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Estimating Demand with Substitution and Intraline Price Spillovers

机译:用替代和价格内溢出来估计需求

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Problem definition: Standard choice models used to optimize product line prices are effective at capturing the effects of prices on the affordability of products but do not incorporate intraline price spillovers, or the effects of prices on consumer preferences for branded product lines. To date, no approach exists to measure such spillovers, and thus their existence and characteristics are subject to controversy. Academic/practical relevance: Different authors have proposed that different product line items, here referred to as known value items (KVIs), generate price spillovers. Yet product line prices and quality levels are typically highly correlated, and thus it is not clear which spillovers should be modeled. No empirical approach exists to test for multiple price spillovers simultaneously while controlling for quality spillovers. Methodology: This study proposes an empirical approach that includes a choice model to abstract rich demand patterns and an estimation algorithm that addresses the endogeneity and collinearity of KVI prices. An empirical application based on vehicle choice data illustrates how the approach can be implemented in practice and demonstrates the importance of modeling spillovers while yielding interesting managerial implications. Results: The results establish that different KVIs generate separate spillovers and illustrate their distinct roles. KVI price spillovers can be economically important, inducing large cross-price elasticities that range from -1.31 to 0.72. Furthermore, neglecting spillovers can bias own-price elasticity estimates by up to 15% and cross price elasticities by more than 100%. Managerial implications: The empirical results generate KVI-specific insights that managers in the automobile industry can use to improve their pricing strategies. For other industries, the paper proposes an approach and an implementation algorithm that managers can use to estimate spillovers and optimize product line prices. The empirical application illustrates the implementation of the approach and shows how managers can model price spillovers to increase profits by almost 3%.
机译:问题定义:用于优化产品线价格的标准选择模型可以有效地捕获价格对产品可承受性的影响,但不包含线内价格溢出或价格对品牌产品线的消费者偏好的影响。迄今为止,还没有一种方法可以衡量这种溢出效应,因此它们的存在和特征都存在争议。学术/实践上的相关性:不同的作者提出不同的产品线项目(这里称为已知价值项目(KVI))产生价格溢出。然而,产品线的价格和质量水平通常是高度相关的,因此尚不清楚应该对哪些溢出进行建模。在控制质量溢出的同时,还没有经验方法可以同时测试多个价格溢出。方法:本研究提出了一种经验方法,包括抽象丰富需求模式的选择模型和解决KVI价格内生性和共线性的估计算法。基于车辆选择数据的经验应用说明了如何在实践中实施该方法,并说明了建模溢出的重要性,同时产生了有趣的管理含义。结果:结果表明,不同的KVI会产生单独的溢出,并说明它们的不同作用。 KVI价格溢出在经济上很重要,它会导致较大的交叉价格弹性,范围从-1.31到0.72。此外,忽略溢出可能会使自身价格弹性估计值偏差高达15%,而交叉价格弹性值则超过100%。对管理的影响:实证结果产生了针对KVI的见解,汽车行业的管理者可以用来改进其定价策略。对于其他行业,本文提出了一种方法和一种实现算法,管理人员可以使用这种方法和实现算法来估计溢出效应并优化产品线价格。经验应用说明了该方法的实现,并显示了管理人员如何对价格溢出进行建模以使利润增加近3%。

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