economics
Languages : en
Pages : 460
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Professor Dreze is a highly respected mathematical economist and econometrician. This book brings together some of his major contributions to the economic theory of decision making under uncertainty, and also several essays. These include an important essay on 'Decision theory under moral hazard and state dependent preferences' that significantly extends modern theory, and which provides rigorous foundations for subsequent chapters. Topics covered within the theory include decision theory, market allocation and prices, consumer decisions, theory of the firm, labour contracts, and public decisions.
Author: Yuriy Gorodnichenko
Publisher:
ISBN:
Category :
Languages : en
Pages : 492
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Author:
Publisher:
ISBN:
Category : Dissertations, Academic
Languages : en
Pages : 586
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Author: Philippe Wingender
Publisher:
ISBN:
Category :
Languages : en
Pages : 292
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Book Description
This dissertation explores the impact of government interventions on economic outcomes. In the first chapter, my colleague Juan Carlos Suárez Serrato and I propose a new identification strategy to measure the causal impact of government spending on the economy. Our methodology isolates exogenous cross-sectional variation in government spending using a novel instrument. We use the fact that a large number of federal spending programs depend on local population levels. Every ten years, the Census provides a count of local populations. A different method is used to estimate non-Census year populations and this discontinuous change in methodology leads to variation in the allocation of billions of dollars in federal spending. We use this variation to analyze the effect of exogenous changes in federal spending across counties on local economic outcomes. Our IV estimates imply that government spending has a local income multiplier of 1.88 and an estimated cost per job of $30,000 per year. These estimates are robust to the inclusion of potential confounders, such as local demand shocks. We also show that the local effects of government spending are not larger than aggregate effects at the MSA and state levels. Finally, we characterize the cross-sectional heterogeneity of the impacts of government spending. These results confirm that government spending has a higher impact in low growth areas and leads to reduction of inequality in economic outcomes. The second chapter uses timing of childbirth to measure the income effect of taxes on parents' labor supply. The IRS Residency Test states that families can claim a dependent for the entire fiscal year if the child was born at any time during the year. This rule provides an exogenous source of variation in tax liabilities for births that occur late in the year versus those that occur early the following year. By measuring the difference in earnings in the subsequent year for parents of December and January births, I can identify the impact of a one-time non-labor income shock on parents' labor supply since both groups face on average the same future stream of tax schedules after birth. Using data from two large scale household surveys in the United States, I find that a temporary increase in after-tax income leads to a significant decrease in mothers' earnings with an estimated income effect of -0.9. This result demonstrates that the income effect of taxes on labor supply can potentially be very large. It also highlights the crucial role of liquidity constraints in parents' labor supply decisions around the time of birth. The third chapter also uses timing of childbirth to measure the income effect of taxes on mothers' labor supply. The analysis is done using Canadian data. Until 1992, various provisions in the Canadian tax code gave important tax reductions to low and middle-income parents of eligible children. Families could claim a child as a dependent for the entire fiscal year if the child was born at any time during the year. In 1992, the last year the Canadian tax code featured these fiscal benefits, a two parent family claiming a dependent could save nearly a thousand dollars in taxes due to the Child Tax Credit, the dependent amount and the GST credit. Using this variation in tax liabilities, it is possible to identify the impact of a one-time non-labor income shock on mothers' labor supply. This important parameter has not been systematically measured in the literature on the effect of taxes on labor supply. Using natural experiments provided by tax reforms in various countries, the literature has mostly focused on changes in earnings due to the price effect of marginal tax rate changes. However, if the income effect of a tax change is large, observed elasticities of income with respect to net-of-tax rates understate the distortions associated with these changes.
Author: Warren J. Samuels
Publisher: Springer
ISBN: 1349123749
Category : Political Science
Languages : en
Pages : 350
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Book Description
This collection of articles examines the fundamental non-ideological conceptions and relationships consutituting the economic role of government, especially in market economies. The fundamental concepts include the nature of economic policy and the problem of order in economic affairs.
Author: Oliver Claas
Publisher: Springer Nature
ISBN: 3319978284
Category : Business & Economics
Languages : en
Pages : 161
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This book addresses collective bargaining in an intertemporal monetary macroeconomy of the aggregate supply–aggregate demand (AS–AD) type with overlapping generations of consumers and with a public sector. The results are presented in a unified framework with a commodity market that clears competitively. By analyzing the implications of three variants of collective bargaining – efficient bargaining in a uniform and a segmented labor market and “right-to-manage” wage bargaining – it identifies the quantity of money, price expectations, union power, and union size as the determinants of temporary equilibria. In the three scenarios, it characterizes and compares the temporary equilibria using both analytical and numerical techniques, with an emphasis on allocations, welfare, and efficiency. It also discusses the dynamic evolution under rational expectations and its steady states in nominal and real terms. Lastly, it demonstrates conditions for stability regarding a balanced monetary expansion of the economy.
Author: Qi Shang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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The thesis includes three papers: 1. Limited Arbitrage Analysis of CDS Basis Trading By modeling time-varying funding costs and demand pressure as the limits to arbitrage, the paper shows that assets with identical cash-flows have not only different expected returns, but also different expected returns in excess of funding costs. I solve the model in closed-form to show that the arbitrage on the CDS and corporate bond market is a risky arbitrage. The sign of the expected excess return of the arbitrage is decided by the sign and size of market frictions rather than the observed price discrepancy. The size and risk of the arbitrage excess return are increasing in market friction levels and assets' maturities. High levels of market frictions also destruct the positive predictability of credit spread term structure on credit spread changes. Results from the empirical section support the above-mentioned model predictions. 2. General Equilibrium Analysis of Stochastic Benchmarking This paper applies a closed-form continuous-time consumption-based general equilibrium model to analyze the equilibrium implications when some agents in the economy promise to beat a stochastic benchmark at an intermediate date. For very risky benchmark, these agents increase volatility and risk premium in the equilibrium. On the other hand, when they promise to beat less risky benchmark, they decrease volatility and risk premium in the equilibrium. In both cases, the degree of effect is state-dependent and stock price rises. 3. Institutional Asset Pricing with Heterogenous Belief (Co-authored) We propose an equilibrium asset pricing model in which investors with heterogeneous beliefs care about relative performance. We find that the relative performance concern leads agents to trade more similarly, which has two effects. First, similar trading directly decreases volatility. Second, similar trading decreases the impact of the dominant agents. When the economy is extremely good or bad, the second effect is dominant so that the relative performance concern enlarges the excess volatility caused by heterogeneous beliefs. When the first effect is dominant, which corresponds to a normal economy, the volatility is lower than without the relative performance concern. Moreover, this paper shows that the relative performance concern also influences investors' holdings, stock prices and risk premia.
