Smith, A;
Rossi, P;
Allenby, G;
(2019)
Inference for Product Competition and Separable Demand.
Marketing Science
, 38
(4)
pp. 690-710.
10.1287/mksc.2019.1159.
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Abstract
This paper presents a methodology for identifying groups of products that exhibit similar patterns in demand and responsiveness to changes in price using store-level sales data. We use the concept of economic separability as the basis for establishing similarity between products and build a weakly separable model of aggregate demand. A common issue with separable demand models is that the partition of products into separable groups must be known a priori, which severely shrinks the set of admissible substitution patterns. We develop a methodology that allows the partition to be an estimated model parameter. In particular, we specify a log-linear demand system in which weak separability induces equality restrictions on a subset of cross-price elasticity parameters. An advantage of our approach is that we are able to find groups of separable products rather than just test whether a given set of groups is separable. Our method is applied to two aggregate, store-level data sets. We find evidence that the separable structure of demand can be inconsistent with category labels, which has implications for optimal category marketing strategies.
| Type: | Article |
|---|---|
| Title: | Inference for Product Competition and Separable Demand |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1287/mksc.2019.1159 |
| Publisher version: | https://doi.org/10.1287/mksc.2019.1159 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | price elasticities, category demand, dimension reduction, random partition models, Bayesian inference |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10070811 |
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